The Hackett Group, Inc. (NASDAQ:HCKT) Q3 2023 Earnings Call Transcript

The Hackett Group, Inc. (NASDAQ:HCKT) Q3 2023 Earnings Call Transcript November 7, 2023

The Hackett Group, Inc. beats earnings expectations. Reported EPS is $0.41, expectations were $0.4.

Operator: 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.

Rob Ramirez: 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.

Ted Fernandez: 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.

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Q&A Session

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 as it comped against very strong software realized in the third quarter of last year. We also continue to aggressively invest in growth in growing our IP-based programs. In Q3, we continued to enhance the product architecture and pricing of our existing executive advisory programs into a more powerful combination of highly focused IP and access to expert practitioners, emphasizing our unmatched best practices and value realization tools, benchmark metrics, as well as applied knowledge research.

While our pipeline for these offerings continue to increase meaningfully, extended client decision-making has impacted our sales more than expected. Given this development, we now expect to achieve annualized contract value growth closer to 5% to 10% in 2023. All of our executive advisory programs are delivered through our new member platform, Hackett Connect, which fully launched in October. This new state-of-the-art platform allows all of our existing and new members to avail themselves to our benchmarking and best practices IP, applied knowledge research, and dedicated experts. We are also building a community of users that we believe will result in a powerful extended expert network. These investments represent one of our organization’s most significant transformative efforts.

On the balance sheet side, you could expect us to use cash flow from operations to continue to pay down our outstanding credit facility through the balance of the year. Long-term, we plan to use our balance sheet by using our current credit facility to fund acquisitions and to buy back stock, while continuing to invest in our business. With that said, let me ask Rob to provide details on our operating results, cash flow, and also comment on outlook. I will make additional comments on strategy and market conditions following Rob’s comments. Rob?

Rob Ramirez: 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, and 1.5% when compared to the same period in the prior year. Total revenues from our Global S&BT segment were $43.8 million for the third quarter of 2023. Revenues before reimbursements for our Global S&BT segment were $43.3 million for the third quarter of 2023, an increase of 5.3% when compared to the same period in the prior year. Total revenues from our Oracle Solutions segment were $20.8 million for the third quarter of 2023.