Welcome to The Hackett Group Fourth Quarter Earnings Conference Call. [Operator Instructions] 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 2023 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 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. 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 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. This afternoon, we reported total revenues of $72.4 million and revenues before reimbursement of $71.2 million, which was above the high-end of our guidance and adjusted earnings per share of $0.39, which was also above the high-end of our guidance. Our results were driven by the performance of our Oracle Solutions segment, which was up strongly. This is consistent with the momentum that we've have experienced in that segment since the second quarter. A new important development for the segment is the notable increase in demand that we are experiencing in our historically strong Enterprise Performance Management offering. Our Global S&BT segment was up when compared to last year. Although the segment was impacted by market conditions, we continue to see an increased interest in Gen AI initiatives. More importantly, our recently launched Gen AI assessment platform, AI Explorer, is receiving favorable feedback. It has led to a significant number of new client wins, enabling us to showcase our unique ability to assess readiness and identify organizational transformation opportunities. We are leveraging our rapidly growing use case repository to establish Gen AI road maps with related benefit case analysis using our highly recognized benchmark data base. The rapidly emerging Gen AI interest is creating an entirely new way to engage clients broadly and strategically. AI Explorer is creating a unique opportunity to expand our trusted performance improvement access to become strategic…

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 2023 fourth quarter results, along with an overview of related key operating statistics. I'll also cover an overview of our cash flow activities during the quarter, and I'll conclude with a discussion on our financial outlook for the first quarter of 2024. For 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 IPaaS and benchmark offerings, our executive advisory programs, our business transformation and our OneStream and group 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 revenues before reimbursements in our discussion. Reimbursable expenses are primarily project travel-related expenses passed through 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 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 discussion from this call to the Investor Relations page of the company's website. For the fourth quarter of 2023, as Ted mentioned, our total revenue was $72.4 million, up 3% over the prior year. Our revenues before reimbursements were $71.2 million, which was also above the high-end of our quarterly guidance, up 3% over the prior year. The fourth quarter reimbursable expense ratio on revenues before reimbursements was 1.7% as compared to 1.6% in…

Thank you, Rob. As we look forward, let me share our thoughts on the near and long-term demand environment and the growth opportunities it offers our organization. Although demand for digital transformation remains strong, it continues to be impacted by extended decision making as organizations assess competing priorities created by high 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 automation are dramatically influencing the way businesses compete to deliver their services. So what's new? It's the rapidly emerging attention and demand for Gen AI. Its possibly unlimited potential will drive an entirely new level of digital world-class performance standards, driving all software and services providers to extend the value of their existing offerings. We believe this will result in an unprecedented innovation, which all organizations will have to consider. On the talent side, competition for experienced executives continues. Overall, we saw the turnover continue to moderate and remained low during the quarter, and we expect that trend to continue. Longer term, we have transitioned to a hybrid sales and delivery model, which provides [indiscernible] 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. Strategically, we have accelerated our focus on our recurring high-margin IP-related services by increasing the development of new programs and sales and marketing resources dedicated to this area. We also continue to invest on our new Hackett Connect member platform. But what is new is the accelerated focus and investments we are making in our Gen AI capabilities. We are utilizing the AI Explorer platform as the vehicle…

Thank you. Ted, I wondered if you could walk through how you take AI Explorer into a company, do some work for them and then how it extends into your broader offering? I'm particularly compelled by the thought that it's an entirely new way to engage clients as you said. Can you just walk through exactly how that works?

Okay. Let me do that. And first, let me also comment on the fact that you are correct that this emerging demand requires all software and services providers to, I will say, be prominent and active in this channel if they want to have an opportunity to engage clients strategically, which is only going to increase. So this AI Explorer effort for us has been very, very significant and it's received -- we've had in terms of number of meetings scheduled, held and even the level of proposals we've issued to date all are more significant than any other, I'll call it, new release that we have ever launched. But with that said, it's -- we take our business process taxonomy, we evaluated cradle to grave as you know for all of our benchmarking and digital transformation IP, we look at the enterprise across over 100 processes. We align those processes and compare the individual functions and activities against the Gen AI technologies which are emerging. So you look at the fact that if you're building a large language model, leveraging machine learning, leveraging neural networks, leveraging a chatbot or a digital assistant in some combination or strategic way, how does that impact both functions and activities? We've been doing this review for more than 6 months. We've identified hundreds of use cases. So it's allowed us to: one, evaluate functions and activities for the level of Gen AI if we wanted to call impact. We then compare that opportunity for a client against the client's actual cost, time, service levels that they're achieving. It allows us again to use that measurement capability that exists in Quantum Leap to not only tell the client which activities we believe will drive the highest value, we can compare that value to the…

Thank you. That's very helpful detail. So I wondered on the market intelligence side, how much has that -- and there wasn't a lot of discussion on market intelligence on this call or at least the prepared comments. I'm curious how much impact this Gartner issue has caused from that perspective, if any. Could you just walk through that for us?

None. The Gartner issue, as you referred to it, was a, I would call it, more recruiting related where individuals that we hired, a very important one, the head of sales individual had a non-compete agreement, which was enforced in Connecticut. So we took them out of any direct sales related activity that would compete with Gartner, and he will be precluded from returning to his Head of Global Executive Advisory Sales until November 6, which is when that -- his 1-year period ends. We were very fortunate. We were hiring a second leader to support some of our other renewals and customer service issues, very talented individual, which replaced this individual 2 weeks after we got that notice from the court that they believe that the -- their position was enforceable. We made that transition. We think we've addressed that about as smoothly as we can. And as I said in my prepared comments, it may have disrupted or impacted, right, to ask a leader not be here at the end of the year, lead the team. But I referred to the interim head as a little bit of a Brock Purdy. No flash, just great execution, and we are delighted to have him on board. Therefore, we are looking forward to the investments we make in '23 to impact '24, but it had no impact on our development of market intelligence reports and how we intend to use them to support our executive advisory programs and now becomes a critical part of AI Explorer because a lot of the AI Explorer questions are not only what's my opportunity, how do I prioritize? But they also want a perspective of which vendors do what well and therefore, who they should consider. And I believe that they will rely on us, on that market intelligence element of our business to support Gen AI initiatives.

Got you. So he can't come back until November 6. Just make sure he gets out and votes the next day on November 7. Thanks, guys.

He will be -- he's ready to go. Don't worry, we will keep him busy in things that do not conflict with this agreement.

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

Thanks. Good afternoon, guys. Ted, I wondered if you could elaborate on what you see as a growth acceleration in 2024. Maybe first touch on the sources of that. Is it giving more seasoned sales people, not having them become more seasoned and therefore conversion rates go up? Is it new offering, is this a combination? In detail that would be helpful.

Yes. I mean all of the above, obviously, time and great help. During the year, we were also changing and improving some of the programs. So they were not only becoming familiar with our relative strength in how to take those to market, but we were obviously even rolling out some enhancements, which included the November -- October rollout of Hackett Connect. So again, tremendous amount of work and investment that we made. So even with some disruption, listen, it should not prevent us from are growing that -- those services the way we originally intended.

And then back to market intelligence a little bit, if we could. Are you seeing much revenue impact from the programs? I mean, you published the first couple of them towards the middle or even in the fall of last year. It sounds like you published another $0.01 or $0.02 and kind of the cadence of $0.01 or $0.02 a quarter plan for the foreseeable future.

No. We project that, as you know, very low revenue since we need these programs would be rolling out in the latter part of the year. So the answer is no. But again, we expect them to contribute to our growth in 2024.

Okay. And then -- you care to quantify growth acceleration in 2024, how should we think about the model? I know typically, you target a 5% revenue growth and 10% pro forma EPS growth. Is that how we should think about this year? Or should we think about an acceleration where the back half is perhaps stronger than that?

Well, as you know, we will provide the quarterly guidance, we will set the same. We know that at 5% growth, we obviously generate profits in excess of 10%. If we grow anywhere near 10%, or 20%, a bottom line contribution. We will provide our quarterly guidance and allow that to play out, and we will update that for you every quarter as we go through as we normally do. So no, if you're asking me to provide annual guidance, Jeff, no -- I'm not prepared to change my discipline at the moment.

Fair enough. Thank you.

Thank you. Our next caller is Vincent Colicchio with Barrington Research.

Yes. So, Ted, I'm curious, the sales force, my understanding is bundling of services is one of their focuses. Are you seeing some success there? And if not, do you expect to see some success in that area throughout the year?

Well, it depends which sales force you're talking about. If it's our regional sales group that supports our S&BT segment, and that includes all services, the answer is yes. They carry a bag to support the sale of all services. If you're talking about the executive advisory and market intelligence dedicated sales group, they're fully focused on those offerings, but they obviously receive incentives to the extent that they identify other opportunities that are outside of their purview. And then our software-related teams work directly with those channel partners and those that the software companies support and they primarily focus on the sale of those software products across the U.S. regions for both Oracle and SAP.

And Rob, I don't -- I wasn't sure if I missed it. You had said Oracle should grow sequentially. Did you mention GS&BT and SAP sequentially in Q1?

Yes, my comment was that all three of our segments are going to grow in Q1 with the strongest being Oracle.

Okay. Thanks for that. And Ted, do you expect Q1 to see better conversion rates with the new sales force? Or will it take more time than that?

Yes, we do expect it to improve. In fact, it improved throughout the year, as you can see, the time and greater the individuals become familiar with the product. So yes, we would expect it to improve throughout the year, including Q1.

And I know you don't want to talk about growth for the year. Maybe there's another way to ask a related question. Do you expect a return on the sales investments you made last year and the market intelligence investments to bear fruit in '24?

Absolutely.

Okay. Thanks, Ted.

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

Let me thank everyone for participating in our fourth quarter earnings call. We look forward to catching up with you again when we report the first quarter. Thank you.

And thank you. This concludes today's conference call. You may go ahead and disconnect at this time.