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.

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 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, 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 that are 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 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. Before I move to the quarterly results, let me start by congratulating our associates for our strong 2022 performance. All of the second half of the year was clearly more challenging as the Fed rate increases started to weigh in on our clients spending decisions. Our revenues before reimbursements were up 4% and our adjusted EPS was $1.50, which is – which strongly exceeded our prior year results when you exclude the tax benefit on the SARs exercise in 2021. Relative to the fourth quarter this afternoon we’ve reported revenues of $70.1 million and adjusted earnings per share of $0.36, both exceeding our quarterly guidance. Our quarterly results were driven by revenues before reimbursements from our Global S&BT segment of 3.5% on a reported basis and 5% on a local currency basis. More specifically, our recurring revenue high margin Research Advisory and IPaaS offerings grew over 20% in the quarter. Annual contract value growth for these offerings in 2022 was also over 20%. The success and market opportunity for our intellectual property offerings highlights the reasons why we have accelerated our sales and product development investments in this area. The quarter benefited from the growth of our IPaaS revenues as the large contract was signed towards the end of the second quarter continued to ramp. We also continue to be actively engaging contract and/or pilot discussions with several large software…

Thank you, Ted. As I typically do, I will cover the following topics during this portion of the call. I will go through an overview of our 2022 fourth quarter results, along with an overview of related key operating statistics, I’ll cover an overview of our cash flow activities during the quarter, and I’ll conclude with the discussion on our financial outlook for the first quarter of 2023. Effective in the third quarter of 2022, the company reorganized its operating and internal reporting structure to better align with its primary market solutions. As a result, I will comment separately regarding the revenues of our Global S&BT, our Oracle Solutions group, our SAP Solutions group, and the total company. Our Global S&BT Group includes the results of our North America and international IP-as-a-service offerings, our research advisory programs, and benchmarking services, our OneStream offerings and our business transformation offerings. Our Oracle Solutions and our SAP Solutions segments include the results of our Oracle and SAP offerings respectively. Please note that we’ll be referencing both total revenues and revenue before reimbursements in our discussion. Reimbursable expenses are primarily project travel-related expenses passed due to our clients that have no associated impact to our profitability. During our call today, we will 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 we’ll post any additional information based on the discussions from this call on the Investor Relations page of the company’s website. For the fourth quarter of 2022, total revenues was $70.1 million. Our revenues before reimbursements were $68.8 million, which was above the high end of our quarterly guidance. The Q4 2022 reimbursable expense ratio on revenues before reimbursements was 1.9%…

Thank you, Bob. 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. The demand for digital transformation maybe impacted by economic headwinds in 2023, but it continues to be a clear strategic priority. Digital innovation in enterprise cloud applications, analytics and artificial intelligence, cloud infrastructure and workflow automation 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 to remain competitive. With that said, digital transformation is being impacted by extended decision making as organizations assess competing priorities created by the increasing rates in the demand disruption, which it is intended to affect. As I mentioned in my opening comments, during the quarter, we experienced the disruption of a meaningful Oracle project as we exited the third quarter. We also continue to notice clients reassessing their spending priorities, so volatility has increased. However, we also saw other large projects go forward and expand. We believe clients used the year end planning process to reassess their market risks, make head count and spend reductions and rebalance their spending with productivity and strategic cost reduction efforts, which are also core to our offerings. We believe that clients will be become more comfortable with the headwinds they are experiencing and we will see behavior improved throughout the year. Similar to us, many of our clients did not experience the demand disruption until late in Q2 of last year, and will be more challenged by the strong year-over-year comps of the first half of the year, but most will face more favorable comps in the second half of the year. If we are correct, this will further…

Thank you. [Operator Instructions] One moment for our first question. Our first question is from George Sutton with Craig-Hallum. You may go ahead.

Thank you. Ted, I wonder if you could go into a little more detail on the thought process of the clients becoming more comfortable with the headwinds that they face. It sounds like you’re anticipating you’ll get back to sales growth in Q4 and beyond. I just want to kind of walk from Q1 and what we’re looking at through the rest of the year and kind of how you see that all playing out?

Well, first of all, the Q4 reference is only specific to Oracle, which will be down on a year-over-year basis. We now expect them through Q3, level off in Q3 and then return to growth in Q4. As you recall, for Oracle and SAP, we thought that would happen in Q2 of 2023. We’ve done that, we’ve achieved that with SAP, but Oracle hit a pretty nice speed bump with that client loss in the fourth quarter, which we obviously didn’t anticipate at the time. With that said, look, we’ve got two very strong quarters ahead Q1 and Q2, as you know, were record quarters for us, and we exceeded guidance by $0.03 in both quarters. We were clearly experiencing demand improvement in that first half of 2023 that we had not experienced before. Obviously, that trended down in the last two quarters of 2023. And as I mentioned, it wasn’t just us because we’re really reacting to what our very large clients’ experience, and we started feeling those that second guessing towards the end of the second quarter of last year. So what did we see? Look, we saw that volatility like a sneak show up for the first time, late in Q2. We saw it impacted Q3 in client’s behavior, but it was really more limited. As we got into Q4, we saw clients clearly starting to do planning that was unlike what many of them have experienced in the past. You’ve seen many of the large companies, especially on the tech side deal with some pretty aggressive headcount cuts. We think all of those decisions, we think were pretty carefully considered as clients went into Q4, did their annual planning, and then started launching all of their planned initiatives in the beginning of the quarter. So we…

One other question, if I could, this incremental investment that will cost $0.03 in the first quarter, can you just give us a little more detail in terms of what these investments are in terms of people, in terms of content, et cetera?

Well, the single largest expenditure is that we’re trying to aggressively increase the sales headcount in our IP related businesses. We started to do that, now let’s call it in the second quarter of last year, accelerated that into the third and fourth, and we’ve continued to increase it into Q1. We have no plans to – I’ll call that, turn that off. I think we’re trying to be smart in the way we ramp up the resources and the kind of effectiveness that we expect. So, we’ve got all of those, if you want to call it governors in place to make sure that we’re not throwing away or overspending what we shouldn’t, but look, the prospects for us to continue to grow our Research Advisory, IPaaS offerings, and new market intelligence programs is significant. We think that the biggest thing that we lack is a world-class sales group. We’re adding both senior, and entry, and mid-level people to our team will continue to do that throughout the year. We have improved the existing executive advisor, which are the functionally focused programs that we’ve had previously in place, added one in 2022, added content and tiers as we entered 2023 to that group. We’ve launched two of the market intelligence programs. We expect to add others throughout all of 2023, and we would expect all of that activity to result in what we believe, we want to maintain a pretty high level of growth in that group and the annual contract value to come to that group. We think that that significantly changes the valuation. I’ll call it the valuation opportunities for Hackett. But it also, as we’ve seen the halo effect from that improved client – that increasing client base since it’s been so productive downstream primarily to the business transformation group, but it’s also has extended into the technology side as well. We hope we can have our cake and eat it too, and that is to drive that growth. It comes obviously at higher margins. It comes on a recurring basis, and then see if we can then harvest and get the kind of halo effect we’ve gotten historically over the last several years from that client base. But do that in as an – at an increasing basis as we add more clients. And then just to kind of complete the IP, I’ll call it revenue growth investments, look in order for us to syndicate our IP to this new partner that will launch, will syndicate, we’ll start the syndication of some of our IP in April. That’s taken time and effort. But we believe these are all things that allow us to become a really valuable IP led research advisory into strategic consulting organization. And that’s what we intend to prove.

Got you. Okay. Thanks, Ted.

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

Thanks. Good evening, Ted and Rob. Hope you’re doing well.

Hey, Jeff.

Hi, Jeff.

Ted, wanted to get a sense for progression on the IP as-a-Service pilots. I know in the past, converting pilots to contracts has been a matter of holding the line and sticking to your guns in terms of what you think the value creation is in to Hackett – that Hackett brings to the table. Just was curious if you’ve made progress that you are sufficiently satisfied with, or if that continues to be kind of a – to be determined situation?

Well, the answer is yes. First, the success of our existing programs I believe is becoming increasingly noticeable. The focus with software and service providers to find a way to provide a compelling way to sell and demonstrate the value realization that people can get by purchasing their software and services has become, seems to be becoming more important to the software providers. What we learned from the process we went through in, if you want to call it 2021 and second half of 2022. One, we needed to make sure that our platforms were commercially ready. And we’ve done that. I mean, just very, very well. We also wanted to make sure that we did not do any pilots that were not being paid. So the activity that we’ve got today as people evaluate scope capability of our offering to them is on a paid basis. So we think we’re creating the right cadence, which is to expose companies to our capabilities, allow them to see how best they can leverage and understand the power. And yes, we hope that those pilots that we have launched some of them will turn into meaningful large multi-year agreements like the ones we have in place already.

Okay. And then wanted to clarify on the third quarter call, there was discussion regarding a large transportation company impacting EPS by about $0.02 in both third and fourth quarter. I wanted to clarify, that’s separate from the digital transformation project that was canceled, and that was supposed to start in Q4, is that correct?

Yes, these were two by fours we took to the head. One in the third quarter with a very good and existing client of ours. But where an opportunity, we lost an opportunity given their priorities and their focus. We didn’t lose the client. Separate apart from that and that did have an Oracle component, but it also had a business transformation component. The other was a brand new sale, if you recall, last quarter I mentioned the fact that as we exited the quarter, we sold several large deals. So we were going into Q4 with a significant amount of momentum into Q4, which would also carry into Q1. And the group that was most impacted by those large transactions was the Oracle group again, even though there was a business transformation piece to the first one, not necessarily the second one. And that just as we said, new CIO came in, decided he wanted to make a change. They paid us for the work we had done to date, but it impacted some of the revenue we would have recognized the Q4 clearly impacts Q1 in a very meaningful way. So those were setbacks, but they were separate and distinct. In fact, I – as we shared with the board it would’ve been wonderful to see what 2022 and the beginning of 2023 would have looked like if we hadn’t had those setbacks. But look they happen, client circumstances change, sometimes relationships change, and they can impact the work that you’re doing. And we have the ability to absorb those and continue to increase profitability and cash flow of the business, and we’ll have a chance to demonstrate that over the next few quarters.

Okay, great. And then one – one more if I could. On the Hackett Excelleration Matrix launch pending in a couple of months here, what all does that launch entail and how should we think about the contribution over the medium- and long-term from that initiative?

First there’s been some learning as we’ve come through the first of – the first few programs that we’re launching. So the fact is that you will see them – the first one publicized pretty soon with the results. Second one is well underway. In fact, the third one has already – already has a group of participants in place, and we will continue to try to add –add them throughout 2023. But if we can get – if we can get let’s call it four or five fully launched, meaning not just launched actively pursuing participants, but having the results out and allowing us to market then through end – our end user base as well as the participants. So we have the ability to do both, to market the both. If we have an opportunity to do that even though they’re in different levels by the beginning of the first year we just start seeing revenue from those programs accrue in the third and the fourth quarter. In the meantime, Jeff, it’s very important to note that as we’re adding all of these sales resources to the team they have the ability to sell both the existing executive advisory programs, which as I said we expanded in 2022 and added some additional features and tiers to, as well as the new market intelligence programs. And they will also being feeded [ph] to identify other about benchmarking or IPASS opportunities. Even though the primary focus of the large salesforce build is around recurring revenue, annualized contract value programs. We’ve separated – we’ve decided we want to have a dedicated group for that as well as making additional investments for the non-recurring pieces, which could be, for example, in a transformational benchmark. So but we’re making – we’re clearly accelerating the investments in that group, and you’ll see – you’ll see some announcements soon as to some of the people that we’re bringing on board in that group.

Great. Very helpful and look forward to following the progress there.

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

Yes, Ted, if I’m correct, I think your market intelligence program rollout was slower than anticipated. Is that a resource issue or was there any particular challenge?

Well it’s both. We’ve been adding resources to that product development group. But we were also recruiting participants and getting the feedback, back from those first initial programs. And yes, there was a little learning and improvement that happened as part of that, but we think it’s resulting in an exceptional product.

Per your comments on, clients have reset their expectations for spending. And just curious you’re not expecting, growth in Oracle in the first half – first three quarters. Just curious, do you think cancellations and maybe delays are behind us? Or is it just so tough to predict right now?

I mean, you never really know, but I would say that the events we’ve faced are clearly rare to us. I mean, do things happen, things compliance again, change priorities, it have to reset of course, my sense is that clients had a really good chance to look in right size and reset priorities in their 2023 planning process, and you’re seeing it as they all announce and reset expectations for their earnings, which has included reductions and reprioritization of initiatives across all industries. We’ve seen it and we’ll continue to see it as people report and move into the beginning of the year. But so when I think that, that process was as thoughtful that they had a pretty good feel for what the second half of 2022 brought on and what they needed to pursue in 2023 when the market was being so clear and penalizing those who were not resetting and right-sizing on a timely basis. We think that it’s been a pretty good shakeout in that, we will see clients accelerate their spend throughout Q1 and into Q2, and it’ll improve in the second half of the year. That’s what we believe interest rate increases may disrupt and demand a little bit more. But look, as the market also continues to say live share of those interest rates increases are in place. We know the demand disruption that it’s created; it’s allowed people, I think to, try to plan for 2023 properly. Those who I think, those I just can’t imagine many that have deferred decisions as they’ve reported Q4 and guided Q1 and spoken to their employees.

Thanks for all the color. Thanks Ted.

Thank you. And at this time, I show no further questions. I will turn the call back over to Mr. Fernandez.

Thank you, Operator and let me thank everyone for participating in our fourth quarter earnings call. Look forward to updating you again when we report the first quarter.

And that does conclude today’s conference. Thank you all for participating. You may disconnect at this time.