HCKT - Earnings call transcript Q3 2018

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Operator

Welcome to The Hackett Group Third Quarter Earnings Conference Call. [Operator Instructions] 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. begin. may you Ramirez,

Rob Ramirez

Good discuss and quarter The operator. joining results. you us to Hackett afternoon, you, thank everyone for Thank Group’s third

questions was and Time. myself, Speaking to Ramirez, PM Chief and today Eastern call A Rob the of are press wires Officer. your X:XX announcement CEO Group on Chairman over Ted Hackett and The Financial Fernandez, released the answer here at

visit our For website www.thehackettgroup.com. release, a copy of please the at

on financial Investor We that this our will discussed any statistical the call the additional not on or website. also Relations in contained is data place of release page

Before that may be a turn in we filings. current future would the difficult over These of performance. forward-looking They information, and are purposes of statements remind future securities making to and we in projections are session, not expected you be for SEC These to only our will the may that should begin, to be I Actual forward-looking point, factors federal and not in would predict statements vary. statements I the risk in relate be contained question-and-answer to results statements involve particularly expectations, with the comments may the laws. and this which to detailed following estimates guarantee about risks, like considered our accurate. uncertainties and At conjunction like assumptions the Ted. which it results,

Ted Fernandez

quarter to third everyone and earnings you, Thank welcome, our call. Rob

on results, with flow I overview then over comment will as to to we back I As the detailed cash guidance. on comments turn normally do, operating quarter. the well open comment some as on will it call Rob

strategic provide and market over then will overview open to we Q&A. will our will to some go -- up it We comments I then then market

me pro earnings the reported X.X% of everyone afternoon, per year So, with $X.XX, a XX.X again again our revenues earnings over quarter This forma last net prior the a increase side, to over we call. X% increase third welcome of let overview on million, share year.

up were business from business coming by group. practice. growth from XX% As continue a expected, strategy transformation and and Consistent plus with year, our digital led of X% drive the last strategy transformation to revenues transformation Hackett our growth prior quarters, initiatives US our

alignment. their Oracle Analytics flat than due to our was year, as XX%, weaker continued a than X% down our Our impact from cloud from Total from SAP's up our on company ERP, in feel channel aggressively revenues practice. came we and X%, performance SAP impact applications as US the on-premise up International and of EPM were expected weaker than group and year-over-year expected, continue migrate to was prior implementations. we capital to group to as lower to basis transition software-as-a-service we working on slightly expected

Excluding up XX%. working capital, over were results international

Given have to transformation our several head practice, focus by consider on to strong as year decided options digital we into which end. effect XXXX, this plan we we for

revenue. Oracle a outpaced business decline on progress, cloud strong ERP, and continue make on-premise’s EPM revenue to growth said, the as Our the Analytics I

the revenue slightly group had was the have in growth we time QX, net expected, XXXX. the As since up first of quarter group first for the

go-to-market. of our introduction launching DTP of digital margin X% ERP, see should continue all strong QX is increasing throughout believe We platform XXXX. cloud lead our to differentiate on-premise a our of significantly will net from group. QX QX in generation due DTP, our This Quantum delivery do initiatives. expect investments platform this with it, our highly favorable next note on support Leap, to comp why ’XX. for QX Hackett believe year expansion revenue in IP been in to growth Coupled ’XX, and key transformation our Important strategy offerings to strategic comps on-premises transformation our proprietary that benchmarking group in with XXXX continue and mean allows also revenue to look automation, we don't as our the fully our promise with and and or so declines we that scale to actions digitized our continuous our revenue also since sales with us we our in or provide and to great followed call smart to lower momentum. our of we in RPA, will higher growth Although have this actions very business ERP of and Oracle we these

Additionally, our Year our the as of Oracle of Last specifically further not transformation we around positioning our sales functionality, -- by how as as to a their our have as with clients. prospective of IP transformation of offerings to partners service introduction digital our we demonstrate further strategic can SaaS quickly confirmed practices digitally Oracle through channel apps IP as accelerated training as leader. cloud our This recognition expanding cloud least, platform, as proprietary applications programs by versions was platform our certification Oracle's Award. assess of service of successful a a well but digital and optimize recent able our building Innovation and digital of transformation best the use to first and IP configuration Oracle the one digital transformation well were

flow outlook. in on on results, market and ask our comment Rob? dividend, On first strong This continue stock and business. let cash while the provide but operating we and on details acquisitions, us to strategy further continuing comment our to invest increase to from fund allowed generate has also profitability me cash I'll flows buy conditions, and sheet side, also back our to operation. balance Rob

Rob Ramirez

you, Ted. Thank

with quarter during conclude portion a then outlook an during operating third typically financial cash I’ll XXXX. cover related do, an overview the overview call, with of the fourth overview topics our discussion the key following I an statistics, this I of quarter of As of flow XXXX and of results our on the along our quarter for will activities

Hackett any will the discussion call, regarding represent will this Hackett The I Group note Solutions and of to that net revenues The expenses. of any and financial Group, represents reimbursable separately expenses revenues SAP to purposes exclude revenues including to revenues my references company. excluding references gross in solutions. specifically results references SAP Correspondingly, any For Please the total comment reimbursable

exclude are normalized Additionally, compensation tax expense, compensation assumes references earn-out Acquisition related expense under the contain as results to acquisition that rate XXXX and compensation and of as GAAP. expense, related primarily costs consideration pro forma term relates cash for the compensation service reflected expense intangible purchase non-cash specifically compensation amortization XX%. the acquisitions and cash requirements and stock acquisition related such of non-cash a long adjustments portion expense, and asset to non-cash vesting

net million year quarter, Reimbursable within third expenses third travel revenues for revenue to In due expenses, expense terms associated quarter to up X%, business a ratio a Reimbursable client guidance of on by third the strategy quarter US on growth from basis. increase our and year-over-year executing past third no quarter year-over-year US net are increased by expenses, The Group, reimbursable our for in has the our range. Hackett excludes increase third and X.X%. to Hackett XX.X primarily and SAP company Europe revenues XXXX revenues an above XXXX, International profitability. Net XXXX, X.X% project, in to reimbursable net quarter revenues or the gross of Including for led the revenues gross represents which X%. results, was XXXX compared related expenses was which margin were of or of prior of revenues strong million of million XX.X revenues were XX.X by a the our transformation were when essentially impact X% XX%. flat. primarily were Solutions and

to performance practice. this from our his was primarily in mentioned European capital weak Ted due As comments, working

$X.XX practice, revenues would to this would forma Excluding have per up and been have been $X.XX. by earnings share international XX% pro up

we will available Given the of during quarter. alternatives evaluating the this results all be practice,

Oracle EPM strong decline growth Analytics the make Our revenues. cloud as continued exceeded on-premise and business in revenue ERP, to progress,

as result, revenues in decline previous were X% reported Oracle the quarter. As to EEA the a X% in up QX compared

XXXX. trend expect on-premise in from to QX we to don't of mentioned, due ERP Ted our As QX continue comps group in this strong

of resulting cloud on-premise basis, to growth However, in our excess a cloud on revenue continues improved of year-over-year mix XX% revenue. in be to

We expected. a in slightly based decrease The SAP XXXX, decrease reseller, our growth a Net year-over-year Oracle higher channel the previous XXXX. the in due from than million of is in AMS consists groups to have cloud revenue managed contract and quarter transition from that primarily impact XX% the loss of we on-premise offerings of to decrease and net which of of discussed the regain revenue quarters. expect on QX application basis, of EEA Group, implementation in services year-over-year our totaled to third SAP X AMS Solutions or

in of We this X% XXXX. down expect be quarter approximately to sequentially fourth group the

stabilizing we comps. XX% year. decline third previous expect of in of less to be international of year-over-year revenues compared to revenues result XX% However, of as a net in and accounted total a the XX% the for revenues improved Total net quarter third company XXXX than quarter the company as

third third in compared the to third was This in compared primarily revenues in as of Hackett third XX.X% compared the best of margins. net totaled period revenues was of revenues of quarter forma XX.X% the company solutions the XXXX in to gross of company consultant revenues margins of Our of of company and revenues, revenues Total year. of company as XXXX executive groups third profitability or forma of in revenues quarter and expenses, XXXX the revenues Total net as as the XX.X% the XX.X% in the net net the as our to recurring when the previous of pro period quarter net net our Group was the XXXX, year. excluding gross XX.X% million revenues previous accounted primarily XXXX pro Pro net year. compared which Total advisory of XX.X% to XXXX. and quarter to XXXX. in of was XX.X SG&A include practice at XX% in in our margin XXXX margins XX.X% for million of cost quarter headcount third the the end previous gross net quarter of to quarter due XX.X forma was the in compared compared third company XX% million total the total as the year. to XX.X% of XXXX on reimbursable of sales, end quarter on in quarter for to in pro-forma practice pretax third XX.X third or gross forma previous and XXXX. due pro compared quarter the million the AMS in higher prior quarter XXXX was to SAP third same decreased revenues decrease of at the XX.X US

X.X share, million quarter to the midpoint the XXXX. pro assume million cash of long-term in of diluted As excludes the Total of at in represent rate to earn-out statutory results for or an Pro X.X and of in third on income a XXX,XXX. same two periods long compares net and X% respectively. also pro XXX,XXX, This income year-over-year net XX%. liability of of was diluted of cash for quarter These share and of both a compensation third XX% forma our quarter cash rates. were term per amortization the net XX.X asset expense for of a per comments XXXX was X.X Pro third million expense X% of of XX.X previous net third per the XX% $X.XX results as Consistent guidance. increase forma the of pro million. our period a a revenues, income quarters, expense of of include Total and an million percentage rate and forma XXXX acquisition EBITDA quarter which third result totaled the or pro which diluted $X.XX stock pro quarter’s share in as XX% results X.X over the decrease XXXX forma of or year, respectively. earnings our with company represented of federal XX.X% last net revenues compared intangible income company million the basis tax US forma tax forma net forma

rate we we pro bonus existing X% contribution in XXX(k) last decrease by forma disclosed increased our associates use As as to our practice well quarter, our as to X% the doubling of related programs. with decided

additional the our flow from more to to the the XXXX equity than Jibe the on previous to in third $X.XX liability, third GAAP $X.XX expense slight of compared earnings were the the as as primarily of attributable quarter decrease The was return XXX,XXX The XX.X strong cash quarter quarter. adjustments was at company's quarter third of end million year. pro operations, GAAP third Our balances by quarter for at offset to the for which include XX.X expenditures. was by payment was to the debt activities results or of million diluted million, $X.XX the by of adjusted share X.X cash driven forma end quarter in per repayments of quarter operating which of dividend, XX% capital semiannual the previous third compared relating Net were due the an XXXX. the provided third cash was for non-cash the items. and in net XXXX contingent income earn-out acquisition. to primarily

the was XX XX the at end as Our in days DSO outstanding prior at quarter and year. to sales days end the the of quarter or third previous XX days compared the days of

to XX days. below to We DSO continue target be

the related years. laptops, investments capital new the systems, digital Hackett internal company XXXX, corporate platform, occurs of digital global transformation which and to Institute which and rollout X expenditures, the of every had initiatives key Quantum million X The to Leap our quarter the of X.X During third in primarily include

to expenditures to million levels spend currently historical million X $X million XXXX. but approximately return in our capital expect to our this year, We expect of $X to

the the XX.X the the the million million. company repayment third the outstanding total quarter X quarter, balance has to the end X of down end During The quarter, credit a from was debt of debt made facility. Subsequent paid third additional company net at the million. of our company's of

now board third the in its paid of semiannual of quarter to the At dividend of company declared for its quarter. share, dividend be XXXX, semiannual During fourth guidance the our will the next X.X I’ll to January per $X.XX totaled recent which paid million. XXXX. shareholders, meeting, most the turn which

of I holiday by would quarter. the to business, in time our available billing to third when the our historically move is compared I the days seasonality Before specifically will quarter guidance, remind to fourth increased everyone X% vacation taken like that the of the and decrease approximately

of The unfavorable The net company range revenue in million gross group, EEA of company estimated million. which At year. to Relative at range representing forma the XX.X high estimates working guidance, of outlook million. X%. the to expenses. end diluted end represent be for the pro reimbursable revenue to will such, be XX.X estimates the of an X% gross payroll to accruals to XX.X limits. partially quarter of from be earnings US per impact the utilization in the unfavorable available we the lower includes the for fourth of impact Oracle and offset expect decreased revenues the by share, XXXX the days to the of vacation As billing total includes million FICO -- US taxes, the the corresponding reaching XX.X decline resulting from the of previous this This a and year-over-year decrease X% X% of X% practice, represents the capital

quarter company is quarter. be on that a to It end $X.XX basis. fourth total to the to range, the forma of our $X.XX. per $X.XX XXXX the share diluted As such, important to the in to the fourth in in would to $X.XX equates of be the unfavorable range year-over-year of earnings expect the working At we flat high impact capital pro decline practice note

approximately to pro margin forma expect XX% to gross on revenues net be We XX%.

to forma million. approximately expense We expect the SG&A XX.X the fourth interest pro for and quarter be

range to expect be pro EBITDA revenues XX%. of quarter in fourth to XX% net approximately forma the We on

this Ted basis. review it to like back the months. point, be and cash a outlook coming our expect for to would strategic priorities I to We operations to generated over on market At turn up sequential from

Ted Fernandez

Rob. you, Thank

our more influencing functionality compete offers services. deliver As way experience enhanced forward, their and remain intelligence adopt rapid these we and it The and the importantly networked an order technologies and thoughts development let organization. these look the dynamic cloud user in Traditional, on significant how increased is smart activities This the quickly are with fully environment. are dramatically determine accelerated in in mobile businesses improving me pace, industries to sequential workflows reiterate companies business competitive the entire to with US, organizations models at on changing to and and capabilities new linear demand artificial automation, events opportunity and to is based enhanced redefining environment analytics. applications along our In transformative change fundamentally to as forcing the competitive. resulting automated respond growth changing

growth seeing are growth engagements We our the and transformation cloud in digital improve prospects.

becomes our transformation in our demand high digital taken engagements Europe, the revenue as initiatives clear. and BPL our In continue performance and to the benefits transformation and will a be grow transition be as decline from to more growth to optimize as on-premise strongly digital and We company complete of and cloud well benefited our smaller importantly transformation term solid positioned Europe As believe has become EPM slows our revenues, have digital of part total both investments. increasingly continues to opportunities. RPA the and short for necessary actions we the

Our in our serve unmatched and order by long practices capital continue is brand intellectual digitized build continuously. building to and term clients offerings whenever benchmarking our strategy and capabilities to possible and strategically around best fully to new

less IP launched launching service allows respective our IP also solution. Specifically, we the Quantum as platform transformation We related further our and differentiate the allows their leverage track over to and unique digital our initiatives to transformation effort. clients life redefined client capabilities. of information The it effort, our by more software global to deliver Leap, significantly digital platform our new benchmarking us benchmarking leadership new a with

of ways, our our In organizational to allows to services our align all Our many in offerings. transformational era. solutions technology digital we believe highly us clients new help consulting be drive ability change and to is and how redefining fully platform proven differentiate the will delivered IP digitize

to our new that sell which our in IP programs partners We service solutions, software or are transformation launching leveraging as ADP IP can and platform a programs. ADP by Last their and help them us expand to to utilize further we ADP workforce alliance offerings. best continuing our with to offerings allow grow year, our increased practice our and digital new differentiate These attract should now expand service benchmarking and unique XXXX. our are expanded opportunities

program, we attract Given this we similar the of to to programs. strategic success partners continue other will believe

training use a Hackett or our have e-learning expanding and part training have over XXXX allow our solutions. used We with out courses IP to our clients. now and certification chance are of pilot plus our Institute we've had our offerings to XXX served work found us have serve to new over been clients that to We students our just and

practice believe unique significant that in advisory of the serve that or best and clients offering, new XXX training this CGBS margin members, institute to Given our solutions excludes education our clients new executive our IP growth, programs. we had market that best opportunities for growth but both the the provides continuing nature condition as now we favorable end of through as we have alliance those high quarter, we the content organization. a our and and of practices the service hundreds in XXX as our well a high At

scale or in operating solid accelerate leverage capability business, which transformation and look initiatives scope, to grow acquisitions alliances base cloud our have though can that aggressive results. IP while our continued reporting and Lastly, our digital to and third we client the that we summary, on focus offerings we for we quarter, believe our continue growth. the strategically even have In and the

in our expanded and growth RPA believe our offerings resume importantly, applications transformation targets. to our long allow investments as digital capability, More will the our cloud and IP us platform, service capability making a the we we're profitability term

conclude tireless clients, the As opportunities urge Those always, stay on our efforts by close and available associates their highly my them exciting let always our people me thanking for our our comments. to focused to organizations. and

section Let of move me operator and to let our to our then the call. turn Operator? Q&A over on it us

Operator

Sutton The Craig-Hallum. with Instructions] first from [Operator question George comes

Unidentified Analyst

This on I towards be OpenWorld question. was could specifically channel notable two my any is insights helpful. taking would I Thanks you for Oracle for share, Adam there's curious George. with anything weeks ago, ending wondering was if the

Ted Fernandez

has The effort our Oracle we cloud, OpenWorld that Let important my I recognized Cloud of around work to for more me applications When software opportunity large you trying said. fact the that to related purchased look, to Year restart installed capability was if the the transformation base move transitioned our clients. able the and is with architecture for and Oracle consider, Oracle that for you insight, our were SaaS that on-premise Innovation part articulate anyone for we that EPM digital SAP the both either and be a and both from that of to cloud comments is new platform. and us say the application or individuals provides got award the demonstrate value clearly

to us, as question. help intellectual do Hopefully for channel competing as and help and our answers to that's the that is either we help of use way has focus that a us or our that can as efficiently for that business. to clients capital and clients So to been your quickly understand -- IP

Unidentified Analyst

portion now, adding is RPA right follow size up, know how a deal small one currently? it's to much then but I And more average your

Ted Fernandez

business initiative small engagement. however would that in transformation RPA strategy initiative. a on would virtually consider of is significant it thing have part that the transformation no and every overall impact is is that total as There terms revenues, an important digital of to not It the have such

articulate and So are to although the growing RPA of is opportunity critical. them that number are today and growing, frame for very small the the but engagements of revenues the importance client's assess and ability relatively

Operator

next The Atkins with from SunTrust. question comes Frank Instructions] [Operator

Frank Atkins

and the for going of talk working forward that. the capital kind on XX% of ex-working first percent you ask to areas that about thoughts bit Wanted in strength drove about of weakness little practice then international can up capital and your the revenue, the some a

Ted Fernandez

is that digital we’re where around teams. firstly, across initiatives global large there really Well, engagements executing demand those transformation Okay. scale the

engagements got the we've as the specifically, So that US European expands both from benefiting are Western North some America that into groups. Europe well as

we've of transformation as given business capital focus, for focus impact that a opportunities. cloud say business significantly as from comps bit performance our us working focused end to the allow our the the our continue to up well Specifically and as set time we're volatility for is applications It’s group of of time us all which on the us relative that decided is look, fourth quarter decline, relative explore That's working quarter capital, transformation that capital made impact to little to and I the working is specifically the our group in strategic would and growth a a we’ve make our third and surprise. nature options a the the on-premise because to digital us, has decision to comment just of group engagements. for available XXXX ‘XX of prospects in by on the to to of to other group and so the and year. the of that digital what why growth But the

Frank Atkins

a then could you stands? that and give ADP the And relationship update quick practice on where

Ted Fernandez

their was putting that brand of I a new matter a to about they're right of saw, marketing with out as just I just on, now. documents this take As fact, saw clients call set

their, of is that and hope grow of across is business with now middle business well managed business know been them expands those and that the their the years able to the Now several for specifically, two we've with program program some launched similar in along majors, years Workforce that growth, both -- with ago. and have Vantage of what the they program we enterprise which be we expanding to ago launched and we which do offerings as to grow able as their strategic business growth So call are market programs which national, we we their to continues our part their XXXX the to consistent

Frank Atkins

about bit margin XQ a ’XX, we side you talk high a dynamics expansion expansion bit you into you up from And back the pull in that margin major last the one of XXXX. level, drive little just as me, can terms on maybe but to levers about spoke to look little and could

Ted Fernandez

made largest cloud engagements we the We’ve engagements The your margin terms engagements cloud as of along even and leverage come to that -- fully are the engagements is deploy us those grow size able fact offshore investments able being grow part that offshore support onshore in offshore made that a Yeah. investments lever to clients, in of the combination offsite, those of a leveraged is that to or be you of we've as more but grow we cloud in that from with that opportunity have to continuing the the those significantly. expanding see XXXX.

Operator

Jeff next Partners. question The comes from Martin with Capital ROTH

Jeff Martin

engagements to and Leap, Ted, expect it translate seeing client that monetizing that could the are it? you give Quantum are us you with an update on the to having progress that you you extent you’re

Ted Fernandez

to very of transformation and of of get a instead When continue to highly consider is to on who mean XX-week it, of event call you that highly number benchmark are The our we let's engagements, that benchmarking the the reactions Leap clients that differentiates continuing using first benchmarking signing to differentiating. which Leap, incredibly our are total are the we're clearly we're and what benchmarking number multi-year platform. now we doesn't we is is to part It all well But received tracking increasing getting Quantum an with being clients of grow and those that It answer offering. finding offerings. said, the using seeing then versus of as Quantum favorable even a, where clients clients. everyone Quantum Leap, use though we of percentage signing goal, that's that -- move are

X-year a to meaningful For we'd ramp number utilize quicker, significant engagement of XX-week for us. it is and a clients for commitment are the that to to moving platform the accolades like from X has us, look, to the but always and prospects

Jeff Martin

the engagement? when engagement go you per client from to a does shorter contribution revenue How annual multi-year translate

Ted Fernandez

that to that over we effort is contract X of we X, and contract advisory X initial Well, executive subscription a our happens then there then year a received is similar total portion terms. that then then of that sign revenue or actually, allocate revenue, we that and that the a on portion depending with that period total

So front-loaded is course depending comes the that somewhat over of then of the to. hangs of Quantum that contract, in then life specific the on part on client still and Leap it scope and

Jeff Martin

And rate growth to then on targeted your in could comfort back getting terms of us update you XXXX? in your

Ted Fernandez

the as as comps we when term can around intact. return working that in third simple concerned group of favorable as very level that our a were XXXX fact with than that XX% XXXX -- compete well and of XXXX, let's definition as grow made our say, remain to a long the if quarter higher the we will prospects on-premise think and which by we but guidance high and best number, profitability right business Well, that to half would comments the fact decline, years. the estimate look, range prospects fourth we fourth our business the the growth that mathematically you be that profitability capital in The at for be sets QX the to of, from unchanged revenue the compare perspective, our our give of just we've two it the couple that the running quarter some you remains and we we growth the that rate continue a impact concern, now. is up had number transformation on we that just cloud have And in effectively to and that's then that range fact plus, continues that decline digital we're and

Jeff Martin

then revenue? does working able what quantify are of group capital And an on basis in that you annual to terms European

Ted Fernandez

it's profitability is answer The the has significant quarters. small, two been the but impact last

So address our the answer what clear goal is, it make that into to I'd is plans to rather sure and not that by impact details, I’d Jeff. those end. get to -- then it one say want was was my year the are

Operator

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

Ted Fernandez

and call quarter participating. our we participating year look those everyone when updating you for forward Thank fiscal to report thanking mid-February. in results by close both and earnings me full everyone in quarter Let on for our results third sometime results again fourth

Operator

This concludes your you Thank conference. participation. today's for

time. this at disconnect may You

The Hackett Group, Inc. (HCKT) 6 Nov 182018 Q3 Earnings call transcript