Q3 2020 Hackett Group Inc Earnings Call
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Welcome to the Hackett Group third quarter earnings Conference call.
All lines have been placed in a listen only mode until the question and answer session.
Please be advised that the conference is being recorded.
Hosting tonight's call.
Mr., Ted Fernandez, Chairman and CEO.
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 results.
Speaking on the call today and here to answer your questions are temporary and as chairman and CEO of the Hackett group and myself, Robert Merritt Chief Financial Officer.
A press announcement was released over the wires at four or five PM eastern time for.
For a copy of the release please visit our website at Www Dot the Hackett group Dotcom.
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 at <unk>.
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Before we begin I would like to remind you that in the following comments and 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 related to our current expectations estimates and projections and are not a guarantee of future performance.
All risks uncertainties and assumptions that are difficult to predict and which may not be accurate.
Especially in light of Covina gene.
Actual results May vary you.
These forward looking statements should be considered only in conjunction with the detailed information, particularly the risk factors contained in our 60 fives.
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'll, then turn it back over to Rob to comment on detailed operating results cash flow as well as to comment on outlook.
He will then review our market strategy related comments.
And then we will proceed to Q and a.
I would like to start by continuing to acknowledge those dedicated individuals who have continued to work nonstop and under very dangerous circumstances to support us all during this pandemic.
I also want to acknowledge our associates and clients that quickly and successfully adapted to the remote delivery requirements around the globe. It goes without saying, we eagerly waiting for the conditions.
That will allow us to return to our next normal.
As we communicated at the end of Q2, we were experiencing increased meeting counts and engagement and we expect that both revenue and profitability to start to recover in Q3.
This increased activity continue through the quarter and I'm pleased to announce today that our actual Q3 results exceeded our expectations. This afternoon, we reported net revenues of 57.8 million and pro forma earnings per share of 17 cents net revenues were up 10% sequentially with EPS up strongly from our locked down.
Compromised Q2 results.
You had sequential revenue growth was led by the strong bounce back up our strategy and business transformation group.
And the continued growth of our S&P and one screen practices on the International front Europe was also up strong sequentially.
The investments we have made to fully digitized all of our IP the development of our IP EPS the surface platforms quantum leap our state of the art global leading benchmarking platform in our proprietary packet digital transformation platform or DTP or highly differentiating our offerings and will continue to be.
Important drivers of our growth for many years to come.
Additionally, our investments with rapidly growing EPS procurement cloud analytics EDM and other workflow automation providers also continued to be key to our digital transformation strategy and our Q3 important future drivers of our growth strategy as well on.
On the balance sheet side, our ability to generate strong cash flow from operations has allowed us to continue our dividend buyback stock and fund acquisitions, we identified while continuing to invest in our business. It is important to reiterate how important it was to start the year with such a strong cash position and no outstanding debt, which has.
Provided us with the ability to properly manage the demand disruption that we have experience.
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 conditions. Following robs comments Rob. Thank.
Thank you Ted.
As I typically do I'll cover the following topics during this segment of our call an.
An overview of our 2023rd quarter results, along with an overview of related key operating statistics.
In a review of our cash activities during the quarter I will then conclude with a discussion on our financial outlook for the fourth quarter of 2020.
For purposes of this call I will comment separately regarding the financial results of our strategy and business transformation group or SMB.
ERP, EPM and analytics solution group or EA.
Our international group and the total company.
Our SMB Ti group includes the results of our North America IP as a service offerings, our executive advisory programs and benchmarking services and our business transformation practices.
He solutions group includes the results of our North America, Oracle SMB solutions and one's through practices.
Our International group includes the results of our SMB team and our resources or based primarily in Europe.
In addition, please note that all references to net revenues were present revenues, excluding reimbursable expenses rig.
Reimbursable expenses are primarily project travel related expenses passed through to our clients and have no associated impact to our margin or profitability.
Given the limited amount of business travel due to the pandemic, we encourage investors to focus on net revenues to assess revenue and girlfriends.
During our call today, we will reference certain non-GAAP financial measures, which we believe provides useful information to investors we.
We included reconciliations of GAAP to non-GAAP financial measures in our press release filed earlier today I.
Additionally, my comments today are based on results from continuing operations.
For the third quarter 2020, our net revenues increased 10% sequentially and decreased 13% to 15 to 57.8 million when compared to the prior year, which is above the high end of our revenue guidance range.
The Q3 Reimbursable expense ratio on net revenues was 8.3% as compared to 8.9% for Q3 of the prior year.
Net revenues from Reimbursable expenses were both affected from the economic disruption of the COVID-19 pandemic add as we transition to a remote service delivery model throughout the us and Europe.
Net revenues for our SMB team group were 22.2 million a decrease of 21% when compared to the same period in the prior year. However, SMBC was up strongly on a sequential basis by 25% as a group reversed much of the disruption experienced during the second quarter.
Net revenues for each solutions group were $29.7 million, a decrease of 1% on a year over year basis, and 2% on a sequential basis.
This was driven by growth from our S&P in western practices offset by declines in our Oracle practice as it rebuilds backlog during the quarter after officially maintaining its momentum and outperforming during the second quarter of 2020.
Our us operations, which currently represents 90% of our total company net revenues for the third quarter were down 11% on a year over year basis, but up 8% on a sequential basis.
Net revenues for our international group were $5.8 million, a decrease of 30% on a year over year basis, and an increase of 32% sequentially as a group performance improved from its recent declines.
Total company International net revenues accounted for 10% of total company net revenues as compared to 13% in the third quarter of the prior year and 8% in the prior quarter.
Our recurring revenues, which include our executive advisory IP as a service and a mess groups accounted for approximately 24% of our total net revenues and approximately 36% of our total company pre tax practice profitability in the quarter.
Total company pro forma cost of sales, excluding reimbursable expenses totaled $37.8 million or 65.4% of net revenues in the third quarter of 2020 as compared to $41 million or 61.5% of net revenues for the same period in the prior year.
Total company consultant headcount was up 2% sequentially to 923, as we hired consultants as demand improved during the quarter discuss.
This compares to total company headcount of 908 in the previous quarter and 1036 at the end of the third quarter of 2018.
The year over year decrease was a result of the actions taken in the second quarter of 2020 to reduce our global workforce by approximately 10% in response to the ongoing disruption from the pandemic.
Total company pro forma gross margin on net revenues was 34.6% up sequentially from 26.6% and down as compared to the prior year of 38.5% primarily due to the Cove in 19 pandemic disruption.
SMBC gross margins on net revenues was 42.4% up sequentially from 26.4% and down as compared to the prior year a 49% the.
The variances were primarily driven by the pandemic disruption.
EA gross margins on net revenues was 27.5% down sequentially from 29.7% and data as compared to the prior year of 33.7%.
The year over year margin decrease was primarily due to modest revenue declines and increased utilization of subcontractors and the quarter, partially offset by lower head count.
International gross margins on that revenue on net revenues was 40.7% up sequentially from 5.1% and up as compared to prior year of 22.9%.
The margin increase related to increased sequential revenues and the restructuring actions that took place in the prior quarter, which more than offset the year over year revenue declines.
Pro forma EPS today was $12.7 million or 22% of net revenues in the third quarter as compared to $14.1 million or 21% of net revenues in the previous year, and 11.4 million or 22% of net revenues in the prior quarter the year over year dollar decrease of $1.4 million with.
Primarily due to decreased travel related selling and marketing activities throughout the quarter.
Pro forma EBITDA was $8.2 million or 14% of net revenues in the third quarter as compared to $12.5 million or 19% of net revenues in the prior year and $3.4 million or 7% of net revenues in the prior quarter.
Total company pro forma net income for the third quarter of 2020 totaled $5.4 million or 17 cents per diluted share disk.
This compares to pro forma net income of $8.7 million or 27 cents per diluted share in the third quarter of 2017.
GAAP diluted earnings per share was nine cents for the third quarter of 2020 as compared to earnings per share of 21 cents in the third quarter of the previous year.
The company's cash balances were $43.2 million at the end of the third quarter as compared to $37.4 million at the end of the previous quarter.
Net cash provided by operating activities in the quarter was $10.1 million, which was primarily driven by net income adjusted for non cash items and increases in accrued expenses.
Our DSO or days sales outstanding at the end of the quarter was 57 days as compared to 64 days at the end of the previous quarter.
Given our strong cash balances the company's $45 million credit facility remained unused during the third quarter.
During the quarter, we repurchased 83000 shares of the company's stock for an average of $12.57 per share or at a total cost of approximately $1 million, including purchases from employees to satisfy income tax withholding triggered by the vesting of restricted shares.
Our remaining stock repurchase authorization at the end of the quarter was $4.7 million.
In July of 2020, the board declared a quarterly dividend of 9.5 cents per share which was paid in October 2020.
At its most recent meeting the board declared the next quarterly dividend of 9.5 cents per share, which we paid in early January 2021.
Before I move to guidance for the fourth quarter I would like to remind everyone of the seasonality of our business.
Specifically the increased holiday and vacation time that is historically taken in the fourth quarter will decrease our available drilling days by approximately 8% when compared to the third quarter.
As Ted mentioned in his comments, although economic uncertainty from the pandemic continues to be high the company's current estimates suggest that net revenue for the fourth quarter of 2020 will be in the range of $55 million to $50 million.
We expect sequential revenues for SMB to be up he revenues to be flat in Europe to be down primarily due to an expected managed services contract expiration.
We estimate pro forma diluted earnings per share in the fourth quarter of 2020 to be up sequentially and and in the range of 20 to 22 cents we.
We expect pro forma gross margin on net revenues to be approximately 36% to 38%.
We expect pro forma EPS, Jenny and interest expense for the fourth quarter to be approximately $12 million.
We expect fourth quarter pro forma EBITDA on net revenues to be in the range of approximately 17% to 18%.
We expect cash to be up when excluding dividend payments and share buybacks.
At this point I would like to turn it back over to Ted to review, our market outlook and strategic priorities for the coming months. Thank you Rob.
As we look forward to let me share our thoughts on the short term as well as the long term demand environment and on the growth opportunity. It offers our organization.
It goes without saying that we've entered an unprecedented period, where the demand disruption necessitated to ensure safety as required extreme measures, but it's now also clearly evident that the digital transformation era, which was just beginning has been rapidly accelerated by the pandemic.
This means that digital innovation in emerging enterprise cloud applications, <unk> analytics and infrastructure.
Workflow automation process mining and artificial intelligence is 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 in order to remain competitive.
On the demand side, the short term environment continues to improve as our clients now understand that they must continue to transform and that the buyers will continue to disrupt our lives until a vaccine in therapeutics are readily available to all this means all organizations must adapt to this new environment, while we saw.
Short through the changes, which will result from the pandemic.
Specifically, the increasing momentum we experienced in Q3 is continuing into Q4 as our clients and our sales and service delivery model acclimate to the next normal market requirements. This should position us well for 2021 and should allow us to return to pre pandemic levels of target growth.
As well as profitability.
Additionally, we continue to see significant.
The increase in the interest from potential partners that desire to license our quantum leap in digital transformation platforms on to bolster their business case development and value selling efforts by leveraging our credibility.
In IP, we now have more than 10 opportunities both with more than half of them with formal proposals outstanding.
Strategically our focus will remain the same which is to continue to build our brand with our new offerings and capabilities focused on digital transformation around our fully digitized and unmatched benchmarking and best practices intellectual capital and platforms. This should allow us to serve our clients strategically.
Increasingly remotely and whenever possible continuously.
Specifically, we will continue to redefine our global benchmarking leadership through the enhancements, we have made to our quantum leap digital transformation software as a service solution as I've mentioned in this in the past. This platform allows us to deliver more information with significant less client effort. It also allows our clients to leverage.
Pete and track transformation initiatives over the life of their respective effort. We believe that there is no comparable platform in the market and as I. Previously mentioned, we have been experiencing increasing interest from potential strategic partners.
In leveraging our platforms and also leveraging our brand and IP and credibility.
We will also continue to refine and improve our digital transformation platform to further differentiate our unique IP and related capabilities.
TP. Unlike the quantum leap allows us to fully digitized our best practice IP align with proven configuration organizational solutions to help clients drive transformational change DC DTP as a core asset to both our business transformation and cloud implementation offerings. We.
I've added a 20 minute demo to our Investor Relations page of our website. So that investors can become more familiar with the unique capabilities of our platform.
Lastly, even though we believe that we have the client base and offerings to grow our business. We continue to look for acquisitions and alliances that strategically leverage our IP and add scope scale and capability, which can accelerate our growth in summary, we continue to believe we are well positioned to resume our growth as the demand disruption subsides.
Clearly Q3 was a welcome relief after the significant lockdown disruption of Q2. We are also encouraged to see that the power of our brand and the focus of our offerings along with a sound financial position has allowed us to positively address the most challenging economic events.
This validates our focus and investments that we're making on our platforms, our expanded cloud capabilities and our IP as a service offerings, which provide us as I've said highly differentiated offerings and strategic access to most of the leading global companies as always let me close by thanking our associates by asking them to ramp.
Safe for their tireless efforts at urge them to stay highly focused on our clients and our people regardless of the short term challenges we continue to encounter.
Those conclude my comments, let me turn it over to our operator, and let us move onto the queue in a section of our call.
Operator.
Thank you Sir.
At this time, we're going to begin the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad. Please record your name at the prop Sabah introduce your question again Thats Star one.
Our first question comes from Jeff Martin with Roth Capital Partners. Your line is open.
Thank you good evening 10, Rob.
Yep.
I Didnt hear I didn't catch the specifics on cloud growth in the quarter relative to on premise and on premise is largely.
Taken its course, but.
How did clouds in the quarter.
Cloud revenue continued to.
To grow at an up Rob had some specific statistics that now we can inform them on to you.
Jeff but.
The most important part to understand about the growth in the quarter and obviously a year we're talking sequentially.
That we had the growth from the S&P and one stream groups that continued their growth sequentially.
Offset some of the transition that we guided and mentioned relative to our Oracle group, which so strongly outperformed in Q2 as it efficiently work through its.
Backlog and had to use the second quarter to basically rebuilt and as we call it prime the pump.
But clearly when you look at the mix of what were doing virtually everything that we're doing is cloud oriented.
The the mix of cloud in both the Oracle side is now well in excess of 80% on the Oracle side and it is virtually 95 plus percent on S&P and obviously all of that was framework is consider next gen cloud when we make that reference.
Right right Okay.
And then I I.
Cost that you mentioned process mining is an AI and part of the opportunity set for Hackett.
How is how can position to to.
Approach the process mining market and are there any tools achieved Scott in the war chest to approach that market.
It's an excellent question I mean, this takes us all the way back to 2010, when we actually launched HP as you know, which was really the most aggressive way too.
Build and drive a totally automated process mining solution as you can now imagine a large portion of the work that we do within quantum leap is in fact process mining where were we.
Continue to gather in both import and extract data that we use for some of those initiatives. So the question for us really ramped up the process mining will be just how aggressively we want to invest in that category in years to come as the category as now defined with a new entrants being funded at.
Meaningful valuation.
We continue to believe that process mining as a category and opportunity for the firm longer term.
2021.
Remains a very significant opportunity the second part of your question, Jeff was not process mind, what was that I'm sorry.
All right you mentioned AI as part of that.
That's interesting on the AI side.
We have a couple of initiatives.
That are coming from the IP as a service.
A channel or those requests were.
Cloud analytics and cloud infrastructure companies are asking I have come to us for some assistance in how they can leverage our IP and our data base to look at their value selling and go to market effort that impeded.
And that engagement with that client.
As giving us a pretty significant opportunity, let let's let's start with the initial piece, but the idea the idea or the concept of making sure that all of the information that performance assessment information, we provide clients relative to business outcome also has.
Eight data or content performance element to it so I will again say that.
Early stage for us, but you will see us.
Increase our capabilities.
In driving if you want to call it business performance all the way through to cloud our.
Analytics and cloud infrastructure performance throughout all of 2021.
It will be and it's a it's an initiative, we started which will continue.
And 21.
Okay and then final question for me you mentioned 10 opportunities.
Our IP as a service in the pipeline with half for more than half in formal proposal.
Are those once you solicited or are those inbound inquiries.
Yeah.
From from opportunities and and how would you characterize.
How that takes your business and perhaps give me some some new benchmarking data that you didnt previously.
But has a lot of great benefits for us.
As as you know, Jeff, but let me first start with the first part of your question, which is where the the the opportunities are coming from and I'm going to say that 75% of the opportunities were inbound request individuals who have been exposed to are of one of our two platforms.
Has either comment at for how to access data or how to have accessed quantum leap as a way of enhancing their go to market.
That that has led to.
Conversations on how they can use that to go to market what to me, what's most encouraging on number one is that the.
That the sub.
Companies than they are really different from different categories and different scale.
I understand the value and the credibility that our data and performance assessment information has in front of leading global companies. So its adapting our IP to their specific solution in order for that to see how they can leverage it to either prospect cell.
Or even serve some of the clients that they're serving.
The significant ancillary value is that not only are we able to help them.
Those efforts if we're successful with any of these proposals we know that that we it's been helpful.
To to ATP, who helped US obviously launch this initiative a couple of years ago.
But we know that the data capture aspect of this is significant also how it broadens the permission of the brand into new categories. When you considered some of these emerging cloud areas, where we're getting.
Some of these new request from so for us not only is it.
Very efficient model it allows us to use our IP and these platforms. In addition to using it.
The go to market to do and provide our own services, but it has a very different.
The business model, when you're able to do that through others go to market opportunity data catheters, and the learnings and insights that comes with it. So its explanation really expand the depth and breadth of the insight that we currently gather through the data, which we have that we capture.
We have and as you know that data that we capture we believe we have the most extensive enterprise.
Benchmarking database of of any of the companies at least we have a chance to compete within and see the capabilities of others.
Very helpful. Thank you and good to see the sequential improvement too nice to see.
Back in the 20 cents range for EPS this quarter.
Quarter we.
We are delighted we we were glad to see that we can get there next quarter. So it is that it is very welcome.
Thanks for your time, Thank you Jeff.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad and record your name clearly at the pump.
Hi, its course.
Andrew Nicholas with William Blair. Your line is open.
Hi, This is actually Trevor Romeo in Korea, Andrew Thank you for taking our questions.
Nice to see the sequential uptake for SMB team in the quarter and the positive outlook for next quarter. I was just wondering if I could ask for your confidence level in in a sustainable rebound for business transformation going forward and could you speak a bit more about how your conversations with potential clients are going on that side of the business.
And with that.
It was very important for us since that that business side has an element that has.
A higher client engagement.
Then than the technology projects on the east side and as you know was most disrupted in Q2. It was great to see the demand for that business really increased throughout the quarter. So what has that what what does that tell us and what does that tell us about what were going forward that clients clearly understand the need to.
We continue to address their performance improvement issues and to do that they either are going to do that themselves assuming they have the resource and capability, where they have turned to organization like ours and then what it then improved beyond that is that they have become comfortable engaging remotely and I'm going to say.
90% plus of those activities, which is really very significant so our belief is that every month that goes by clients become more comfortable with the if you want to call. It that disruption acts by aspect of covance to their individual businesses.
And then allows them to then three uptime for what they know is continued to address either.
Digital transformation and performance improvement or productivity efforts that are critical to address this volatility all of them are important and and that engagement has been favorably received in that communication that client discussion and interaction and collaboration.
We have found a way to do that in a manner with a client feels that they are receiving the values that they are used to from the interactions with us across all of our groups. So very positive, but I think the most important thing is it speaks to.
How we all adapt and how we continue to adapt to the circumstances to continue to fulfill the obligations we have proper respective companies that happening at our client organizations. That's happened within our organization and has allowed us to do as I said at the beginning I, thank and congratulate both client.
And our teams for being able to do so so successfully and for our client engagement too.
Not only continued throughout the quarter, but that engagement to increase into the fourth quarter.
Okay, great. Thank you that's a that's good to hear and I just wanted to ask a follow up on the cost side could you just speak to how you see your expense base kind of evolving over the next year or two particularly regarding.
Some of the expenses like travel Reimbursable expenses office expenses and things like that that have kind of changed as a result of the pandemic and then also just your thoughts on whether staffing levels are adequate given current demand or if you're looking to add headcount in certain areas going forward. Thank you well, let me start with let me start where you finished as you heard from Rob's call.
We had it headcount during the quarter to deal with the increased demand. So they were clearly adding headcount there are still some movement as to where that's been accelerated by practice. So there are some differences depending on some of the groups and where we're seeing the greatest increase in demand, but it's pretty it's pretty broad because declining gas.
Summit has been pretty broad.
Relative to cost you really have three pretty significant areas and it's interesting that you focus immediately on travel because it becomes so of the visible to our.
Reimbursable expenses number which is normally added to our net revenues to get to gross revenues and how they are dramatically down so as Rob mentioned, we had a 30 basis points.
Three tenths of 1% of expenses and last year, we were.
8.9%, which has been incredible difference that means that virtually most of our engagements are being delivered remotely. So yes. There is a clear then.
Benefit that accrues to the client and some to us clearly accrues to us 100% of the selling related efforts, which are also being done remotely, but the client engagement.
He has been incredibly effective what you start realizing is that.
Although clearly it you don't have the personal aspect that we so dearly Miss and we know it's an important part of our business, but we're also learning is.
The frequency of the engagement and the time in which we are accomplishing path.
Including sales related efforts has really become more efficient meeting. It allows us provides more capacity to engage more with existing clients or to use that capacity to prospect. So think of first the fact that you gain the efficiencies for non Reimbursable travel expenses, which is.
Our business is meaningful.
Secondly.
Is that you're gaining some delivery efficiencies.
And related from that same virtual route of rubber remote model.
Let's start focusing also on the fact that as work can be delivered of virtually or remotely that it also allows you to deploy a different kind of resource. We we all know that a a certain skill set our client has a certain I mean, our individuals have a certain functional and.
Our technical and then industry related skills that we bring to a client.
When that skilled does not require that does not require for that that resource to be client facing in client site at all time. It allows you to consider different resource models, so the near shore offshore.
Part of our business, we see a real opportunity to move some of those costs.
To a lower cost setting.
And maybe even the line to some some some significant capability where the skill set is maybe.
A little as not as broad as you'd like and some in certain regions. So it's giving us.
Giving us flexibility on non chargeable travel and expenses.
It's giving us flexibility in the way, we resource jobs and how that can be deployed and you can then share some of those gains with clients, but should also allow you to improve or protect margins. Those are significant and then the last mentioned that you said was on resource on facility. There is absolutely no doubt that.
That as we continue to evaluate and assess our real estate and facilities costs going forward.
We will find a way I believe we will find a way.
To support the our business and the revenues with a more efficient real estate of footprint and as you can imagine.
That benefit will accrue as.
With the passage of time and leases and other related agreements.
Okay got it well. Thank you that was very helpful.
Our next question comes from George Sutton Your line is open.
Thank you this is Adam on for George.
Ted I enjoyed the branding in the press release related to the next normal I was hoping you could help us understand what that means.
What you mean by that specifically and what specific adjustments you've made.
People in that environment.
Well, let's first start thinking of the probably the most significant is the accelerated digital transformation or digitalization up up as many activities as you, possibly can to allow you to deliver engage.
Support your clients in a.
Remote and in many cases that dramatically more efficient manner. So.
Digital transformation and digital digit digitizing all activities becomes really significant and will impact all of our business. So simply for US then you take that same kind of if you want to call. It we see that in clients. We help clients identify what that those opportunities are for them not only in.
Customer engagement, but all the way through it.
It's service delivery model, so it's very very important.
Take that then to us for us we.
Whether it was.
Foresight or a little bit of luck as you know we started a very formal process to digitize all of our IP client engagement. It led to the significant investments that resulted in the creation and launching of our two major platforms. So we now interface with clients differently than we have before in that.
That not only that not only allows us to deliver that IP more efficiently to our people and clients that we serve that we serve and our technology and business consulting model, but it's allowing us to build an entirely new business. When we can see the platforms in its own right being likes us to clients and creating a new source of revenue model.
No.
Where IP can be leveraged by others without diminishing or marginalizing, our existing business. So.
It is extensive it is extensive and then think of the examples I just talked about impact on resources impact on global use of re resources.
For us the ability to deliver a phenomenal resource that may be abroad, and before somebody would think it's inexcusable to not have those resources locally and to now be able to bring a great resource without that person ever leaving there.
Their home on a key engagement is is a huge benefit but that will apply to all knowledge work at our activities across all industries across all of our client base. I mean, this digital transformation acceleration is a massive transformation of industry clients the way.
We carry out our normal everyday lives it's it's.
It's a significant as all the commercial say, which everyone's got to be tired of hearing the monitors used over and over again in dramatically different circumstances.
And on that point with respect to the investments you have made for Digitization, how big of an advantage has that proven to be so far when you compare yourself against competitors.
Well, it's just starting but imagine an organization like ours, where our single.
Our single biggest weakness is our scale and to some extent not with we know we've got incredible talent, but theres no doubt that the IP and inside we gather from all of our benchmark and research exercises is a key strategic reason that clients engages.
A data ability to drive that knowledge more efficiently.
Without necessarily all engagements requiring a lot of resource I think allows us to at least feel or or execute as we look forward. We think will allow us to feel and execute as if we had much greater scale, because our ability to leverage.
Expertise and leverage that insight to our platforms dramatically more efficiently.
And then one last question from me with with looking ahead to the next normal how has that affected which you've seen in terms of opportunity for M&A and then your preferences.
In M&A.
[music].
Well were rekindling, our hard work, our our pursuits and our interest the answer is that we would like to get larger and we have specific areas that.
We want to continue to focus on their expanding now through this period certainly have asked me have they changed at the areas of interest change from a pre and post covert the answer is yes. They have.
So.
Increasing interest into cloud analytics.
And infrastructure areas that we were really discussing are considering pre cobot.
Obviously, we continue to look for areas to bring in scale and in our IP in across the functional areas that we have expertise in asps as well as the cloud enterprise application areas we.
We focus in on.
[music].
To some extent the the pandemic has put some of that activity on hold I believe for us. It helps us identify a broader set of categories that we want to consider investing in and I think it also will allow us to continue.
Conversations in areas, where we were already focused on it is important.
Portland, though as you look at both our needs and the targets needs that you have a full understanding of what the pandemic impact is this pre and post assessment and so the art of the art of the deal for lack of a better term bull common understanding what that impact is and what a fair transaction and what a meeting.
Full opportunity is as we look at 2021.
Okay.
Thank you.
Yes.
From Vincent Colicchio with Barrington Research your line is open.
Okay.
Yes, Hello Ted.
So a couple from me.
The the Oracle pipeline in terms of the rebuild Doug could you give us some color on how that's progressing.
Improved throughout the quarter.
So.
Prospects continue to be.
As good as we believed as we there, whereas we entered the year as Weve said.
The ERP component has become more and more important to multi tier deals. So thats the area that we've been growing as aggressively as we possibly can.
And then.
Could you give us more color on the drivers to the improvement in Europe in the quarter and also if we exclude I think Rob said, there's a managed services contract that's going to drive a decline in which we exclude that what what does it look like what does your book like in the sequential period.
We were glad to see the strong sequential improvement.
That improvement ex they MSS, a the HMS transaction Rob mentioned.
I would characterize as stable so that for US is very positive and obviously, we will keep a close eye on the current.
Stay at home orders that have been instituted to see if they have any impact even though there was limited on client and in office engagement that was going on it was restarting, but it wasn't the driver of the activity and the engagement that we sold and serve and continue to serve as of Q4. So.
Optimistic.
As you know, it's it's a market that for us.
Been hit pretty hard here over the last 18 months. So it was nice to see so.
Very good news for Us and we'll.
We'll see how it continues.
And any early thoughts on given your pipeline on the growth trajectory for early next year.
None other than to say that what what I said in my opening comments that if the momentum client engagement pipeline all that activity continues the way it has from Q3 to Q4 that.
Without disruption we could see.
We could see us going back to pre cobot levels.
At least at the beginning at at at a profitability level in the first half of next year.
On the revenue side it will be different.
So on a net revenue basis, we'll see but if you want to call it.
Doesn't doesn't mean that we can't get back to those numbers in the first half. So it will be lets see how quickly we can get back to those numbers. We just know that whatever net revenue number we get back to given the efficiencies that we've discussed in this call already then our EPS yield.
Will increase you will see margin and operating margin improvements throughout our business. When we look at the 2021 model though.
We're optimistic and that's the way I tried to characterize it in my opening comments and Thats, what we believe.
Okay nice job on the quarter.
Thank you David.
At this time Im showing no further questions in the queue.
I would now like turn the call back participating in our third quarter earnings call. We look forward to updating everyone again, when we report our fourth quarter results in our fiscal year results.
Thanks again.
That concludes today's conference. Thank you for your participation you may disconnect at this time.
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