The Hackett Group, Inc. (HCKT) Q1 2017 Earnings Report, Transcript and Summary

Welcome to the Hackett Group First Quarter Earnings Conference Call. Your lines have been placed on listed only mode. [Operator Instructions] Please be advised that the conference is being recorded. Hosting tonight's call are Mr. Ted Fernandez, Chairman and CEO; and Mr. Rob Ramirez, Chief Financial Officer. Mr. Ramirez, you may begin.

Thank you, operator. Good afternoon, everyone, and thank you for joining us to discuss The Hackett Group's First Quarter Results. Speaking on the call today and here to answer your questions are Ted Fernandez, Chairman and CEO of The Hackett Group; and myself, Rob Ramirez, Chief Financial Officer. Our press announcement was released over the wires at 4:14 p.m. Eastern Time. For a copy of the release, please visit our website at www.thehackettgroup.com. We will also place any additional financial or statistical data discussed on this call that is not contained in the release on the Investor Relations page of our website. Before we begin, I would like to remind you that in the following comments and in the Q&A session, we will be making statements about expected future results, which may be forward-looking statements for the purposes of the federal securities laws. These statements relate to our current expectations, estimates and projections and are not a guarantee of future performance. They involve risks, uncertainties and assumptions that are difficult to predict and which may not be accurate. Actual results may vary. These forward-looking statements should be considered only in conjunction with the detailed information, particularly the risk factors contained in our SEC filings. At this point, I would like to turn it over to Ted.

Thank you, Rob, and welcome, everyone, to our First Quarter Earnings Call. This afternoon, we reported revenues of $71.4 million, up 4% or 5% when adjusting for constant currency, and pro forma earnings per share of $0.23, up 15%, which came in at the midpoint of our guidance. On a net revenue basis, we were up 5% and 6% on a constant currency basis, as our pass-through client reimbursable expenses came in lower than planned. Our U.S. revenues were flat with last year versus our expected 2% to 4% increase as demand was more tempered than expected. This decrease in demand in the U.S. was partially offset by stronger than expected European results, which were up over 35%, led by our strong European EPM performance. As we have been articulating, the digital transformation era brings great long-term promise, but it also comes with near-term market disruption, as our clients assess the technology providers' ability to sell and deliver on the desired functionality, security and performance of emerging cloud applications. Cloud application considerations also affect our client transformation initiatives, given the organizational change driven by these new technologies. The accelerating transition from on-premise to cloud applications and the increasing consideration of robotics process automation, or RPA, led us to move to a more aggressive acquisition of alliance strategy to address these market changes. To ensure we stayed at the forefront of these emerging market opportunities, we acquired Jibe Consulting and Oracle Cloud on the Oracle Cloud side, and we acquired Aecus, and we also announced our alliance with Symphony to address the RPA and related off-shoring service model opportunities. Jibe significantly expands our Oracle applications' reach beyond EPM to the entire enterprise and significantly expands our Oracle Cloud Implementation capabilities. The Aecus acquisition and the Symphony Alliance provide us with global RPA and global business service implementation capabilities and IP, which allows us to maintain our strong leadership positioning in this very important business as well as digital transformation space. We believe these moves, along with our planned introduction of our new quantum leap benchmarking offering as well as our new enterprise analytics training and certification offerings, will accelerate our positioning and also expand our addressable market in key emerging areas. It strengthens our digital transformation IP in these key emerging areas, which also allow us to highly differentiate our transformation and technology offerings. It allows us to further increase revenue per client by broadening our Oracle applications' reach to the entire enterprise and aggressively into cloud applications. Adds talent and further helps us build a more efficient resource pyramid, which allows us to improve gross margins as we have, as we increase headcount. And lastly, the introduction of these new offerings such as Quantum Leap in the benchmarking in the benchmarking space and our enterprise analytics training and certification, which leverages our best practice IP in new channels and offerings, which had recurring revenue high, a high-margin offerings that are defining our organizational model as a true performance improvement IP as a service business. On the balance sheet side, we continue to generate strong cash flows from operations. This has allowed us to increase our dividend, buy back stock and fund acquisitions while maintaining a favorable net cash position. I will comment further on strategy and market conditions, but let me first ask Rob to provide details on our operating results, cash flow and also comment on outlook. Rob?

Thank you, Ted. As I typically do, I'll cover an overview of our 2017 first quarter results along with an overview of related key operating statistics. I'll cover an overview of our cash flow activities during the quarter, a brief overview of the Jibe and Aecus acquisitions announced today and I'll then conclude with a discussion of our financial outlook for the second quarter of 2017, including the impact of the acquisitions on that guidance. For purposes of this call, any references to Hackett group will specifically exclude ERP Solutions. Correspondingly, I will comment separately regarding the financial results of the Hackett Group, ERP Solutions and the total company. Please note that all references to gross revenues in my discussion will represent revenues, including reimbursable expenses. Additionally, references to pro forma results, specifically exclude noncash stock compensation expense, intangible asset amortization expense, acquisition-related charges and assumes a normalized long-term cash tax rate of 30%. As Ted mentioned, for the first quarter of 2017, total company gross revenues were $71.4 million, which represents year-over-year growth of 4% or 5% in constant currency. Our first quarter, our first quarter's revenue guidance included a reimbursable expense ratio of 11.3% on net revenues. Reimbursable expenses are engagement travel-related expenses, which are billed to clients and have no impact on profitability. The actual Q1 reimbursable expense ratio on net revenues came in at 9.8% were lower than expected, unfavorably impacting gross revenues year-over-year comparison by 1.5%. Our net revenue, or gross revenue less reimbursable expenses, growth was 5% or 6% in constant currency and was within the guidance range we provided. Gross revenues for the Hackett group, which excludes ERP Solutions, were $60.2 million in the first quarter of 2017, an increase of 4% or 5% in constant currency on a year-over-year basis. Hackett U.S. was down versus the expected 2% to 4% growth as revenue was adversely impacted as a result of the acceleration of the transition of on-premise to cloud application migration activity and slightly lower than anticipated activity in our other Hackett practices. This was offset by strong international growth of 38%, led primarily by Europe. Hackett group annualized revenue per professional was $355,000 in the first quarter as compared to $342,000 in the first quarter of 2016. Gross revenue from our ERP Solutions group, which consists of our SAP reseller, implementation and application managed services groups or AMS, totaled $11.2 million, an increase of approximately 3% on a year-over-year basis. Total company international revenues accounted for 17% of total company revenues in the first quarter as compared to 13% in the first quarter of the prior year. Our recurring revenues, which include our AMS groups as well as our executive and best practice advisory groups, in the first quarter of 2017, account for approximately 18% of our total company revenues and 23% of our total company pretax practice profitability. Total company pro forma cost of sales excluding reimbursable expenses and stock compensation expense totaled $40.2 million or 61.7% of net revenues in the first quarter of 2017, as compared to $38.4 million or 61.9% of net revenues in the previous year. Total company consultant headcount was 922 at the end of the first quarter as compared to 940 in the previous quarter, and 861 at the end of the first quarter of the prior year. Total company pro forma gross margin was 38.3% of net revenues in the first quarter of 2017 as compared to 38.1% in the first quarter of 2016. Hackett Group pro forma gross margins on net revenues was 38.4% in the first quarter as compared to 38.3% in the first quarter of the prior year. ERP Solutions' pro forma gross margins on net revenues was 37.9% in the first quarter as compared to 38% in the previous year. Pro forma SG&A was $14.4 million or 22.1% of net revenues in the first quarter of 2017, as compared to $14.2 million or 22.9% of net revenues in the previous year. Pro forma EBITDA in the first quarter of 2017 was $11.2 million or 17.2% of net revenues as compared to $10.1 million or 16.2% of net revenues in the first quarter of 2016, an increase of 11.2%. Total company pro forma net income for the first quarter of 2017 totaled $7.3 million or $0.23 per diluted share, which as Ted mentioned, was at the midpoint of our first quarter's EPS guidance. This compares to pro forma net income of $6.6 million or $0.20 per diluted share in the first quarter of 2016. These results represent an increase of 12% and 15% on a year-over-year basis for pro forma net income and earnings per share, respectively. Our results include the impact of approximately 500,000 or $0.01 in severance cost due to the realignment in workforce to deal with the transition of on-premise to cloud-based application implementation activity. Total company pro forma net income for the first quarter of 2017 excludes noncash stock compensation expense of 1.8 million, acquisition related stock compensation expense of 310,000, intangible asset amortization expense of 386,000 and acquisition-related expenses of 106,000. Pro forma results also assume a normalized tax rate of 30% or 3.1 million. GAAP diluted earnings per share was $0.24 for the first quarter of 2017 as compared to GAAP diluted earnings per share of $0.13 in the first quarter of 2016. The current quarter benefit by $0.08 due to the adoption of new accounting pronouncement, relating to the accounting on the besting of share based awards. The company's cash balances were 17.1 million at the end of the first quarter of 2017 as compared to 19.7 million at the end of the previous quarter. This cash decrease in the first quarter was primarily attributable to incentive compensation bonuses paid relating to fiscal 2016, cash utilized to repurchase shares, to settle employee tax obligations for investing activities and the payment of our semiannual dividend. These outflows were partially offset by net income adjusted for noncash items and net borrowings from our revolver. Net cash provided by operating activities in the first quarter of 2017 was 4.9 million, which was primarily driven by net income adjusted for noncash items, which amounted to 12.8 million as well as increases in accounts payable, primarily due to the timing of payments relating to our AMS business, offset by decreases in accrued expenses, primarily relating to the payout of 2016 performance bonuses and an increase in accounts receivable resulting from an increase in our DSO. Our DSO at the end of first quarter of 2017 was 64 days as compared to 62 days at the end of the previous quarter. During the first quarter, the company paid 4 million for its semiannual dividend, which was declared at the end of 2016. At its recent meeting, the Board of Directors declared the next semiannual dividend of $0.15 per share, which will be paid in July 2017. During the first quarter of 2017, the company borrowed a net 2 million on its revolver. At the end of the first quarter, the company had 9 million of long-term borrowings outstanding. During the first quarter, we repurchased 233,000 shares of the company's stock at a total cost of approximately 4.1 million, primarily from employees to satisfy income tax withholding triggered by divesting of restricted shares. Our remaining stock repurchase authorization at the end of the quarter is 3.2 million. Before I move to our second quarter's guidance, I will like to briefly summarize the acquisition of Jibe and Aecus, which we both announced earlier today. In May 2017, the company acquired the operations of Jibe Consulting Inc, a U.S. based Oracle EBS and cloud application implementation in managed services firm. Management's purchase consideration was 5.4 million in cash and 3.6 million in shares of the company's stock, which are subject to service vesting. In addition, the sellers can earn an additional $11 million in continued consideration in cash and stock based actual results achieved over 18 months. The equity related to the earn out will be subject to service vesting. In addition, in April 2017, the company also acquired the U.K.-based operations of Aecus Limited, an outsourcing advisory and Robotics Process Automation, or RPA, consulting firm. Management's purchase consideration was £ 3.2 million or approximately 4 million in cash. In addition, the sellers can earn an additional £ 3 million in contingent consideration in cash based on actual results achieved over the next 12 months. Before I move, before I provide our Q2 outlook, it is important to note the impact of the acquisitions that were announced today. The results of the acquired companies will be included in our consolidated results from the date of close until our fiscal year-end. In conjunction with these acquisitions, the company will record a restructuring charge that is related to severance costs, which relate primarily to transition of on-premise software sales to cloud-based implementation projects as well as the rationalization of global resources as a result of the emergence of RPA-related engagements. This restructuring charge is expected to be approximately $1 million. We expect total company gross revenues for the second quarter of 2017 to be in the range of $73.5 million to $75.5 million, with a reimbursable expense estimate of 10% on net revenues. We will continue to use a lower estimate of reimbursable expenses, which will unfavorably impact year-over-year comparisons on a gross revenue basis or approximately 1%. On a total company basis, we expect net revenues to be up 1% to 2% on a year-over-year basis. This includes $3.5 million to $4 million of revenue in the quarter from the acquisitions announced today. Excluding these acquisitions, U.S. revenues are expected to be down approximately 10% with international revenues up in excess of 25%. As such, we expect our pro forma diluted earnings per share in the second quarter of 2017 to be in the range of $0.24 to $0.26. The high end of this range will represent a year-over-year increase of approximately 8%. Our pro forma guidance excludes amortization expense, total noncash stock compensation expense, acquisition-related costs, restructuring costs and includes a long-term cash tax rate of 30%. Given the timing of the transaction close and the transition cost that will be incurred until we finalize the consolidation and integration of operations and back-office infrastructure and personnel, we expect that these acquisitions will have a neutral impact on pro forma earnings per share in Q2. We expect that the impact of these acquisitions will be accretive before the end of the year. We expect pro forma gross margin on net revenue to be approximately 40% to 41% in Q2. We expect pro forma SG&A and interest expense for the second quarter to be approximately $15.5 million. We expect second quarter pro forma EBITDA on net revenues to be in the range of approximately 18% to 19%. We expect cash generated from operations to be up on a sequential basis. And at this point, I would like to turn it back over to Ted to review our market outlook and strategic priorities for the coming months.

Thank you, Rob. As Rob said, let me comment on outlook and on some of our strategic priorities. As we look forward, let me speak more broadly about the transitioning demand environment and on the opportunities that are emerging. As I've been saying for several quarters, the rapid development and move to cloud applications and infrastructure, along with improving analytics, mobile functionality, user experience being introduced in the market place by technology providers, is dramatically influencing the way business compete and deliver their services. This will disrupt entire industries at an accelerated pace, forcing organizations to fundamentally change and adopt these new capabilities in order to remain competitive. The speed of change will only be limited by the ability of the technology providers to deliver required functionality and performance. But regardless of their delivery limitations, the mere threat or opportunity promised will lead to one of the most significant enterprise transformation periods. This will redefine the traditional, sequential and linear-based business models and activities to fully network the dynamic automated workflows and events, with enhanced analytics that will finally deliver on much anticipated predictive analytics and artificial intelligence expectations. The so called digital transformation area is very attractive to our organization -- our organizations, as we believe our clients will increasingly turn to us to provide them with best practice insight on what technology can deliver and what changes in business models work and justify significant investments as well as transformational change. On a near term basis, the active considerations of cloud and RPA and the related transformative promise, disrupts the flow of on-premise to traditional and traditional transformation initiatives, more significantly than we expected at the beginning of the year. In addition, the transition from on-premise to cloud software offerings are being further accelerated by increasing sales channel incentives and focus on cloud applications sales. We believe in the near term this transition from on-prem to cloud and the related sales channel changes will unfavorably impact our U.S. growth rates. However, we believe that as cloud offerings and sales channel capabilities mature, there will be an accelerated migration to the new cloud software that will create increasing activity. In Europe, we expect our revenues to continue to be up strongly and be favorable to 2017 growth prospects. The decision to expand our EPM service offerings and more closely mirror our U.S. makeup several years ago is now being realized. We also believe that Europe strongly benefits from the recent acquisitions and recently announced alliance. Additionally, the growth in our IP as a service offerings should continue to grow and be noticeable to our 2017 results as we previously communicated. We believe we have taken the necessary actions to both optimize current year performance and also be strongly positioned for the emerging digital transformation opportunity. With that said, we now expect this transition will lower our 2017 growth rate to the low end of our 5% to 10% long-term growth range. As I've previously mentioned, we continue to expect one of the key drivers of our growth to come from the strategic leverage of our benchmarking and best practice advisory services. Our benchmarking and best practice advisor offerings are highly differentiated and have been providing significant improved cross-selling leverage to our business transformation and technology consulting services. We believe our expected launch of Quantum Leap will further differentiate our benchmarking offering. In 2016, over 85% of our revenues came from former Hackett clients and users. We refer to this group as our Hackett user or install base. We believe this level of client loyalty and repeat business is directly attributed to the unique value of our IP and is one of the key reasons why we're so positive about our long-term growth prospects. In advisory, our IP alliance relationships are helping us invest in new technologies that will improve our clients' access and leverage of our proprietary insight when we deliver such programs. We expect this trend to continue. Another key driver of our growth strategy has been to continue to expand our market-leading enterprise performance management or business analytics business. Our Oracle Cloud acquisition expands this capability beyond EPM, across the enterprise for Oracle applications. This will significantly increase the addressable market that we currently address with our EPM-only capability. At the heart of the digital transformation era I just referenced are cloud and business analytics, which represented nearly 50% of our Hackett U.S. revenues and 40% of our Hackett global revenues. In Q3, we also planned out a roll out a new Oracle Fusion cloud IP best practice portal, that will help clients align Oracle Cloud application functionality to our best practices and impact our ability to setup and configure Oracle applications more efficiently and effectively than competitors that don't have such IP. We believe this will highly differentiate our cloud implementation efforts. Our long-term strategy is to continue to build our brand by building new offerings and capabilities around our unmatched benchmarking and best practice intellectual capitals. This allows us to serve clients strategically and whenever possible, continuously. At the end of the quarter, our executive and best practice advisory members totaled 1,098 across 329 clients. These numbers exclude the new client that we have been adding from our new ADP and CGBS IP as a service alliance. As we announced last year, we are now seeing the opportunity through our new alliances and channels to use our IP to help others sell and deliver their offerings. In late 2015, as you know, we launched our dedicated best practice advisory program with ADP to help sell, implement and deliver their Vantage HCM solution. Feedback from the ADP sales force and team as well as our client continues to be very favorable, and we continue to believe that we will be expanding our offerings to additional ADP platforms throughout the year, and we'll expand our opportunities with ADP throughout the year as well. Relative to our certified GBS program alliance with CIMA, we believe this relationship will allow us to build an entirely new professional development business that provides globally recognized certifications for shared services and global business service professionals. We now have our curriculum completed, which should allow us to add new clients as well as students or participants per client. During the quarter, we continue to sign up new companies and continue to build our pipeline with major global organizations, with significant GBS presence. We now have over 150 companies who are using our curriculum for their assessment. As companies complete their pilot programs, our goal will be to gain larger and longer term commitments from the companies currently in our pilot program. This should enable us to increase our recurring revenue per client relationships throughout 2017. Lastly, this quarter we will roll out our enterprise analytics training and certification course and the introduction of the Hackett Institute. We believe the importance of analytical skills will significantly grow over the next decade, as companies realize the value of data and related insight and realize the need to extend these skills throughout the enterprise. As I mentioned last quarter, we decided to launch our offering without an alliance partner. However we continue, we will continue to assess academic institutions that can extend the value of our content or the value of our plan certification. Given the unique nature of our best practice content, the recognized value we have experienced with our CGBS offering, we now believe that continuing education provides a significant revenue growth opportunity for our organization. We continue to expect that CGS, CGBS and ADP Vantage programs, as well as our enterprise analytics offering activities to build throughout the year and become noticeable to 2017 results. Our benchmarking and best practice IP as a service strategy allows us to increase our client base profitability and increase revenue per client. It would also represent an increase in recurring revenue at much higher margins due to the way these services are provided and contracted. Lastly, even though we have the client base and offerings to grow our business, we continue to look for acquisitions, analyze it to strategically leverage our IP at scope, scale or capability, which can accelerate or complement our growth. In summary, we reported solid results. More importantly, we have aggressively moved to enhance our capabilities in key emerging areas through the acquisitions we announced today. We believe the investments we are making in our IP, our expanded cloud application and RPA capability, IP as a service offerings and alliances and digital transformation focus will continue to drive sustainable structural growth. As always, let me close by thanking our associates for their tireless efforts and to always urge them to stay highly focused on our clients, our people and the exciting opportunities available to our organization. Those conclude my strategic comments and market-related comments. Let me now turn it over to our operator for any Q&A activity.

[Operator Instructions] Our next question comes from the line of Jeff Martin with Roth Capital Partner.

Can you shed some insight on specifically how the move away from on-premise is specifically affecting your U.S. business? And what kind of timeline do you foresee that impacting you on? And how will the transition away from this U.S. slowdown come about?

Well, as we said last summer, two things. Oracle did a couple of things that were important to our business. One was that they significantly increased the incentive for cloud applications sales to on-prem. And they also integrated their EPM channel with their ERP channel as well. And those are a couple of changes that we have tracked pretty closely as we looked at how quickly we wanted to accelerate the move to cloud and to build that capability at the expense of on-prem, in order to follow, I'll call it, their drive, and that they're transition to closely benefit our business model the most. What we saw, as we were -- as we saw the first quarter played out, we just saw an increasing deceleration of the on-prem business and an emphasis to cloud. And as we have been looking and considering those alternative, we quickly said, do we want to continue to try to build that capability organically or alternatively as we had been considering and looking at our option in order to prepare for that transition, did we want to complement whatever we were doing with acquisitions? As we saw that activity accelerate and we saw the emphasis and the number of cloud products continue to kind of emerge and be promoted by the -- by Oracle, we decided that instead of trying to be passive throughout '17, we wanted to do two things: one, obviously, we want to continue to optimize the opportunities of on-prem, continues to be the largest source of revenue for Oracle and for us on the apps basis. But at the same time, we wanted to make sure that we weren't missing out on any mindshare opportunity, both through the channel or through their offering, I'll call it, immediately instead of looking at more of a late '17, early '18 transition. So consistent with what you've seen Oracle report over the last several quarters, strong cloud sales are emerging. They are coming at an expense to an on-premise alternative in the broadest area, and we wanted to make sure that we did both, optimize our '17 opportunity and the performance of our '17 opportunity, and then be in a leadership position as quickly as possible now, with broader cloud capabilities and to have that as we played out the remainder part of '17. But maybe to answer your question more directly, we would expect, consistent with Oracle results for on-prem sales and related service activity, to decrease -- continue to decrease, and that will happen -- how gradually, I mean, we'll have to wait and see. And we should expect rapid growth of the cloud application, sales as well as the implementation opportunities that will be available to our organization. Now we have the ability with the acquisition of Jibe to completely support any Oracle Cloud Implementation sale and to leverage the entry point we have with our client and not limited just to the EPM modules or functionality that Oracle offers, but to do that across the entire suite of Oracle products. So we have, we will, obviously, as you see in our Q2 guidance, we're going to be unfavorably impacted as we -- as that on-prem activity slows. But if we can quickly take advantage and participate in the aggressive cloud implementation side then we should, as they plan, we should be able to outgrow and fully offset that as that transition happens. What we've done is simply say we're going to do that right now and reposition ourselves to take advantage of that right now.

Okay. To hit those low end of your 5% to 10% revenue growth objective, it appears as though you're being down 10% U.S. is somewhat of a 1 quarter phenomenon, is that what you're factoring into your guidance?

I do expect on-prem activity to continue to decelerate. What you're going to see is, we do expect that activity not to be, I think, as significant in Q2. Q2 for us had the comparison have a lot of different things. Not only was it an incredibly high performing quarter for us last year, we were up 23% in the U.S. It had very strong activity in some workforce areas as well. So to us, it's a combination of comp and the fact that if the on-prem activity is going to be noticeable, we need to be on the other side of cloud, and we obviously, weren't participating in that as we entered Q2. So our hope is that we can offset that, and as I said in my commentary, stay around the low end of our long-term growth rate, which I said, which is long-term growth rate of 5% to 10%. And then you know the kind of leverage we get on our model. So it should allow us to turn be nicely profitable and provide a nice return to shareholders. More importantly, we should then be on the other side of, again we think, the migration to cloud, which will happen over the next three to five years, all of the transformation to happen as a result of the implementation of that offering. We believe all of that, along with the quick emergence of RPA technology, we think are just incredibly significant transformative events, and we think we're going to be strongly positioned across all those dimensions.

And then can you give us a sense of what Jibe and Aecus add to annual revenue on a run-rate basis, and if there's much of a difference in margin structure versus your current margin structure? And then at what kind of growth rate those businesses are growing? That would be helpful.

Well the Jibe had approximately $16 million but again the tricky side of that, Jeff, is that it has rapidly growing cloud revenues, and it has the on-prem EBS side of the revenue side. So that's why we retained our guidance to Q1 in our comments to accretion to just the second quarter. But if we have the impact that we think we have -- so for example, we've already been in front of 2 clients, with meaningful opportunities just since we started -- since we knew that we were going to be going to market together, if we get the kind of success on the cloud side, you're going to see -- we think you're going to see a very different $50 million from Jibe revenue 12 months from today. So we expect their revenue to transition along by leveraging our access and the complement -- how well we complement each across the whole Oracle channel and offering spectrum. So we don't expect their revenue to actually grow in the next 12 months. We expect the cloud side to aggressively grow. And we expect that to come in at significantly higher margins that they were experiencing. So we would expect the revenue to shift and come in what I'll call it Hackett, Hackett kinds of traditional Hackett margins that you've seen from our EPM group. We don't expect that to be any differently as that transition takes place. But they've enabled us is the ability to get in front of a enterprise Oracle opportunity, and not only capture a much broader opportunity from on Oracle client, but to also ensure that those opportunities that are being sold with those offerings that include EPM are not being excluded. So we think it has tremendous strategic value not only in the way we aggressively grow cloud but in the way we defend the EPM transition as well. So I know it's long-winded, I know it's a little complex, but that is the transition that everyone that's implementing Oracle applications on both the on-prem and on the cloud side are experiencing.

Thank you. And our next question comes from the line of Morris Azjenman. Your line is open.

Morris, you there?

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

Let me thank everyone for participating on our call. We look forward to updating you when we report our next quarter. Thanks again for participating on our call.