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 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 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, Chief Financial Officer. A press announcement was released over the wires at 4.05 p.m. Eastern Time.

For a copy of the release, please visit our Web site 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 Web site.

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 that contained in our SEC filings. At this point, I would like to turn it over to Ted..

Thank you, Rob, and welcome, everyone, to our third quarter earnings call. As we normally do, I will open the call with some overview comments on the quarter. I will then turn it back over to Rob to comment on detailed operating results, cash flow as well as comment on guidance. We will then review our market and strategy-related comments.

And we’ll follow that up by opening it up for Q&A. This afternoon, we reported net revenues of 66.8 million and pro forma earnings per share of $0.27, both of which were within our guidance. Solid U.S. performance was offset by lower than expected international revenues, which unfavorably impacted our results by $0.03 when compared to guidance.

As you will see from our Q4 guidance, we are taking the necessary actions to mitigate the impact of the volatility in Europe on our 2020 results. Consistent with broad economic indicators, our strategy and business transformation and ERP and EPM and analytics U.S.

groups experienced solid activity, which is reflected in our year-over-year revenue growth. Total Q3 U.S. revenues were up 4.2% in spite of the unfavorable but diminishing impact from Oracle on-premises revenue decline. More importantly, we expect the year-on-year U.S. fourth quarter growth to be above 6%. On the strategy and business transformation U.S.

front, we saw the momentum we’ve built into Q2 carried into the third quarter and it resulted in solid growth as we mentioned. We expect the revenue growth to further accelerate into the fourth quarter.

In our EEA group, we continue to make progress with strong growth in our Oracle Cloud applications practices, offset by the decline in our on-premise related implementations. Our SAP group, which is reported within EEA, came in better than expected, which allowed the overall EEA group to be up nicely in the quarter.

We expect the growth of the EEA group to also further accelerate into Q4. Europe was a much tougher story and more volatile than we expected. The Brexit dispute and uncertainty on the impact of the ultimate operating models that UK companies will require continues to affect client decision making.

As we saw the Brexit dispute elongating, we thought it was important to take the appropriate actions to adjust our cost to be more in line with our current revenue and market demand.

On the investment side, we believe that the strategic investments we have made to fully digitize all of our IP, the development of our next generation benchmarking platform, Quantum Leap, and the introduction of our proprietary Hackett Digital Transformation Platform or DTP continues to highly differentiate our offerings and are important drivers of our growth.

Additionally, our investments in smart automation along with strategic relationships with rapidly growing procurement, EPM and RPA software providers, also continue to be key to our strategy in digital transformation momentum.

Some of these relationships are just starting to impact our revenue growth, but will impact the fourth quarter and are important future drivers of our growth. On the balance sheet side, we continue to generate strong profitability and cash flow from operations.

This allows us to increase our dividend, buy back stock and fund acquisitions while continuing to invest in our business. 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 comment on outlook.

Rob?.

Thank you, Ted.

As I typically do, I’ll cover the following topics during this portion of the call; an overview of our 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 the discussion on our financial outlook for the fourth quarter of 2019.

For purpose of this call, I will comment separately regarding the financial results of our Strategy and Business Transformation Group or S&BT, our ERP, EPM and analytics solutions group or EEA and our international group as well as the total company.

Our S&BT group includes the results of our North American IP-as-a-service offerings, which include our executive advisory programs and benchmarking services as well as our business transformation practices. Our EEA solutions group includes the results of our North American Oracle and SAP solutions practices.

Our international group includes the results of our S&BT and our EEA groups that are based primarily in Europe. Please note that this differs from how we have commented in the past when we grouped all the international practices within our S&BT group.

We believe providing international results separately enhances our current year reporting given its volatility. In addition, please note that all references to gross revenues in my discussion represent revenues including reimbursable expenses and any references to net revenues represent revenues excluding reimbursable expenses.

As previously discussed, we exited our European-based REL working capital practice at the end of 2018, which has been accounted for as discontinued operations on our financial statements.

Additionally, references to pro forma results exclude non-cash stock compensation expense, intangible asset amortization expense and non-recurring adjustments and assumes a normalized long-term cash tax rate of 25% as detailed on the accompanying tables of our press release.

Acquisition-related compensation expense adjustments, our cash and non-cash items related to the portion of the purchase consideration for acquisitions, which are reflected as comp expense under GAAP.

For the third quarter of 2019, our net revenues from continuing operations decreased by 2% to 66.8 million when compared to the prior year and was in line with our guidance range. The Q3 2019 reimbursable expense ratio on net revenues was 8.9% as compared to 8.1% for Q3 of the prior year.

Reimbursable expenses are primarily project travel-related expenses passed through to our clients and have no associated impact to our margin or profitability. Including reimbursable expenses, company gross revenues from continuing operations was 72.7 million in the third quarter of 2019.

Net revenues for our S&BT group were up 27.4 million in the third quarter of 2019, an increase of 5.5% on a year-over-year basis driven by strong results across most of the practices. Net revenues for our EEA solutions group were 30.9 million in the third quarter of 2019, an increase of 3.2% on a year-over-year basis.

This was driven by strong growth from our SAP and Oracle ERP practices as well as strong cloud revenue growth from our EPM practices, partially offsetting our Oracle EPM on-premise declines. Specific to our U.S.

Oracle practice within EEA, our cloud revenue growth was in excess of 30% on a year-over-year basis, resulting in the improved mix of cloud to on-premise implementation revenue, which is now approximately 71%. Net revenues for our international group were 8.4 million in the third quarter of 2019, a decrease of 31.1% on a year-over-year basis.

This decrease was higher than expected as the uncertainty surrounding Brexit appeared to continue to have impacted client decision making. In addition to Brexit, a meaningful portion of a European engagement was discontinued when the client was acquired.

As a result of these factors, our total pro forma results were negatively impacted by approximately $0.03 when compared to our third quarter’s guidance. Total company international net revenues accounted for 13% of total company revenues in the third quarter of 2019 as compared to 18% in the third quarter of the prior year.

Our recurring revenues, which include our executive and best practice advisory and AMS groups, accounted for approximately 19% of our total company net revenues and approximately 26% of our total company pre-tax profitability in the third quarter of 2019.

Total company pro forma cost of sales, excluding reimbursable expenses, totaled 41 million or 61.5% of net revenues in the third quarter of 2019 as compared to 40.9 million or 60% of net revenues for the same period in the prior year.

Total company consultant headcount was 1,029 at the end of the third quarter of 2019 as compared to 999 in the previous quarter and 1,027 at the end of the third quarter of the previous year. Total company pro forma gross margin was 38.5% of net revenues in the third quarter of 2019 as compared to 40% in the third quarter of 2018.

S&BT gross margins on net revenues was 48.4% in the third quarter of 2019 as compared to 45.6% in the third quarter of the prior year. The margin increase was driven by higher revenues and lower utilization of subcontractors during the quarter.

EEA gross margins on net revenues was 33.8% in the third quarter of 2019 as compared to 35.7% in the third quarter of the prior year, primarily driven by improved revenue growth of the group. The margin decrease was primarily driven by higher utilization of subcontractors during the quarter.

International gross margins on net revenues was 23.5% in the third quarter of 2019 as compared to 38.7% in the third quarter of the prior year, primarily driven by decreased revenues in the group, as previously discussed.

Pro forma SG&A was 14.1 million in the third quarter of 2019 as compared to 14.9 million in the previous year and represented 21% and 22% of net revenues, respectively. Pro forma EBITDA in the third quarter of 2019 was 12.5 million as compared to 13 million in the same period of the prior year and represented 19% of net revenues in both periods.

Total company pro forma net income for the third quarter of 2019 totaled 8.7 million or $0.27 per diluted share, which was in line with our third quarter’s guidance. This compares to pro forma net income of 9.2 million or $0.28 per diluted share in the third quarter of 2018. Our pro forma return on equity was 25% for the third quarter of 2019.

GAAP diluted earnings per share was $0.21 for the third quarter of 2019 as compared to $0.16 in the third quarter of the previous year.

Previous year 2018 GAAP diluted earnings per share included a $0.02 expense due to additional adjustments to the contingent earn-out liability relating to the Jibe acquisition as well as $0.02 loss from discontinued operations.

The company’s cash balances were 16.4 million at the end of the third quarter of 2019 as compared to 16.7 million at the end of the previous quarter.

The slight decrease in the third quarter was primarily attributable to strong cash flow from operations, which was more than offset by the payment of our semi-annual dividend, debt repayments, federal tax payments and capital expenditures.

Net cash generated by operating activities in the third quarter of 2019 was 8.5 million, which was primarily driven by net income adjusted for non-cash items as well as increases in accrued liabilities and income taxes, offset by increases in accounts receivable and accounts payable.

Our DSO or days sales outstanding at the end of the third quarter of 2019 was 72 days as compared to 68 days at the end of the previous quarter. During the third quarter of 2019, the company paid its semi-annual dividend to shareholders, which totaled 5.8 million.

At its most recent meeting, the Board declared the next semi-annual dividend of $0.18 per share, which will be paid in January 2020. During the quarter, the company repaid 2 million on its credit facility. The balance of the company’s total debt outstanding at the end of the third quarter of 2019 was 2.5 million.

This remaining balance was fully repaid subsequent to quarter end. I will now turn to our guidance for the fourth quarter of 2019. But before I move to guidance, I would like to remind everyone of the seasonality of our business.

Specifically, the increased holiday and vacation time that has historically taken in the fourth quarter will decrease our available billing days by approximately 8% when compared to the third quarter. The company estimates total net revenues for the fourth quarter of 2019 to be in the range of 61.5 million to 63.5 million.

On a year-over-year basis, we expect both S&BT and EEA to be up 6% to 8%. We expect international to be down approximately 25% as we expect Brexit concerns to continue. The company estimates gross revenues to be in the range of 66.5 million to 68.5 million. The gross revenue guidance includes an estimated 8% for reimbursable expenses.

As a result of the continued weakness in our international operations, the company will incur restructuring charges in the fourth quarter of approximately 2.5 million. These charges were primarily related to severance costs as we reduced staff to be commensurate with current demand in both Europe and Australia.

These charges will be excluded from pro forma results. Relative to pro forma diluted earnings per share, we expect the unfavorable impact of decreased available billing days to be partially offset by the 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, which excludes the international restructuring reserve, in the fourth quarter of 2019 to be in the range of $0.23 to $0.25. It is important to note that the expected decline in the Europe group pro forma results equates to approximately $0.02 unfavorable impact.

We expect pro forma gross margin on net revenues to be approximately 39% to 40%. We expect pro forma SG&A and interest expense for the fourth quarter to be approximately 14.2 million. We expect fourth quarter pro forma EBITDA on net revenues to be in the range of approximately 17% to 19%.

We expect cash generated from operations 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, let me reiterate our thoughts on the demand environment and the growth opportunity it offers our organization.

As I have repeatedly mentioned, the rapid development in digital transformation along with the emerging enterprise cloud applications, RPA and artificial intelligence is dramatically influencing the way businesses compete and deliver their services.

Traditional, sequential, linear-based business models are changing to fully digital and dynamic automated workflows and events with enhanced intelligence. Digital transformation is redefining entire industries at an accelerated pace, forcing organizations to fundamentally change and adopt these new capabilities in order to remain competitive.

On the demand side, we are currently experiencing the tale of two tapes. In the U.S., the transformative technologies are resulting in increased demand as companies determine how to respond to the quickly changing competitive environment. We are seeing the growth in cloud and digital transformation engagements improve our growth prospects.

As our digital transformation and cloud engagements continue to grow and our on-premise revenue becomes a smaller part of our total company revenues, the complete benefits of the transition will become increasingly clear. We can see that impact diminishing on a quarter-over-quarter basis as we look forward over the next several quarters.

In Europe, we are clearly seeing the effect of the China trade and Brexit dispute impact decision making as clients simply defer or elongate decision making on digital transformation initiatives.

On the strategy side, our focus is to continue to build our brand with our new offerings and capabilities focused on digital transformations around our fully digitized and unmatched benchmarking and best practices intellectual capital. This should allow us to serve our clients strategically and whenever possible continuously.

Specifically, as you know we redefined our global benchmarking leadership by releasing Quantum Leap, our digital benchmarking software-as-a-service solution. This new platform allows us to deliver more information with significantly less client effort.

It also allows us to leverage our IP and track transformation initiatives over the life of their respective effort. We believe that there is no comparable platform in the market.

Although we believe we are just starting to see the benefits from the state of the art benchmarking platform, our benchmarking year-to-date revenue growth has been very strong. We are all – we also released our digital transformation platform or DTP to further differentiate our unique IP and related capabilities.

As I’ve mentioned in the past, DTP allowed us to fully digitize our IP and align proven software configuration and organization solutions to help clients drive transformational change. DTP has been instrumental in many of our recent business transformation and cloud implementation wins.

Given the success of our current client initiatives and the improved functionality we continue to add to our Quantum Leap and digital transformation platforms, we continue to believe that we will attract other strategic partners to IP-as-a-service programs.

We expect to launch pilot initiatives that will further demonstrate our unique capabilities and the unmatched credibility that our brand brings to any digital transformation business case assessment. We now have over 1,000 clients with access to our IP platforms across our executive advisory and other IP-as-a-service offerings.

Lastly, even though we believe we have the client base and the offerings to grow our business, we continue to look for acquisitions and alliances that strategically leverage our IP, add scope, scale or capability which can accelerate our growth. As Rob mentioned, we have fully paid off our facility.

So we have the ability to leverage and acquire any asset that we believe fits in strategically and culturally with our organization, and this will continue to be a priority for us. In summary, even though the weakness in Europe unfavorably impacted our results, we also continued to build our momentum in the U.S. which allows us to resume our growth.

It also demonstrates that the investments we’re making in our digital transformation platforms, our expanded cloud and RPA applications capability and software partners as well as our opportunity for additional IP-as-a-service offerings provides us with highly differentiated offerings and strategic access to most of the leading global companies.

As always, let me close by thanking our associates for their tireless efforts and always urge them to stay highly focused on our clients, our people and the exciting opportunities available to our organization. Those conclude my comments. Let me turn it over to our operator and let us move into the Q&A section of our call.

Operator?.

Thank you. And today’s first question comes from George Sutton with Craig-Hallum. Your line is open..

Good evening. This is Adam on for George. Thanks for taking my questions. Ted, I was hoping you can talk about the growth of relationships with other software providers.

Where are you in that stage and what are your expectations going forward?.

Well, we have several. If you look at the momentum in our strategy and business transformation business, there are some of those relationships that reside within that group and they are critical to our current and future growth.

Our relationships with those organizations such as Coupa, as an example, continue to be meaningful to our growth and we think those opportunities have great room to expand.

We also have similar opportunities not only on the EEA side, not only are we seeing the cloud revenue growth that Rob mentioned on the Oracle side, 30% plus, but we also see other RPA and EPM providers, which we have started to build capability around, which we believe will become more meaningful part of our growth in 2020.

So it’s really a cloud software and technology that are driving some of the significant transformative change that I speak to broadly.

And we think those that we’ve decided to align with and focus our efforts with are clearly important and are providing some of our current and more importantly will provide a more significant portion of our future growth..

Great. Thank you. And then Brexit obviously continues to drag on.

I was curious if there is any strategic contingencies or long-term plan you’re thinking about moving into 2020 to mitigate anything else if it just continues on its current trend?.

Well, the first thing is that it’s going to be 11% in the current quarter. It’s not something I’m proud of, but it’s the fact and the reality of the marketplace.

So you have to make sure that you align with the opportunity that’s before you and not allow that to really drag or I’ll call it a takeaway critical profitability the way it did in the current quarter.

So we could have easily been at the high or above it, but that loss of the client which continues with us, but like Rob said, meaningful portion of it was discontinued by the acquiring company. And just the general environment, clearly moved us to quickly look at making the cost reductions to align to current revenue and current demand.

The fact of the matter is that marketplace significant opportunity. I could easily say that instead of the 11% in the current quarter, I mean that European opportunity should be north of 30% on a normal basis. So it’s a shame that it is where it is right now.

With that said, when you look at the significant growth and opportunity we have in the North American market, specifically the U.S., we look at the growth we’re experiencing in cloud, we look at the strategy and business transformation growth and some of the reasons thereof and we look at the fact that we could easily add scale around those capabilities if we wanted to be more aggressively acquiring.

And then lastly, look at the opportunity to significantly add a meaningful company or two to the IP-as-a-service offering, that’s where our focus is and that’s where we’ve been working, as you know, pretty hard throughout 2019 to make sure that we realize that opportunity in 2020..

Great. Thank you..

Thank you. [Operator Instructions]. Our next question comes from Andrew Nicholas with William Blair. Your line is open..

Hi. Good afternoon..

Hi, Andrew..

I just wanted to touch quickly on SG&A. It was a good number in my view this quarter. Just curious if you had already started some of the pullback in spending in Europe this quarter or if that is something that is just going to hit in fourth quarter? And then on a related note, I think you said 2.3 million of severance costs.

Any sense or guidelines in terms of what that run rate cost savings would result in?.

First of all relative to G&A in the quarter, I want you to know I asked the very same question as we went through the quarterly review. It was primarily timing of bonus accruals and some FX benefits that we got in the quarter..

Some tightening on expenses that we went into – we went into the year to target to reduce some non-charge spend..

That’s right. There has also been a campaign to just manage our over and non-charge expense more aggressively and we saw some of that benefit increase in the third quarter. So just our normal, if you want to call it cost management. On the – your second question was relative to the restructuring. Our focus was really two things.

We wanted to make sure that we defended and took the actions as quickly as we could in the fourth quarter to protect the fourth quarter, but to a much greater extent we were focused on the benefit that it would provide us relative to Q1.

So when we look at that hit and we look at that reserve that we took and we look at the benefit as we look at Q1, so for example, the goal as we did that was to fully eliminate the $0.03 negative or unfavorable hit that we experienced in Q3, eliminate that same impact in Q1 of next year. So very offensive relative to our 2020 plan.

So we thought it was important to do it now..

And the only thing I would add is that my statement was that it would be approximately 2.5 million, I think you said --.

Yes, I misheard. Thank you. No, that was helpful color. And then maybe something a little bit more general and then I’ll get back in the queue, but just on pricing dynamics in the space. What type of price increases are you currently able to push through and are those typically enough to cover comp costs? Thank you..

No, pricing has not changed significantly I would say over the last 12 months. What we’re seeing, if you kind of follow our business, a number of two things – two things are kind of clear.

One, when you look at our margin of our S&BT business, it’s clear that where we leverage the IP the greatest, our margin opportunity can expand pretty significantly. So that’s very evident with the 48% plus gross margin in that Strategy and Business Transformation Group that Rob mentioned.

And I would say the second piece when we look at margin, on the EEA business the most significant part of margin improvement for us is that we’ve made significant investments on the offsite resources that support our cloud implementations. And we’re starting to scale that and leverage that more and that’s where we’re seeing margin improvement there.

Overall – but to your question, to your point, overall pricing remains unchanged, but margin opportunities relative to IP and the leverage of offsite resources on technology remain meaningful for us..

Got it. Thanks very much..

The next question comes from Jeff Martin with ROTH Capital Partners. Your line is open..

Thanks. Good afternoon.

Ted and Rob, how are you?.

How are you, Jeff?.

Doing well. Thanks.

Ted, are you seeing any changes in the deal size in the pipeline on cloud? And are you likely to make any – do you foresee any wins that are on the mid or larger size on the horizon?.

Well, let’s talk about it. We clearly have increased our deal size.

If you recall when we originally made our ERP acquisition in May of '17, we probably were too aggressive in the deal size that we were going to then and we’re not successful at converting those in that very – in that if you want to call it 12 to 18-month period subsequent for the acquisition.

But since then, by focusing on probably that next segment and allowing the acquisition to get more of its, we call it Hackettize – become more fully Hackettize and leverage our IP and our brand and broader capabilities better, there is no doubt that the deal size in that group has increased and the growth in that group has clearly led our total Oracle Cloud revenue growth.

So the answer is yes, we are seeing bigger deals. We are continuing to bid on larger deals. We’re being less aggressive at going after. If you remember the 10 million plus kind of transactions that we aggressively did shortly acquisition after tempering our expectations, but we like the progress that we’re making there and it should continue.

It should continue..

Okay. And you had mentioned higher subs in the EEA group in the period. Is that normal? Do you – or was there anything in particular because that did depress margins a little bit.

I was just curious if that’s normal activity, or if that’s just noise?.

Yes, additional – we clearly do not realize the same margin on a subcontracted resource versus a W-2 resource. And as you know, we only go to that when we either lack a certain scale of resource in some urgent situation or a very specific skill which we bring in for kind of specialized skills and projects.

But for us, overall, the fluctuation in subs was probably more due to the transition of that large European client which also affected the U.S. So as that group which came in at an accelerated pace, if you recall, toward the end of the second quarter, we had closed a very significant transaction that was allowing us to regain that European momentum.

It was that same client that decided to reduce its activities from three initiatives to one and also then impacted the volatility in the subcontractors during the second and third quarter..

Got it, okay. And then you mentioned benchmarking year-to-date has been very strong.

Was just curious if you could give us a sense of what kind of feedback you’re getting with Quantum Leap and the automated nature of it? Is there any reluctance to kind of basically cable in a network and data to your system? Was just curious if – what the customer reaction has been and if there are any pinch points with them in terms of shifting over to a Quantum Leap type of benchmark?.

It’s interesting. First of all, the reaction has been extremely favorable. If you said, what do we want? We just need to get back in front of our client base or new clients to make sure that they fully understand and see the capability from Quantum Leap.

The specific capability that you referred to relative to the extraction, believe it or not has become less prevalent. The clients have really focused on the fact that our data capture has been facilitated dramatically and the ability to re-benchmark has also been made much easier. The amount of data we deliver is significant.

So we’re delivering a lot more data with less effort. And then the other element that the clients seem to really like is not only the fact that it’s a platform. They load all their information, the ability to re-benchmark, go back, track initiatives is significant.

That initiative tracking system, that ability to quickly come back and reassess along with then us extending some capability or access to content in our advisory clients if those clients want it, it’s that blended access that has really I think distinguished the capability.

What clients see now when they see the platform is that in addition to us having without doubt an unmatched database of comparison against, is that our data capture capability, ability to quickly align scope directly, the platform has great flexibility to fully customize to the client scope – the client desired scope.

The way the information is presented is significantly enhanced. When we say we are unaware or we know of no one that is close to matching our capability, we’re saying that because we’re hearing that from the client base.

So I’m glad you picked up on it because as you know, we made a significant investment over the last three to five years to make that happen. So to see the reaction be there and to see that reflected in revenue growth, all of it is something we’re very pleased with..

Great. Glad to hear it. Thanks for taking my questions..

Thank you, Jeff..

The next question comes from Vincent Colicchio with Barrington Research. Your line is open..

Yes.

Ted, any color you could provide beyond what’s been said already in the international business, maybe within this segment, what pieces were promising, what were more often?.

Well, the prospects, if you look at our two marketplaces, when we talk internationally and you look at them, you’re really talking UK and Germany. You know Germany has really been hit with the trade dispute.

So we’re seeing that activity generally more tempered as they just reported the first negative GDP quarter in a very long time and they’re obviously being significantly affected by the trade dispute. But to us, to a greater extent, is in the UK where the fact is, is that our capabilities just fully align to the marketplace.

It’s always been probably 60% plus of our Western European operations and we’re simply – we started seeing – and if you recall, at the latter part of last year was the first time we started to see clients really question whether or not Brexit was elongating or not and then how that would impact the investments that they made in their businesses and directed their dollars.

And we’re just seeing that indecision and just give clients pause to rethink, reassess and that’s just affecting the demand and the flow of engagements one to another. As you know, there is an election on the 12th and the deadline has been extended to January of next year. We hope this thing gets settled.

I think I mentioned on the last call, sooner rather than later, but it’s clearly disrupting I will call it traditional decision making. And for us, it wouldn’t have been as significant. So it was half of the impact that it had in the third quarter.

The other one was the fact that this client acquired and basically provided notice and disrupted two of the streams that we had in our clients and they were significant. But we’ve seen the indecision in that UK marketplace really since the third quarter of last year.

So for us, look, phenomenal marketplace, it should be significant, the sooner they deal with it, the better..

And can you give us – on Oracle and SAP pipelines, do they increase – could you qualify how much they’ve improved sequentially, the pipelines?.

Look, Oracle’s growth over 30%. SAP, as you know, we believe SAP would be net down in the year and it’s been a nice grower. So both – our prospects across both Oracle and SAP have improved throughout the year. So I would say improving. The new entrants that we talk about, also those prospects continue to improve.

And to give you some color on the on-premise, the client impact on total revenue, in this current quarter if the on-prem revenue had been flat, our total revenue would have been 5.5% higher. Based on the way we look at that when we track that from Q3, Q4 into Q1, we expect that 5.5% to be down to about 2.5%.

So that means that both the combination of cloud revenue growth and both the stabilization and the closer we’re getting to flat year-on-year on-premise revenue is going to help our growth prospects in 2020.

Is that helpful or is there something else you would want --?.

No, that’s helpful. Just one last question.

The international business, the number you’re guiding to for Q4, could we consider that sort of a stable downside type number to look at going forward?.

We’d love to be able to say it’s stable. As you know, that would be an impossible statement to make. Having said that, we tried to be as conservative as we could because we were also making sure we were taking actions against those estimates and wanted to make sure that we mitigated the impact into Q1.

I can’t mitigate the year-on-year comparison, but if I mitigate the earnings impact into Q1 then obviously we would be positioned to have a pretty favorable Q1..

Okay. Then two quick ones for Rob.

Rob, capital spending, did you give us that number in the quarter?.

I did. It was approximately – give me a second, Vince. I think it was approximately $900,000..

Okay. And then I missed what you said in the guidance for gross margin in Q4..

39% to 40%..

Thank you. That’s it for me..

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

Thank you, operator. Let me thank everyone for participating on our third quarter earnings call. We look forward to speaking to you again when we report the fourth quarter and the results for our entire fiscal year. Thank you..

And that does conclude today’s conference. We do appreciate your participation. You may disconnect at this time..