Welcome to The Hackett Group Third 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 third quarter 2023 results. Speaking on the call today and here to answer your questions are Ted Fernandez, Chairman and Chief Executive Officer 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 Web site at www.thehackettgroup.com. We will also place any additional financial or statistical data as 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 Q&A 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 is 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 the 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. This afternoon, we reported revenues before reimbursements of $74.6 million, which was above the high end of our guidance, and adjusted earnings per share of $0.41, which was at the high end of our guidance. Consistent with our comments on our previous earnings call, the momentum we experienced in the second quarter continued, and allowed us to exceed the results from Q3 of last year. This was most pronounced with the strong performance of our Oracle Solutions segment, which was up strongly, as several engagements which we launched in the second quarter continued to ramp. Equally important, we continue to experience strong market demand and receive strong support from the Oracle sales channel during the quarter. Our Global SBT segment was up over 5% when compared to last year. We saw mostly new [client base] (ph) now include thoughtful discussions on Gen AI considerations. We have been working on a new series of AI offerings. We've recently launched our new AI Explorer tool which allows us to deliver a comprehensive Gen AI opportunity assessment for clients, and provides recommendations by function at the activity level. We expect this activity to increase significantly in 2024. We are also seeing increasing activity in our enterprise performance management function, which is favorably impacting our Oracle and OneStream practices. Our SAP Solutions segment continue to perform strongly, but was down on a year-over-year basis…

Thank you, Ted. As I typically do, I'll cover the following topics from this portion of the call. An overview of our 2023 third quarter results, along with an overview related to key operating statistics, an overview of our cash flow activities during the quarter, and I'll conclude with a discussion on our financial outlook for the fourth quarter of 2023. For the purposes of this call, I will comment separately regarding the revenues of our Global S&BT segment, our Oracle Solutions segment, our SAP Solutions segment, and the total company. Our Global S&BT segment includes the results of our North America and International IP-as-a-service offerings, our executive advisory programs, our benchmark services, our business transformation and our OneStream offerings. Our Oracle Solutions and our SAP Solutions segments include the results of our Oracle and SAP offerings respectively. Please note that we will be referencing both total revenues and revenue before reimbursements in our discussions. Reimbursable expenses are primarily project travel-related expenses pass through to our clients and 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 have included reconciliations of GAAP to non-GAAP financial measures in our press release filed earlier today, and will post any additional information based on the discussions from this call to the Investor Relations page of the Company's Web site. As Ted mentioned, for the third quarter of 2023, our total revenue was $75.9 million, up 5% over the prior year. Our revenues before reimbursements were $74.6 million, which was above the high end of our quarterly guidance, also up 5% over the prior year. The third quarter reimbursable expense ratio on revenues before reimbursements was 1.6% as compared to 1.9% in the prior period,…

Thank you, Rob. As we look forward, let me share our thoughts on the near and long-term demand environment and the growth opportunity it offers our organization. Although demand for digital transformation remains, it is being impacted by extended decision-making as organizations assess competing priorities created by the increasing interest rates and the demand disruption, which it is intended to affect. Digital innovation and enterprise cloud applications, analytics, and artificial intelligence, as well as workflow opportunities, and 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 and to realize targeted productivity gains. When the year started, we believed the clients would become more comfortable with the economic headwinds as the year progressed, and we would see behavior improve in the second-half of the year. Although, we have seen many clients adjust to the higher-rate inflationary environment. The prolonged rate increase uncertainty continues to result in headwinds for new initiatives, which we expect to persist through the balance of the year. On the talent side, competition for experienced executives continues. Overall, we saw the turnover continue to moderate and improve during the quarter and expect that trend to continue. Longer term, we have transitioned to a hybrid sales and delivery model, which provides us with an effective access to our clients and their respective teams. This hybrid model provides our associates with greater personal flexibility to perform their defined responsibilities remotely, which is very valuable to them. This should allow us to attract and retain talent that we have struggled to retain because of the demanding historical travel requirements of our industry. Strategically, we have accelerated our focus on our recurring high-margin IP-related services by…

Thank you. [Operator Instructions] Our first caller is Jeff Martin with Roth MKM. You may go ahead.

Thanks. Good evening, Ted and Rob. How are you?

Hi, Jeff.

Hi, Jeff.

Ted, I was hoping to get an update from you regarding -- you've made some significant investment in sales resources really since the beginning of 2022, but it's accelerated this year. Just looking for an update there on progress tracking relative to your expectation and what do you see as potential benefit as we head into 2024?

Well, we continue -- first, we've made significant investments in planned enhancements to all of our offerings. And specifically, the investments in the sales team have been very significant. We've assembled a great group of individuals. We've been aggressively training and building our pipelines. And I would say that although our conversions this quarter were a little lower than we expected, we continue to believe that the investments we're making on this team and the impact that they will have on our sale of our high-margin IP-based offerings will be significant.

Great. And then, with respect to the market intelligence rollouts, would you say you're on track relative to your thoughts going into the year or maybe even ending after the second quarter? And then secondly, did I hear you correctly that you are seeing rate uncertainty as kind of a headwind to some of these new initiatives taking off initially?

We've really seen it across the board, so it's impacted these services as well. I would say that when we look at the overall activity, it's incredibly high. When we look at conversion, we know that we'd like to convert at a faster pace. We expected to convert the pipeline at a faster pace in Q3. But we saw that extended time decision-making extend into all offerings. And it impacted the sales of the IP-based offerings as well. I think it's probably easier for a client to extend the decisions of a new offering from a new individual. But we think that when we look at the kind of traction and relationships and knowledge of the products that they are building, the capabilities of the team, we think it's only a matter of time. Is it extending beyond where we hoped? Yes. But did we also believe that the second-half of this year would be without headwinds or with significantly, I'll them, less headwinds. But the fact of the matter is that as the prolonged interest rate environment -- as the interest rate environment took longer to hopefully hit its peak, and I say hopefully, and now the decision on whether or not to extend that, there's no doubt that the intended impact that it's intended to have, to slow down economic growth is being felt. So, I want to make sure that it is not isolated to those offerings. I think when we look at the results for the year, under those conditions, as well as the investments we're making and the progress we're making, yes, would I like to have higher numbers across the board? Did I want to in this quarter? Expected it to, even though this quarter was strong, and also in the next quarter. Look, we're feeling it. But does that determine or dampen the expectations of the returns that we expect to get from those investors? Absolutely not.

[Operator Instructions] Our next caller is George Sutton with Craig-Hallum. You may go ahead.

Hey, good afternoon. This is Adam on for George. Ted, I would love to hear if you have any early feedback on AI Explorer. And additionally, you mentioned in your remarks that you're going to be investing beyond that as well. We'd love some further details on what exactly you're thinking about?

Well, we actually started all of our Gen AI related offering development at the tail end of last year. So, we did a very extensive study to look and develop a significant inventory of use cases by function at the activity level. So, what AI Explorer does is it allows a client to do a very efficient and comprehensive assessment of their opportunities and determine priorities and understand the related business changes they would have to make. We just rolled it out in October. And I know that the first thing I had is that we had 10 clients already requested. We're going to be offering it as aggressively as we can throughout our client base. So, as I mentioned on the call, we expect this activity to increase not only through the balance of the year, but to be significant in 2024. Now, there is no doubt that everyone that is considering any kind of digital transformation effort to do that without considering the significance of Gen AI and with and without Gen AI is no longer appropriate. So, we think that kind of activity will follow and will build throughout the year. As it relates to other offerings, we expect to have an executive advisory program, a horizontal program that will extend to all of our functional programs. We've actually started doing client briefings on those and we'll formalize that program either latter part of this year or no later at the beginning of the year. We've also incorporated then all Gen AI related consulting services that will accompany or follow the AI Explorer, I'll call it opportunity identification assessment that it intends to make.

In terms of the M&A market, I'd love to know if you're seeing anything improved, more people come to the table or is pricing improving, any type of feedback would be great.

I can't really make many comments other than to simply say that on the financing side, obviously it's a lot harder to finance a deal, it's definitely more costly, so I think that that continues to be constrained. And yes, it's going to take a little bit for people to really reconsider what normalized pricing is. It's just part of the process. So, no, have we seen any difference in pricing? No, have we seen significantly less activity on the financial buyer side and financials and those who play in that space? Yes.

Yes. And final question for me, with respect to the Salesforce buildout for Market Intelligence, I believe in the past, you mentioned you wanted to grow that to about 30. How far along are you on that just from a headcount perspective?

Well, we were in high 20s throughout this quarter, so the 30 number is still the target. So, unchanged, I think at this point, it's around the conversion of the existing opportunities because we accelerated and built our team in that first-half of the year.

Great, thanks guys.

And our next caller is Vincent Colicchio with Barrington Research. You may go ahead.

Yes, Ted, on the Market Intelligence program side, has the performance been lower than expected because you rolled out less programs than expected as well as seeing less demand than expected?

Well, first, I think I said this on the last earnings call, so let's make sure that we understand the increase in the sales resources, we're built to sell our existing executive advisory researchers with focus on our functional buyers. As you know, we've got, depending on how you count them, eight to 12 programs. That is where the overwhelming amount of our time has been. The time on market intelligence, as it's taken us longer to make sure the programs have the kind of content and impact that we'd like, but they were never intended to be the sales or revenue producing effort in 2023. They are, and we're expected to have the impact in 2024. We still believe we're going to have several new programs out through the balance of the year and in early 2024, so we think that the complementary market intelligence programs will come out. But just to make sure we're clear, the 2023 projections were based on the sale of our executive advisory programs, not the market intelligence programs. We expected them to start contributing in an incremental basis, which they have. And, yes, we wanted to roll out more. That is as you may recall, we made a change from the market intelligence leader that we made at the middle of the year. I think it was the June timeframe. So, that led to some just a slowdown on approach and the effort we were making. However, it is back on full force with our effort to get out the targeted number as early in 2024 as we can.

Thanks for the clarification there. On the SBT, GSBT and Oracle businesses, looking for sequential growth here in Q4, curious what the sales pipelines look like there and to what degree do you feel that there's enough pipeline to continue to grow sequentially into early next year?

Well, the answer is you take the 10% less available dates that we have in the quarter when you consider the sequence from Q3 to Q4, and you look at our guidance, and you will see that with the exception of SAP, which our guidance includes, I'll call it a more conservative number on the software sales out of the activity, the others are all expected to grow sequentially, including the 10% fewer available days that we've had.

Yes, got that, but I'm just curious. The sales pipeline of potential new clients, what does that look like for the GSBT and Oracle businesses?

Again, other than extended decision-making, the activity with those clients remains unchanged. Interact with the clients remains strong. Gen AI conversations on virtually every conversation. So, no, that's unchanged, but is it taking longer for people to make decisions or weigh some of those new initiatives against or as part of a broader Gen AI, opportunity? Yes, we're seeing those kinds of, if you want to call it a extended decision-making.

Okay. That's it for me. Thanks.

Okay, thanks.

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

I'd like to thank everyone for participating in our third quarter earnings call and look forward to updating you again when we report our fourth quarter and full-year results.

And this concludes today's conference. Thank you for participating. You may disconnect at this time and have a great rest of your day.