Welcome to the Hackett Group Second Quarter Earnings Conference Call. [Operator Instructions]. 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 second quarter results, speaking on the call today I'm here to answer your questions, are Ted Fernandez, Chairman and Chief Executive Officer of the Hackett Group, and myself. Robert Ramirez, Chief Financial Officer, a press announcement was released over the wires at 4:05PM 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 the guarantee of future performance. They involve risks, uncertainties and assumptions 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 are contained in our SEC files. At this point I would like to turn 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 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 total revenues of $77.7 million and revenues before reimbursements of $75.9 million, which was above the high end of our guidance and adjusted earnings per share of $0.39 cents, which was at the high end of our guidance. Our results were driven by the overperformance of both our Oracle and SAP sectors. Oracle's overperformance is consistent with the momentum that it has experienced in the second quarter of last year, a recent important development is the notable increase in the demand we continue to experience in our historically strong Enterprise Performance Management offerings. Oracle has reemphasized its sales commitment to this area, and we are clear beneficiaries of this strategy. Our SAP solution segment also performed above our expectation as it closed several value added reseller transactions which benefited the quarter, we are seeing some of the sales investments we made in this segment last year start to pay off. Our global strategy and business transformation segment was down 3% when compared to last year, as we have seen, economic headwinds continue to result in extended decision making, as I mentioned last quarter that has been particularly noticeable in our e-procurement area. On the positive side, we are continuing to see increased activity from companies considering GenAI investments. We have conducted hundreds of meetings with global 1000 organizations as a result of their interest in…

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 2024 second quarter results, along with an overview of our key operating statistics. I'll cover an overview of our cash flow activities during the quarter and I will then conclude with a discussion on our financial outlook for the third quarter of 2024. For the purposes of this call, I will comment separately regarding the revenues of our global S&BT segments, our Oracle solution segment, our SAP solution segment and the total company. Our global S&BT segment includes the results of our North America and international benchmarking and business transformation offerings, Executive Advisory and iPaaS programs and our OneStream and Coupa implementation offerings. Our Oracle solutions and our SAP solution sections 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 discussion, reimbursable expenses are primarily project travel related expenses passed through to our clients and have no associate impact on their 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 we'll post any additional information based on the discussions from this call on the investor relations page of the company's website, As Ted mentioned for the second quarter of 2024 our total revenue was $77.7 million. Our revenues before reimbursements, were $75.9 million, which was above the high end of our quarterly guidance. The second quarter reimbursable expense ratio on revenues before reimbursements was 2.3% as compared to 1.9% in the prior quarter and in the same period of…

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 strong, it continues to be impacted by extended decision making as organizations assess competing priorities created by high interest rate and the demand disruption, which it is intended to affect, digital innovation across all areas of enterprise, cloud applications, analytics, workflow automation are dramatically influenced, influencing the way business compete, deliver their services. However, there is a clear, major change which is rapidly emerging, and that is the demand for GenAI solutions. Its unlimited potential will define an entirely new level of what we describe as GenAI enabled, 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 unprecedented innovations, which all organizations will have to consider. Strategically we continue to focus on recurring, high margin IP related services what is new is the accelerated focus and investment we are making in our GenAI capabilities. The most significant investments have been the development of our AI explorer platform and the training and development of our associates. Although they are consuming our organization, I'm also very proud of the way we are making this pivot in a highly efficient way, whether you look at profitability, cash flow, or any other aspect of our performance. This could only be done because of our IP and the talented individuals we continue to attract as well as retain. We are utilizing the AI explorer platform as the vehicle to integrate the GenAI impact across all of our offerings. We also continue to hire and upgrade our skills and critical data and depth tech architecture resources…

[Operator Instructions]. Our first question comes from George Sutton with Craig Hallum

Thank you, Ted, you mentioned you've had hundreds of meetings relative to the Explorer offering, and you have thus far had low project conversions but expect that to increase strongly. I wondered if you could put a little bit more detail around those comments.

Well, I think what we're seeing is that the education side of our clients, which appear to be probably driving half of the calls that we were executing over the first three months since launching AI explorer, are really now changing clients. We're now engaging clients who have dedicated some capabilities to AI may have made some commitment to some GenAI development platform to develop their use cases, try to identify areas of the business which it wants to pursue, but the overwhelming majority is simply, I'll say, testing or trying to develop their capabilities in very narrow areas in order to prove both their capabilities and then also the value realization from this effort. So we now believe we've moved from primarily education, if you take, say, the first couple 100 calls, and to then more meaningful client conversations, let's say the next 200 calls. The conversations now include a more complete conversation of both ideation, design, develop of the solution and full deployment. That is why AI Explorer was built. It was to be responsive to a couple of things that we saw were critical to the clients. One, they wanted a better indication of the opportunities available to them, since many of them were highly focused in some narrow areas, or call them favored areas, and we have been a strong proponent that you should be considering making these investments with a much broader context, which means understanding what your enterprise opportunity is. That's what led to the simulation capability that we're now introducing in Version 2. So what does that mean that instead of talking educating a client about how we ideate and design solutions, we will now be engaged in the engaging them in an M1 with a full simulation of their opportunity full let's…

One other question, relative to implementations, just thinking through, you mentioned strength in the Oracle practice, and I believe that's because of a push in part from their sales force. And I just want to confirm that. And then relative to, you know, the IPO of OneStream and your success in growing that practice. Can you just give us an update there? Do you benefit from the IPO and the focus there? And then lastly, you called out e-procurement, which is, I believe, predominantly Coupa, they've pulled back on their sales resources. Is that what's driving that area? That's a bit of a challenge.

Well, I'll simply say that excluding the performance of that group, our S&BT practice was probably up 3% or better, instead of down 3% just to give you some perspective and respond to that, respond to that question without providing individuals numbers about that practice. So I agree with your observations. How do we benefit? Look we benefit when both OneStream is successful and Oracle successful. We believe they are the Top 2 EPM or CPM providers in the marketplace, we have this very strong capability in the EPM, both in the transformation as well as the software implementation side, and that relationship emanates from the very strong relationship we have with the CFO community. So we really like the fact that Oracle's reemphasize every emphasize that area, and we're benefiting from it. And yes, we also believe that the OneStream IPO only benefits and creates an opportunity for OneStream to continue to grow its business, and if they do so, we're going to be an active participant in that growth.

Our next question comes from Jeff Martin with ROTH Capital.

Ted wanted to dive a little deeper on AI Explorer 2.0 you mentioned that'll be available later this month. How much do you think the new features, particularly a simulation, make a difference in open close conversions, and have it.

I believe it's two-fold, Jeff. I believe that clients are listening to our capabilities that are considering that within the context of their plans, and they're becoming more informed, and the more detail we provide on how, I think, how strong we are in that ability to identify and design, which includes driving all the way through functional requirements and data sources, we believe extends our capability and provides more value and capability that we're offering our clients. So one, those two things are important, I think, also so we're that's also extending our capabilities all the way through to proof of concept and validation, and again, those the more we extend our capabilities and directly respond to what the clients need help with. We believe for example, some of the things that are in the pipeline now our clients that we made early presentations to, we didn't hear much from, we thought they were educational. They picked up the phone, called us back. When they called us back, we were demonstrating greater credibility. That greater credibility has given us a chance to present a larger scope, which they now accept. So you got to consider this somewhat of a startup. I mean, clients are learning how to do the work, engage the services, compare the capabilities, and we're aggressively building capabilities where we believe the client limitations and capabilities are. So you can just expect us to continue to extend those capabilities, and we just believe that all of the above will give us a chance to compete for that work further. And I still don't know if somebody has had the volume of calls we've had with clients and the detailed level of discussions around GenAI adoptions, the underlying GenAI development platforms, they're considering, and again, some of their issues and limitations and we're trying to go back and kind of respond to it all through both platform and internal capabilities. You'll see us continue to do that aggressively.

The point I was trying to get at was simulation seems like it's a huge value add for the client. I was just curious how long it might take to do a simulation for a client, and what all does that entail in terms of pulling data from their systems?

Well, first, the first thing is to get them to believe that we can. So we've just started doing our first demos, and the reaction is, their reaction is, how are you doing it? And it may be hard for you to believe, but Explorer and the capabilities inside of Hubble [ph] when we provide Explorer with the right level of information that correlates to that client's industry, and more specific client information that we may get publicly or as a result of setting up the call is allowing us to get in front of the client, apologize for the fact that we did this without any direct involvement from them or direct information in the areas we're going to cover. But we think it's incredibly compelling for us to be able to turn to any or most, let me not say any, because it varies so much by district most areas of the business and have a conversation about the use cases there are available, and what we believe is the feasibility of the use cases. And as you know, we break down use cases as breakthrough, transformative and incremental. So then we also correlate to the benefit. So to some extent, I think that we're catching some of our clients a little bit off guard with the capability we've developed as quickly as we have, but I think that the conversations we're having and we've had are clearly extending our branding, and if we continue to build capabilities, whatever opportunities emerge in this space, in the areas we're covering, I just believe we're going to be highly competitive.

Okay, one more for me, if I could you mentioned strategic partnerships. Just curious if you could help us understand the overarching strategy there. Is that to penetrate more than middle market, you mentioned you're intending to extend reach beyond the Global 1000 just curious, if you kind of give us the strategic viewpoint of how you're?

Well first beyond the Global 1000 as you know, we also have have had vendor strategies in our iPaaS program, so we've had an initial conversation where we're trying to determine whether we can take some of those relationships and support their AI, either extended or offerings by sharing our capabilities with their channel. So the answer is, yes, we you know, we've initiated those conversations, so we'll see where they go. So relative to extending capabilities because of the success of AI Explorer and the fact that you know all the work that we pay by giving these clients these one hour, or in some cases, more than one session and review of AI explorer and discussion around GenAI adoption and related issues, it has attracted some of the -- I'll call it some of the some of the firms that are now trying to transition their skills or build some new skills in the AI implementation area. And as we walk into clients, sometimes we get introduced to some providers, so we're kind of developing a good understanding of the ecosystem who's out there in figuring out the best way to work with them.

[Operator Instructions]. Our next question comes from Vincent Colicchio with Barrington Research.

Yes, Ted shifting gears here a bit. With your heavy focus on the AI consulting. Is there less emphasis currently on the market intelligence programs?

No, we just - it's interesting. We just don't believe that you -- obviously there are requirements to help clients with organizational and enterprise app issues and areas that they want to continue to address. But when you engage a client more strategically or broadly, and when you look at how we believe the spend dollars will shift over time. We don't believe that you can separate our existing capabilities with the new capabilities. So what we've done is we've enveloped all of our I'll call it traditional capabilities, with AI explorer or GenAI capabilities, so that any conversation can result in either a) A AI Consulting opportunity, or a, I'll call it downstream or more traditional or legacy opportunity, for lack of a better term. So to me, it's, it's the ability to turn left or right as the client needs your assistance. I just believe that the trend and the demand that will build around GenAI is so significant that to not emphasize it and use that as a primary go to market, as we look out several years, would not benefit our organization the same way.

And then SAP, you said you closed some business towards the end of the quarter. Is this momentum shift sustainable? What are your thoughts on SAP?

Look, both Oracle and SAP have performed pretty well throughout this if you want to call it economic cycle right, and now you got to call it economic and emerging GenAI cycles. So now you got two cycles going at the same time. So Oracle out is really, obviously, Oracle's outperforming the other groups. The SAP group is performing well, and we think it's and both have an opportunity to continue to perform where they're at or better, just given how successful they've been through what I believe, you know, has not been the best economic cycle. And when you also consider the new distraction that clients have now, because everyone is offering them to implement some use case or presenting some new AI embedded opportunity for them to consider. So there's a lot of competing wins it all leads to the deployment of technology and change, and the deployment of technology and organizational change is good for our business.

And lastly, what is driving the strong growth in your top client? I see some impressive growth there.

Well, obviously it was a very meaningful Oracle implementation, but it's probably expanded into four of our groups, including our AI group.

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

Well, thank you operator. Let me thank everyone for participating in our second quarter earnings call. We look forward to updating you again when we report the third quarter. Thank you.

Thank you for your participation. Participants, you may disconnect at this time.