Q2 2022 Hackett Group Inc Earnings Call
Thank you all for standing by for todays conference. Please continue to hold and we will be starting momentarily again, please continue to hold.
Thank you.
[music].
Welcome to the Hackett Group second quarter earnings Conference call. Your lines have been placed on a listen only mode until the question and answer session.
Be advised the conference is being recorded.
During 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 second quarter results.
Speaking on the call today and here to answer your questions are Ted Fernandez, Chairman and CEO of packet group.
Myself, Robert Ramirez, Chief Financial Officer.
Across the abstract was released over the wires at 415 P M Eastern time.
A copy of the release please visit our website at Www Dot com.
Paul.
We will also place any additional financial or statistical data discussed on this call.
Not contained in the release on the Investor Relations page of our website.
Yeah.
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 guarantees of future performance. They involve risks uncertainties and assumptions are difficult to predict.
You may not be accurate, especially in light of COVID-19.
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 Jeff.
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 review our detailed operating results cash flow and also provide our quarterly guidance.
Our market.
If you've already covered.
Which we will open it up to Q&A.
Consistent with the momentum we experienced last year.
Strong demand for all of our surface continued into the second quarter of 2022.
Correspondingly. This afternoon, we reported total revenues of $75 9 million and revenues before reimbursements of $74 8 million and adjusted earnings per share up 48%.
Bob our quarterly guidance and up strongly on a year over year basis, when you exclude the non recurring.
Software sale, which we.
Hi, Ross.
Second quarter earnings call last year.
Our results were good.
Slide 24, 5% revenue growth from our F&B people, which.
Also resulted.
Year over year margin expansion of over 450 basis points.
Margin expansion was driven by our strong SBC consulting performance and by the growth and increasing revenue mix of our higher margin research advisory and IPF and service offerings.
Highlight the reasons why we have accelerated our investments in IP.
This area of <unk>.
Specialty.
In June we finalized a three year multimillion dollar agreement with one of our Ipass relationships that we have been working on for quite a while.
This contract will ramp up throughout the balance of the year until we reach our targeted contract volumes. We believe this relationship it's transformative in many ways. It demonstrates our ability to support our global partner efficiently and in many ways on a self service basis, utilizing our market leading benchmarking better.
With K <unk>.
Realization IP, which are critical components of our quantum leap and our digital transformation platforms.
It also expands our data capture the industry segments, we serve and our global reach beyond our market leading capabilities. All are very valuable to our long term revenue growth and profitability. It's also worth noting that we continue to be actively engaged in contract and pilot discussions with several law.
Our software and services company to bolster their business cases.
Case development and value selling as well as value realization efforts.
Our research and intelligence programs are highly complementary to our service offerings to partners that desire to license, our IP and brand.
And license.
Brand permission.
<unk> IP platforms and also result in strong downstream opportunities to our digital transformation services.
The SVG group.
Revenue growth was partially offset by the results of our EEA group, which grew two 5% in the quarter, excluding the software sale transaction.
<unk> growth was impacted by the pipeline rebuild and our historically high performing SAP.
The EEA group.
The tougher comp in Q3, and our forecast and is forecasted to be down on a year over year year over year basis.
Before we expect that to level off in Q4 and resuming its year over year growth thereafter.
Rationale group, which was down in the quarter is expected to be up in Q3, consistent reflecting in the European market conditions.
In summary, large SPP engagements, along with increasing leverage of our higher margin multibillion benchmarking research advisory and high Tech offers as well as the efficiencies from our virtual sales and delivery business model are favorably impacting our performance.
We expect the accelerated growth of our IP opex to continue which should allow us to perform at the higher end of our long term growth and profitability targets for the year.
It is clear that our investments.
We made to fully digitize, our IP and the development of our digital platforms, which include quantum leap our safety, our global benchmarking platform and our proprietary Hackett digital transformation platform or DTP are starting to pay off these platforms are allowing us to develop new relationships with software and services providers.
For the enterprise.
On the balance sheet side, our ability to generate strong cash flow from operations has allowed us to increase our dividend and our buyback program we have.
We have discussed on our last few calls that we continue to plan to be more aggressive with our balance sheet and expand our current credit facility to fund acquisitions or buyback stock while continuing to invest.
In our business.
With that said, let me ask swap will provide details on our operating results cash flow and also comment on outlook.
Make additional comments on strategy and market related conditions. Following Rob's comments, Bob Thank you Chad.
I typically do I'll cover the following topics. During this portion of the call I'll cover an overview of our 2022 second quarter results along with an overview of our key operating statistics I'll cover an overview of our cash activities. During the quarter. We will then conclude with a discussion on our financial outlook for the third quarter of 2022.
For purposes of this call I will comment separately regarding the revenues of our strategy and business transformation group or should we achieve our ERP <unk> and analytics solutions group or EEA.
Our international group and the total company.
<unk> group includes the results of our North America, IP IP as a service offerings, our research advisory programs and benchmarking services.
This transformation groups. Our EEA solutions group includes the results of our North America, Oracle or SAP solutions, and one stream offerings.
Our International group includes the results of <unk> and our EEA resources that are based primarily in Europe .
Please note that we will be referencing revenues before reimbursements in our discussion.
<unk> expenses are primarily project travel related expenses passed through to our calls have no associated impact to our profitability.
During our call today will also reference certain non-GAAP financial measures, which we believe provides useful information to investors.
We included reconciliations of GAAP to non-GAAP financial measures in our press release filed earlier today, we will post additional reconciliations based on the discussions from this call to the Investor Relations page of the company's website.
Before I move to our second quarter results I would like to remind everyone that the second quarter over prior year benefitted on a GAAP and non-GAAP basis from a nonrecurring $5 3 million or <unk> <unk> per diluted share software sales transaction with.
We highlighted the impact of this transaction on our results during our prior year second quarter call and in my comments today, I will provide financial information with or without the software sale transaction.
For the second quarter of 2022 total revenues were $75 9 million.
Up 4% when compared to the prior year and up 12% when excluding the prior year software sales transactions.
Our revenues before reimbursements increased to $74 8 million up 2% when compared to the prior year and up 7% when excluding the prior year software sales transaction.
This was above the high end of our revenue guidance range as we continued to see strong demand for our services throughout the quarter.
The second quarter 2022, Reimbursable expense ratio on revenues before reimbursements was one 6% as compared to 7% in the prior quarter and 3% when compared to the prior year, we experienced increased client related travel since the transition to a remote delivery model, but we do.
Not expect this to return to pre Covid levels.
Our U S operations, which represented 92% of our revenues before reimbursements in the second quarter of 2022 were up 3% when compared to the second quarter of the prior year and up 12% when excluding the prior year software sales transaction.
Revenues before reimbursements for our SMB group were $42 9 million, an increase of 24, 5% when compared to the same period in the prior year, reflecting the continued growth since the second quarter of fiscal 2020.
Revenues before reimbursements for EEA solutions group were $36 1 million a decrease of 11% when compared to the same period in the prior year, but an increase of two 5% when excluding the prior year nonrecurring software sales transaction.
The year over year increase when excluding the software sales transaction was driven by large ERP and APM Oracle engagements and continued growth of our once you implementation offerings.
Partially offset by year over year decline of our SAP offerings.
As you are coming off a strong 2020 results and continues to rebuild pipeline and completion of several large SRP engagements.
Revenues before reimbursements for International group were $5 7 million, a decrease of 5% on a year over year basis.
Company International revenues before reimbursements accounted for 8%.
Total company revenues before Reimbursable in both the second quarter of 2020 and from 21.
Approximately 20% of our total company revenues before reimbursements consist of recurring subscription based revenues, which include our research advisory IP as a service multiyear benchmarks and application managed service contracts.
Total company adjusted cost of sales, which exclude reimbursable expenses and noncash stock compensation expense.
Totaled $43 2 million or 57, 8% of revenues before reimbursements for the second quarter of 2020 to.
This is compared to $41 4 million or 56, 8% of revenues before reimbursements or 61, 1% when excluding the impact from the prior year swap wholesales transaction.
Total company consultant headcount was 1131 at the end of the second quarter of 2022 as compared to total company consultant headcount of 1141 in the previous quarter and 1037 at the end of the second quarter of 2021.
Year over year increase was primarily a result of higher activities and increased utilization of subcontractors.
Total company adjusted gross margin on revenues before reimbursements was 42, 2% in the second quarter of 2022.
The prior year of 43, 2% or 38, 9% when excluding the impact of the prior year software sales transaction.
The year over year gross margin improvement on revenues before Reimbursable SME T. As Ted mentioned it was over 450 basis points.
This is a combination of both strong performance from our transformation consulting and our IP based offerings.
This group now represents 44% of our total company revenues before reimbursements as compared to 39% in the second quarter from the prior year when excluding the nonrecurring software so transaction.
Adjusted SG&A was $14 8 million or 19, 7% of revenues before reimbursable from the second quarter of 2022.
This is compared to $14 4 million or 19, 7% in the prior year.
Excluding the impact of the prior year software sales transaction SG&A in the second quarter of the prior year to $13 3 million or 19, 6% of revenues before reimbursements.
Year over year absolute dollar increase is primarily due to our increased investment in research and advisory sales of product development and marketing costs in the current year.
Adjusted EBITDA was $17 6 million or 23, 6% of revenues before reimbursements in the second quarter as compared to $18 million or 24, 6% of revenues before reimbursements in the prior year.
Excluding the prior year second quarter software sales transaction EBITDA for the prior year was $13 9 million or 25% of revenues before reimbursements.
GAAP diluted net income per common share was 32.
For the second quarter of both 2022, and the second quarter of 2001.
Adjusted net income for the second quarter of 2022 totaled $12 4 million.
For adjusted diluted net income per common share of <unk>.
Which is above the high end of our earnings guidance range.
Excluding the prior year software sales transaction, which represents a year over year increase of 27%.
Our adjusted net income for the second quarter was favorably impacted by approximately one and a half cents due.
Due to foreign currency movements in the quarter, but was negatively impacted by <unk> <unk> due to the utilization of a GAAP effective tax rate on adjusted earnings.
Which was 27, 5% as compared to the 25% that was utilized for the second quarter guidance.
Decided to move to a GAAP effective tax rate for adjusted net income reporting purposes, as we utilize the GAAP effective tax rate in the first quarter of 2022, our reported adjusted net income for the first quarter would have increased by one.
This compares to adjusted net income of $12 7 million or.
For adjusted diluted net income per common share of <unk> 39 in.
In the second quarter of the prior year.
Adjusted net income for the prior year included an effective tax rate of 25, 7% on GAAP basis and was favorably impacted as already discussed by <unk> 90 per share due to the software sales transaction already mentioned.
The company's cash balances were $61 7 million occurred in the second quarter of 2022 as compared to $47 8 million at the end of the previous quarter.
Net cash provided by operating activities in the quarter was $18 2 million.
Primarily driven by net income adjusted for noncash activity increases in accrued expenses and income tax liabilities and decreases in prepaid assets, partially offset by decreases in accounts payable and contract liabilities.
Our DSO or days sales outstanding at the end of the quarter was 59 days.
As compared to 61 days at the end of the previous quarter.
Our remaining stock repurchase authorization at the end of the quarter was $10 6 million.
At its most recent meeting the company's board of directors declared the third quarterly dividend of 11 <unk> per share for its shareholders of record.
September 22022 to be paid on October seven 2022.
I'll now discuss our outlook and guidance for the third quarter.
Consistent with seasonal third quarter trends, we expect the impact of the additional U S holiday and the typical increase in time off due to some indication in the U S and even more meaningfully in Europe to unfavorably impact available days by approximately 30%.
<unk> basis.
The company estimates total revenue before reimbursements for the third quarter of 2022 to be in the range of 75 million to $72 5 million.
On a sequential basis, we expect SMB and international to be up and EEA.
To be down as it continues to rebuild backlog of the transition of several large engagements.
We estimate adjusted diluted net income per common share in the third quarter of 2022 to be in the range of 34% to 36.
Which assumes an effective.
GAAP tax rate on adjusted earnings of 28%.
The impact of moving to a GAAP effective tax rate for the third quarter was approximately one <unk>.
We expect adjusted gross margin on revenues before reimbursements to be approximately 42% to 42%.
We expect adjusted SG&A and interest expense for the third quarter to be approximately $15 million.
We expect third quarter, adjusted EBITDA and revenues before reimbursements to be in the range of approximately 23% 24%.
We expect cash balances, excluding the impact of share buyback activity to be up on sequential basis.
At this point I'd 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, let me share our thoughts on the near and long term demand environment and on the growth opportunity. It offers our organization.
As I've mentioned many times over the life.
Four to six quarters, although the pandemic created unprecedented demand disruption. It also created a heightened awareness that accelerated demand for digital transformation initiatives.
This means that digital innovation and enterprise cloud applications analytics and infrastructure workflow automation and process mining are dramatically influencing the way businesses compete and deliver their services.
<unk> transformation is redefining all activities.
An accelerated pace, forcing organizations to fundamentally change and adopt these new capabilities in order to remain competitive.
We also believe digital transformation will be critical for organizations to realize productivity improvement initiatives that may result of economic deceleration created by the physical place deflationary supply chain or geopolitical challenges our client states.
Organizations recognize the need to embrace digital transformation as a requirement to remain competitive driving strong activity to technology enabled transformation engagements, which require a broad array of our capabilities.
The increase digital calculation demand is also resulting in increased competition for experienced how unlikely would never see in a very long time and it is clearly continued into the second quarter. We believe the emerging work from remote service delivery model should help us address our short term recruiting and retention concerns.
We hope to be able to attract associates from a broader pool of global candidates.
Long term, we believe we are now on a path to our next normal which results in a highly engaged client base with remote sales and delivery model, which provides our clients and our associates with great personal flexibility to perform their defined responsibilities.
This will allow us to attract and retain talent that we have struggled to repay because about the mandate historical travel requirements of our industry.
Strategically we are accelerating our focus on our recurring high margin IP related services by increasing our sales and marketing investments of resources dedicated to this area.
We have also started to launch a series of new market intelligence programs that will help us assess and highlight the unique capability of software and services providers across selected categories. Our goal is to launch three or four programs by year end and further accelerate the number of new programs launched in 2023.
We are absorbing these increased costs in our current results, but believe that they have great potential to add high margin recurring revenue.
So at this point, we expect our annualized contract value from recurring high margin research market intelligent ice class clients to increase by approximately.
28% by year end.
We are also seeing increasing downstream revenues from card programs to our consulting services. So not only are they recurring and higher margin, but we're seeing great great downstream activity from the research advisory and our past calls.
With over 40% of our consulting services coming from our research advisory and benchmark offerings.
Please put organizations, who rely on our IP research and benchmarking services are all hold normalized EBIT utilized our consulting services.
We are also exploring strategic partnerships that will allow us to syndicate, our IP through new channels.
That will allow us to reach significantly beyond our current global one focus in a very efficient manner. We expect expects to launch the first of these relationships, which results in new recurring high margin revenue prior to the end of the year.
We also will continue to redefine our global benchmarking leadership through the enhancements in quantum leap our.
Our digital benchmark our software as a service solutions along with our digital transformation platform. These platforms allow us to deliver more information with significantly significantly less client effort. It also allows clients to leverage our IP to create compelling that the case assessments accelerate process flow and software configuration of decisions and <unk>.
<unk> transformation initiatives over the life of their respective effort.
As I've said repeatedly we believe that there are no comparable IP led platforms in the market.
As I've been mentioning on our calls we have added a 20 minute demos to our Investor Relations page on our website, so that investors tend to become more familiar with the capabilities of our platforms Lastly, even though we believe we have the client base and the 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.
The example that I raised around Syndicating research beyond Global 1000 is a perfect example of those.
<unk>.
As always let me close by congratulating our associates on our performance and by thanking them for their tireless efforts and always urge them to stay highly focused on our clients and our people no matter what challenges we may encounter.
Those conclude my comments, let me turn it over to our operator, and let us move on to the Q&A section of our call operator. Thank.
Thank you at this time, if you would like to ask a question. Please ensure that your phone is on mute.
Star one and record your name clearly when prompted.
If you would need to withdraw your question you May press star two but again to ask a question that is star followed by one.
Our first question is from George Sutton with Craig Hallum, You May go ahead.
Thank you nice job on Q2, I wanted to talk a little bit about key three if we could traditionally not necessarily a big change seasonally from Q2, obviously last year was very unusual because of the onetime software sale.
Can you talk about what's falling out and I think.
Rob had suggested there were some larger pieces.
Pieces of business that we're finishing up can you just walk through that dynamic.
Yes, I mean, there is a couple of there were a couple of scenarios. So I'll speak with both separately, but one as Rob mentioned, you have 3% fewer available days.
As you move from Q2 to Q3, but that's not really what's impacting the transition of our <unk>.
Oracle and SAP practices are outside the practice.
Simply had as you know has been on a tear and it's probably the highest performing group.
Our company over the last four to five years.
But it did see a slowdown or I'll, just say some deals that started to lengthen out in Q1.
And we expect that to have in Q2 and buy the stock by the time, we started Q3, they seem to be all coming to fruition in Q3 and will favorably impact. The latter part of Q3 Q4, and that's why we speak to the fact that we believe some of that activity is leveling off Oracle slightly different Oracle had an outstanding Q1.
<unk>.
We were working on a very very significant engagement, which took a lot of time and attention.
From that group I think to some extent there was a little bit of distraction from it.
But it happened we absorbed that in our Q2 performance that impacts Q3, because we're up into a tougher comp, but again the overall activity of both of these groups is very strong and we expect them both to be able to level off as we go into Q4 and then.
On a year over year basis thereafter.
Honestly, George we don't want to see that EEA performance.
Offset any of the great success, we're having in SPT.
Sure.
No.
Just talk about the Ipass deal.
Essentially get some details on that is this the same customer that you had a pilot with previously and can you just give us a sense of how they'll be using your IP.
The answer is the.
The answer is we did have.
Somewhat of a pilot we had licensed our data are really static information across industries and across certain areas of the business over a two year period.
Which allowed.
This organization to really validate the strength of taking the Hackett information and brand permission to market. It clearly influenced the credibility of the benefit cases that were presenting to their clients.
As that.
To call. It a pilot with them ended we were nearing the completion of launching of our both our quantum leap and <unk> capabilities, but not only the kind of the initial versions, but we were moving on to be able to take many of the capabilities of both of those platforms and be able to allow clients to.
Use them commercially on a self service basis that led to a lengthy.
I'll call it negotiations with them as to specifically what capabilities within our platform as they wanted to use what kind of support they wanted to have it.
A very significant engagement.
Is it as I said has expanded the industry coverage.
Debt.
We previously had in place.
Based on the demands that they wanted to serve their very large global client base, but at the end of the day they are utilizing.
Our data and our best of breed call it benefit case assessments and quantum leap products to create.
<unk>.
I'll call it value propositions for clients, leveraging our brand and capabilities.
Number one number two they are leveraging our solutions capability within DTP to then be able to actually prioritize exactly what kind of work needs to be done and how which is another capability that fit inside of our DPP platform.
It also includes the utilization of the improve and monitor capabilities, we have in our platform that allows clients to load.
There once they've identified the performance initiatives that they believe they want to realize they can load all of that information into our improvement monitor and use of this project tracking with what we believe is very unique capabilities to be able to validate the value realization or.
<unk> proposition they presented to their clients. It also includes.
Access to our research and our advisors so that they can come in and also stay very current.
With any of the issues that are being dealt across all of the executive advisory programs that we have so very expensive.
Sure.
A very significant that's why label a transformative.
Got you one other thing for me you mentioned that Youre looking to.
Work with someone who can syndicate your IP through new channels can you just give us a little better picture of what that might look like.
Yes, we were approached by a.
We were approached by a third.
Firm that has a pretty unique platform, which provides.
Market intelligence to it it's.
Its clients on a global scale with.
With kind of a significant.
Emphasis on that.
Companies beyond the global 1000, so we now have tried to identify those same capabilities across more of our IP, but in this scenario.
We were offered an opportunity to simply license.
Our data.
For a certain amount and.
What we hope to be able to achieve with this relationship is to do something where we would do more.
I'll call it.
Revenue or profitability sharing.
There's still a lot of work in that.
Relationship that needs to be done.
But it's clearly something that simply tells us something very significant which is we do not need to limit ourselves to the clients that we're able to touch and number two we can use other channels that really value our brand and our capabilities to augment their capability and allow them to take our IP to market.
Those channels and for us to profit from it so let's see if we're successful in launching that before the end of the year that's our plan.
That's great. Thanks, guys.
Thanks, George and Richard.
Thank you and just as a reminder, if you would like to ask a question. Please press star followed by one hour.
Our next question is from Jeff Martin with Roth Capital Partners. You May go ahead.
Thanks, Good evening, Ted I was I was hoping you could help us.
Get some perspective on.
But the traction youre getting with the IP as a service offering what the implications on <unk>.
Profit growth for 2023 could be.
And maybe well as more broadly.
<unk> outlook relative to your long term.
And profit profile for next year.
Well one.
Look.
They can vary in size they don't necessarily.
There are lessons that would be just kind of scale of the one we have but I will tell you that we're having conversations that I believe would be similar to this whether we ever close them or not they are complex transactions.
Never know.
But.
Look we've been talking to some of these companies for a while the capabilities that we built to fully support the contract. We just launched all just have increased the credibility of our capability and the uniqueness of it. So I hope that we continue to have success.
It clearly comes out of it it's not only recurring.
It results in multiyear contract it results in high margin multiyear contracts as you're really licensing IP and the capabilities of the platform.
And it's intended to be used on a I'll call. It with limited support which is some of the capabilities really.
Important in the in the investments that we've made on our platform. So I can't provide any specific guidance simply to say that each one of these transactions are significant and meaningful to our performance.
And they expand.
Our I'll call it our gross margin.
Very nicely I would also say.
We believe that same opportunity exists with the market intelligence programs that we intend to launch which are the software and services intelligence programs, which we mentioned on our last call.
Those programs.
We as I said on my script, we expect three or four of those programs to launch by year end.
Increased sales capability.
That entire group and we'll continue to do so through the end of the year, we're absorbing all of those costs at the moment.
But it is clearly for us I mean I had.
One of the guys on the call relate or comments, saying that Ted this sounds like a hack at three <unk>.
The fact of the matter is is that we're seeing great demand for the brand permission and the capabilities and the database and IP that we have we're trying to figure out the most.
The most effective ways to take those to market.
Believe that market intelligence programs like others have in the marketplace is what opportunity the IP as a service is very unique to Hackett, because we don't know anyone else that could provide some kind of a.
Sales acceleration value realization measurement and tracking.
That's the capability of our platform so that gives us a great opportunity and then now exploring these ideas, where we can syndicate research.
And have that entire sales capability resides somewhere else, but just provide properly contextualized IP through others that then we will then share the.
The revenues and profits from those capabilities for us appear to be the most logical ways for us to try to continue to drive the growth that you've already seen in our gross margin further in to 2023 as of both these opportunities expand the products.
Launch.
And.
And we're able to realize the benefits obviously that we've targeted so I don't have a specific answer the IP ipass as a service, but simply to say.
Every deal becomes meaningful and that along with the other things. We're doing obviously is the direction we want to go.
Hope nobody missed the other point that I made which is that.
Last year, we saw 40% of our non IP of our consulting both technology and transformation opportunities come from a.
Our research advisory or benchmarking client.
So the premises if we grow the IP side and the programs and the clients that we serve that not only should that be structural to that part of the business, but that we should then.
Look to then also get.
The Halo effect that we've been experiencing for the last year and a half down to our consulting services. That's the combination that we're pursuing as we look ahead.
That's helpful.
Congratulations on the multiyear win there.
Other question I had was on availability and retention capabilities of the consultants S&P.
SPT is growing very rapidly right now it looks like that may take a little bit of a breather in Q3, but how are you balancing demand versus talent availability and in house clients.
Our employee retention efforts.
So far this year.
Sure.
Look we can we we have experienced higher than normal turnover now for let's call it six quarters.
That's the bad news the good news is that we believe that we've used that turnover to.
Ill call it enhanced the capability in many areas that we've had not all there are some areas that we're still trying to gap.
Some loss of talent that we'd like to have.
I'm thinking specifically in the EEA space.
With that said.
It's allowed us to increase our offshore leverage very significantly, especially in the EEA that has helped our margins.
And.
Lou.
The fact that we're not requiring people.
To do the normal Monday through Thursday travel is just allowing us to pursue.
Ill column.
New associates from a broader pool, and we're having great success doing that as well so even though it's been higher.
I believe we've managed it well I believe it's allowed us to get more leverage offshore and it's I think it's allowing us to bring new capabilities to the organization that we may not have as more talent.
Is available to us since we're not demanding that all of our people travel the way they used to pre COVID-19.
Okay. Thank you Ted.
Thank you. The next question is from Vince Colicchio with Barrington Research you May go ahead.
Yes, Tim.
Any signs of economic headwinds in the EEA business such as.
Changes in sales cycles or.
Less strength and pricing things of that nature.
Well I commented that the activity for both of those groups remains strong.
The impact that we had with that.
We're really kind of pushes that you really can't correlate that to anything that was happening then it was able to just simply been too early so I can't correlate it to that.
And then the Oracle issues have been different so our activity is as strong and.
Look, we just need to close and start.
Some of the deals and rebuild the pipeline.
Given that large momentum that we have coming off.
I'll call it end of year for us in Q1 with Oracle, So nothing that I could directly point to that is directly related to.
I'll call it the expected.
Slowing of the economy.
Obviously thats required to avoid a recession.
Okay.
And.
Can you remind us I apologize if I missed it.
My connection is quite poor.
Would your priorities are in acquisitions.
Well the the priorities have changed somewhat that obviously given the emphasis on VIP related area.
I've spent a lot more time in that area in the first six months of this year than I did in 2021.
So I would say the emphasis has been SPT focus.
But there are areas in EEA, which in the right circumstances and the right market.
We're we would clearly take we will acquire that was presented to us.
Yes.
And again I apologize for my connection.
Did you mentioned your pipeline of IP deals Youre close to in terms of number of lending.
Yes, I think the point that I wanted to make I don't want to say that the close to landing, but we clearly are having more meaningful discussions with the larger providers that have been engaged with us now for a while.
Some which have had left some earlier discussions of return and some who have been talking with us throughout the year.
So.
Boy, we like we'd like we'd like to get some of those opportunities.
So that was just the point that I'm, making I'm, making that.
The pipeline for <unk> opportunities.
That's probably the point I was trying to make.
And it sounds like you are saying is stronger than it's been in the.
Pat is that right stronger stronger than what I was trying to emphasize is the scale and the type of company.
<unk>.
Ah.
Strong in in and with companies that obviously, what enter into larger deals maybe thats the way I would characterize it.
Yeah.
Okay.
And do you think thats, just timing or competitive pressures youre compelling them to move in that direction.
Thanks.
It's not competitive pressures because I'm not sure someone has the capabilities that we're offering to these clients. So it is leverage up or start from scratch or build or leverage.
You currently have in place that's what we're seeing is the alternatives.
So.
They just take time.
You're getting involved in affecting the like somebody goes to market.
So I hate to us.
<unk> the time, especially since I was embarrassed that it took me so long to assign that while we decide.
Which was significant and complex.
Okay.
Thank you.
Thank you.
At this time I show no further questions I would now turn the call back over to Mr. Fernandez.
I'd like to thank everyone for participating in our second quarter earnings call and look forward to updating updating everyone again, when we report the third quarter.
Thank you.
Thank you that does conclude today's conference. Thank you all for participating you may disconnect at this time.