Welcome to the Hackett Group First Quarter Earnings Conference Call. Your lines have been placed on 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.

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 Robert 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 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, especially in light of COVID-19. 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. 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 outlook. We will then review our market and strategy-related comments, after which, we will open it up to Q&A. Consistent with the momentum we experienced through last year, strong demand for our services continued into the first quarter of 2022. Results across nearly all groups exceeded our expectations. Organizations recognize the need to embrace digital transformation as a requirement to remain competitive and the rate of digital innovation and related change is unprecedented. Correspondingly, this afternoon, we reported total revenues of $75.7 million and revenues before reimbursements of $75.1 million and adjusted earnings per share of $0.38, both above our quarterly guidance and up significantly on a year-over-year basis. U.S. results were up 16.5%, driven by strong performance of our Strategy and Business Transformation Group and the performance of the Oracle and OneStream practices. Strategy and Business Transformation Group continued its outperformance trend with increased revenues and gross margins. Additionally, our higher margin research advisory offerings grew at a higher rate than our Strategy and Business Transformation consulting offerings, favorably impacting margins. Our EEA group or ERP EPM and Analytics group, this growth was driven by strong Oracle and OneStream growth as our SAP group is rebuilding its momentum after its strong performance in 2021. We also saw better-than-expected results from our European group, which benefited from large cross-Atlantic US engagements. Some of that overperformance will not continue into Q2 unfavorably impacting overall sequential guidance. In summary, large strategy and business transformation and EEA engagements along with the increasing leverage…

Thank you, Ted. As I typically do I'll cover the following areas during this portion of the call; an overview of our 2022 first 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 second quarter of 2022. For the purposes of this call, I will comment separately regarding the revenues of our Strategy and Business Transformation Group or S&BT; our ERP EPM and Analytics Solutions Group or EEA; our International Group and the total company. Our S&BT Group includes the results of our North America IP-as-a-Service offerings, our research advisory programs and benchmarking services and our business transformation practices. Our EEA solutions group includes the results of our North America Oracle, SAP solutions and OneStream practices. Our International Group includes the results of our S&BT and our EEA resources that are based primarily in Europe. Please note that we will be referencing revenues before reimbursements in our discussion. Reimbursable expenses are primarily project travel-related expenses passed through to our clients and have no associated impact to our profitability. During our call today, we'll also reference certain non-GAAP financial measures, which we believe provide useful information to investors. We included reconciliations of GAAP to non-GAAP financial measures in our press release filed earlier today, and will post additional reconciliations based on the discussion from this call to the Investor Relations page of the company's website. For the first quarter of 2022, as Ted mentioned, total revenues were $75.7 million, up 19% when compared to the prior year. Our revenues before reimbursements increased to $75.1 million, up 18% when compared to the prior year, which is above the high end of our revenue guidance range as we…

Thank you, Rob. As we look forward, let me share our thoughts on the near and long-term demand environment and on the growth opportunity it offers our organization. All of the pandemic created unprecedented demand disruption it also created heightened awareness that accelerated demand for digital transformation initiatives. This means that digital innovation and enterprise cloud applications, analytics, infrastructure, workflow automation, process mining are dramatically influencing the way businesses compete and deliver their services. Digital transformation is redefining all activities at an accelerated pace forcing organizations to fundamentally change and adopt these new capabilities in order to remain competitive. We also believe that digital transformation will be critical for organizations to realize productivity improvement initiatives that may result from economic deceleration, that may be created by the fiscal, inflationary, supply chain or geopolitical challenges which our clients may face. The increased digital transformation demand is also resulting in increased competition for experienced talent, unlike we have seen in a very long time. We believe that the emerging from the remote service delivery model should help us address our short-term recruiting and retention concerns as we help to be able to attract associates from a broader pool of global candidates. We have done that successful all throughout 2021. We believe that will continue into 2022. Longer term, we're now finally on a path to our next normal which results in a highly engaged client base with a sales and delivery model which provides our clients and our associates with greater personal, flexibility to perform their defined responsibility. This will allow us to attract and retain talent that we have struggled to retain because of the demanding historical travel requirements of our industry, a very positive development for our industry. In order to increase our revenues across all of our IP-led offerings…

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

Thank you. Ted, you had a great first quarter and you're looking for what I would define as a pretty good Q2. Can you talk about the change that you're seeing from I don't know the economic? Anything that sort of changes the demand characteristics as you're expecting outside of just pure implementations that you finished in Q1 that don't recur in Q2?

None, on the marketplace at all. As you'll -- I'll comment -- as I commented the biggest change from Q1 to Q2 will be the contribution and the reduction of that contribution that emanates from Europe, which is in our international practice group. But no, the other activity it was just an outstanding first quarter. It's as close as you come to firing across as I said on all cylinders, George. And yes, it comes with some large engagements that we will be migrating, specifically, in our EEA group. But outside that what I'll call it customary, I mean, you get great benefits when you do large engagements to allow you to deploy people longer. And, obviously, in many cases that also results in greater throughput margin. But when you deal with that transition, yes, it disrupts that fluidity. But who would have expected that we would exceed first quarter by $0.05, I mean, we've been doing this a long time never saw that. So, yes, what's made this call a little awkward is the fact that we're trying to talk about the results of Q1 then moving into Q2 and we've tried to provide as much color as we can because we know it's slightly different than you would hear from us.

Well, looking a little further out as you look at the challenges that are out there you have major supply chain challenges. I think, you're increasingly going to have working capital question marks for companies given the higher rates. And you've also got the obvious operational challenges as we enter what may be a recession. All of those things typically bode pretty well for your opportunities. Can you talk about if you're seeing anything like that yet, or when would you expect to see that if we go into a normalized recession?

We haven't seen any disruption, but we are seeing engagement where people are responding to some of the inflationary or supply chain issues that are affecting them as part of the reason for some of the engagements that we're taking on. So no, as I mentioned in the -- in fact I added the commentary in the early part of our call that we've been responding to just the fact that moving are aggressively trying to just get digitized across every aspect of their business to remain competitive. But I wanted to remind everyone that if that focus changes to productivity improvement that's also core to both our business as well as most of those challenges are addressed through improving workflow automation and reorganizing your business to be more efficient and that's what we concentrate on. So short of some -- I'll call it truly meaningful disruption. We don't expect to see anything here in the near term.

You mentioned firing on all cylinders, I guess, a question for Rob. Will the Formula One sponsorship money be in Q2?

Unfortunately, not. I was there, George. I did have a chance to go there tomorrow. But no, no do we offer those sponsorship opportunities, but we had a chance to spend some time with some really important clients.

Super. Thanks, guys.

[Operator Instructions] Next question in the queue is from Vince Colicchio with Barrington Research. Your line is open.

Ted, could you give us a sense of the SAP pipeline? Is it improving? And would you expect -- when would you expect growth to return sequentially to the SAP business?

It has been improving since we got to the year-end. So we're seeing it month-on-month. So we would expect that in the third quarter.

You talked on prior calls about increasing your offshore effort to help offset some of the labor constraints in the U.S. market. Did you increase to share for in the quarter? And what are your thoughts on doing this in the second half?

Half of our hiring -- more than half of our hiring continue to be hires that are offshore. We are hiring across, I'm going to say, nearly all practices. With than half of the total happening offshore, as we continue to try to leverage that offshore capability across all of our groups. The effort thus far has been primarily in our technology practices. So -- or we have over 40% of those groups are with offshore related resources. We think there's an opportunity to take some of the work we do in S&BT and leverage that as well. So we'll keep looking at that opportunity through the balance of the year as well.

And I think you had commented that your IP-as-a-Service, I think, you insinuated you may have more relationships that will benefit future results. Are you close to some new deals there? What does that look like?

The answer is, yes. So let me start answering that with yes, but let me first give you a little bit more color. If you recall, we had a significant, as I call it, IPaaS research deal that we did last fall which extended into Q1. That large provider has actually more than increase their initial commitment that opportunity starts in Q2. In fact, it's been that provider that has been so complementary of our work that has led to our I'll call it accelerated effort to launch what we'll call market intelligence programs to support the technology and service providers that want to be, I'll call it, assess commented on where we could do research for similar to what Gartner does for some of these software and software vendors, you can expect Hackett to launch several of these segment programs in the second half of the year. But that comes from the success we had with that initial we think highly sophisticated client, who uses all of these research advisory services and was just incredibly complementary. Additionally, we've launched a pilot in the process mining space. I'll just leave it at that, which is also IPaaS related, but it's an opportunity where that success then could lead to a broader opportunity, and we've also we'll be launching. I think it was just one we'll launch a smaller pilot. We're giving clients an opportunity or clients potential partners an opportunity to sign up for a smaller amount say, $0.5 million to try a basket of our tools and frameworks that we make available as part of our IPaaS program and we have one of those launching as well this quarter. But as you also know, we're working and tracking with much larger opportunities that we continue to be optimistic about.

And could you remind us your long-term financial goals? And do you -- I think you said that you think you should be able to achieve that for this year?

Well, we were consistent with the first quarter statement. I was expecting somebody to have me up that, but since we said that we thought we would operate at the higher end of both the long-term growth revenue and profitability targets. Clearly, the first quarter sets us up beautifully for that. You look at any number of our year-to-date results. Obviously, we're going to be delighted when we finish the second quarter and then expect to continue that momentum for the balance of the year. So -- but have we changed the commentary there prepared in Q1 that we'd expect to operate at the high end of both the revenue and profitability long-term targets? No, but we believe with that comment that we said that we should operate at that level. Clearly, what we reported in Q1 and kind in Q2 adequately provides to that opportunity.

Yes. And please remind me what the targets are despite hearing it many times.

5% to 10% on the revenue line drives 15% to 20% plus on the bottom line.

Right. Thank you Ted. Good quarter.

Next question…

I'm sorry, Rob is correcting me here on the bottom line it would be 10% to 20%-plus on the bottom line.

The next question is from Jeff Martin with ROTH Capital Partners. Your line is now open.

Thanks. Good evening, Ted and Rob. Good talk to you. You touched on it a little bit already, Ted, but was just curious if you could give us a little bit more detail with respect to your market intelligence programs? Maybe give us an example of a client use case and, how significant is that with respect to driving growth for this year?

Okay. It's, an excellent question. First, I'm sure Jeff, you're familiar with the programs that Gartner, initiates around its Magic Quadrant force rate -- initiates around its force to wave. This ability to assess software and services vendors across very specific verticals and segments, where an organization like ours especially, with our applied knowledge. Those other organizations are able to assess and fundamentally help those organizations, not only describe their offering assess, compare, but it also gives them some feedback on where there are opportunities for improvement exist not only on their product side, but also on the market side. So, based on the success we've had with the research program we did for our large cloud infrastructure client, who encourage us to expand our wings it's something we've been looking at. We believe that that market intelligence program, were those software and services companies is a significantly greater opportunity than the executive advisory opportunity that we currently have with corporate clients. So imagine us using that large corporate credibility and applied knowledge that we have, and provide some of that intelligence to help those software and services providers across that depending, on how many segments that we pick, as I'm sure you know there are -- there's 100 of them. We will launch in the areas where we're the strongest, where we have the greatest opinion and capability to be able to drive the greater service to these clients. We started building a sales team around that. As you also know, we've never built a large sales and marketing team dedicated to those offerings. We're going to try to increase that -- the size of that sales and marketing team. We've already started that initiative. So the combination, if you recall or even in this current quarter, we said that the annualized contract value for our corporate executive advisory program was in excess of 20% last year. Our results this year, you saw we grew 18% 19% of the revenue line. That group grew in excess of that in the quarter. We believe that the opportunity and growth in those areas, with the right segments, with the right sales and marketing investments should allow us to grow that business.

Okay. Great. And then IP-as-a-Service, sounds like it's starting to really come to fruition. Would you call 2022, your breakout year for that? Seems like you got some things that are really starting up in Q2 and Q3.

Well, since I've been commenting Rob said, I've been commenting about this for 10 years. I told him he hasn't been employed that long, which is not true by the way. But the answer, is look we've made a significant investment to commercialize our platforms and make them available to these large, if you want to call them strategic partners on a commercial basis. And yes, we believe that the investment that we've made where those platforms where our platform stand, the discussions, conversations, pilots all of these as I commented throughout the last few quarters, should benefit our future results and we expected and we expect some of that to clearly happen in 2022.

Okay. Great. And then last question for me. You mentioned, last on the fourth quarter earnings call that pricing environment was quite strong. I was curious, if that continues at a robust pace or current environment is putting a little bit of pressure there?

We need a little bit more information. We did put through price increases a year ago. We did that again, just recently. So give us a little bit of time, but we believe that the market demand for the right services many of these, which we believe we're having great success with, should allow us to retain pricing power that we've experienced here recently.

That’s all for me. Thanks for your time.

Thank you, Jeff.

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

Well, I'd like to thank everyone for participating in our first quarter earnings call. We look forward to updating you again when we report the second quarter. Thank you, again.

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