Q3 2019 Earnings Call
Yes.
Welcome to the Hackett group's third quarter earnings Conference call. Your lunch had 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. Ameris 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 in here to answer your questions or Ted Fernandez, Chairman and CEO , the hectic or myself rubber mirrors Chief financial officer.
A press announcement was released over the wires four or five PM eastern time.
For a copy of the release please visit our website Www Dot Hackett group Dot com.
We will also placed any additional financial or statistical data discussed on this call that is not contained in the release on the Investor Relations page on our website.
Before we begin I would like to remind you that the following comments and the question and answer session. We will be making statements about expected future results, which may be forward looking statements for the purposes or 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 assumptions that are difficult to predict which may not be accurate.
Actual results may vary.
These forward looking statements should be considered only in conjunction with a detailed information, particularly the risk factors contained in our SEC filings.
At this point I would like to turn it over to Jeff.
Thank you, Rob and welcome everyone to our third quarter earnings call as we normally do level 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 will follow that up by opening it up for QNX.
This afternoon, we reported net revenues of 66.8 million and pro forma earnings per share up 27 cents.
Which were within our guidance.
Solid U.S. performance was offset by lower than expected international revenues, which unfavorably impacted our results by three cents 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 Evan 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 use fourth quarter growth to be above 6%.
On the strategy business transformation U.S., Brad we saw the momentum we've built into Q2 carry into the third quarter and it resulted in solid solid growth as we mentioned, we expect the revenue growth to further accelerate into the fourth quarter.
In our D.A. group, we continue to make progress progress with strong growth in our Oracle cloud applications practices offset by the decline in our on premise related implementations are S&P group, which is reported within EA came in better than expected, which allowed the overall group to be up nicely.
During the quarter, we expect the growth of the EPA group also further accelerate into Q4.
Europe was a much tougher story and more 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 clients decision, making.
As we saw the Brexit dispute Elongating, we thought it was important to take the appropriate actions to adjust our costs to be more inline with our current revenue end market demand.
On the investment side, we believed 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 our important drivers of our growth.
Additionally, our investments at smart automation, along with strategic relationships would rapidly grown procurement Evan RPH software providers also continue to be key to our strategy and 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 buyback stock and fund acquisitions, while continuing to invest in our business.
I will comment further on strategy and market conditions, but let me first that's Rob to provide details on our operating results.
Cash flow and also comment on outlook Rob.
Thank you Ted as it 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 in 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 purposes of this call I won't comment separately regarding the financial results of our strategy and business Trust transformation group.
For SMB cheap.
Our ERP EPM analytic solutions group or EPA, and our international group as well as a total company.
Our SMB to 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 AG solutions group includes the results of our North American Oracle and the safety solutions practices, our international group.
Includes the results of our SMB, T. and and our Iot groups that are based primarily in Europe .
Please note that this differs from how we commented in the past when the group all the international practices within our SMB T. 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 were present revenues, including Reimbursable expenses and any references to net revenues represent revenues excluding reimbursable expenses.
As previously discussed.
We exited our European based RTL 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 noncash stock compensation expense intangible asset amortization expense and nonrecurring 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 noncash items related to the portion of that purchase consideration for acquisitions, which are reflected as comp expense under GAAP.
For the third quarter of 2019 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 over the prior year.
First of all expenses are primarily project travel related expenses past due to our clients and have no associated impact to our margin where profitability.
Including Reimbursable expenses company gross revenues from continuing operations was 72.7 million in the third quarter of 2019.
Net revenues for SMB to group were up to Htwo were 27 point up 27.4 million in the third quarter 2018, an increase of 5.5% on a year over year basis, driven by strong results across most of the practices.
Net revenues for Iot 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 SVP and Oracle ERP practices as well as strong Claude revenue growth from our EPM practices, partially offsetting our oracle.
Mm on premise declines.
Specific to our use of local practice within the a 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 international 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 uncertainties surrounding Brexit appear 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 three cents when compared to our third quarters guidance.
Total company International net revenues.
Got it for 13% of total company revenues in the third quarter of 2019 as compared to 18% in the third quarter over the prior year.
Our recurring revenues, which include or executive and best practice advisory NMS groups accounted for approximately 19% or total company net revenues and approximately 26% or total company pretax profitability.
The third quarter 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 and the per year.
Total company consultant headcount was 1029 at the end of the third quarter of 2019 as compared to 999 in the previous quarter and 1027 at the end of the third quarter over 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.
SNB cheat 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.
He 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 over the group.
The margin decrease was primarily driven by higher utilization.
Subcontractors during the quarter.
International gross margins on net revenues was 23.5% in the third quarter of 2019 as compared to 3.7% third quarter over the prior year, primarily driven by decreased revenues in the group as previously discussed.
Pro forma yesterday 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% in their revenues respectively.
Pro forma EBITDA in the third quarter of 2019 was 12.5 million as compared to 13 million in the same period as 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 27 cents per diluted share, which was in line with a third quarter guidance.
This compares to pro forma net income of 9.2 million or 28 cents per diluted share in the third quarter 2018.
Our pro forma return on equity was 25% for the third quarter 2019.
GAAP diluted earnings per share was 21 cents for the third quarter of 2019.
As compared to 16 cents in the third quarter of the previous year.
Yes, your 2018 GAAP diluted earnings per share included a two cents expense due to additional adjustments to the contingent earn out liability relating to the drive acquisition.
As well as two cents 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.
A 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 semiannual 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 noncash 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 in semi annual dividend to shareholders.
To shareholders, which totaled 5.8 million.
It is most recent meeting the board declared the next semi annual dividend of 18 cents per share, which will be paid in January 2020.
During the quarter the company repaid 2 million on its credit facility.
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'll now turn toward guidance for the fourth quarter of 2019.
Before I move to guidance I would like to remind everyone the seasonality of our business.
Specifically increased holiday in vacation time.
This historically taken in the fourth quarter will decrease our available drilling days by approximately 8% when compared to the third quarter.
The company estimates total net revenues for the fourth quarter of 2019 to begin the range of 61.5 to 63.5 million.
On a year over year basis, we expect both as and BT and EE eight.
6% to 8%.
We expect international to be down approximately 25% as we expect Brexit concerns to continue.
The company estimated gross revenues to be in a range of 66.5 billion to 68.5 million.
Gross revenue guidance includes an estimated 8% 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 will primarily related to severance costs as we reduce 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 us payroll taxes, resulting from reaching us FICA limits as.
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 23 to 25 cents.
It's important to note that the expected decline into Europe .
Your group pro forma results equates to approximately two cents on favorable impact.
We expect pro forma gross margin in that revenues to be approximately 39% to 40%.
We expect pro forma as June eight and interest expense.
Fourth quarter to be approximately 14.2 million.
We expect fourth quarter pro forma EBITDA and net revenues.
In the range of approximately 17% to 19%.
We expect cash generated from operations to be up on sequential basis. At this point I would like to turn it back over to Ted to review our market outlook 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 a repeatedly mentioned the rapid development and digital transformation, along with the emerging enterprise cloud applications. Our PPA in artificial intelligence is dramatically influencing the weight businesses compete and deliver their services.
Traditional sequential linear based business models are changing the full lean digital and dynamic automated workflows and the best with enhanced intelligence digital transformation is redefining entire industries at an accelerated pace, forcing organizations to fundamentally change and adopt these new capable.
Well it is in order to remain competitive.
On the demand side, we're currently experienced experiencing the tale of two tapes.
The us the transfer 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 in our on premise revenue becomes a smaller part of our total company revenues the complete benefits of the transition will become increasingly clear.
You can see that impact diminishing on a quarter over quarter basis, as we look forward over the next several quarters.
In Europe , we're clearly seeing the effect of the China trade at Brexit dispute impact decision, making as class simply differ 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 transformation around our full is digitized and unbanked unmet benchmarking and best practices intellectual capital.
This should allow us to serve our clients strategically and whenever possible continuously.
Specifically.
As you know, we've redefined global our global benchmarking leadership by releasing quantum leap arc digital benchmarking software as a service solution.
New platform allows us to deliver more information, which 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're just starting to see the benefits from the state of the our benchmarking platform.
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 CTP allows us to allow us to fully digitize, our IP and align proving 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 a simple to IP as a service programs, we expect to launch pilot initiatives that will further.
At our unique capabilities and the unmatched credibility that are bright our brand brings to any digital transformation business case assessment.
We now have over a thousand 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 at 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 levels of leverage and acquire any asset that we believe fits and 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. in the U.S., which allow us to resume our growth. It also demonstrates that the investments we're making in our digital transformation platforms, our expanded cloud and RP 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 effort and always arts and it's just a highly focused on our clients our people and the exciting opportunities available to our organization.
Does 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 Greg Hallum. Your line is open.
Meaning is that I'm on for George Thanks for taking my questions.
Hi, Ted I was hoping you can talk about.
The growth of relationships with other software providers, where are you in that season, when your expectations going forward.
Well.
We have several.
If you look at the.
Momentum in our strategy and business transformation business.
They are are 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 a coupon as an example continued 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 east side not only are we seeing the cloud revenue growth that Rob mentioned on the Oracle side 30 plus percent.
But we also see other RPK an ETF 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.
Cloud software and technologies 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 the in focus our efforts with.
Our 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 theres any.
Contingencies or long term plan, you're thinking about moving into 2020.
Mitigate anything else just continues on its current trend.
Well the first thing is that it's got to be 11% in the quarter to quarter, it's not something I am proud up but it's the fact and the reality of the marketplace. So you have to make sure that you aligned with the opportunity Thats 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 I mean, we could have easily bid at the higher above it but.
Net loss of the client, which continues with us, but like Rob said.
Meaningful portion of it was discontinued by the acquiring company and just just a general environment.
Clearly.
Clearly.
Moved us too quickly look at of making the cost reductions to align to current revenue current demand.
The fact of the matter is 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 use of.
We look at the growth we're experiencing in cloud, we look at the strategy and business transformation growth than 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 ended star one if anyone would like to ask a question.
Our next question comes true from Andrew Nicholas with William Blair. Your line is open.
Hi, good afternoon.
I am I just wanted to touch quickly on SGN 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 kind of hit in fourth quarter and then unrelated note. I think you said 2.3 million of of severance costs any any sense or guidelines.
In terms of what that run rate cost savings would would result in.
Well first of all relative to DNA in the quarter I want to know asked the very same question as we went through the quarterly review.
It was primarily since this time of Ah timing a bonus accruals.
And some FX benefits that we got in the quarter.
Some tightening as.
<unk> expenses that we went into the whole yet we went into the year to target to reduce.
Some non charge spend that's right at the Theres also been a campaign that just manage our over and non charge expense more aggressively and we saw some of that benefit increase in the third quarter. So just.
I just you know 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 well 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 risks that we were focused on on the benefit that it would provide us relative to Q1. So when we look at that when we look at that hit and we 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 the fully.
Eliminate the three cents negative or unfavorable hit that we experienced in Q3 eliminate that same.
Impact in Q1 of next year.
So.
A very often it's up relative to.
Our 2020 plan.
So we thought it was important to do it now and as the only of the only thing would add is that my statement was that it would be approximately 2.5 million I think you said 2.5.
Yep Yep I Miss her. Thank you know that was all helpful color.
And then maybe something a little bit more general and then I'll get back into 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 Tuesday, two things are kind of clear one when you look at our margin our SMB business, it's clear that where we leverage the IP the greatest.
Our margin opportunity can expand pretty significantly so.
So thats very evident with a 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 E 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 so your questions here, but overall pricing remains unchanged.
And but margin opportunities relative to IP in the leverage our bauxite resources on technology.
Remained 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 10, Rob how are you.
Are you Jeff.
Well thanks.
Are you seeing any changes in the deal size in the pipeline on on cloud.
You are.
You are 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 we clearly have increased our deal size. If 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 and that if you want to call. It 12 to 18 month period subsequent to the acquisition.
But.
Since then by focusing.
On probably that next segment in allowing the acquisition to get more of its we call. It Hackett ties become more fully appetite 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 as 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 were being less aggressive at going after if you remember the 10 million plus kind of transactions that we aggressively dead shortly acquisition.
After tempering our expectations.
But we like the progress that we're making their and it should continue it should continue.
Okay.
You'd mentioned.
He's subs in the EA group in the period is that normal do you was there anything in particular.
Is that did depress margins a little bit was just curious if that's if that's normal activity or so just noise, yes additional.
We clearly do not realize the same margin on a sub contracted resource versus a W. Two resource and as you know we only go to that when we either lack of certain scale of resource in some urgent situation or a very specific skill.
Which we bring in for especially kind of specialized skills and project.
But for US overall, the fluctuation in subs was probably more due to the transition of that large European client, which also affect that 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.
It's activities from three initiatives to one and also then impact that 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.
I was just curious if you could give us a sense of what kind of feedback you're getting with quantum leap in and the automated nature of that is there any reluctance to.
You know kind of basically cable and.
Yeah, some a a network and data to your system.
Yeah.
Curious if what the customer reaction has been and if there are any pinch points with them in terms of shifting over to quantum leap type of benchmark. It's interesting first of all the reaction has been extremely favorable abuse said what.
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 that capability from quantum leap.
Specific capability that you referred to relative to the extraction believe it or not has become less prevalent.
Clients are really focused on the fact that 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 elements that the client seem to really like is not only the fact that hit the platform. They load all their information the up later re bench.
Mark.
Go back track initiatives is significant that that initiative tracking system that ability to quickly come back and reassess along with than us extending suncor has the capability or access to content in our advisory clients. If those clients want it it's that blended access that has really I think.
Distinguish the capability with clients see now when they see the platform is that in addition to up having without doubt an unmatched database of comparison against is that our data capture capability ability to quickly align the scope.
Directly at the platform has great flexibility to fully customized to the client scope the declines as art scope.
The way the information is presented is significantly enhance.
When we say we are unaware of we know up 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've made a significant investments 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. Thanks for taking my questions. Thank you Jeff.
The next question comes from Vincent Colicchio with Barrington Research. Your line is open.
Yes, it's had any color you can provide beyond what's been set a ready and in the international business you know maybe.
In this segment you know what pieces were were promising what what we're a more awful.
The prospects if you if you look at our two marketplaces, when we talk internationally and you look at them, you're really talking UK and Germany.
And.
Right those.
You know, Germany is really been hit with the trade dispute. So we're seeing that activity generally more Tim tempered as they just reported the first a negative GDP quarter in a very long time, and there are obviously being significantly impact affected by the trade dispute but to us.
So a greater extent is in the UK.
Where the fact is that our capabilities just fully aligned to to the marketplace. It's always been.
Probably.
60, plus percent of our western European operations, and we're simply we started seeing it if you recall.
The latter part of last year as a first time, we started to see clients really question, whether or not Brexit was the long gating or not and then how that would impact.
The investments that they made in their businesses and direct that their dollars and we're just seeing that indecision and just give clients pause to rethink.
Reassess and Thats, just affecting the demand and the flow of engaged us want to another.
As you know there's an election on the 12 and that deadline has been extended to January of next year.
We hope. This then gets settled I think I mentioned, a last call sooner rather than later, but it's clearly.
Disrupting.
I will call it a 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 what was the fact that this client acquired.
Basically provided notice and disruptive to the screens that we haven't that client and there were significant.
But 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 other sooner they deal with it the better.
And could you give us.
On an Oracle and Sep pipelines do they increase could you quantify how much they've improved sequentially the pipe lunch I mean.
Look Oracle oracle's growth over 30%.
S&P as you know, we believe that that he would be net down in the year and that's been a nice grower. So both the our prospects are across both Oracle and S&P.
I have improved throughout the year, so I would say improving.
The new entrance that we talk about also those prospects continue to improve and to give you. Some color on the on premise decline 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 tracked that from Q3 Q4 into Q1, we expect that five and a half to be down to about 2.5%. So that means that both the combination of cloud revenue growth in both the stabilization and the closer we're getting to flat.
Sure on year on premise revenue.
It's going to help our growth prospects in 2020 is that helpful or is there something else you would now that that's helpful.
Just one last question the international business. The 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.
And 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 manage mitigate the year on year comparison, but if I mitigate the earnings impact into Q1 then.
Then obviously, we wouldn't be position.
A pretty favorable Q1.
And then two quick ones for Rob Rob capital spending that you give us that number on the quarter.
As it was approximately.
Second visiting with approximately $900000.
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 in 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 and you may disconnect at this time.