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. Ramirez, you may begin.

Thank you, operator. Good afternoon, everyone and thank you for joining us to discuss The Hackett Group’s third quarter results. Speaking on the call today and here to answer your questions are Ted Fernandez, Chairman and CEO of The Hackett Group and myself, Rob Ramirez, Chief Financial Officer. A press announcement was released over the wires at 4:05 PM 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 question-and-answer session, we will be making statements about expected future results, which may be forward-looking statements for the purposes of the federal securities laws. These statements relate to our current expectations, estimates and projections and are not a guarantee of future performance. They involve risks, uncertainties and assumptions that are difficult to predict and which may not be accurate. Actual results may vary. These forward-looking statements should be considered only in conjunction with the detailed information, particularly the risk factors contained in our SEC filings. At this point, I would like to turn it over to Ted.

Thank you, Rob and welcome, everyone to our third quarter earnings call. As we normally do, I will open the call with some overview comments on the quarter. I will then turn it back over to Rob to comment on detailed operating results, cash flow as well as comment on guidance. We will then go over to our market -- I will then provide some market strategic overview comments and then we will open it up to Q&A. So, again on the overview side, let me again welcome everyone to our third quarter earnings call. This afternoon, we reported net revenues of 68.2 million, a 3.5% increase over the prior year with pro forma earnings per share of $0.27, a 4% increase over last year. As expected, our Hackett US revenues were up 9% from last year, led by a 20% plus growth coming from our strategy and business transformation group. Consistent with prior quarters, digital transformation initiatives continue to drive the growth of our strategy and business transformation practice. Our Oracle ERP, EPM and Analytics group was up 1% from prior year, as we continued to aggressively migrate from on-premise to cloud implementations. Total company US was up 4%, as our SAP group came in slightly weaker than we expected, down 19%, as we continue to feel the impact of SAP's transition to software-as-a-service applications and their impact on our channel alignment. International revenues were flat and lower than expected on a year-over-year basis due to weaker than expected performance from our working capital practice. Excluding working capital, international results were up over 20%. Given our strong focus on digital transformation as we head into 2019, we have decided to consider several options for this practice, which we plan to effect by year end. Our Oracle ERP, EPM and…

Thank you, Ted. As I typically do, I’ll cover the following topics during this portion of the call, an overview of our 2018 third quarter results along with an overview of related key operating statistics, an overview of our cash flow activities during the quarter and I will then conclude with a discussion on our financial outlook for the fourth quarter of 2018. For purposes of this call, any references to The Hackett Group will specifically exclude SAP solutions. Correspondingly, I will comment separately regarding the financial results of The Hackett Group, SAP Solutions and the total company. Please note that any references to gross revenues in my discussion represent revenues including reimbursable expenses and any references to net revenues represents revenues excluding reimbursable expenses. Additionally, references to pro forma results specifically exclude non-cash stock compensation expense, intangible asset amortization expense, acquisition related compensation and non-cash compensation expense, acquisition related costs and earn-out adjustments and assumes a normalized long term cash tax rate of 25%. Acquisition related cash and non-cash compensation expense primarily relates to the portion of the purchase consideration for the 2017 acquisitions that contain service vesting requirements and as such are reflected as compensation expense under GAAP. In terms of our third quarter results, for the third quarter, our net revenues or gross revenues executing reimbursable expenses increased by 3.5% to 68.2 million when compared to the prior year and was within our revenue guidance range. Reimbursable expense ratio on net revenues for the third quarter above 2018 and 2017 was 8%. Reimbursable expenses are primarily project, travel related expenses, past due to a client and has no associated impact to our margin or profitability. Including reimbursable expenses, company gross revenues were 73.8 million in the third quarter of 2018, which represents a year-over-year increase of 3.3%.…

Thank you, Rob. As we look forward, let me reiterate our thoughts on the demand environment and more importantly on the significant growth opportunity it offers our organization. The rapid development in smart automation, cloud applications and artificial intelligence along with improving mobile functionality enhanced user experience is dramatically influencing the way businesses compete and deliver their services. This is redefining entire industries at an accelerated pace, forcing organizations to fundamentally change and adopt these new capabilities in order to remain competitive. Traditional, sequential and linear based business models are changing to fully networked and dynamic automated workflows and events with enhanced analytics. In the US, these transformative technologies are resulting in increased activities as companies determine how to respond to the quickly changing competitive environment. We are seeing the growth in cloud and digital transformation engagements improve our growth prospects. As our digital transformation and cloud engagements continue to grow and the decline in on-premise revenue slows and becomes a smaller part of our total company revenues, the complete benefits of our transition will become increasingly clear. In Europe, demand continues to be solid as Europe has benefited from our digital transformation initiatives and our EPM and BPL as well as RPA investments. We believe we have taken the necessary actions to both optimize short term performance and more importantly to be strongly positioned for the high growth digital transformation opportunities. Our long term strategy is to continue to build our brand by building new offerings and capabilities around our fully digitized and unmatched benchmarking and best practices intellectual capital in order to serve clients strategically and whenever possible continuously. Specifically, we redefined our global benchmarking leadership by launching Quantum Leap, our new digital benchmarking software as a service solution. The new platform allows us to deliver more information…

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

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

Let me restart my comments I said. The more important part of the Oracle OpenWorld effort for us was the fact that we were recognized both for our cloud, for our Oracle Cloud EPM related work and the SaaS Innovation of the Year award that we got around our digital transformation platform. When you consider, if you say insight, look, the opportunity for both Oracle SAP and anyone that has a large installed base and is trying to move individuals either from purchased or on-premise software with cloud applications is to be able to clearly articulate and demonstrate the value that that transitioned to that new application architecture and capability provides the clients. So for us, our focus has been to use that -- our IP and intellectual capital to help clients do that as quickly and as efficiently as we can and that's either to help the channel or to help clients understand that is a way of us competing for business. Hopefully that answers your question.

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

It is small in terms of the total strategy and business transformation revenues, however it is an important part of virtually every engagement. There is no such thing as a significant digital transformation initiative that would not have to consider the impact that RPA would have on that overall initiative. So although revenues today are relatively small but growing and the number of engagements are growing, the importance of the ability to assess the client's RPA opportunity and articulate and frame that for them is very critical.

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

Wanted to first ask on international revenue, can you talk about some of the areas of strength that drove the kind of up 20% percent ex-working capital and then a little bit about the weakness in the working capital practice and your thoughts going forward for that.

Okay. Well, firstly, the demand there is really around large scale digital transformation initiatives that where we’re executing those engagements across global teams. So specifically, we've got some engagements that expands from North America into Western Europe that are benefiting both the US as well as the European groups. Specifically to the impact of working capital, I would say look, the working capital group for us is and the impact on our performance and specifically in the third quarter and fourth quarter is a little bit of a surprise. It’s a group that has volatility from time to time just because of the nature of the engagements. But for us, we're so focused on 2019 and the prospects of what the growth of our digital transformation business as well as our cloud applications business is as our on-premise comps continue to significantly decline, which allow us to set up ‘19 for growth opportunities. That's why we’ve made the comment relative to the working capital group that given our focus in that digital transformation focus, we've decided to explore all strategic and other options available to us and to make a decision relative to that group by the end of the year.

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

As a matter of fact, I just saw, as this call was about to take on, I just saw a brand new set of marketing documents that they're putting out with their clients right now. So specifically, the Vantage program which we know we launched several years ago continues to grow consistent with the growth of that business for them and the Workforce Now program that we now have expands across both their, what they call national, which is their enterprise business as well as majors, which is the middle market business and those programs are expanding in 2018 and part of their -- some of their strategic offerings and we hope to be able to grow our business along with their growth, similar to that we've been able to do with the managed program we launched two years ago.

And last one from me, you spoke a little bit about dynamics on the margin expansion side in terms of 4Q and into ’19, but could you just maybe back up a little bit high level, talk about the major levers that you can pull to drive margin expansion as we look to 2019.

Yeah. The largest lever that we have is the fact that as you grow -- as your cloud engagements grow in that the offshore leverage that come from those cloud engagements are leveraged more significantly. We’ve made investments to be able to support those engagements offshore and a combination of cloud engagements in terms of the size of those clients, continuing to grow along with us being able to fully deploy the investments that we've made offshore or even offsite, but onshore is a part of the expanding margin opportunity that we see in 2019.

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

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

The answer is that we are continuing to grow that offering. It clearly is being very well received and highly differentiates all of our benchmarking offerings. It doesn't mean that we get to move everyone to use Quantum Leap, even though that's our goal, as we continue to benchmark clients. But with that said, the percentage of clients that we are signing using -- the reactions of Quantum Leap first is incredibly favorable and highly differentiating. When you then consider the number of clients who are instead of signing on to a, let's call it, a 12-week benchmarking event versus what we're now seeing where we're getting an increasing number of those clients using Quantum Leap, finding multi-year benchmarking and transformation tracking engagements, which are part of the total platform. For us, we'd always like for it to ramp quicker, but look, the accolades and the number of clients that are moving from a 12-week engagement to a 2 to 3-year commitment to utilize the platform is meaningful and has significant prospects for us.

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

Well, we sign a total contract and then we allocate a portion of that to that initial effort that happens and then we actually, similar with our executive advisory that subscription revenue, there is a portion of that total revenue then that is then received over that 1, 2 or 3 year period depending on the contract terms. So part of it still is somewhat front-loaded and then of course and then comes in over the life of the Quantum Leap contract, depending on the specific scope that that client hangs on to.

And then could you update us on your comfort in terms of getting back to your targeted growth rate in 2019?

Well, look, we were concerned that the Q4 guidance and the impact of the working capital group in the fourth quarter and third and fourth quarter would be of concern, but from our perspective, our growth prospects and profitability prospects for 2019 remain unchanged and that's a simple fact that if our digital transformation business just continues to compete as effectively as it is and that we continue to grow our cloud business at a rate of, let's say, 50% plus, we're running higher than that right now. And then you couple that with the fact that just to give you a high level number, the best estimate that we have on the decline, the on-premise decline in 2019 will be half of the number that we had in 2018, which by definition mathematically sets up some very favorable comps when we compare the two years. The comments that we've made around the fact that we think that we can return to our long term growth -- revenue range as well as the profitability range remains intact.

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

The answer is it's small, but the profitability impact has been significant the last two quarters. So the answer is, I'd rather not get into those details, Jeff. I’d want to -- my goal is to one say what the impact was and then make sure that it was clear that our plans are to address it by year end.

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

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

This concludes today's conference. Thank you for your participation. You may disconnect at this time.