Welcome to The Hackett Group Fourth 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.

Good afternoon, everyone, and thank you for joining us to discuss The Hackett Group's fourth 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, Robert Ramirez, Chief Financial Officer. A press announcement was released over the wires at 4:05 p.m. 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 back over to Ted.

Thank you, Rob, and welcome, everyone, to our fourth quarter earnings call. As we normally do, I will open the call with some overview comments on the quarter, I will then turn it back over to Rob to comment on detailed operating results, cash flow as well as comment on outlook. We will then review our market and strategy related comments. After such, we will open it up to Q&A. I would like to start by continuing to acknowledge those dedicated individuals who continue to work nonstop and under very dangerous circumstances to support all of us during this pandemic. I also want to acknowledge our associates and clients that quickly and successfully adapted to the remote delivery requirements around the globe. This quarter is about progress, momentum and how eagerly we look -- we're looking forward to 2021. Let me first start with our quarterly results. Since the end of Q2, we have experienced increased activity through the end of the year, and we experienced it through the end of the year. I am pleased to announce today that our quarterly results exceeded our expectations. This afternoon, we reported net revenues of $59.2 million and pro forma earnings per share of $0.23, which was up 35% sequentially. Net revenues were up 2.5% sequentially on lower available days. But as I said, pro forma EPS was up strongly from our COVID disrupted Q3 results of the prior year and only $0.01 below the profitability in Q4 of last year, which obviously was not COVID impacted. U.S. sequential revenue growth was led by the continued bounce back of our strategy and Business Transformation Group and the double-digit year-over-year growth of our SAP, Oracle ERP and OneStream practices. The pandemic has accelerated the deployment of digital technologies to support cloud enablement transformation,…

Thank you, Ted. As I typically do, I'll cover the following topics during this portion of the call. I'll cover an overview of our 2020 fourth quarter results along with an overview of related key operating statistics. I'll cover an overview of our cash liquidity during the quarter, and I will then conclude with a discussion on our financial outlook for the first quarter of fiscal 2021. For purposes of this call, I will comment separately regarding the financial results of our Strategy and Business Transformation Group for S&BT, our EPM, ERP and Analytics Solutions Group or EEA, our International Group and the total company. Our S&BT Group includes the results of our North America IP-as-a-service offerings, our executive advisory programs and benchmarking services and our business transformation practices. Our EEA Solutions Group includes the results of our North America Oracle, SAP solutions and OneStream practices. Our International Group includes the results of our S&BT and EEA resources that are based primarily in Europe. In addition, please note that all references to net revenues represent revenues excluding reimbursable expenses. Reimbursable expenses are primarily project travel-related expenses pass-through to our clients and have no associated impact to our margin or profitability. Given the limited amount of business travel due to the pandemic, we encourage investors to focus on net revenues to assess revenue and growth trends. During our call today, we will 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. Additionally, my comments today are based on results from continuing operations. As Ted mentioned, we continued to see an increase in client engagement throughout the quarter, which resulted in a sequential increase in net revenues of 2.5% to $59.2 million…

Thank you, Rob. As we look forward, let me share our thoughts on the short-term and long-term demand environment, and on the growth opportunity it offers our organization. It goes without saying that the pandemic created an unprecedented period where demand disruption necessitated to ensure our safety has required extreme measures, but it is now clear, clearly evident that the digital transformation era has also been rapidly accelerated by the pandemic, which will further improve what we believe are the long-term prospects for our business. This means that digital innovation and emerging enterprise cloud applications, analytics and infrastructure, workflow automation, process mining and artificial intelligence that are dramatically influencing the way businesses compete and deliver their services. Digital transformation is redefining all activities at an accelerated pace, forcing organizations to fundamentally change and adopt these new capabilities in order to remain competitive. On the demand side, the short-term environment continues to improve as our clients now understand they must continue to transform and that the virus will continue to disrupt our lives until the vaccine and herd immunity is able to protect all of us. This means all organizations must adapt to this next normal while we sort through the changes, which will result from the pandemic. Broadly speaking, we believe the acceleration means demand improvement, and on the expense side, the virtual delivery and sales model reduces our overall delivery cost, both should benefit future results. Specifically, the increasing momentum we experienced in Q4 is continuing into the new year as our clients and our sales and service delivery model acclimate to this next normal market requirement. This should position us well in 2021 and should allow us to return to pre-pandemic levels of target growth and profitability. Additionally, we continue to see an increase in interest from potential…

[Operator Instructions] The first question in the queue is from George Sutton with Craig-Hallum.

Nice results. Ted, you talked about, on 1 side, acceleration going into the year due to demand improvement. On the other hand, you talked about your sales model being more efficient in this new environment. Can you put a little bit more meat on both of those components?

Well, there is simply no doubt that pandemic has forced all organizations to really explore how well they're really leveraging all digital transformation technology. And that just -- that in and by itself took what was already meaningful demand coming into 2020 and further accelerate it. So that means that the need for clients to consider changes and to engage organizations like ours, are only going to increase. I also said, George, that we still have disruption in the system, right? Because of the natural concerns for the vaccine and the safety concerns that we have for all of our associates and all of our -- and also inside of all of our communities. So just consider the fact that, in my mind, we're saying, look, this has only created further acceleration, and that's why I think that's what's driving this, if you want to call it, economic activity, including stock market activity, even while the environment is still facing some of the headwinds because we're still shut down. I'm in an office today where we normally have 35, 40 people. There are 4 or 5 of us here, and this building is relatively empty. I don't believe that will be what will be -- what will happen in the balance of 2021. But within that same construct, the client engagement, the discussions, their desire to understand what they're going to have to consider, how they're going to be able to transform to take advantage of emerging technology, it's just continuing to increase. Then on the flip side, you then take, like we said, the sales and delivery model moving to remote virtual capabilities, you would think and we did, I mean, people always ask me, what's your -- what's the most significant price of 2020. And to me, it's…

So Barron's had a wonderful article on Oracle, talking about how they're making the shift very effectively to the cloud. You're obviously very well aligned with Oracle. I wondered if you could talk about the progress that you're seeing in terms of that specific relationship? And then any other thoughts on other partners, folks like SAPs and Coupas and OneStreams?

Well, I mean, that Oracle article has kind of 2 elements to it. And that's really how they're trying to more aggressively compete with the cloud infrastructure providers, which today are AWS, Microsoft Azure, Google, HyVM with their hybrid offering and Oracle. So talking about the fact that they believe that, that's a big marketplace and that they expect to participate and compete more aggressively in it. When you then move that -- and that's how the apps are then supported and how they're efficiently deployed and maintained after they're actually configured for a client, for us. When you look at the fact that we're -- today, our pipeline is 95% cloud, so the level of work that we're doing on on-prem related engagements is now continuing to shrink. That means that the transition for the company is significant, the transition for us, what it means to us is that we get a chance to leverage and take this new cloud application offering that we take to market and help clients, many of which have yet to migrate from their on-premise environment and applications to a full cloud environment. To us, I think that's positive. Obviously, you're seeing it in the NASDAQ activity, but as well as tech companies like Oracle that are actively competing in these very hot spaces. So bodes well for Oracle, it should bode well for us as well, George.

[Operator Instructions]. Next question in the queue is from Jeff Martin with ROTH Capital Partners.

A question for Rob, I guess, or Ted, you can comment on it as well. But relative to your guidance for Q4, you beat the high end of it by a couple of million. Wondering if there were any specific drivers of that, things came in better-than-expected, trends developing more quickly than you thought? Some insight there would be helpful.

Well, George -- I mean, Jeff, the principal activity was the strength of some of our application groups. The SAP Group, the S/4 HANA cloud product for us, especially in the healthcare market that we focus in, has been very, very, strong. So that group clearly outperformed. But as I mentioned in my opening comments, the Oracle ERP portion of -- Oracle also outperformed. Our OneStream Group continued to distinguish ourselves again with aggressive growth, obviously, on much smaller numbers, but also. So it was that along with then transformation enabled activity which was also in my comments. So it's technology pulling these transformation initiatives. And so we were seeing it both on the EE side of the business, and it also helped out the strategy and business transformation side of the business.

Okay. And then wanted to get some insight on the digital transformation acceleration, essentially a lot of spend being pulled forward. How does that flow through to Hackett? Is there a long lead time with that? Do you expect that to eventually bring the business in and of itself back to organic growth relative to kind of the levels you were doing in 2019, the comparisons, obviously, in Q2, Q3 of last year, not all that relevant?

The greatest acceleration, Jeff, as you know, happened from the work from home and virtual, if you want to call it, increases that were immediately necessary to continue to conduct business. So you saw the infrastructure-as-a-service companies like AWS, Microsoft, Oracle and others benefit from that activity. You saw that also in anything that dealt with the execution side. So the Zooms and Teams products explode throughout the use. And then you then saw that then follow into the application environment. But if you said what was pulled forward in my mind, what was pulled forward was the infrastructure side of the business that what actually had to be put in place to facilitate the virtual operations of all of these businesses, which was necessitated basically within weeks. I don't believe that on the application side, there was much pull forward. I do believe, though, that it should follow. It should follow the significant investments in infrastructure should be followed by the enterprise app space continuing to be, I'll call it, not only strong, but improving. Because I still think that the work from home and some of the things and some of the distractions it creates did prevent some of that natural activity to happen. So I do believe that the pull forward was infrastructure related, I believe, on the enterprise apps and on the organizational change related, which is more core to our business. There wasn't pull forward. I would say that there was some disruption, but that you should see that accelerated activity now follow in '21 as the pandemic subside.

Okay. Great. And then last question, I didn't catch it if you gave it, but did you give an Oracle Cloud growth number for the quarter? And then could you also comment on average deal size and maybe average deal size within the pipeline?

We did not comment on the Oracle Cloud growth. We did say that the Oracle ERP side was up strongly, but our EPM side was down. We now have a mix of ERP to EPM on that Oracle side probably to be 55 to 60 versus 40 to 45 ERP. So you're seeing -- what we're seeing in Oracle is that the Oracle multi-tenant deals is what's driving it. The lead driver of Oracle's pull-through is ERP. We still have a desire to expand that capability, as you know, into the East Coast. And we're looking and considering several options that we believe will be available to us in 2021.

Okay. And then what about comment on average deal size?

Oh, I don't -- do you have something, Rob on?

It depends on this particular...

Yes, I'm going to say that there wasn't any meaningful change. I mean, we have seen -- the deals we were seeing -- we're clearly doing larger multi-tenant deals. So if we look at it in total by client, yes, we have some large clients pulling through ERP, EPM, HCM deals, those deals are clearly larger than we were experiencing a year ago when we were going to market more kind of ERP, EPM, HCM kind of separate. We're seeing that that multi-tenant deal pull deals through and increase the deal size. I don't have a list in front of me, but I can give you that at another.

Next question is from Vincent Colicchio with Barrington Research.

I know your Oracle backlog was run down pretty much. You are in the process of rebuilding that Ted. You had a decent Oracle quarter. Where we stand now at the end of the quarter?

Significant pipeline activity. And as I just told Jeff, with ERP continuing to take the lion's share now and EPM still underperforming. So we have ERP overperforming, EPM underperforming because the standalone EPM deals that we would traditionally have simply aren't there, you're just seeing the combination of deals being together. So our success becomes increasingly dependent on broadening out our ERP capability.

And then the U.S. outlook is flat for Q1. Curious if you could give us some differentiation between SBT and EEA?

Rob, why don't you...?

We said that S&BT...

They're both expected to be up.

Internationally, yes.

And that allows -- that will allow -- well, that would allow us to be flat. And therefore, we're flat, and our service delivery model is more efficiently, then that's what provides the opportunity for us to exceed last year's results in Q1.

I'm sorry. So they're both expected to be up, you said?

Both expected to be up with Europe down.

Correct.

With international down, which is primarily Europe.

And then, Ted, I'm curious what gives you the confidence that the business improves as we move throughout the year? Is it conversations with -- tone of conversations, types of conversations and the pipeline that you're seeing of opportunity in front of you?

Yes, client activity, which is pipeline as well as just a number of conversations and the way clients are engaging in a broader sense. Even some of the industries that have been hardest hit are reengaging, that to me is a very positive sign. So it's really just activity that we're experiencing along with a more efficient delivery model. Both of those things really allowed us to -- allow us to think 2021's prospects are that we could return to long-term growth and profitability, long-term targets, as I mentioned in my opening comments.

So the overall spend was broader this quarter. Would you say that was in both SBT and EEA?

Yes. Absolutely. The -- when we said the total activity in the U.S. was up versus a year ago, and that's the first time in 12 months, that was across both groups, yes.

At this time, I show no further questions. I'll now turn the call back over to Mr. Fernandez.

Thank you, operator. Let me thank everyone for participating in our fourth quarter earnings call and look forward to updating you again when we report the first quarter.

This concludes today's call. Thank you for your participation. You may disconnect at this time.