Q3 2022 Earnings Conference Call
November 08, 2022 05:00 PM ET
Company Participants
Rob Ramirez - Chief Financial Officer
Ted Fernandez - Chairman & Chief Executive Officer
Conference Call Participants
Jeff Martin - ROTH Capital Partners
Vincent Colicchio - Barrington Research
George Sutton - Craig-Hallum
Presentation
Operator
Welcome to the Hackett Group Third Quarter Earnings Conference Call. Your lines have been placed on a listen-only mode until the question-and-answer session. Please be advised the conference is being recorded. Hosting tonight's call are Mr. Ted Fernandez, Chairman and CEO; and Mr. Rob Ramirez, Chief Financial Officer.
Mr. Ramirez, you may begin.
Rob Ramirez
Good afternoon, everyone, and thank you for joining us to discuss The Hackett Group's Third Quarter Results. Speaking on the call today, and here to answer your questions are Ted Fernandez, Chairman and CEO of The Hackett Group; and myself Rob Ramirez, Chief Financial Officer. A press announcement was released over the wires at 4:05 PM Eastern Time.
For a copy of the release, please visit our website at www.thehackettgroup.com. We will also place any additional financial or statistical data discussed on this call that is not contained in the release on the Investor Relations page of our website.
Before we begin, I would like to remind you that, in the following comments and in the question-and-answer session, we will be making statements about expected future results, which may be forward-looking statements for the purposes of the federal securities laws. These statements relate to our current expectations, estimates and projections, and are not a guarantee of future performance. They involve risks, uncertainties and assumptions that are difficult to predict, and which 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 that are contained in our SEC filings.
At this point, I would like to turn it over to Ted.
Ted Fernandez
Thank you, Rob, and welcome everyone to our third-quarter earnings call. As we normally do, I will open the call with some overview comments on the quarter. I will then turn it back over to Rob to review our detailed operating results, cash flow and provide our quarterly guidance. We will then review our market strategy-related comments, after which we will open it up for Q&A.
This afternoon, we reported total revenues of $72 million and revenues before reimbursements of $71 million, and adjusted earnings per share of $0.37, which was above our quarterly guidance, and up 19% on a year-over-year basis. Our results were driven by 11% growth in revenues before reimbursements from our Global S&BT Group, which also reported the year-over-year segment profit growth of 18%. This growth was driven by our strong S&BT consulting performance and by the growth and increasing revenue mix of our higher-margin Research Advisory and IP-as-a-service offering. This highlights the reasons, why we have accelerated our investments in this area.
The quarter benefitted from the growth of our IPaaS revenues as our contract we discussed last quarter continued to ramp. We also continue to be actively engaged in contract and pilot discussions with other several large software and service companies to help them bolster their value-selling and value-realization efforts. Our results also benefited from the growth of our research advisory business.
During the quarter, we launched our first of three new market intelligence programs that we plan to launch by year-end. These programs allow us to compare the differentiating capabilities of software and services providers, which should help them strategically, support their sales and marketing efforts.
The Global S&BT or Strategy and Business Transformation segment revenue growth was partially offset by the results of our Oracle and SAP segments, which were down as expected in the quarter. Both groups have been rebuilding their pipelines after strong 2021 performance.
We now expect year-on-year revenues for both segments to level off in Q1 and return to growth in Q2 of 2023. Our investments that we made to fully digitize our IP and the development of our digital platforms, which include Quantum Leap, our state-of-the-art global benchmarking platform and our proprietary Hackett Digital Transformation Platform or DTP are starting to pay off. These platforms are allowing us to highly differentiate all of our offerings and also develop new licensing and research relationships with software and services providers across the enterprise.
On the balance sheet side, our ability to generate strong cash flow from operations has allowed us to increase our dividend, and today we announced the expansion of our credit facility and a $120 million Dutch tender offer to acquire over five million shares of our company's common stock. This tender offer should be strongly accretive, especially when you consider that the reduction of the dividend payment, due to this buyback is expected to offset more than half of our net tax interest expense that we expect to incur.
As we have discussed on our last few calls we wanted to be more aggressive with our balance sheet by expanding our credit facility to fund acquisitions into buyback stock while continuing to invest in our business.
With that, said let me ask Rob to provide details on our operating results, cash flow and also comment on outlook. I will make additional comments on strategy and market conditions following Rob's comments. Rob?
Rob Ramirez
Thank you, Ted. As I typically do, I'll cover the following topics during this portion of the call. I'll go through an overview of our third quarter results, along with an overview of related key operating statistics. I'll go over an overview of our cash flow activities in the quarter, and I'll conclude with a discussion on our financial outlook for the fourth quarter of 2022, as well as make some comments in relation to the Dutch.
Before moving to our results, I'd like to comment on the Form 10-KA that was filed this evening. Based on common letters and discussions with the staff of the SEC, the company concluded that we had material weakness in our internal control on financial reporting, as it relates to segment disclosures. It is important to note that, the omission of additional segment disclosures did not result in material misstatement of the company's financial statements.
Effective in the third quarter of 2022, the company has reorganized its operating and internal reporting structure to better align with its primary market solutions. Due to this reorganization, the company is expanding its reporting to three segments; one, Global Strategy and Business Transformation or Global S&BT; two, Oracle Solutions and three SAP Solutions.
As a result, I will comment separately regarding the revenues of our Global S&BT, our Oracle Solutions Group, our SAP Solutions Group and the total company. Our Global S&BT Group includes the results of our North America and international IP-as-a-service offerings, our research advisory programs and benchmarking services our OneStream offerings, and our business transformation groups.
Our Oracle Solutions and our SAP Solutions segments, include the results of our North America Oracle and SAP offerings respectively. Please note that, we will be referencing both total revenues and revenues before reimbursements in our discussion. Reimbursable expenses are primarily project travel-related expenses passed on to our clients, and have no associated impact to our profitability.
During our call today, we will also reference certain non-GAAP financial measures, which we believe provide useful information to investors. We 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 to the Investor Relations page of the company's website.
For the third quarter of 2022, our total revenue was $72 million. Our revenues before reimbursements were $71 million, which was in line with our quarterly guidance. The third quarter reimbursable expense ratio on revenues before reimbursements was 1.5%, as compared to 1.6% in the prior quarter and 0.7% when compared to the same period in the prior year.
Post-COVID, as we said, we have experienced increased client related travel. However, given our transition to a remote delivery model, we do not expect these project-related travel expenses to return to pre-COVID levels.
Revenues before reimbursements for our Global S&BT segment were $41.1 million, an increase of 11% when compared to the same period in the prior year, reflecting the continued year-over-year growth since the second quarter of 2020 and the continuing demand for digital transformation investments. The US S&BT revenue before reimbursements growth was 13.2% and international S&BT was 1.6%, but was 60% utilizing the same foreign currency rates in the third quarter of the prior year.
Revenues before reimbursements for the Oracle Solutions segment were $17.4 million, a decrease of 16% when compared to the same period in the prior year. We experienced extended client decision-making during the quarter, as clients reconsidered their spending priorities. As we exited the quarter however, several large opportunities closed, which is further evidence that the digital transformation demand remains healthy.
Revenues before reimbursements for SAP Solutions segment was $12.5 million, a decrease of 10% when compared to the same period in the prior year. As we have stated previously, SAP Solutions is coming off of strong 2021 results and it continues to rebuild this pipeline after the completion of some large SAP engagements late in 2021. SAP results benefited from strong VAR activity at the end of the quarter....
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