HCKT - Earnings call 3 2023 | The Hackett Group, Inc.

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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,

Robert Ramirez

and Group's for Third everyone, discuss us The Hackett Quarter thank afternoon, joining you to Good XXXX Results.

call Fernandez, Executive the questions Chief Financial and on today to Ramirez, here Speaking answer myself, are Robert Ted of Chairman Officer Chief Officer. and Hackett Group; and your

X:XX press A at was Time. over released Eastern announcement wires the p.m.

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

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

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

At this point, I would like to Ted. turn it over to

Ted Fernandez

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

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

it comments, We and after will up then will strategy-related market open our which Q&A. to review we

segment, guidance QX the from continued which of high comments the of most which up end This momentum ramp. reimbursements per allowed previous revenues we several of million, continued on our of strong reported experienced was was $X.XX, call, us quarter which quarter Solutions our of which our results was second we the the to high pronounced above adjusted $XX.X guidance. and we the our with at at with of Oracle second share to last afternoon, Consistent strongly earnings in earnings performance exceed in the was year. launched before end our and the engagements This

we important, experience and continue received support the demand sales to the strong channel Equally Oracle market strong quarter. from during

include up segment last global Our considerations. over the year. when on GenAI of was most to now SPT We thoughtful compared X% new client saw discussions meetings

which our deliver GenAI provides working level. for new activity of explorer AI on tool, us have the new recently We a allows a series to at by function launched clients been offerings. comprehensive recommendations and AI We assessment opportunity

We expect significantly this increase in XXXX. activity to

in enterprise practices. and are performance our seeing our We also increasing which impacting OneStream management Oracle favorably is activity function,

year-over-year to perform realized segment a sales on Solutions third Our but continued as SAP was the year. in last it very strongly, basis comped against of down software strong quarter

research. more powerful Benchmark expert metrics access We the a realization highly to applied also IP our we of executive growing combination programs. as aggressively enhance unmatched QX, invest practitioners knowledge of and continued value to our IP-based and advisory programs and existing pricing grow in emphasizing product best to as and In practices tools. architecture continue well into focused

our our sales While pipeline offerings than has client more for meaningfully, impacted these decision-making to increase continues extended expected.

X% expect growth in closer achieve to XX% to contract we to Given annualized XXXX. this development, value

best all dedicated state-of-the-art research practices knowledge executive platform Connect, member October. allows advisory applied through programs benchmarking our of This new fully and IP, Hackett our which to of new members All our existing avail and our launched delivered to experts. in new themselves are platform, and

significant investments represent transformative building will efforts. in expert organization's most result believe of a network. of also powerful We extended a that we These are our community users one

of using sheet while On our pay by facility buy the our facility Long down our balance fund current use the credit can side, outstanding to continuing business. back our in continue sheet to to acquisitions balance use we to from year. credit us to and through to expect you flow balance the cash operations invest term, to plan stock

will With provide comments. strategy me let comments also that following ask Rob's market on said, on our results outlook. on Rob? and to comment cash and Rob operating details conditions flow additional I make

Robert Ramirez

Thank you, Ted.

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

For will SMBT separately comment the the global purposes I revenues Solutions call, of of company. our regarding Local Solutions our segment segment, segment, this total our SAP and

advisory includes of results international offerings, and executive transformation business services, SMBT America Our offerings. segment IP programs, global our benchmark Service our the our our North onstream a our as and

Solutions our Our respectively. and segments Solutions SAP include Oracle the of SMB offerings, and results our Oracle

both revenue will project expenses note before expenses our profitability. through pass that travel-related Please in have our and primarily we referencing total are our to no be to revenues impact Reimbursable reimbursements associated that clients discussions.

which reference useful we measures, provide today, to will non-GAAP During believe information our also we certain investors. call financial

release company's discussions any reconciliations to post of included will the website. our in non-GAAP call based Relations today page information this measures Investor from the press additional earlier to and on GAAP of filed We financial have the

As revenue million, XXXX, Ted year. third X% prior the up $XX.X of quarter was over the mentioned, our for total

end the of year. guidance, above Our quarterly X% prior revenues before reimbursements the million over was were also up our $XX.X high which

the reimbursements in our an reimbursable before million increase when compared were reimbursements global in XXXX, for of when the in of of X.X% $XX.X Total compared before prior compared ratio and prior the on period our $XX.X the period year. third revenues segment segment XXXX. global year. were third X.X% third X.X% X.X% to quarter to revenue quarter the quarter for from Revenues SMBT same period the for was prior and million to same The expense SMBT as the

of the million quarter were our million Solutions for quarter, Total before were started revenues $XX.X segment This Ted XXXX. increase from the compared third for when same third build mentioned. in in our the year. had to as Solutions for reimbursements Oracle we the to Oracle momentum the $XX.X quarter reflects XXXX, of segment prior period XX.X% the an second revenues of

the to of which in decreases company SAP Approximately were a multiyear XXXX. Total quarter. XX% million as of our sales Solutions advisory, expected prior million IP segment software due period benchmarks consist in services the application subscription-based the revenues contracts. a decrease Solutions revenues revenues XX% segment from third XXXX, before reimbursements in to primarily the service, of for $XX recurring multiyear executive for Revenues and our of third includes quarter reimbursements year, before when managed the our quarter were SAP $XX.X for same compared of the total our and

expense XXXX reimbursements year. which million and third revenues $XX.X XX.X% reimbursements company stock-based exclude million cost as compensation revenues in expenses or reimbursable $XX.X totaled adjusted of or compared quarter before the Total sales, of the prior noncash of to XX.X% of before in

consultant of the Total count in previous X,XXX at the third the and company quarter the head X,XXX end at of quarter of third count to head total company quarter consultant X,XXX of end the compared expenses as noncash the margin gross compensation XX.X% was quarter XX.X% revenues Total on reimbursements and before in excludes year. as prior which company stock-based the of period. expense compared third the prior adjusted XXXX year to reimbursable in was

$XX.X prior revenues our or before making million XX.X% IP-led of of approximated dedicated primarily to excludes compensation the revenues $X.XX was $XX.X service year. resources expense, which reimbursements This noncash the quarter for XXXX. absolute increase dollar stock-based the third or due the offerings. million SG&A, year-over-year before Adjusted These compared The XXXX. in investments sales in third incremental quarter to reimbursements we're of of in is is investments in XX.X%

$X.X for Adjusted reimbursements excludes XX.X% which or third the per million diluted year. quarter of diluted per to XXXX noncash $X.XX $XX.X or of income of net of comp as third totaled or compared XX.X% expense, for year. $X.XX EBITDA, prior as before the revenues of to of the in third $XX.X revenues million earnings was of compared GAAP $XX.X share reimbursements prior million million GAAP the quarter income quarter net in in share the before earnings stock-based

of the third diluted the share Adjusted for net which expense income of or end quarter of $X.XX third XXXX, range. income, or at of totaled $X.XX, adjusted high per year. common of in of net adjusted to This $XX.X stock-based net common the $XX.X million compares quarter was per the comp guidance noncash prior million earnings excludes net income share which diluted adjusted our income

provided compared as $X.X the cash the were of previous at adjusted million quarter expenses by Company's the partially at quarter Net receivable noncash liabilities. XXXX quarter. $XX.X activity and of in in the offset operating decreases end million, accounts increases was third increases for income driven balances contract net the cash in activities primarily and of in by by million $X.X end to accrued

primarily Our client the increase the end DSO the XX during the DSO quarter. year. milestone half or days the begun on extended quarter that as days to large The of previous deliverables is compared first the due multiyear was sales of at in outstanding end days, and we've terms engagements to XX at of

to which X should the benefit reduction days. a in expect X DSO by We in accounts estimated quarter, an receivables fourth

quarter, quarter the the debt the at our million. company credit of The outstanding facility. of paid the the During end was $XX on million company's $X down total balance third

through expense was quarter make the the interest Our plan year. to for of downs is to $XXX,XXX. the pay Net continue balance

average -- company's X,XXX of employees During of restricted an stock the triggered of satisfy approximately XX,XXX. for shares taxable to shares by of $XX.XX a purchased cost total vesting quarter, the per income holding from we repurchased at the share approximately

its at $X.XX declared remaining At X, stock company's XXXX, on recent January million. December the authorization end Board Directors be of was XX, of meeting, of the fourth paid XXXX. quarterly to per Our shareholders of end, share to dividend record repurchase most quarter $XX.X the the quarter its of for subsequent

of Before of would the business. our the like I of seasonality remind fourth move to for to quarter I guidance everyone XXXX,

the in quarter. when indication increased approximately fourth quarter third the compared Specifically, the taken days our has by holiday to XX% historically that decrease time available billing will

$XX XXXX the the million of reimbursements revenues such, for be the to to of million. total in range $XX.X estimates fourth As company quarter before

and up We Oracle SMBC be prior year. expect when revenue before reimbursements the segment's compared to global to

reimbursements basis. segment the the We net estimate which diluted We year-over-year to expect in on a XXXX be SAP in quarter tax on be $X.XX, adjusted of share earnings range adjusted of $X.XX to income per down XX.X%. GAAP effective assumes to rate a Solutions revenue before of fourth

resources sales fourth per Advisory for our quarter, the we in common incremental will our diluted the as quarter costs development to service IP by As in last approximately making reflect are investments related expected continued are and income Ted a share dedicated net Executive $X.XX. program intelligence benchmarking, offerings. incremental mentioned market impact and dedicated These

We revenues to expect adjusted gross margin before to be approximately XX.X%. and XX.X% on reimbursements

to We expect adjusted million in and SG&A $XX.X quarter. expense be interest the approximately

reimbursements on in of adjusted quarter EBITDA XX% fourth revenues expect We range before XX.X%. to to be the

expect basis. cash a we up operations sequential on from Lastly, to be strongly

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

Ted Fernandez

Thank you, Rob.

near look environment we our share me it organization. let and offers thoughts opportunity the our and As growth long-term the on demand forward,

disruption, it fundamentally intelligence is demand as an digital which dramatically adopt at as by activities by and and analytics effect. organizations and to these compete . Digital businesses priorities are competitive decision-making artificial targeted its gains. for and new productivity cloud increasing extended change intended accelerated rates to transformation pace, services. deliver well interest impacted remains, enterprise created as way redefining is transformation automation remain forcing the Digital is to demand influencing the organizations and all applications, competing and realize the workflow assess capabilities Although their innovation being

started, economic year. the When the the become would we with progressed, the we in of the year second year headwinds see more behavior half and improve the as believe clients comfortable would

headwinds uncertainty continues have clients adjust many environment, persist prolonged balance result inflationary in rate the the for expect through higher we to to we new increase the initiatives, which Although of to rate the seen year.

and a side, competition the Overall, which term, sales executives effective to continue. we the have our to talent for provides expect model because and hybrid attract defined which and have allow struggled flexibility model, This teams. the industry. the personal provides we respective of transitioned On perform demanding to retain our historical moderate we their experienced an to continues. them. during to greater to Longer access retain very associates their that is continue remotely, with and hybrid responsibilities and This that with our saw quarter valuable us of to talent improved delivery us turnover clients requirements should to travel trend

development accelerated IP-related programs and our area. new have this dedicated marketing we focus by our high-margin recurring the Strategically, services and of increasing to on resources sales

will Additionally, new capabilities GenAI Hackett member throughout further to introduce continue AI invest we our explorer to Connect XXXX. platform, on beyond plans with the

It revenues The and we effect of IP, and is are XX% note research over Simply to business consulting approximately see our rely that utilize who on put, years. cloud also application sale to has also likely through research to consulting advisory last downstream continue several transformation important more services. benchmarking our services. the our services our and been benchmarking from organizations strong clients

on Coupa, to focus published and the as We intelligence SAP, our others. and providers report recent Ariba, with inaugural market second software pay such also Oracle, reports purchase most

publish finance IBM accounting outsourcing companies such intelligence service soon including will third program, in Capgemini. our and as Accenture, market which evaluates We space, the providers and

ability Our implementation accelerates value and is insight performance. a business insight unique that our realization measure to customer's provide

next report total that budgeting planning PM. enterprise to issue as as By services addition close and specialized Our of a an providers. and evaluations consolidation view well X-part we performance analysis early aggregated includes enterprise to XXXX, one, additional of X is intend management in software of

to reports measurable companies providers, deliver. the critical market value their to they well Our competitors as learn represent solutions as how intelligence compare impact the the

decisions. Market will in We're and Our focus partners XXXX inform to beyond strategic Intelligence efficient large IP acquire allow us new consulting purchasing through that and partnerships our and customer software will that exploring us an also service advisory benchmarking base also channels to manner. sell to and current reports executive the Global can reach allow

executed IP continue our our April we to on for our We evaluate agreement first IP platforms. new of channels X, and and content

enhancements create transformation platforms. more benchmarking redefine over comparable deliver significantly in continue us also less We effort. case of our of clients the These believe with information marketplace. It IP through Leap, along platforms global allow our respective decisions platforms our Quantum We also and to track transformation configuration assessments in to software value solution the benchmarking leverage compelling no leadership Software-as-a-Service digital there our process digital life realization to with effort. benefit their flows client IP accelerate to and allows initiatives are

page demo mentioned As platforms. to have with I utilize previous the more that of investors we our on website on our have familiar become can calls, the XX-minute a of Investor Relations capabilities

Connect We will also be updating our demo with our newly launched platform. Hackett

base grow growth. capability, though even have to we in a acquisitions we business, leverage and Lastly, client the accelerate for add strategically offerings our scale [indiscernible], which IP that to our our believe scope, or and that continue we look can

clients to and let their and our and our always, by me what for congratulating challenges on As no urge our encounter. we associates them by performance thanking our people tireless close on efforts may them highly always matter focused stay

my comments. conclude Those

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

Operator

MKM. with Jeff [Operator Our Martin first caller ROTH Instructions] is

Jeff Martin

hoping XXXX, you -- an some since significant sales Ted, made from regarding it's get accelerated I the really to but this beginning resources update in you've investment of year. was

kind for into Just relative as do as on there potential your of we update progress benefit And expectation? to head you an looking see tracking XXXX? a what

Ted Fernandez

specifically, And conversions a that than sales We've would enhancements our individuals. significant. first, of quarter -- great expected. and little While building pipeline. significant a made we been offerings. very we the and We've all our training I of although this to have team been the in were our group investments continue And say lower aggressively we've investments assembled

the significant. IP-based that the our they on impact have to that continue on this of be believe sale we're will making team -- high-margin will offerings our the and investments We

Jeff Martin

correctly your Great. would kind seeing hear the And then even are taking after that headwind of some as you say off new the I did ending you And going rollouts, secondly, maybe with you're respect a quarter? initially? to the to on you Intelligence Market relative year to into then rate track these initiatives or uncertainty of thoughts second

Ted Fernandez

the across We've board. really seen it

say know services like at as that it's at convert to pace. these impacted at I high. the well. activity, -- we it's faster we'd When a we when So incredibly look overall would we that look conversion,

pipeline to decision-making faster saw of client it We extended well. convert that offerings in it pace extend QX. the expect all a sales we offerings, and at the But into IP-based the impacted as

individual, they the the of and knowledge from offering think when team I traction a we building, decisions think that of are new and but for that it's the extend time. only it's to of kind we capabilities a we think at matter a new probably the look relationships products client the easier of of a

Yes. peak. to on the hit Is But economic the the be impact without doubt also headwinds beyond hopefully, prolonged extend And matter it is them no is extending intended kind of I'll But interest felt. there's decision as or to half to interest environment say that, I year slow of longer believe now is, growth to the environment did where rate or its this have the took it's that as that that we with -- the hopefully and down rate not significantly, the being we of would hoped? call intended that headwinds. second fact whether less

to make sure that isolated it want So to not those I is offerings.

But look I would progress we're under next the of under the quarter. the conditions the think the we dampen at I from across in -- strong Yes, to, that investments? Look, also results making. this not. that Absolutely that even making we're it Board year, quarter, get as want to expected to they're returns though those for numbers was or expectations when and those in expect it. feeling environments determine this investments have does higher and to the those like well the the we as I quarter

Operator

Instructions]. [Operator

Our next caller Craig-Hallum. is George Sutton with

Unknown Analyst

love George. have well. exactly thinking for early hear your on Adam Would additionally, would remarks Explore. further that if I that And on beyond you any you're AI be about. you're is love on as This to investing going you details mentioned what to Ted, feedback in some

Ted Fernandez

our tail started last at offering end development actually of we the all Well, of year. GenAI-related

inventory did and by by a we extensive activity a significant use level. the function cases very develop look study a So to of at

do comprehensive changes to would business related and does the So to Explorer efficient determine of very make. what understand they is priorities And their AI and the client allows it a have opportunities. assessment

it We And the offering just I that had we already had base. we requested. can XX first rolled out October. clients that it as as know in is thing to We're client going throughout our aggressively I be

So we XXXX. as the through to I mentioned year, to call, only not activity significant be on of this but balance increase in the expect the

without there and considering Now doubt considering do to without transformation no significance that with of everyone is no GenAI of the is digital kind and that is appropriate. longer that any effort GenAI the

will So we think that build year. throughout kind of and follow will the activity

relates an all identification also intends services and I'll beginning or part that to that doing have follow Explorer, those, to be program we -- expect all make. will at actually of program it started the briefings to on this later will incorporated then GenAI-related call assessment we'll either accompany or year. advisory our latter of it, consulting opportunity extend that no the offerings, We've a year formalize that the AI other executive of to program, As horizontal will that client programs. it functional We've

Unknown Analyst

pricing the pricing Any be And of terms come improving? love seeing would to improve I'd more type or great. feedback people you're of if to the is anything M&A know in table market,

Ted Fernandez

obviously, simply I It's the that on costly. harder to a deal. many more to financing can't a say definitely make finance side, really lot it's -- than other comments

who part on -- we have yes, that to really that, seen so No. take think it's financial in a no, space? those pricing any I significantly be -- continues of buyer that play difference less Yes. the seen It's So financials activity process constrained bit pricing? just side to Have what going and normalized and in to we the little and reconsider people for is.

Unknown Analyst

to on just respect to to And a far you final a you force for build-out mentioned are you head about Intelligence Market the along count in question that the from perspective? for sales me. With that XX. past, grow wanted How

Ted Fernandez

high in were we quarter. XXs this throughout Well,

is still So the the number XX target.

because that it's I unchanged So the point, half around team and conversion the accelerated of in built we the at think this opportunities our first of year. existing

Operator

caller Colicchio next our is And with Vincent Research. Barrington

Vincent Colicchio

expected Yes, the out Ted, as the side, rolled program less has expected? than well than seeing programs Market on because less Intelligence performance than you demand as lower expected been

Ted Fernandez

Well, earnings first, this last said call. on I think I the

make the advisory let's executive in sure the that buyers. on researchers we existing focus sales resources sell So built functional our to increase understand were with our

and that never programs they they have have in impact We going the we're we're that to where got been. to balance As still depending believe in you but year content the were on sure yes, the longer is on the impact has count are overwhelming several to taken and time of we'd have the to our intelligence, time XXXX. intended make amount kind we've you in early the ] X XXXX. new The know, of on like. of market revenue-producing sales expected out and how it's XXXX, the of [ be XX through programs, to effort us programs

that out. think complementary market will we So the come programs intelligence

based we make year. middle basis, Intelligence sale to projections the we're start incremental of our programs, contributing the And as made sure on at were the roll to Market have. we of yes, leader clear. XXXX in Market they programs, which to out an just the executive a Intelligence the recall, advisory not from we more. But that The But may wanted them we you change expected made

frame. the was June it think I time

just the slowdown and making. approach on So effort some were we to that led a

the full in number get to we However, XXXX back effort can. on it our targeted as early is out force as with

Vincent Colicchio

clarification Thanks the for there.

what the into that continue grow Oracle to early what you businesses SPT, the next sales sequentially there's for in there? enough degree And GSPT feel pipeline to QX. year? pipelines to like and sequential On do looking growth Curious look here

Ted Fernandez

exception less consider and Well, QX guidance that from available XX% take is our with will the in quarter conservative the at sequence the the you out the expected all more of had. see I'll have includes, the of you guidance that activity, software grow the number to pure look dates you SAP we which a including you XX% the when available days call and are answer sequentially, to sales that our on the it, others QX we've

Vincent Colicchio

Yes, of businesses? What got that. I'm just sales But for potential look new like the that clients. does curious, pipeline Oracle the GSBT and

Ted Fernandez

Again, clients every out of unchanged. the extended strong. making, remained that on decision conversations declines remains with Interactive activity those GenAI conversation. virtually

is unchanged. you or some if those that's for of no, want to it, as GenAI against those So decision-making. of or part a new But of, to seeing opportunity, we're longer yes, it initiatives kinds call decisions taking broader people make extended weigh

Operator

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

Ted Fernandez

you and call participating to forward and earnings to our quarter like third updating full . quarter our we when in results thank everyone for look again fourth year I'd report

Operator

And this Thank concludes for you today's participating. conference.

You may have day. at this time, disconnect your of a rest great and

The Hackett Group, Inc. (HCKT) 7 Nov 232023 Q3 Earnings call transcript