Welcome to The Hackett Group Fourth Quarter Earnings Conference Call. Your lines have been placed on a listen-only mode until the question-and-answer session. Please be advised the conference is being recorded. Hosting tonight’s call are Mr. Ted Fernandez, Chairman and CEO; and Mr. Rob Ramirez, Chief Financial Officer. Mr. Ramirez, you may begin.

Thank you, operator. Good afternoon, everyone, and thank you for joining us to discuss The Hackett Group's Fourth 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 p.m. Eastern Time. For a copy of the release, please visit our Web site 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 Web site. 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 that 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 fourth quarter earnings call. As we normally do, I will open up the call with some quarterly comments, overview and highlights. I'll then turn it over to Rob and ask him to provide some detailed comments on our quarterly, our cash flow as well as guidance. Rob will then turn it back over to me to provide market, strategic overview comments and then we’ll open it up for Q&A. So let me first start by saying this afternoon we reported net revenues of 63.7 million and pro forma earnings per share of $0.24, which were at the high and midpoint of our guidance respectively. Solid US performance was unfavorably impacted by week international results. Consistent with our guidance, we took immediate steps to right size our international operations in an attempt to limited impact on our overall results going forward. As a result of that review, we also decided to exit our Hackett Institute's Analytics program. We wanted to make sure we are focusing our efforts and resources on the offerings and markets that provide us the strongest opportunity to grow. Total Q4 US revenues were up 8% in spite of the diminishing impact from the Oracle on-premise revenue decline. More importantly, it now appears that the headwinds from the Oracle on-premise decline will be in material by midyear of 2020. The strategy of business transformation activities continues to be solid as companies continue to pursue enterprise digital transformation initiatives. In our EEA or ERP, EPM and Analytics group, we saw strong growth in the Oracle Cloud ERP multi-tier deals, which are larger and broader, as well as strong SAP S4/HANA activity, which continued to build throughout the quarter. We also saw an emerging contribution from our promising OneStream group. As Rob…

Thank you, Ted. As I typically do, I'll cover the following topics during this portion of the call. I'll cover an overview of our 2019 fourth quarter results, along with an overview of related key operating statistics, an overview of our cash flow activities during the quarter and I'll then conclude with a discussion on our financial outlook for the first quarter of 2020. For purpose of this call, I will comment separately regarding the financial results of our Strategy and Business Transformation group or S&B T, and Our ERP, EPM and Analytic solutions group or EEA and our International group and the total company. Our S&BT group includes the results of our North America IP-as-a-service, which include our executive advisory programs and benchmarking services, and our business transformation practices. Our EEA solutions group includes the results of our North American Oracle and SAP solutions practices. Our international group includes the results of our S&BT and our EEA groups that are based primarily in Europe. Please note that this differs from how we've commented in the past, when we grouped all international practices within our S&BT group. We believe providing international results separately enhances our current year reporting given a volatility in Europe. In addition, please note that all references to gross revenues in my discussion represent revenues, including reimbursable expenses, and any references to net revenues represent revenues excluding reimbursable expenses. As previously discussed, we exited our European based REL working capital practice at the end of 2018, which continues to be accounted for as discontinued operations in our financial statements. Additionally, references to pro forma results exclude non-cash compensation expense, intangible asset amortization expense and other non-recurring adjustments and assumes a normalized long-term cash tax rate of 25% as detailed on the accompanying tables of our press release.…

Thank you, Rob. As we look forward, the investments we have made in Quantum Leap, our digital benchmark as a service platform, has allowed us to further differentiate Hackett as the global enterprise benchmarking leader. As I've mentioned previously, this new platform allows us to deliver more information with significantly less client effort. It also allows clients to leverage our IP to frame and track transformation initiatives over the life of their respective efforts. We believe that there is no comparable platform in the market. We also released our Digital Transformation Platform or DTP to further differentiate our unique IP and related capabilities. DTP allowed us to fully digitize our best practice IP and align proven software configuration and organization solutions to help clients drive transformational change. DTP has been instrumental in many of our recent business transformation, as well as cloud implementation wins. These investments along with our Oracle ERP and RPA investments to name a few have allowed us to position ourselves for the digital transformation era. With that said, with that as a backdrop, we're excited about our prospects for 2020. So let me share some of the reasons why. The on-prem headwinds should be substantially gone by the end of the second quarter. And we have now addressed the volatility in Europe. We believe both the S&BT and EEA businesses in the US should continue to grow throughout the year. Additionally, as the Europe impact fully subsides by midyear so should our total company revenues grow at our 5% to 10% long-term revenue growth rate. Within strategy and business transformation, the benchmarking and executive advisory practice strengthened by Quantum Leap and DTP are considered our wedge offerings, and they are good indicators of the momentum of the business. In 2019, both of these practices in the…

Yes, the phone lines are now open for questions. [Operator Instructions] Thank you. The first question in the queue is from Andrew Nicholas with William Blair. Your line is now open.

Hi, good afternoon. And with the European cost cutting initiatives in the rearview mirror and what sounds like a very strong demand backdrop for the US businesses, I was hoping you could talk a little bit about how you're thinking about headcount growth, both in the first quarter and through the rest of 2020?

It's an excellent question. If you look at some of the comments that Rob mentioned when he provided guidance, we grew headcount pretty aggressively, as the year ended. You may not see that because some of those increases in the US were offset by the decreases in Europe. They continue into Q1. So we're placing a significant bet that the increased, if you want to call it headcount costs that we're incurring in Q1 will continue to pay off through the balance of the year. So no, it's a very important part of what we're doing. And even though we have to take those reductions in Europe, we've been equally aggressive to add headcounts in the US across both groups.

Great and then just with respect to the European business and kind of a post Brexit market environment, can you speak a little bit more about the client conversations you're having, client behavior, general demand trends. I know it sounds like you expect some of those headwinds to kind of dissipate over the first half of the year so that you can grow into the back half. So I'm just curious, what gives you confidence in that acceleration over time?

Well, part of the confidence that we have is the fact that historically, we've had so much success in that market. And we believe that some of the disruption that we felt specifically, we do so much transformation and organizational work, we really believe that some of – that area was probably hurt most by some of the indecisions of what Brexit would mean relative to organizing whether it was across an entire group of companies versus having unilateral agreement, which we'll see how it plays out here very quickly. What we're, I guess, pleased, I don't want to say happy, but we're pleased to see is that there appears to be a clear direction as to the outcome and therefore it allows these companies to start planning. On a, if you want to call on a current market basis, we believe that the client conversations are improving and the directivity is improving, consistent with the clarity in direction. So we, as I mentioned, we would expect European results to benefit us in the second half, which – they're clearly hurting us in the first half of the year.

Great, thank you.

[Operator Instructions] The next question in the queue is from George Sutton with Craig-Hallum. Your line is now open.

Thank you. Ted, I wondered if you could give us a current breakdown of where we are with respect to Oracle on the cloud versus premise. What kind of growth rates are we seeing in the cloud? What kind of declines are we seeing in the premise? You mentioned that we should see that headwind abate by the end of Q2, just if you can give us a little more detail there that'd be helpful?

No, it's a very important question, George, especially given exactly the impact of the transition we're experiencing, not only slightly in Q4, but we're experiencing in Q1. The Oracle Cloud growth continues to be in excess of 30% in the quarter, which we were happy to see. And the on-prem decline in the quarter, in the fourth quarter was still pretty significant on a year-over-year basis. But when you look at the changes in the on-prem revenues from Q1 all the way through Q4, the changes were really very nominal. So what happens as we move from Q4 to Q1, we've seen that, for example, in Q4, the on-prem decline on total results, but still in the 3% to 4% range. And in Q1, we believe that percent will be about half of 1%, which means that we're at a critical juncture where not only cloud revenue growth is benefiting, but the stability of the on-prem. What remains in the on-prem, which is significantly lower than it was last year and the year before and the year before that will no longer continue to be a headwind. So the headwind is probably not even worth mentioning on our Q1 guidance, so we didn't. We actually say that we actually extend that into – all the way through Q2 just because we know we have some Oracle on-prem AMS activity, which runs out in June. So we made the midyear comment about beyond Q2 the amount being totally in material. It's only because we know that there are some things that are still playing out in Q1 and Q2, but the relative impact on our total consolidated results, boy that – from going from three to four negative to half of a percent in Q1, we believe that will be virtually little to none in Q2 and then it's just totally gone or fully immaterial beyond Q2 is great to know. And as you can imagine, it allows them the growth not only an Oracle to play out which is important, but it's also being – it's being further supported by the growth in our S4/HANA SAP business and our emergent OneStream business. So look, a very good trend for us and obviously, delighted to see that on-prem amble as I've referred to it jokingly for a while, really become virtually have no way.

Thank you. You called out two things in your other highlights on your press release. And I just wanted to see if we get a little more clarity. First, you mentioned that you were doing a lot of research in the smart automation technologies area, including RPA and others. Can you just give us a sense of how significant that is to your total offering or how is that being integrated into your deals? And then you also called out OneStream and I just wondered if you can give us a sense of the scale or scope of that opportunity?

Well, on the first, as you know, the RPA capability on a pure standalone basis, we don't – we still don't consider it material to our total results. But the integration of that capability in our virtually every strategy and business transformation initiative is a requirement. So it's a critical must have the understanding and the influence, so strategically critical revenue scale wise, on a separate basis, still not material. The OneStream business is a different story. I mean, this is a group that we started less than a year ago as you know and we've had, as I mentioned and I'll stick to my transcript, we've had enough market success for us to reach the platinum status. And I can tell you that in the Q1 growth that we're reporting, which is meaningful, that OneStream growth – that growth – OneStream revenue is meaningful to that total revenue growth rate. And I'll leave it at that.

Thanks, guys.

Next question in the queue is from Jeff Martin from Roth Capital Partners. Your line is now open.

Thanks. Good afternoon guys.

Hi, Jeff.

But I was wondering if you could elaborate on the 10% contract value growth you're seeing, is that an uptick acceleration and what do you think is driving them?

Well, what's driving it is, is not only improved focus and performance of our team, but I really believe and as you know, I've been signaling for quite a while that by digitizing and being able to deliver our IP more efficiently either A, through the utilization of Quantum Leap, which means we have more data capture and more insights to share. Also facilitating the way we share IP through our Digital Transformation Platform. Those investments, as we go to market with clients, even in the research advisory group, are becoming really the way we fully deliver those executive advisory offerings. So we're going to continue to rely more strongly on our clients being able to access Hackett's insights through those platforms. I believe that that's having an impact and obviously, if I didn't give a credit to our team's execution and focus and performance, that just would simply be wrong.

Okay, and then on the prepared remark surrounding Oracle ERP, you mentioned larger and broader deal. Is that in cloud, is it across the board? And does that – if it's cloud, does that imply we could see some acceleration of growth there in 2020?

But it's clearly – the overwhelming majority of the pipeline is cloud. So I will say substantially cloud and yes, I mean, look, Oracle made a decision that it to lead with the ERP offerings and then allow all of the other capabilities like EPM and HCM and CX to then be sold along with or through an ERP relationship. So we've seen that as we followed their strategy. And that investment in the West Coast acquisition that we made a couple of years ago has become increasingly important to our wins, especially the larger wins. And then more importantly, that boy, if we could replicate that capability in the East, I think it would really strengthen and accelerate our ability to grow our revenues broadly and that's clearly a primary focus of ours here over the next couple of quarters to see how we do that because we're disproportionately successful in the West Coast and is clearly attributed to the combination of our ERP and EPM bundle. And we'd like to replicate that as closely as we can in the East Coast.

Now is my final question, expanding capabilities on East Coast, is that done through acquisition or are you able to leverage some leadership and start it and accelerate more on a greenfield based?

The answer is it'll probably be both. We're pushing on both hard.

Okay, very good. Thank you very much.

Next question is from Vincent Colicchio with Barrington Research. Your line is not open.

Yeah, Ted, in your prepared remarks you said regarding the EEA that these two should grow 10% to 15% in Q1; I wasn't sure what you're referring to.

That is correct. Our US group, which includes both our strategy and business transformation as well as our EEA groups will grow somewhere in the 10% to 15% range in Q1.

Okay. And then did the IP business meet expectations in the Q4 and could you characterize the type of growth we can see into 2020?

That will be dependent on the same comments I shared on the call. We have an increased number of pilots, paid pilots going on across multiple industries and users. Some would surprise you in terms of where this capability has gone, so any of those pilots driving into a broader long-term relationship would significantly increase the IP-as-a-service growth in 2020, so we're sure working hard to make that happen.

And Rob, just a housekeeping so to speak, capital spending, what was that in the quarter?

849,000, Vince.

Thanks. That's it for me. Thank you.

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

Thank you, operator. Well, those conclude our comments and questions. We look forward to updating everyone again when we report our first quarter results. Thanks again.