Welcome to the Hackett Group Second 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 Hackett Group Second Quarter results. Speaking on the call today and to answer your questions are Ted Fernandez, Chairman and CEO of Hackett Group; and myself, Robert Ramirez, Chief Financial Officer. A press announcement was released over the wires at 4:15 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 second 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 review our detailed operating results, cash flow, and also provide our quarterly guidance. 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 all of our services continued into the second quarter of 2022. Correspondingly, this afternoon, we reported total revenues of $75.9 million and revenues before reimbursement of $74.8 million and adjusted earnings per share of $0.38, above our quarterly guidance and up strongly on a year-over-year basis when you exclude the nonrecurring SAP software sales, which we highlighted on our second-quarter earnings call last year. Our results were driven by a 24.5% revenue growth from our S&BT Group, which also resulted with a significant year-over-year margin expansion of over 450 basis points. The margin expansion was driven by our strong SBT consulting performance and by the growth and increasing revenue mix of our higher-margin research advisory and IP data service offering. This highlights the reasons why we have accelerated our investments in our IP service area. Of special note, in June, we finalized a three year multimillion dollar agreement with one of our IPaaS relationships that we have been working on for quite a while. This contract will ramp up throughout the balance of the year until we reach our targeted contract volumes. We believe this relationship is transformative in many ways. It demonstrates our ability to support a global partner efficiently and in many ways on a self-service basis, utilizing our market-leading benchmarking, benefit case and value realization IP,…

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 2022 second quarter results, along with an overview of our related key operating statistics. I'll cover an overview of our cash activities during the quarter, and I will then conclude with a discussion on our financial outlook for the third quarter of 2022. For purposes of this call, I will comment separately regarding the revenues of our Strategy and Business Transformation Group, S&BT, our ERP, EPM, Analytics Solutions Group called EEA; our International Group, and the total company. Our Strategy Group includes the results of North America IP service offerings, our research advisory programs and benchmarking services and our business transformation groups. Our EEA Solutions group includes the results of our North America, Oracle, SAP solutions, and OneStream offerings. 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. Re initial expenses are primarily project, travel, and expenses passed through to our clients that have no associate impact to our profitability. Through our call today, we'll also reference certain non-GAAP financial measures, which we believe provides 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 discussions from this call to the Investor Relations page of the company's website. Before I move to our second quarter results, I would like to remind everyone that the second quarter of the prior year benefited on a GAAP and non-GAAP basis from a nonrecurring $5.3 million or $0.09 per diluted share software sales transaction. We highlighted the impact of…

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 for our organization. As I've mentioned many times in the last four to six quarters, although 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 and infrastructure, work flow automation, and 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 capabilities in order to remain competitive. We also believe digital transformation will be critical for organizations to realize productivity improvement initiatives that may result from economic deceleration created by the fiscal inflationary supply chain or geopolitical challenges in our client space. Organizations recognize the need to embrace digital transformation as the requirement to remain competitive, driving strong activity to technology-enabled transformation engagements, which requires a broad array of our capabilities. The increased digital transformation demand is also resulting in increased competition for experienced talent unlike we've never seen in a very long time, and it clearly continued into the second quarter. We believe the emerging work from remote service delivery model should help us address our short-term recruiting and retention concerns as we hope to be able to attract associates from a broader pool of global candidates. Long term, we believe we are now on a path to our next normal results in a highly engaged client base with remote sales and delivery model, which provides our clients and our associates with great personal flexibility to perform their deploying responsibilities. This will allow us to attract and retain talent that we have struggled…

Thank you. Nice job on Q2. I wanted to talk a little bit about Q3, if we could. Traditionally, not necessarily a big change seasonally from Q2, obviously, last year was very unusual because of the one-time software sale. Can you talk about what's falling out? And I think Rob had suggested there were some large SAP pieces of business that we're finishing up. Can you just walk through that dynamic?

Yeah, George (ph), there were a couple of scenarios. I'll speak with both separately. But one, as Rob mentioned, we have 3% fewer available days as you move from Q2 to Q3. But that's not really what's impacting the transition of our Oracle and SAP practices. Our SAP practice simply had, as you know, has been on a tear, and it's probably the highest performing group of our company over the last four to five years. But it did see a slowdown or I would just say some deals that started to light adapt with Q1 and that we expect it to have in Q2, by the time we started Q3, they seem to be all coming to fruition in Q3 and will favorably impact the latter part of Q3, Q4, and that's why we speak to the fact that we believe some of that activity is leveling off. All those slightly different also had an outstanding Q1. We were working on a very, very significant engagement, which took a lot of time and attention from that group. I think to some extent, there was a little bit of distraction from it, but it happened. We absorbed that in our Q2 performance it impacts Q3 because we're up into a tougher comp. But again, the overall activity of both of these groups is very strong, and we expect them both to be able to level off as we go into Q4 and then grow on a year-over-year basis thereafter. Obviously, George, we don't want to see that EEA performance offset any of the great success we're having in SBT.

Sure. So I wanted to talk about the IPaaS deal, and potentially get some details on that. Is this the same customer that you had a pilot with previously? Can you just give us a sense of how they'll be using your IP?

The answer is, we did have somewhat of a pilot. We have licensed our data, really static information across industries and across certain areas of the business over a two-year period, which allowed this organization to really validate the strength of taking the Hackett information and brand permission to market. It's clearly influenced the credibility of the benefit cases that they were preventing to their clients. And that, if you want to call it pilot with them ended, we were nearing the completion and launching of our -- both our quantum leave and DTP capabilities, but not only the kind of the initial versions, but we were moving on to be able to take many of the capabilities of those platforms and be able to allow clients to use them commercially on a self-service basis. That led to lengthy, I'll call it, negotiations with them as to specifically what capabilities within our platforms they wanted to use, what kind of support they wanted to have. It's a very significant engagement. As I said, it expanded the industry coverage that we previously had in place based on the demand that they wanted to serve their very large global client base. But at the end of the day, they're utilizing our data and our -- we call it benefit case assessments and Quantum Leap products to create, I'll call it, value propositions for clients, leveraging our branded capabilities number one. Number two, they're leveraging our solutioning capability within DTP to then be able to actually prioritize exactly what kind of work needs to be done and how, which is another capability that's inside of our DTP platform. It also includes the utilization of the improving monitor capabilities we have in our platform that allows clients to load their -- once they've identified the performance initiatives that they believe they want to realize, they can load all of that information into our improvement monitor and use this project tracking with what we believe is very unique capabilities to be able to validate the value realization or value proposition they presented to their clients. It also includes access to our research and advisers so that they can come in and also stay very current with any of the issues that are being dealt across all of the executive advisory programs that we have. So very expensive, very significant. That's why I labeled it transformative.

Got you. One of the things for me, you mentioned that you're looking to work with someone who could syndicate your IP through new channels. Can you just give us a little better picture of what that might look like?

Yes. We were approached by a -- we've approached by a current firm that has a pretty unique platform, which provides market intelligence to it, its clients on a global scale with kind of a significant emphasis on the companies beyond the Global 1000. So we now have tried to identify the same capabilities across more of our IP. But in this scenario, we were offered an opportunity to simply license our data for a certain amount. And what we hope to be able to achieve with this relationship is to do something where we would do more, I'll call it, revenue or profitability sharing. There's still a lot of work in that relationship that needs to be done, but it's clearly something that simply tells us something very significant, which is we do not need to limit ourselves to the clients that we're able to touch. And number two, we can use other channels that really value our brands and our capabilities to augment their capabilities and allow them to take our IP to market through those channels and for us to profit from it. So let's see if we're successful in launching that before the end of the year, that's our plan.

That was great. Thanks, guys.

Thanks, George.

Thank you. [Operator Instructions] Our next question is from Jeff Martin with ROTH Capital Partners. You may go ahead.

Ted, I was hoping you could help us get some perspective on -- with the traction you're getting with the IP-as-a-Service offering what the implications on profit growth for 2023 could be? And maybe, more broadly outlook relative to your long-term growth and profit profile for next year?

Well, one, look, they can vary in size. They don't unnecessarily -- there are lesser -- these have kind of scale of the one we have. But I will tell you that we're having conversations that I believe would be similar to this, whether we ever close them or not, they're complex transactions, we'll never know. But look, we've been talking to some of these companies for a while, the capabilities that we built to fully support the contract we just launched all just have increased the credibility of our capability and the uniqueness of it. So I hope that we continue to have success. It clearly comes -- it's not only recurring, it results in multi-year contract -- It results in high-margin multiyear contracts since you're really licensing IP and the capabilities of the platform, and it's intended to be used on, I'll call it, with limited support, which is some of the capabilities really important in the investments that we've made on our platform. So I can't provide any specific guidance simply to say that each one of these transactions are significant and meaningful to our performance and they expand or -- call it, our gross margin very nicely. I would also say that we believe that same opportunity exists with the market intelligence programs that we intend to launch, which are the software and services intelligence programs, which we mentioned on our last call. Those programs, we -- as I said on my script, and we expect three or four of those programs to launch by year-end. We've increased the sales capability of that entire group and we'll continue to do so through the end of the year. We're absorbing all those costs at the moment. But it is clearly for us, I mean, I had one…

Great. That's helpful. And congratulations on the multiyear win there. The other question I had was on availability and retention capabilities of the consultants. SBT is growing very rapidly right now. It looks like that may take a little bit of a breather in Q3. But how are you balancing demand versus talent availability and how client or employee retention efforts going so far this year?

Look, we can -- we have experienced higher-than-normal turnover now for, let's call it, six quarters. That's the bad news. The good news is that we believe that we've used that turnover to, I'll call it, enhance the capability in many areas that we've had, not all. There are some areas that we're still trying to gap some loss of talent that we'd like to have. I'm thinking specifically in the EEA space. With that said, it's allowed us to increase our offshore leverage very significantly, especially in EEA that's helped our margins. And look, the fact that we're not requiring people to do the normal Monday through Thursday travel, it's just allowing us to pursue, I'll call them, the new associates from a broader pool, and we're having great success doing that as well. So even though it's been higher, I believe we've managed it well. I believe it's allowed us to get more leverage offshore, and it's a lot -- I think it's allowing us to bring new capabilities to do the organization that we may not have as more talent is available to us since we're not demanding that all of our people travel the way they used to pre-COVID.

Great. Thank you, Ted.

Thank you. The next question is from Vincent Colicchio with Barrington Research. You may go ahead.

Yes. Ted, any signs of economic headwinds in the EEA business, such as changes in sales cycles or less strength in pricing, things of that nature?

Well, I commented that the activity proposal of those groups remains strong. The impact that we had with SAP were really kind of pushes that you really can't correlate that to anything that was happening then it would have simply been too early. So I can't correlate it to that. And then the Oracle issues have been different. So our activity is strong. And look, we just need to close and start some of the deals and rebuild the pipeline, given that large momentum that we had coming off of, I'll call it, end of year for SAP in Q1 with Oracle. So nothing that I can directly point to that is directly related to, I'll call it, the expected slowing of the economy. Obviously, that's required to avoid a recession.

And can you remind us, I apologize if I missed it, my connection is quite poor, what your priorities are in acquisitions?

Well, the priorities have changed somewhat that obviously, given the emphasis on the IP-related area, I've spent a lot more time in that area in the first six months of this year than I did in 2021. So I would say the emphasis has been SBT-focused. But there are areas in EEA, which in the right circumstances and in the right market where we would clearly take -- we would require that was presented to us.

And again, I apologize for my connection. Did you mention your pipeline of IP deals you're close to in terms of number of landing?

Yes. I think the point that I wanted to make, I don't want to say that they're close to landing, but we clearly are having more meaningful discussions with larger providers that have been engaged with us now for a while, some of which have left some earlier discussions in returned and some who have been talking with us throughout the year. So [Indiscernible], we like to get some of those opportunities. So that was just the point that I'm making. I'm making that the pipeline for IPaaS opportunities is strong. That's probably the point I was trying to make.

And it sounds like you're seeing stronger than it's been in the past. Is that right?

Stronger -- what I'm trying to emphasize is the scale in the type of company. So strong in -- with companies that obviously will enter into larger deals. Maybe that's the way I would characterize it.

Okay. And do you think that's just timing or competitive pressures are compelling them to move in that direction?

Well, it's not competitive pressure because I'm not sure someone has the capabilities that we're offering to these clients. So it's leverage up or start from scratch or build or leverage what you currently have in place. That's what we're seeing as the alternatives. So they just take time. You're getting involved and affecting the way somebody goes to market. So I hate to speak the time, especially since I was embarrassed that it took me so long to sign the one we just signed, which was significant and complex.

Okay. Thank you.

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

I'd like to thank everyone for participating in our second-quarter earnings call and look forward to updating -- updating everyone again when we report the third quarter. Thank you.

Thank you. That does conclude today's conference. Thank you all for participating. You may disconnect at this time.