Q2 2024 The Hackett Group Inc Earnings Call

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Operator: Welcome to the Hackett Group Second Quarter Earnings Conference Call. Your lines have been placed on listen-only mode until the question and answer session begins.

Welcome to the Hackett Group second quarter earnings Conference call. Your lines have been placed on listen only mode until the question and answer session. Please.

Operator: Please be advised that 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.

Please be advised the conference is being recorded.

Speaker Change: Hosting tonight's call are Mr. Ted Fernandez, Chairman and CEO and Mr. Rob Ramirez, Chief Financial Officer, Mr. Ramirez, you may begin.

Robert Ramirez: 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 Chief Executive Officer of the Hackett Group, and myself, Robert Ramirez, Chief Financial Officer. A press announcement was released over the wires at 4.05 p.m. Eastern.

Rob Ramirez: Good afternoon, everyone and thank you for joining us to discuss the Hackett group's second quarter results.

On the call today and here to answer your questions are Ted Fernandez, Chairman and Chief Executive Officer of the Hackett Group and myself, Robert Ramirez, Chief Financial Officer.

Speaker Change: A press announcement was released over the wires at 405 P M Eastern time.

Robert Ramirez: 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. 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.

For a copy of the release please visit our website at Www Dot the Hackett group Dotcom.

Speaker Change: 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.

Robert Ramirez: 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. The 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.

Ted Fernandez: Thank you, Rob, and welcome everyone to our second quarter earnings call. As we normally do, I'll open the call with some general 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 comments on output. 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 39 cents, which was at the high end.

Ted Fernandez: 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 since the second quarter of last year. A recent important development is the notable increase in the demand we continue to experience for our historically strong enterprise performance management offering. Oracle has re-emphasized its sales commitment to this area, and we are clear beneficiaries of this strategy. Our SAP Solutions segment also performed above our expectations 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.

Ted Fernandez: As we have seen, economic headwinds continue to result in extended decision-making. As I mentioned last quarter, this has been particularly noticeable in our e-procurement area. On the positive side, we are continuing to see increased activity from companies considering Gen-AI investments. We have conducted hundreds of meetings with Global 1000 organizations as a result of their interest in our recently launched Gen-AI ideation and design platform, AI Explorer, that's capital X-P-L-R. These meetings have provided us with a unique, detailed exposure to these organizations' Gen-AI adoption plans, implementation concerns, as well as their limitations.

Ted Fernandez: Given this unique perspective, we have continued to make significant enhancements to our platform's Version 1 capability and plan to release AI Explorer Version 2 this month. The most important enhancement is our ability to simulate enterprise use cases for our clients by utilizing Hackett IP and utilizing our strong business process knowledge. This can only happen because of our ability to identify task automation opportunities at a detailed level, which also enables us to design meaningful use cases using our AI Explorers' GenAI-assisted capabilities.

Ted Fernandez: Our AI projects have also exposed us to significant implementation assistance our clients require to successfully implement sophisticated Gen AI use cases and solutions. Given the strategic access and the platform enhancement, we think it is only natural for us to extend our AI implementation capabilities to be able to fully develop and implement Gen AI use cases. And although the project conversions from our hundreds of meetings are still low at this point, we expect our sequential revenues in this area to continue to increase strongly.

Ted Fernandez: We also believe that our new AI Explorer Version 2 capabilities will improve our conversion rate and also expand downstream opportunities on our existing engagement. There is no doubt that in just six months, our aggressive pivot to become the architects of our client's Gen-AI journey is being well-received and has extended our branding in Gen-AI. This has been enabled by our unique ability to identify meaningful AI use cases, determine their feasibility, and also assess their benefit realization potential by utilizing our benchmarking database.

Speaker Change: Aggressive pivot to become the architects of our clients' journey, a journey is being well received and has extended our branding in journey II.

Speaker Change: Been enabled by our unique ability to identify meaningful AI use cases determined their feasibility and also assess their benefit realization potential by utilizing our benchmarking database.

Ted Fernandez: On the executive advisory front, we continue to invest in our growing IP-based programs. We believe our move to fully integrate Gen-AI content into all of our advisory programs, which began in April, will be responsive to our clients' strong interest in this area. On the balance sheet side, you will hear from Rob that in the short term, you can expect us to use our strong cash flow and operations to continue to pay down our outstanding balance on our credit facility.

Speaker Change: On the executive Advisory front, we continue to invest in our growing IP based programs, we believe our move to fully integrate <unk> content.

Speaker Change: All of our advisory programs, which began in April will be responsive to our clients strong interest in this area.

Speaker Change: On the balance sheet side, you will hear from Rob that the short term and the short term you can expect us to use our strong cash flows and operations to continue to pay down our outstanding balance of our credit facility longer term, we plan to use our balance sheet to fund acquisitions and to buy back stock, while continuing to invest in our business with that setup.

Ted Fernandez: Longer term, we plan to use our balance sheet 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 our outlook. I will make additional comments on strategy and market conditions following Rob's comments.

Speaker Change: 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 Chad.

Robert Ramirez: As I typically do, I'll cover the following topics during this portion of the call. I'll give 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 of 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 SMBT segment, our Oracle Solutions segment, our SAP Solutions segment, and the total company. Our global SMBT segment includes the results of our North America and International Benchmarking and Business Transformation Offerings, Executive Advisory, and I-PASS programs, and our OneStream and Coupa Implementation Office.

Rob Ramirez: 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.

Robert Ramirez: Our Oracle Solutions and our SAP Solutions sections include the results of our Oracle and SAP offerings, respectively. Please note that we will be representing both total revenues and revenue before reimbursements in our discussion. Reimbursable expenses are primarily project travel-related expenses passed through to our clients that have no associated impact on their profitability.

Rob Ramirez: Cover an overview of our cash flow activities during the quarter I will then conclude with a discussion on our financial outlook for the third quarter of 2024.

Robert Ramirez: During our call today, we will also reference certain non-GAAP financial measures, which we believe provide useful information to investors. We've 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 the prior year.

Robert Ramirez: Total revenues from our global SMT segment were $42.3 million for the second quarter of 2024. Revenues before reimbursements for our global SM&T segment were $41.6 million for the second quarter of 2024, a decrease of 3% when compared to the same period in the prior year. As Ted mentioned, this segment has been impacted by extended client decision-making in our business transformation engagements, particularly impacted by our e-procurement offerings.

Robert Ramirez: Total revenues from our Oracle Solutions segment were $23 million for the second quarter of 2024. Revenues before reimbursements for our Oracle Solutions segment were $22.2 million for the second quarter of 2024, an increase of 9% when compared to the same period in the prior year. These results continue the momentum we've experienced since the second quarter of 2023, with strong growth over the last five quarters when compared to the prior year period.

Robert Ramirez: Total revenues from our SAP Solutions segment were $12.3 million for the second quarter of 2020. However, revenues before reimbursements for our SAP Solutions segment were $12.2 million for the second quarter of 2024, a decrease of 2% when compared to the same period in the prior year. Approximately 22% of our total company revenues before reimbursements consist of recurring multi-year subscription-based revenues, which include our research advisory, IP as a service, multi-year benchmarks, and application-managed services contracts.

Robert Ramirez: Total Company Adjusted Cost of Sales, which excludes reimbursable expenses and non-cash stock-based compensation expenses, totaled $43.8 million in both the second quarter of 2024 and 2023, representing 57.7% and 57.9% of revenues before reimbursements, respectively. Total company consulting headcount was 1,145 at the end of the second quarter of 2024 and 1,148 at the end of the second quarter of 2023. Co-company adjusted gross margin on revenues before we were, which exclude reversible expenses and non-cash stock-based compensation expense, was 42.3% in the second quarter of 2024 as compared to 42.1% in the prior year.

Robert Ramirez: Adjusted SG&A, which excludes non-cash stock-based compensation expenses, was $16.8 million, or 22.1% of revenues before reimbursements, in the second quarter of 2024. This is compared to $16.3 million, or 21.5% of revenues before reimbursements, in their prior year. Adjusted EBITDA, which excludes non-cash stock-based compensation expense, was $16.3 million, or 21.5% of revenues before reimbursements, in the second quarter of 2024, as compared to $16.4 million, or 21.6% of revenues before reimbursements in the prior year.

Robert Ramirez: Cap net income for the second quarter of 2024 totaled 8.7 million, or diluted earnings per share of 31 cents, as compared to Gap, net income of $8.7 million, or diluted earnings per share of $0.32 in the second quarter of the previous year. Just at net income, which excludes non-cash stock-based compensation expenses, for the second quarter of 2024 totaled $10.9 million, or Adjusted Diluted This compares to adjusted net income of $10.8 million, or adjusted diluted net income per common share of $0.39, in the second quarter of the prior year.

Robert Ramirez: The company's cash balances were $19.1 million at the end of the second quarter as compared to $13 million at the end of our previous quarter. Net cash provided from operating activities in the quarter was $13.7 million, primarily driven by net income adjusted for non-cash activity and increases in accrued expenses and income taxes payable, partially offset by an increase in other assets and decreases in accounts payable and contract liabilities. Our DSO, or Day Sales Outstanding, was 68 days at the end of the quarter, as well as at the end of the previous quarter and as well as in the prior year.

Robert Ramirez: During the quarter, we repurchased 6,000 shares of the company's stock from employees to satisfy income tax withholding triggered by the vesting of restricted shares for an average of $22.94 per share at a total cost of approximately $144,000. Our remaining stock repurchase authorization at the end of the quarter was $12.9 million. During the second quarter, the company paid down $4 million on its credit decision. During the third quarter of 2024, the company paid down an additional $5 million.

Rob Ramirez: At a total cost of approximately 144000.

Rob Ramirez: Our remaining stock repurchase authorization at the end of the quarter was $12 9 million.

Rob Ramirez: During the second quarter, the company paid down $4 million on its credit facility.

Rob Ramirez: The balance of the company's total debt outstanding at the end of the second quarter was approximately $27 million.

Rob Ramirez: During the third quarter of 2024, the company has paid down an additional $5 million.

Rob Ramirez: At its most recent meeting subsequent to quarter end the company's board of directors declared a third quarter dividend of <unk> 11 per share for shareholders of record on.

Rob Ramirez: On September 20th 2024 to be paid on October 4th 2024.

Rob Ramirez: I will now discuss our guidance for the fourth quarter.

Rob Ramirez: Consistent with seasonal after the third quarter excuse me.

Speaker Change: 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 summer vacations in the U S and in Europe to unfavorably impact available days by approximately 2% on a sequential basis.

The company estimates total revenues before reimbursements for the third quarter of 2024 to be in the range of $74 $5 million to $76 million.

Speaker Change: We expect global SMB SMB to segment revenue before reimbursements to be down slightly when compared to the prior year, but up on a sequential basis.

Robert Ramirez: We expect both Oracle solutions and SFP solutions segment revenue before reimbursements to be up when compared to the prior year. We expect adjusted SG&A and interest expense for the third quarter to be approximately $17 million. 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.

Speaker Change: We expect both Oracle solutions and SMT solutions segment revenue before reimbursements to be up when compared to the prior year.

Speaker Change: We estimate adjusted diluted net income per common share in the third quarter of 2024 to be in the range of 39 to 41.

Speaker Change: Which assumes a GAAP effective tax rate on adjusted earnings of 27, 7%.

Speaker Change: We expect adjusted gross margin as a percentage of revenues before reimbursements to be approximately 43% to 44%.

Speaker Change: We expect adjusted SG&A and interest expense for the third quarter to be approximately $17 million.

Speaker Change: We expect third quarter adjusted EBITDA as a percentage of revenues before reimbursements to be in the range of approximately 22% to 23%.

Speaker Change: Lastly, we expect cash flow from operations to be up on a sequential basis.

Speaker Change: 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.

Ted Fernandez: 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.

Speaker Change: Okay.

Speaker Change: Although demand for digital transformation remains strong it continues to be impacted by extended decision, making as organizations are SaaS competing priorities created by high interest rate and the demand disruption, which it did.

Speaker Change: It is intended to affect.

Speaker Change: Digital innovation across all areas of enterprise cloud applications <unk> analytics workflow automation are dramatically influence influencing the way business compete deliver their services.

Speaker Change: However, there is a clear major change, which is rapidly emerging and that is the demand for gen AI solutions.

Speaker Change: It's unlimited potential will define an entirely new level of what we describe as Jen AI enabled digital world class performance standards, driving all software and services providers to extend the value of their stake.

Speaker Change: <unk> offerings. We believe this will result in an unprecedented <unk>, which all organizations will have to consider.

Ted Fernandez: Strategically, we continue to focus on recurring high-margin IP-related services, but what is new is the accelerated focus and investment we are making in our Gen-AI 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.

Speaker Change: Strategically we continue to focus on recurring high margin IP related services.

Speaker Change: What is new is the accelerated focus and investment we are making in our gen. AI capabilities. The most significant investments have been the development of our AI explore platform and the training and development of our reserves associates. Although they are consuming our organization I'm also very proud of the way we are making this pivot in our house.

Speaker Change: <unk> efficient way, whether you look at profitability cash flow or any other aspect of our performance. This can only be done because of our IP and the talented individuals we continue to attract as well as retain.

Speaker Change: We are utilizing the <unk> platform as the vehicle to integrate the <unk> impact across all of our offerings. We also continue to hire and upgrade our skills and critical data in depth Tech architecture resources to further support our efforts. These efforts will allow us to become a key architect advisors and consultants of our clients.

Ted Fernandez: These efforts will allow us to become key architects, advisors, and consultants on our client's Gen AI journey. We also continue to see strong downstream revenue from our benchmarking and executive advisory clients to our business transformation and cloud application consulting services. The sale effect, which has been approximately 40% over the last several years, continues.

Speaker Change: <unk> on churn.

Speaker Change: We also continue to see strong downstream revenue from our benchmarking and executive advisory clients to our business transformation and cloud application consulting services. This halo effect, which has been approximately 40% over the last several years continues we believe that.

Ted Fernandez: We believe that this will only be expanded by our AI Explorer offering and the broad and strategic access it provides. Applications that rely on our AI assessment, solutioning, and marketing intelligence platforms are also more likely to utilize our advisory and other consulting services, which is important to the content of AI Explorer and our executive advisory program. We also continue to explore strategic partnerships that will allow us to extend our AI capability and sell our IP through new channels that will allow us to reach beyond the current Global 1000 focus in an efficient manner.

Speaker Change: That this will only be expanded by our AI explore offering and the broad and strategic access it provides organizations who rely on our IP assess AI assessment solutions and market intelligence platforms are also more likely to utilize our advisory and other consulting services.

Speaker Change: I also continue to publish our market intelligence reports, we have started the published a research reports on Gen AI and key solution providers in the space.

Speaker Change: Which is important to the content of AI and explore and our executive advisory programs on the talent side competition for experienced executives continues overall, we saw turnover continue to moderate remained low during the quarter and we expect that trade that trend to continue longer term, we have transitioned to a hybrid sales and delivery model, which provides.

Speaker Change: <unk> with effective access to our clients and their respective teams. This hybrid model provides our associates with greater personal flexibility to perform their defined responsibilities remotely which is very valuable to them. This will allow us to attract and retain talent.

Speaker Change: We also continue to explore strategic partnerships that will allow us to extend our capability and sell our IP through new channels that will allow us to reach beyond the current global 1000 focused and.

Speaker Change: In efficient manner.

Ted Fernandez: We also continue to redefine our global benchmarking leadership through enhancements in QuantumLeap, which has not been entirely integrated, but obviously, all the benefit realization capabilities of Explore are fully enabled through QuantumLeap and some of the benefit case assessments that exist inside of our digital transformation platform. These platforms allow clients to leverage RIP to create compelling benefit case assessments, accelerate process flow and software configuration decisions, and track the value realization of transformation initiatives over the life of their respective efforts.

Speaker Change: We also continue to redefine our global benchmarking leadership through enhancements in quantum leap, which has been not entirely integrated but obviously all of the benefit realization capabilities of explore are fully enabled through the quantum leap and some of the benefit case assessments that exist inside of our digital transformation platform.

Speaker Change: These.

Speaker Change: It forms allow clients to leverage our IP to create compelling benefit case assessments accelerate process flow and software configuration decisions and track the value realization of transformation initiatives over the life of their respective effort.

Ted Fernandez: We believe the integration of these platforms with AI Explorer significantly enhances the value of RIP and fully aligns with our perspective on the emerging Gen AI world-class performance standards which will be achieved due to these new AI technologies. As always, let me close by congratulating our associates on our performance and by thanking them for their tireless efforts. I always urge them to stay highly focused on our clients and our people, no matter what challenges they may encounter.

Speaker Change: We believe the integration of these platforms with AI explore significantly enhances the value of our IP and fully aligned with our perspective on the emerging Gen. AI World class performance standards, which will be achieved due to these new AI technologies.

Speaker Change: As I have mentioned on previous calls we are adding videos of our platforms on the Investor Relations page of our website you can expect to see us.

Speaker Change: More of that and a new website before the end of the quarter investors will be able to utilize these videos and access we're providing through the investor portal to become more familiar with our new capabilities.

Speaker Change: 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.

Speaker Change: 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 they may encounter.

Speaker Change: Those conclude my comments, let me turn it over to our operator and movement to move on to the Q&A section of our call.

Speaker Change: Operator.

Speaker Change: Thank you.

Speaker Change: To ask a question please press star one.

Speaker Change: To withdraw your question Press Star two once again to ask a question. Please press star one.

Operator: To withdraw your question, press star 2. Once again, to ask a question, please press star 1. Our first question comes from George Sutton. Your line is open.

Speaker Change: First question comes from George Sutton.

Speaker Change: Colin Your line is open.

George Sutton: 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 give a little bit more detail on those comments.

Speaker Change: Thank you Todd you mentioned that you've had hundreds of meetings relative to the explore offering.

Speaker Change: And you have thus far had low.

George Sutton: Conversions, but expect that to increase strongly I wondered if you could put a little bit more detail around those comments.

Ted Fernandez: Well, I think what we're seeing is that the Education side of our clients, which appeared to be... probably driving half of the calls that we were executing over the first three months since launching AI Explorer, are really changing clients. We're now engaging clients who have dedicated some capabilities to AI and try to identify areas of the business which they want to pursue, but the overwhelming majority are 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. We now believe we've moved from primarily education, if you take, say, the first couple hundred calls.

Speaker Change: Well I think what we're seeing is that fair.

Speaker Change: Education side of our clients, which appear to be.

Speaker Change: Probably driving half of the calls that we were executing.

Speaker Change: Over the first three months.

Speaker Change: Since launching <unk> explore.

Speaker Change: Are really now changing clients, we're now engaging clients who.

Speaker Change: Have dedicated some capabilities to AI.

Speaker Change: May have made some commitments to some gen AI development platform to develop their use cases.

Speaker Change: Try to identify areas of the business, which it wants to pursue but the overwhelming majority is simply.

Speaker Change: I'll say testing or trying to develop their capabilities in a very in very narrow areas in order to prove both their capabilities and then also the value realization from this effort. So.

Ted Fernandez: And then more meaningful client conversations, let's say the next 200 calls. The conversations now include a more complete conversation of both ideation, design, development of the solution, and full deployment. That is why AI Explorer was built.

Speaker Change: We now believe we've moved from primarily education. If you take say the first couple of hundred calls.

Speaker Change: <unk> been more meaningful client conversations, let's say the next 200 calls.

Speaker Change: The conversations now include a more complete conversation of both ideation design.

Speaker Change: Development of the solution in full deployment.

Speaker Change: That is why explore was built it was to be responsive to a couple of things that we saw were critical to the clients.

Ted Fernandez: 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 in 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, we educate a client about how we ideate and design solutions? That's what led to the simulation capability that we're now introducing in version 2.

Speaker Change: One they wanted 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.

Speaker Change: Favorite areas and we have been a strong proponent that you should be considering making these investments.

Speaker Change: A much broader context, which means understanding with your enterprise opportunity is.

Speaker Change: That's what led to the stimulation capability that we're now introducing in version two so what does that mean that instead of talking educating our clients about how we ideate and design solutions.

Ted Fernandez: So what does that mean, that instead of talking, educating a client about how we ideate, we will now be engaging them in an M1 with a full simulation of their opportunity, full, let's call it, as complete as it can be, utilizing what we're using as industry process flows and all of the client information we have available to us before meeting with that client? We find that engagement where we're able to speak to specific numbers of opportunities across areas of the business and speak not only to how they are identified and how they're designed, but we've also developed skills around making sure that the handoff, meaning functional, other requirements, data sources, both public and private, all those considerations are addressed at a more detailed level.

Speaker Change: We will now be engagement engaging them in an M. One with a full simulation of their opportunity.

Speaker Change: <unk>, let's call it as complete as it can be utilizing what we're using as industry process flows and in all of the client information we have available to us before meeting with that client, we find that engagement, where we were able to speak to specific numbers of opportunities across areas of the business and speak not only.

Speaker Change: Two how they are identified and how their design. We've also developed skills around making sure that the handoff, meaning functional other required requirements data sources.

Speaker Change: The public and private all of those considerations are addressed in a more detailed level.

Ted Fernandez: We believe all of that is highly responsive to the issues that clients are facing. And because of all of those things that I'm discussing, where they were starting, where they're now moving to relative to understanding, their commitment to time and dollars, how we believe that we can be more compelling and engaging clients, we believe we do that by presenting them with a broader use case number of opportunities that have been simulated inside of our AI Explorer platform.

Speaker Change: We believe all of that is more highly responsive to the issues that the clients are facing and <unk>.

Speaker Change: Because of all of those things that I am discussing where they were starting.

Speaker Change: Where they are now moving to relative to understanding their commitment to time and dollars.

Speaker Change: We believe that we can be more compelling and engaging clients. We believe we do that by presenting them with.

Speaker Change: A broader use case.

Speaker Change: Number and opportunities that have been a simulated inside of our AI explore platform. All of these changes we believe will allow us now to walk into a client opportunity no matter, whether they are starting our sophisticated talking about where they are relative to.

Ted Fernandez: All of these changes, we believe, will allow us now to walk into a client opportunity, no matter whether they're starting or sophisticated, talking about where they are relative to the ability to assess enterprise opportunities, define their use cases, and also talk about some of the deployment and implementation considerations. So as they develop capabilities, we develop capabilities. The engagement of the clients, I'm going to say, with the exception of... I'm going to say a max of 20% of those clients where maybe there was not a direct fit relative to the requirements they were seeing or what they seemed to be looking at versus where we were developing capabilities.

Speaker Change: Two the ability to assess enterprise opportunity.

Speaker Change: Defined there their use cases and also.

Speaker Change: Talk about some of the deployment and implementation considerations. So.

Speaker Change: As they develop capabilities we've developed capabilities.

Speaker Change: The engagement of the clients I'm going to say with the exception of I'm going to say, a max of 20% of those clients, where maybe there was <unk>.

Speaker Change: Not a direct fit relative to the requirements. They were seeing they seem to be looking at versus where we were developing capabilities are we believe those are clients that understand the hackett capability and how it's changing so I.

Ted Fernandez: We believe those are clients that understand the Hackett capability and how it's changing. So I believe not only do we have a more complete way of extending the way we serve clients, but also, our opportunity to go back to these clients and now re-engage them with more capability, all of those, when we see what they're doing and how they're doing it, we believe that our offering is going to be competitive.

Speaker Change: I believe not only do we have a more complete way and extending the way to serve clients I believe that our opportunity to go back to these clients and now reengage them with more capability all of those when we see what theyre doing and how they're doing it.

Speaker Change: We believe that our offering is going to be competitive.

Ted Fernandez: And so it's all of the above, and yes, when you mentioned the fact that we believe the revenue is going to be strong, well, the dollar amounts of our entry points have changed because they've become more customized to the client's reaction or request. By the way, with more, I'll call it customized or higher amounts, there are also longer times to kind of validate the opportunity and close those engagements. But we've had enough success in what we call phase two that our revenues will continue to increase strongly sequentially.

Speaker Change: And.

Speaker Change: So it's all of the above.

Speaker Change: And.

Speaker Change: And yes, when you mentioned the fact that we believe the revenues.

Speaker Change: It's kind of a strong well the the dollar amounts of our entry points have changed because they become more customized to the client reaction or request.

Speaker Change: By the way with more I'll call it customize or higher amounts come also longer times to kind of validate the opportunity and close those engagements.

Speaker Change: But we've had enough success in what we call phase to that.

Speaker Change: Our revenues will continue to increase strongly sequentially.

George Sutton: 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 so I just want to confirm that.

Speaker Change: One other question relative to implementations.

Speaker Change: Just thinking through.

Speaker Change: You mentioned strength in the Oracle practice and I believe that's because of a push.

Speaker Change: Apart from their sales force.

Ted Fernandez: 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?

Speaker Change: So I just wanted to confirm that and then relative to the IPO of one stream 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 <unk> procurement, which is I believe predominantly Cooper they've pulled back.

Speaker Change: Back on their sales resources is that what's driving that.

Speaker Change: Area, that's a bit of a challenge.

Ted Fernandez: Well, I'll simply say that excluding the performance of that group, our SVT practice was probably up 3% or better instead of down 3%, just to give you some perspective and respond to that question without providing individual numbers about that practice. So I agree with your observations.

Speaker Change: Well I'll simply say that excluding.

Speaker Change: The performance of that group, our SPT practice was probably up 3% or better instead of down 3% just to give you some perspective and respond to that responding that question without providing individuals' numbers about about that practice.

Speaker Change: So I agree with your observations how do we benefit look we benefit when both one stream is successful and Oracle are successful.

George Sutton: How do we benefit? Look, we benefit when both OneStream is successful and Oracle is successful. We believe they're the top two EPM or CPM providers in the marketplace. We have a very strong capability in EPM, both in the transformation as well as the software implementation side. That relationship emanates from the very strong relationship we have with the CFO community. We really like the fact that Oracle has re-emphasized that area, and we're benefiting from it.

Speaker Change: We believe they're the top two APM or CPM providers in the marketplace.

Speaker Change: We have this very strong capability in Etfs, both in the transformation as well as the software implementation some in that that relationship emanates from the very strong relationship we have with the CFO community. So.

Speaker Change: We really like the fact that oracle's reemphasize every emphasize that area and we're benefiting from it and yet we also believe that the.

George Sutton: 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.

Speaker Change: One stream IPO only benefits and.

Speaker Change: It creates an opportunity for <unk> to continue to grow its business and if they do so.

Speaker Change: To be an active participant in that growth.

Speaker Change: Okay.

Operator: Super. Thank you. That's it for me.

Speaker Change: Thank you so for me.

Speaker Change: Thank you.

Jeff Martin: Our next question comes from Jeff Martin with Ross Capital. Your line is open.

Speaker Change: Our next question comes from Jeff Martin with Roth Capital. Your line is open.

Ted Fernandez: Thanks, good afternoon Ted and Rob. Ted wanted to dive a little deeper on AI Explorer 2.0. You mentioned that it'll be available later this month. How much do you think the new features, particularly the simulation, make a difference in helping close conversions? I believe

Jeff Martin: Thanks, Good afternoon, Ted and Rome.

Speaker Change: Ted wanted to dive a little deeper on.

Speaker Change: Explore two point al you.

Jeff Martin: You mentioned that'll be available later this month, how much do you think we'll see.

Speaker Change: <unk>, particularly some noise and what's the difference.

Speaker Change: Upon close.

Speaker Change: Conversions I believe.

Ted Fernandez: I believe it's twofold, Jeffrey. I believe that clients are listening to our capabilities and are considering that within the context of their..., 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, which we believe extends our capability and provides more value and capability that we're offering our clients. So those two things are important.

Speaker Change: Okay.

Speaker Change: I believe it's twofold Jeff.

Speaker Change: I believe that clients are listening to our capabilities and are considering that within the context of their plants and they are becoming more informed.

Speaker Change: And.

Speaker Change: <unk>.

Speaker Change: The more detail we provide on how.

Speaker Change: I think how.

Speaker Change: 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 those two things.

Speaker Change: <unk> are important.

Ted Fernandez: I think that's also extending our capabilities all the way through to proof of concept and validation. Again, 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 are clients that we made early presentations to, we didn't hear much from, and we thought they were educational. But they picked up the phone, and 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've got to consider this somewhat of a startup.

Speaker Change: I think also so.

Speaker Change: That's also extending our capabilities all the way through to proof of concept and validation.

Speaker Change: And.

Speaker Change: Okay.

Speaker Change: Again, though the more we extend our capabilities and directly respond to what the clients need help with.

Speaker Change: We believe for example, some of the things that are in the pipeline now are our clients that we made early presentations too we didn't hear much from we thought that where educational.

Speaker Change: They picked up the phone calls 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.

Speaker Change: Consider this somewhat of a.

Speaker Change: The startup I mean clients are learning how to do the work and gates's services compared with our capabilities.

Ted Fernandez: 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's 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 anybody has had the volume of calls we've had with clients and the detailed level of discussions around Gen AI adoptions, the underlying Gen AI 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.

Speaker Change: And we are aggressively building capabilities, where we believe the client.

Speaker Change: Limitations and capabilities are so.

Speaker Change: You can just expect us to continue to extend those capabilities and we just believe that.

Speaker Change: All of the above will give us a chance to compete for that work further.

Speaker Change: I still don't know if somebody has had the volume of calls we've had with clients.

Speaker Change: And the detailed level of discussions around Gen. Gen AI adoption the unknown underlying.

Ginny: Ginny I development platforms, they're considering.

Speaker Change: 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 Youll see us continue to do that aggressively.

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

Speaker Change: The point I was trying to get our stimulation seems like it.

Speaker Change: Huge value add for our clients I was just curious.

Speaker Change: How long it might take to dealer simulation for a client and what all of that entail in terms of.

Speaker Change: Deep pulling data from their systems.

Ted Fernandez: Well, the first thing is to get them to believe that we can. So we just started doing our first demos, and their reaction was, "How are you doing that?"

Speaker Change: Well first the <unk>.

Speaker Change: First thing is to get them to believe that we can so we just started doing our first demos and.

Speaker Change: The reaction is their reaction is how are you doing it.

Speaker Change: And.

Ted Fernandez: It may be hard for you to believe, but Explorer and the capabilities inside of Hubble, 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, are allowing us to get in front of the client. I apologize for the fact that we did this without any direct involvement from them or direct information on the areas we're going to cover.

Speaker Change: It may be hard for you to believe.

Speaker Change: Explore in the <unk> and the capabilities inside of puzzled when we provide the when we provide explore with the right level of information that correlates to that clients industry and more specific client information that we may get publicly or as a result of setting up the call.

Speaker Change: Is allowing us to get in front of a client.

Speaker Change: I 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.

Ted Fernandez: 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 industry, most areas of the business and have a conversation about the use cases that 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 it to the benefit.

Speaker Change: 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 industry. 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.

Speaker Change: And as you know we breakdown use cases has breakthrough transformative and incremental. So then we also correlate to the to.

Ted Fernandez: 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 and the areas we're covering, I just believe we're going to be highly competitive.

Speaker Change: So the benefit so.

Speaker Change: To some extent I think that we're catching some of our clients a little bit off guard with.

Speaker Change: The capabilities, we've developed as quickly as we have.

Speaker Change: But I think that the conversations we're having and we've had.

Speaker Change: Our clearly extending our branding and if we continue to build capabilities.

Speaker Change: Whatever opportunities emerged in this space in the areas, we're covering I just believe we're going to be highly competitive.

Jeff Martin: One more from me if I could. You mentioned strategic partnerships. Just curious, if you could help us understand the overarching strategy there to penetrate, you know, the more of the middle market. You mentioned, you know, you're intending to extend your reach beyond the global 1000. Just curious if you could kind of give us the strategic viewpoint of how you're, you know, well, first beyond the

Speaker Change: Okay. One more from me if I could you mentioned strategic partnerships just curious.

Speaker Change: You could help us and help us understand.

Speaker Change: The overarching strategy there to penetrate.

Speaker Change: More than middle market you mentioned.

Speaker Change: Are you intending to extend reach beyond the global 1000, just curious if you can kind of give us the strategic viewpoint.

Ted Fernandez: will first be on the Global 1000. As you know, we also have vendor strategies in our I-PASS 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 channels. So the answer is yes, 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 all the work that we pay for by giving these clients these one hour, or in some cases more than one, session and review of AI Explorer and discussion around Gen-AI adoption related issues.

Speaker Change: Yeah, well first beyond the global 1000.

Speaker Change: As you know we also have had vendor strategies in our Ipass program.

Speaker Change: So we've had an initial conversation where we're trying to.

Speaker Change: Determined whether we can take some of those relationships.

Speaker Change: And.

Speaker Change: And support their AI either extended or.

Speaker Change: <unk>.

Speaker Change: Bye.

Speaker Change: Sharing our capabilities with their channels so.

Speaker Change: So the answer is yes.

Speaker Change: Weak.

Speaker Change: We've initiated those conversations so we'll see where they go so relative to extending capabilities.

Speaker Change: Because of the success of AI explore and.

Speaker Change: And the fact that.

Speaker Change: All the work that we paid by giving these clients.

Speaker Change: These one out reported in some cases more than one.

Speaker Change: Session and review of X flower and discussion around Gen AI adoption and related issues.

Ted Fernandez: It has attracted some of the firms that are now trying to transition their skills or build some new skills in the AI implementation area. So, 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, and figuring out the best way to work with them.

Speaker Change: It has attracted some of the.

Speaker Change: I'll call it some of the.

Speaker Change: Some of the firms that are now trying to transition their skills are built with some new skills in the AI implementation areas.

Speaker Change: So.

Speaker Change: And as we walk into clients, sometimes we get introduced to some providers. So we're kind of.

Speaker Change: Developing a good understanding of the ecosystem who's out there.

Speaker Change: Figuring out the best way to work with us.

Speaker Change: That's helpful. Thank you.

Speaker Change: Mhm.

Speaker Change: Thank you.

Speaker Change: As a reminder, if you would like to ask a question. Please press star one.

Operator: As a reminder, if you would like to ask a question, please press star 1. Our next question comes from Vincent Colicchio with Bering. Your line is open.

Speaker Change: Our next question comes from Vincent Colicchio with Barrington Research. Your line is open.

Vincent Colicchio: Yeah, Ted, shifting gears here a bit. With your heavy focus on AI consulting, is there less emphasis currently on the market intelligence program?

Vincent Colicchio: Yeah, Ted shifting gears here a bit.

Vincent Colicchio: What's your heavy focus on the.

Vincent Colicchio: Yeah consulting is there less emphasis currently on the market intelligence programs.

Speaker Change: No we just.

Ted Fernandez: 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 Gen AI capabilities so that any conversation can result in either an AI opportunity, AI consulting opportunity, or a, I'll call it, downstream or a more traditional or legacy opportunity, for lack of a better term.

Speaker Change: It's interesting we just don't believe that you obviously there are requirements to help clients with.

Speaker Change: Organizational in and.

Speaker Change: Enterprise App.

Speaker Change: Issues in areas that they want to continue to address but when you engage a client more strategically are broadly and when you look at how we believe the spend dollars, which will shift over time we.

Speaker Change: We don't believe that you can separate.

Speaker Change: Our existing capabilities with the new capabilities. So what we've done is we've envelope.

Speaker Change: All of our I'll call it traditional capabilities with AI explore or gen. AI capabilities. So that any conversation can result in either a.

Speaker Change: A.

Speaker Change: AI opportunity.

Speaker Change: Tilting opportunity or a I'll call it downstream or.

Speaker Change: More traditional or legacy opportunity for lack of a better term so.

Ted Fernandez: 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 Gen-AI are 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 in the same way.

Speaker Change: To me it's.

Speaker Change: It's the ability to turn left or right as the client need your assistance.

Speaker Change: I just.

Speaker Change: I just believe that the trend of the demand that will build around journey is still significant.

Speaker Change: That too not emphasize it and use that as a primary go to market as we look out several years.

Speaker Change: Would not benefit our organization in the same way.

Vincent Colicchio: 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?

Speaker Change: And then S.

Speaker Change: You you said you are closer to business.

Speaker Change: Towards the end of the quarter.

Speaker Change: Is this a momentum shift.

Speaker Change: Sustainable.

Speaker Change: What are your thoughts on S&P.

Ted Fernandez: Uh, look, um... Both Oracle and SAP have performed pretty well throughout this, if you want to call it, economic cycle, right? And now you've got to call it economic and Jedi Emerging Jedi cycles. So you have two cycles going at the same time.

Speaker Change: Look.

Speaker Change: Both Oracle and SAP.

Speaker Change: Performed pretty well throughout this if you want to call it economic cycle right and now you've got to call it economic.

Speaker Change: Jen AI emerging Gen AI cycles. So now you've got two cycles going at the same time.

Speaker Change: <unk>.

Speaker Change: So.

Speaker Change:

Ted Fernandez: So, Oracle's out. It's really obvious that Oracle is 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 are at or better, just given how successful they've been through what I believe 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-enabled opportunity for them to consider, you know, there's a lot of competing wins. It all leads to the deployment of technology and organizational change, and the deployment of technology and organizational change is good for us.

Speaker Change: Oracle is really obviously oracle's outperforming the other groups.

Speaker Change: SAP group is performing well and we think both have an opportunity to continue to perform where they are where they're at or better.

Speaker Change: Just given how successful they've been through what I believe.

Speaker Change: 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 are presenting some new AI embedded opportunity for them to consider so.

Speaker Change: There's a lot of competing wins it all leads to the deployment of technology and change in the deployment of technology and organizational change is good for our business.

Vincent Colicchio: And lastly, what is driving the strong growth in your top client? I see some impressive growth there. Well, obviously, it was a mistake.

Speaker Change: And lastly, what is driving the strong growth in your top client I see some impressive.

Speaker Change: Sir.

Ted Fernandez: Well, it's obviously been a very meaningful Oracle implementation, but it's probably expanded to four of our groups, including our AI.

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

Speaker Change: Okay.

Speaker Change: Thanks.

Speaker Change: Okay.

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

Speaker Change: At this time I'm showing no further questions I will now turn the call back over to Mr. Fernandez.

Ted 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.

Mr. Fernandez: Well. Thank you operator, let me thank everyone for participating on our second quarter earnings call. We look forward to updating you again, when we report the third quarter. Thank you.

Mr. Fernandez: Okay.

Operator: Thank you for your participation, participants. You may disconnect at this time. I went on a little long with the very first question.

Speaker Change: Thank you for your participation participants you may disconnect along the very first question.

Speaker Change: China.