Ted Fernandez - CEO & Chairman Robert Ramirez - EVP, Finance and CFO.

George Sutton - Craig-Hallum Morris Ajzenman - Griffin Securities Jeff Martin - Roth Capital Partners Vincent Colicchio - Barrington.

Welcome to The Hackett Group third quarter earnings conference call. Your lines have been placed on a listen-only mode until the question-and-answer session. Please be advised that the conference is being recorded. Hosting tonight's call are Mr. Ted Fernandez, Chairman and CEO, and Mr. Rob Ramirez, Chief Financial Officer. Mr. Ramirez, you may begin..

Thank you, operator. Good afternoon, everyone, and thank you for joining us to discuss The Hackett Group's 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, Robert Ramirez, CFO.

A press announcement was released over the wires at 4.05 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 the 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 in the Risk Factors that are included 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 third quarter earnings call. As we normally do, I will start by providing some overview or highlight comments on the quarter.

I will turn it back over to Rob asking him to comment on operating results, cash flow, update on our credit facility and then provide his comments on our fourth quarter guidance. Rob will then turn it back over to me so that cam provide further comments on market and any strategic related comments, and then lastly we will open it up for Q&A.

So then let me go ahead and start with me our overview and highlight comments, and again welcome everyone to our third quarter earnings call. This is another very strong quarter. This afternoon we reported revenues of $74.1 million, up 10%, and pro forma earnings per share of $0.25, was up 25%, both above the high end of our guidance.

Solid Europe demand drove our results as our momentum continued across most of our U.S. practices. As expected we also saw improving European results led by our EPM business, which we have been building over the last couple of years. The quarter included the seasonal increase of vacation days in both the U.S. and Europe. Revenue in the U.S.

was up nicely and was further boosted by the results from our SAP group. In Europe, we had improved results led by our APM group as our prior year investment had started to pay off. We continue to believe that our revenue and earnings per share growth is a direct result of several key strategies.

First, our very uniquely branded, Benchmarking and Best Practices Advisory offerings, that leverage our intellectual property and provide strategic access to leading global companies.

In both of these offerings we have build dedicated sales channel and created incentives that had led to increase downstream business transformation revenue growth with higher margins. This is a great example of how the unique value of our IP extends through our consulting offering.

Secondly, increasing revenue per client, the consolidation of Hackett transformation practices. Last year has resulted in improved collaboration and cross-selling allowing us to serve clients more broadly.

We continue to get strong revenue growth on our top 10 and 20 clients each and every quarter, continuing to add an upgrade talent and building a more efficient resource pyramid has also improved gross margins as we have increased headcount.

We continue to believe that there is a lot of referral as we scale to further build out the bottom part of our resource pyramid.

And lastly, identify new channels through strategic partners to use our benchmarking and best practice intellectual property to introduce new recurring revenue, high margin offerings that could redefine our organizational model as the first true performance improvement IT-as-a-service business.

On a long term basis, we're also seeing that the rapid development of the emerging cloud and digital transformation of everyday activity may result in one of the most significant that we have ever experienced. I will expand on these thoughts a little later on my strategic overview section of the call.

On the balance sheet side, at the beginning of the quarter we paid our semi-annual dividend. We also continue to pay down of our credit facility, leaving us at the other quarter in a net cash position.

On the investment front, we continue to develop new technology delivery platforms to help us further differentiate and leverage our benchmarking data and the best practice intellectual property to our clients and now to our new alliance partners in some of our new ventures.

I will comment further on strategy and market conditions, but let me first ask Rob to provide details on our operating results, cash flow, and also provide our detailed comments on guidance.

Rob?.

Thanks Ted. As I typically do, I'll cover the following topics during this portion of the call.

In overview of our 2016 third quarter results along with an overview of related key operating statistics, I'll go through our cash flow activities during the quarter, and I will then conclude with a discussion on our financial outlook for the fourth quarter of 2016.

For purposes of this call, any references to Hackett Group will specifically exclude ERP solutions. Correspondingly, I will comment separately regarding 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.

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

As Ted stated, for the third quarter of 2016, total company gross revenues were $74.1 million, and above our third quarter's guidance. This represents a year-over-year growth of 10% or 11% when adjusting for constant currency.

Gross revenues for The Hackett Group, which excludes ERP Solutions, were $62.6 million in the third quarter of 2016, an increase of 8% on a year-over-year basis. Hackett U.S. growth was 9% and international, which is primarily Europe, was essentially flat on a reported basis, but up 3% on a constant currency basis.

Hackett Group annualized gross revenue per professional was $360,000 in the third quarter of 2016, as compared to $396,000 in the third quarter of the previous year and $397,000 in the previous quarter reported. This was primarily due to increased hiring activities and lower than expected consultant turnover on a year to date basis.

Gross revenue from our ERP Solutions group, which consists of SAP reseller, Implementation and Application Managed Services groups totaled $11.5 million, an increase of 27% on a year-over-year basis, primarily due to increased software sales and already consulting services, as well as ADB growth in our SAP AMS business.

ERP Solutions hourly gross realized billing rate per hour was $134 in the third quarter of 2016, as compared to $132,000 in the third quarter of 2015. This includes the impact of our offshore resources, which approximate 40% of our SAP, ERP, Implementation and Application Managed Services resources.

SAP implementation and AMS utilization was 76% for the third quarter of 2016, as compared to 75% in the third quarter of the prior year. Total company international gross revenues accounted for 13% of total company revenues in the third quarter of 2016, as compared to 14% in the third quarter of the prior year.

Our recurring revenues, which include our Application Managed Services groups as well as our Executive Advisory practices, now make up approximately 16% of our revenues and 22% of our pro forma pre-tax practice profitability.

Total company pro forma cost of sales excluding reimbursable expenses and stock compensation expense totaled $40.6 million or 60.8% of net revenues, as compared to $36.2 million or 60.4% of net revenues in the prior year.

Total company consultant headcount was 942 at the end of the third quarter, as compared to 926 in the previous quarter and 827 at the end of the third quarter of 2015. Total company pro forma gross margin was 39.2% of net revenues in the third quarter of 2016, as compared to 39.6% in the third quarter of the prior year.

Hackett Group pro forma gross margins on net revenues was 39.1% in the third quarter of 2016, as compared to 38.6% in the third quarter of 2015. Again this was primarily due to increased hire activities and lower than expected consultant turnover on a year-to-date basis.

ERP Solutions pro forma gross margins on net revenues was 39.7% in the third quarter of 2016, as compared to 33.3% in the prior year. This increase was primarily due to increased software license sale in the period as well as ADB growth in our SAP, AMS practice.

Pro forma SG&A was $14.7 million or 21.9% of net revenues in the third quarter of 2016, as compared to $14.6 million or 24.3% of net revenues in the prior year. This 240 basis point improvement is primarily due to continued leverage on increasing revenues.

Pro forma EBITDA in the third quarter of 2016 was $12.1 million or 18.2% of net revenues, as compared to $9.8 million or 16.4% of net revenues in the third quarter of 2015, an increase of 23%. Total company pro forma net income for the third quarter of 2016 totaled $8 million or $0.25 per diluted share, which exceeded our third quarter's guidance.

This compares to pro forma net income of $6.4 million or $0.20 per diluted share in the third quarter of 2015. These results represent an increase of 25% on a year-over-year basis for both pro forma net income and earnings per share.

Total company pro forma net income for the third quarter of 2016 excludes non-acquisition stock compensation expense of $1.9 million; acquisition related stock compensation expense of $315,000, and intangible asset amortization expense of $275,000. Pro forma results also assumes the long-term cash tax rate of 30% or $3.4 million.

GAAP diluted earnings per share was $0.17 for the third quarter of 2016, as compared to GAAP diluted earnings per share of $0.10 in the third quarter of prior year, an increase of 70%. At the end of the third quarter of 2016, the company had approximately $1.9 million of income tax loss carry-forwards remaining in the U.S.

relating to state taxes and approximately $5.5 million in foreign tax jurisdictions respectively. We believe that we will continue to have the ability to offset most of our international tax liabilities through the balance of 2016.

The company's cash balances were $14.4 million at the end of the third quarter, as compared to $15.6 million at the end of the previous quarter. Net cash provided by operating activities in the third quarter was $13 million, which was primarily driven by net income adjusted for non-cash items, and increases in recruit expenses.

Our DSO or days sales outstanding at the end of the third quarter of 2016 was 59 days, as compared to 60 days at the end of the third quarter of the prior year. During the third quarter, the company paid down $9 million on its credit facility. At the end of third quarter, the company had $13 million of long-term borrowings remaining.

During the quarter, the company also paid its semi-annual dividend to shareholders, which totaled $4 million. At its most recent meeting, the Board declared the next semi-annual dividend of $0.13 per share, which will be paid in January of 2017.

During the quarter, we purchased 34,000 shares of the company's stock at a total cost of approximately $500,000 or an average cost of $14.76 per share.

This repurchase activity was comprised of repurchases of 30,000 shares of common stock for $449,000 and a repurchase of 4,000 shares for approximately $50,000 from employees to satisfy net vesting related tax obligations. Our remaining stock repurchased authorization at the end of the quarter was approximately $4.4 million.

I'm now going to discuss our guidance for the fourth quarter, but before I do that, I'd like to remind everyone of the seasonality of our business, specifically the increased holiday and vacation time, but as historically taken in the fourth quarter, will decrease our available billing days by approximately 8% when compared to the third quarter.

We expect total company gross revenues for the fourth quarter to be in the range of $67 million to $69 million, with a reimbursable expense estimate of 11% on net revenues. On a total company basis, at the high end of this guidance range, we expect revenues to be up approximately 3% year-over-year, with both Hackett U.S.

and International expected to be up on a reported basis and ERP revenues to be down by approximately 8% to 10%, primarily due to the timing of SAP software sales, which can distort some of the individual quarterly comparisons. These year-over-year comparisons are affected by very strong Hackett U.S.

Q4 2015 revenue growth of 23% as well as the timing of strong SAP software sales. The impact of SAP software sales alone represents a 2% unfavorable variance on total revenue growth. However, Q4 will be aided by improving European results.

Relative to pro forma diluted earnings per share, we expect the unfavorable impact of decreased available billing days to be partially offset by a corresponding utilization of vacation accruals and lower U.S. payroll taxes resulting from reaching U.S. FICA limits.

As such, we expect our pro forma diluted earnings per share in the fourth quarter of 2016 to be in the range of $0.23 to $0.25. The high end of this range would represent a year-over-year increase in pro forma EPS of 19%.

Our pro forma guidance excludes amortization expense, total non-cash stock compensation expense and includes a long-term cash tax rate of 30%. Sequentially, we expect pro forma gross margins in the fourth quarter to benefit from the seasonal reductions in U.S.

payroll related taxes resulting from reaching FICA limits and the utilization of vacation accruals, offset by decreasing revenues due to fewer available billable days. As a result, of our revenue guidance, we expect pro forma gross margin on net revenues to be approximately 41% to 43% in Q4.

We expect pro forma SG&A and interest expense for the fourth quarter to be approximately $15 million. We expect fourth quarter pro forma EBITDA on net revenues to be in the range of approximately 19% to 20%. We expect cash generated from operations to be up strongly consistent with our guidance.

At this point, I would like to turn over back to Ted to review our market outlook and strategic priorities for the coming months..

Thank you, Rob. As we look forward, as I have been commenting over the last several quarters, I think it's important to come back and speak more broadly about the demand environment that we have been experiencing and more importantly that may just be emerging.

The rapid development and move to cloud along with the extended mobile functionality being introduced into the marketplace by software and technology providers is dramatically influencing the way businesses compete and deliver their services.

This will disrupt entire industry at an accelerated pace forcing organizations to fundamentally change and adapt these new capabilities in order to remain competitive. The speed of change will only be limited by the ability of technology providers to deliver on their functionality and performance promise.

But regardless of their delivery limitations, the mere threat or opportunity promise will lead to one of the most significant enterprise transformation periods of our lifetime.

This will redefine the traditional sequential and linear based business models and activities to fully network the dynamic automated workflows and events with enhanced analytics that will finally deliver predictive analytics and artificial intelligence, as promised years ago.

This so called digital transformation era is very attractive to our organization, since we believe our clients will increasingly turn to us to provide them with best practice insight on what technology can actually deliver on its promise and what changes in business models actually work and will justify significant investments.

On a near-term basis, we expect continued growth in Q4 from our U.S. businesses, although it will be tempered by the temporary disruption due to the Oracle's integration of its EPM sales group into their ERP sales channel.

Having said that, we are now back to normal channel activities, so we don't expect a long-term growth rate range of 5% to 10% to change as we head into 2017. In Europe, we expect our revenues to be sequentially up and be favorable to 2017 growth prospects.

Two years ago, we made the conscious decision to expand our service offerings to more closely mirror our U.S. makeup. We are now seeing a meaningful impact from this investment and expect EPM in Europe to represent approximately 20% of our European revenues in Q4 and be a key part of that region's growth in 2017.

As I previously mentioned, we continue to expect along the key drivers of our growth to come from the growing leverage of our so called Wedge or Best Benchmarking and Best Practice Advisory services.

These services are highly differentiated and have been providing significant and improved cross-selling leverage to our business transformation as well as our technology consulting services. We plan to continue to invest heavily in these areas as we have previously mentioned.

We plan to rollout a new benchmarking offering that will fully incorporate our HPE technology and other innovations into our benchmarking platform that will improve and further differentiate the unmatched value delivered through our benchmarking offerings. We expect to launch this -- we expect the launch to happen in the first half of 2017.

In Advisory, our IP alliance relationships are helping us invest in new technology and offerings that will improve our clients' access and leverage of our proprietary insight that we deliver through best practice programs as well.

Another key driver of our growth strategy has been to continue to expand our market-leading Enterprise Performance Management or EPM and maybe more commonly defined is simply our business analytics business.

At the heart of the digital transformation era that I just referenced is business or better yet even Enterprise Analytics, which now represents nearly 50% of our Hackett revenues, and in fact, over 40% of our Hackett global revenues.

Our ability to assemble a terrific talent, along with our unique leverage of our best practice configuration and organizational excellence IP is responsible for this success.

Our long term strategy is to continue to build our brand by building new offerings and capabilities around the best practice intellectual capital in order to serve clients strategically and, whenever possible, continuously. We believe that 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 strategic relationships with our clients directly or through strategic alliances and channels and to further use that entry point to introduce our business transformation and technology capabilities.

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 through our Executive Advisory and Best Practice Advisory programs, and also through our Hackett Performance Exchange technology.

At the end of the quarter, our Executive Advisory and Best Practice Advisory members totaled 1,009 across 338 clients. These numbers exclude the new clients that we have been adding to our new IP-as-a-service alliances.

More importantly, over 50% of our third quarter sales were also Advisory clients, which continue to support the leverage of this offering in IP-wedge capability. As we announced last year, we are now seeing opportunities through our new alliances and channels to use our IP to help others sell and deliver their offerings.

We've been talking about the fact, in the fourth quarter of last year we launched a dedicated Hackett Best Practices Advisory offering with ADP's Vantage HCM or Human Capital Management solution. All indications from ADP sales force as well as the clients continue to be very favorable.

Given our early success, we are now developing plans with ADP to expand our offering to additional platforms that they expect to migrate to Vantage as well as program, as a program into targeted parts of their existing installed base that would not migrate to Vantage in the near future.

These new programs will expand our opportunities with ADP as we go into the new fiscal year. We continue these activities to build and to become noticeable to our 2017 results when considered along with our other alliances.

Relative to other, our large alliance, which is the new Certified GBS Program's alliance with CIMA, we believe this relationship is allowing us to build an entirely new professional development business that provides globally recognized certifications and training for shared services and global business service professionals.

We launched our initial sales force with an entry-level program, if you recall, late last years. We launch the second course in May and we recently completed our last course, which was just announced last week. So we have now launched our fully planned curriculum.

During the quarter, we continue to sign up new companies and continue to build our pipeline with major global organizations with significant GBS organizations. We now have over 100 companies that are using our entry and executive level course programs for their assessment as.

As companies complete their pilot programs, our goal is to gain a larger and longer term commitments from these companies that will enable us to increase our recurring revenue relationships throughout 2017.

As I mentioned, but I'll summarize it again, our Benchmarking and Best Practice IP allows us to increase our client base profitability and increase revenue per client. It also highly differentiates the way we go to market and everything Hackett delivers.

These offerings also represent an increase in recurring revenue at much higher margins due to the way these services are provided and contracted.

Lastly, even though we believe that we have the client base and offerings 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 accelerate our growth. In summary, we reported another strong quarter.

More importantly, we are seeing that the improvements and investments we are making to our IP, the target of our sales channel growth, the expanded EPM, as well as the IP service alliance will continue to drive sustainable structural growth.

As always, and you're probably tired of hearing me say this, but its so critical, let me close by thanking our associates for their tireless efforts and always our attempt to stay highly focused on our clients, our people and the exciting opportunities available to our organization. I want to congratulate the team on another strong quarter.

Let me now open it up to Q&A, so operator, please let us know when you have the first question..

[Operator Instructions] Our first question is coming from George Sutton of Craig-Hallum, Sir your line is open..

Thank you. Guys relative to guidance, you're suggesting there are 8% fewer days in Q4 versus Q3. Your guidance is right in line with that expectation.

Can you discuss what was different in 2014 and 2015 relative to that statistic?.

George, first let me make sure you understand that last year the most significant different is that last year or this year we were not up against a 23 or plus percent Hackett U.S. growth or 30 plus percent growth in our EPM business.

Secondly, we did lose a little of momentum if you want to compare last year to this year at oracle transition at sales force integrated those two teams together. I would say those are really the two most significant once.

Rob, also pointed out that we lose 2% purely on the year-on-year comparison simply on the software sales, which is just the timing of when those SAP sales take place, so I would say those are the most significant differences.

And as I commented once we had the chance so kind of just ramp to the kind of growth that we've been experiencing over the first nine months of the year into the fourth quarter, but then we said, as we look at 2017 we continue to expect to grow our business 5% to 10% on a long term basis and if we stay at the higher end of that 7.5% to 10%, we expect to provide 15% to 20% EPS growth on that numbers that remains unchanged..

Got you.

I wanted to make sure I understood one thing you were talking about the lower revenue per employee this year versus last year, but that was due to increased hiring which I get, but then also lower turnover from consultants, can you run through these?.

Yes, let me comment on both. Because those are two, that's another excellent question. First of all, we started the quarter with more headcount than we needed, but we were answering to right hyper growth that's we got to the first half of the year.

What's really surprised us not the fact that we were adding headcount to that and we knew that guided the third quarter knowing that. Our turnover in this very demanding high travel business over the last three to four quarters is now to low single digits.

It is a number we have never encountered in throughout our entire career, so I am delighted that our people are incredibly happy to be with us and even with all the challenges and demands we put on them have no desire to leave us to go anywhere else. But we simply could not plan on that low level of turnover that we have gotten.

So with that said we knew that going into the third quarter it did compromise our revenue per professional. We knew we're probably giving away a couple cents into the third quarter, it probably is costing us the same because we will be operating at less than optimal revenue per professional target than we want.

But that's what we experience and as you know these things are variable and obviously what our EPM guys would say you don't have the analytic information to forecast both of these numbers a little bit more accurately, our COO would say we do an excellent job, but we don't know it’s going to perfect, but still overall strong results and it demonstrated in the profitability in both of the quarters..

Okay, lastly if I could relative to ADP you mentioned developing plans to add additional platforms that would migrate to Vantage, I just want to make sure I understood what you're referring to there and you define it as becoming noticeable in next year's result, so I just want to quantify what noticeable might look like?.

When I say noticeable I really refer to all of the alliance efforts that we have right now, but it really fits with the efforts we have with ADP and the CGBS certification and training alliances.

So first with ADP, original agreement was driven around the sale of Vantage HCM new labels, so all of the total contract value we've accumulated with them has been as a result of that opportunity.

We've always believed that opportunity as narrow and if you looked at a couple of things that we've been really aggressively pursuing them on, there is also migrations that they have when they move people from existing platforms onto Vantage.

We had not had an opportunity to pursue those clients and we believe that will be in place by the time we get it into our fiscal 2017. There are also platforms where they are continuing to help very sophisticated clients that we jointly believe could really benefit from the Hackett best practice advisory effort that we build for Vantage.

So we expect to launch programs to support existing platforms that are not either new Vantage clients or migrations from existing platforms to Vantage, but rather for clients that will remain in one of their other platforms and we believe we will do that at least in one of those platforms before the beginning of 2017.

Those opportunities what I referred should expand our opportunities with ADP as we launch 2017..

Okay, thanks for the clarity..

Thank you. [Operator Instructions] Our next question is from Morris Ajzenman of Griffin Securities. Your line is open..

Hi guys..

Hi Morris..

Just a follow up to previous question, ADP or just alliances overall becoming noticeable in 2017, will you be able to give us not necessarily specific to any one alliance, but the alliances in total as the first quarter, second quarter, third quarter as we progress to the year what the benefit has accrued from the alliances in total either on a revenue on a EPS manual, will we able to get some sort of clarity as there is this first ramp up and you start seeing some sort of momentum going forward?.

As you know Morris, I've been very consistent saying I didn't want to get ahead of myself and that we expect to do that as we get into 2017, so I would expect to do that with first quarter either guidance or results, I haven't finalized that decision.

I guess, noticeable to me obviously would be adding penny and may be that would grow throughout the year.

I will simply say that a 1.5% increase in our revenue growth if it results from these IP as a services alliance in 2017 as you know because of the incremental margin would represent over 3% of core services growth just to give you a mention of the leverage.

But do I know those enough to provide that guidance now, no what we do know as you know is two things, one that we fulfilled the 18 months total annualized contract value that was guaranteed by ADP by the end of the second quarter.

So if you take that number and estimated some growth for that for the second half of the year, remember that they have to be sold and implemented for us to get revenue so it's a little bit tricky distinguishing the two, but you will be able to get some idea and I will be able to provide context around that as we get into Q1.

With CGBS alliance it's a little different because what we've said is that we’ve got now over 100 companies more than that in total, but 100 we believe are clients that both are piloting and good result and having a larger relationship with us in 2017 whenever did they complete their pilot and do so in 2017.

But we would like to see what that conversion is, so the only thing we've said is that the pilots are growing, we can say that the people like the content, we have been getting feedback on what they are doing, so we're working with some of the exam execution issues and trying to see some of these large organizations would like to see us customize, some of the offerings are a little bit more so we're reacting to some of those things.

So we have some moving parts, but continue to believe as we said at the beginning of year, I am going to say we have virtually, know we’ve very few clients that don't think that the offering is a good idea, those that have seen our content and the way it’s being delivered through the first two courses and I will get a chance to take a look at here in the third, the feedback has been favorable.

So, we could deal, we could work with math and estimate what percentage of them are convert and then at what multiple of current student counts will they convert.

I just don't want to do that without having a mathematical basis for that, but my comment when I say noticeable is that the ADP, the amortization of the ADP revenue that's growing and some level of conversion and some level of multiple on those 100 plus clients as it work its way through 2017 should be noticeable to 2017 result.

What that is not provided yet, but just know that a 1% or 1.5% equivalent growth on those numbers would bring significant leverage to our results if and when achieved..

Thank you, just moving back to incremental higher end activity, lower turnover so compromised revenue versus profit, sounds like it’s continuing to the fourth quarter, do you expect that to reverse in Q1 of 2017?.

Yes, we think we've got it a little bit tighter as we went into Q4 than we started Q3 with and we will simply going to work with these new turnover numbers until we see otherwise. So by definition we have just adjusted the variables and have adjusted accordingly and yes it will be much closer in line to our historical targets as we kick off 2017..

Last question and I'll get back in queue here.

Modest revenue growth fourth quarter versus last year, the reasons you've clearly explained, but EPS growth $0.23 to $0.25 versus $0.21 as pre-material, I presume the bulk of that is gross margin expansion?.

It is, it is growth margin expansion, so as you know, I mean, the relative like I said we put up some pretty good numbers in third quarter and we are telling you right we lost revenue per professional, we lost leverage, but the leverage of our business model is very significant, you can see it as we have executed it basically flat SG&A for about five to six quarters and you are seeing that percentage margin drop to the bottom.

And in the fourth quarter it’s a different impact right, it's a function of large vacation taken off, so the gross margin is protected from people taking some of the vacations in the fourth quarter. So I think it's primarily seasonal, but great leverage in our business model and yes it shows through to the bottom line pretty strongly..

Thank you..

Our next question is from Jeff Martin of Roth Capital Partners. Your line is open..

You there Jeff?.

Could you elaborate more on the Oracle sales integration, when that started when it ended and if you have an idea of the revenue impact it may have had and is that entirely the ERP side of the business?.

Well, they did it post or end of the fiscal year, so it was effected during the summer. It impacted, what makes third quarter little tricky is that you get quite a few days off both in U.S. and Europe from quite a bit of vacation that's taken before, some of the student, some of the kids go back to school.

So you always have what you think is more inefficient whether you want to call later July and to later of August kind of period in U.S., you get almost the entire month in Europe.

But what we experienced is that integration for us as they brought those two teams together and basically ended up with some new peoples either in some new roles that we lost a little bit momentum in the September, October month. We saw ourselves back at normal activity and utilization levels in November, so those are the facts.

Could have been something else? I mean that's the only thing we can attribute it to..

Okay and then on the updated benchmarking offering if I recall correctly that was at least on the last quarter’s call you mentioned that was going to be rolling out for yearend now that’s sounds like that’s going to be sometime in first half of 2017 or so, something that affected that rollout?.

Yes, we’re being incredibly conservative with the rollout of that product, having said that we expect to go to the market and announce its capability in the first quarter and try to have a full launch to be consistent with our U.S. best practice conference.

So yes, we wanted to do a little bit more work, have so many other priorities that we’re working on with the IP of service alliances so I’ve got some of my teams that are doing multiple work for that as well as these existing and some of the new things that we’re trying to develop that team for a little bit more time.

It may sense, I can tell you having said that that I’ve been through a full detailed demo of the offering, it makes what we’ve dramatically better. So, I’m very eager to get it out in the marketplace and I’m pushing my team hard and they’re just begging me for little more time, so I back it..

And then could you walk us through the ADP revenue recognition versus – it sounds like you’re amortizing that initial 18 months minimum is that correct?.

The term of the ADP contract did take the recognition of the revenue, so I think I’ve mentioned in previous quarters, the overwhelming majority of the contracts we’ve signed with ADP, a five year contract and that means that we amortize the total contract value over that five year period and that amortization is triggered once the clients reaches a go-live point.

So, we’ve quite a few that have been sold, we’ve quite a few that are in process to be fully implemented in go-live and we continue to sell new – we’ve continued to add new clients in the quarter..

Is it accurate to say that the contribution from that has been immaterial to-date?.

Yes. Yes, I would say it’s immaterial to-date just because of how long it takes for the total numbers to fully ramp up.

But, as you get to, since we’ve already got let just go back to the June numbers, once the total annualized contract value which is the only number I provided in June quarter I said it had exceeded $6 million just to give you an idea once that $6 million is rolled out if you divide that over five years that would be $1.2 million per year and we continue to add to that number that had that annualized contract value in June and will do so here till the fourth quarter and beyond.

And we’ll add new programs to that when we start our fiscal 2017..

Okay, great, thank you.

And then last question on the CIMA, how long is an pilot program?.

Well, we’re looking that it’s varying by client so it just depends when the client feels comfortable enough that a number of the totality of the soon. The larger the pilot, the longer it takes, the smaller the pilot in many cases that will go through a little quicker, but three to six months, three on the short side, six on the long side..

Okay, great, thank you Ted..

Thank you. Our next question is from Vincent Colicchio of Barrington, your line is open..

Yes, Ted, I missed what was the international contribution in the quarter?.

A 30% of total revenues..

And I realize you’re considerably better, but I’m curious is there any cautiousness out there tied to Brexit that you could sense?.

You would think if we did, we would be experiencing it already, so we haven’t seen a change of activity. What we’re seeing is an increasing demand for the EPMK stability which we had invested in now for over two years and we’re starting to see the traction, I think that’s the most noticeable to the changing European results..

And to be sure I know you’re saying activity is back to normal but is the transition within Oracle complete?.

I mean, I can only provide the fact, they’ve integrated their sales force, I mean, I’m sure that they will have who knows, integration, education issues that will take more than the three to four months. All I know is that our activity and our deployment of our people is back to normal activity.

So, we have no reason to expect that impact us further, but it could..

And lastly, do you expect new alliances by year end, what’s that look like?.

We continue to work on a couple of ideas that we would expect to have by the end of the fiscal year, it could have slipped a little bit, it could, it could slip into the first quarter, but we continue to work on several ideas that I still believe that will result in new offerings and alliances for the organization..

Okay, I’ll go back to the queue, thank you..

Thank you, Vin..

[Operator instructions] We have one more question from Morris Ajzenman of Griffin Securities, your line is open..

Just a quick follow up on the previous question, international revenues, you said early in the presentation flat plus 3% on a constant currency basis.

Could you kind of give some sort of feel for, what that means in profitability, I know you really want to make a lot of money there but you aren’t losing any more, are we getting any traction on the profit side?.

Yes, I mean, to the extent that our flats are up, the profitability does improve, we did, I mean, it’s important to see that the local currency or constant currency in number of 3% was wiped out by the devaluation of the pound versus the dollar.

So, on a reported basis we would get the benefit of that but I would say that profitability consistent with the revenue growth. It’s consistent and we expect that they increase..

Thank you..

Thank you. 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 third quarter earnings call, we look forward to catching up with everyone again when we report our fourth quarter and fiscal 2016. Thank you again for participating..

Thank you for participating in today's conference call, you may now disconnect..