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Operator
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. 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.
Ted Fernandez
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 the Hackett Group, and myself, Robert Ramirez, Chief Financial Officer. A press announcement was released over the wires at 4.15 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 and 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 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. We will then review our market and strategy related comments, after which we will open it up to Q&A. Consistent with the momentum we experienced through last year, strong demand for all of our service 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 of $0.38 above our quarterly guidance and up strongly on a year-over-year basis when you exclude the non-recurring SAP software sale, which we highlighted on our second quarter earnings call last year. Our results were driven by a 24.5% revenue growth from our SMBT group, which also resulted with significant yearly year margin expansion of over 450 basis points. The margin expansion was driven by our strong SBT consulting performance and by the growth and increasing revenue mix of our higher margin research advisory and IPM service offering. This highlights the reasons why we have accelerated our investments in our IP service area. Of special note, in June we finalized a three-year multi-million dollar agreement with one of our IPaaS relationships that we have been working on for quite a while now. This contract will ramp up throughout the balance of the year until we reach our targeted contract volumes. We believe this relationship is transformative in many ways. It demonstrates our ability to support a global partner efficiently and in many ways on a self-service basis, utilizing our market-leading benchmarking, benefit case, and value 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 large software and services companies to bolster their business case development and value selling as well as value realization efforts. Our research and intelligence programs are highly complementary to our IPS service offerings to partners that desire to license our IP and brand and license RIP and our grant permission. They leverage RIP and platforms and also result in strong downstream opportunities to our digital transformation services. The SBT group revenue growth rate was partially offset by the results of our EEA group, which grew 2.5% in the quarter, excluding the software sales transaction. The EEA growth was impacted by the pipeline rebuild in our historically high-performing SAP The EA Group has a tougher comp in Q3 and is forecasted to be down on a year-over-year basis before we expect it to level off in Q4 and resume its year-over-year growth thereafter. Our international group, which was down in the quarter, is expected to be up in Q3 consistent, reflecting the European market conditions. Large SBT engagements, along with increasing leverage of our higher-margin, IP-based, benchmarking, research advisory, and ICES offerings, 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 offerings 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 that we made to fully digitize RIT in 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 develop new 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 our buyback program. We have discussed on the 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 and 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 that work. I will make additional comments on strategy and market-related conditions following Rob's comments. Rob?
Ted Fernandez
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 2022 second quarter results, along with an overview of our related key operating statistics. I'll cover an overview of our cash flow activities during the quarter, and I 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 SMBT. Our EERP EPM Analytics Solutions Group, or EEA, our international group, and the total company. Our SMBT group includes the results of the North America IP as a Service offerings, our research advisory programs, and benchmarking services, and our business transformation groups. Our EEA Solutions group includes the results of our North America Oracle SAP solutions and OneStream offerings. Our international group includes the results of our SMBT and our EEA resources that are based primarily in Europe. Please note that we will be referencing revenues before reimbursements in our discussion. Reimburseable expenses are primarily project travel-led expenses passed through to our clients that have no associated impact to our profitability. In our call today, we 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, found earlier today and will post additional reconciliations based on the discussions from this call to the investor relations page on the company's website. Before I move to our second quarter results, I would like to remind everyone that the second quarter of the prior year benefited on a GAAP and non-GAAP basis from a non-recurring $5.3 million or $0.09 per share software sales transaction. We highlighted the impact of this transaction on the results during our prior year second quarter call, and in my comments today, I'll provide financial information with and without the software sales 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 transaction. Our revenues before reimbursement increased to $74.8 million. up 2% when compared to the prior year, and up 10% when excluding the prior year software sales transaction. This is above the height of our revenue guidance range as we continue to see strong demand for our services throughout the quarter. The second quarter 2022 reimbursable expense ratio on revenues before reimbursements was 1.6% as compared to 0.7% in the prior quarter and 0.3% when compared to the prior year. We've experienced increased client-related travel since the transition to our 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 SMBT group were $32.9 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 our 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 2.5% when excluding the prior year non-recurring software sales transactions. The year-over-year increase when excluding the software sales transaction is driven by large ERP and EPM Oracle engagements and continued growth of our one-seam implementation offerings, partially offset by the year-over-year decline of our SAP offerings, which are coming off strong 2020 results and continues to rebuild the pipeline to the completion of several large SAP engagements. Revenues before reimbursements for our international group were $5.7 million. a decrease of 5% on a year-over-year basis. Company international revenues before reimbursements accounted for 8% of total company revenues before reimbursements in both the second quarter of 2022 and 2021. Approximately 20% of our total company revenues before reimbursements consist of recurring and 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 non-cash stock compensation expense, totaled 43.2 million, or 57.8% of revenues before reimbursements in the second quarter of 2022. This is compared to 41.4 million, or 56.8% of revenues before reimbursements, or 61.1% when excluding the impact of the prior year software sales transaction. Total company consultant headcount, was 1,131 at the end of the second quarter of 2022, as compared to total company consultant headcount of 1,141 in the previous quarter and 1,037 at the end of the second quarter of 2021. The year-over-year increase was primarily the result of higher activities and increased utilization for contractors. Total company adjusted gross margin on revenues before reimbursements was 42.2% in the second quarter of 2022, as compared to a 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 reimbursements in S&PT, as Ted mentioned, was over 450 basis points. This is a combination of both strong performance, under 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 of the prior year when excluding the non-recurring software sales transaction. Adjusted SG&A was 14.8 million, or 19.7% of revenues before investments in 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 was 13.3 million, or 19.6% of revenues before reimbursements. The year-over-year absolute dollar increase is primarily due to our increased investment in research advisory sales and 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 20.5% of revenues before reimbursements. DAP diluted net income for common share was $0.32 for the second quarter of both 2022 and the second quarter of 2021. Adjusted net income for the second quarter of 2022 totaled $12.1 million, for adjusted diluted net income for common share of 38 cents, which is above the high end of our earnings guidance range. Excluding the prior year software sales transaction, this 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 to foreign currency movements in the quarter, but was negatively impacted by one cent 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. We've decided to move to a GAAP effective tax rate for adjusted net income reporting purposes. Had we utilized 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 cent. This compares to adjusted net income of $12.7 million or adjusted diluted net income per common share of $0.39 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 $0.09 per share due to the software sales transaction already mentioned. The company's cash balances were $61.7 million at the end of 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 non-income adjustment for non-cash 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 for day 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 quarter dividend of 11 cents per share for its shareholders of record on September 23rd, 2022 to be paid on October 7th, 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 summer vacation in the U.S. and even more meaningful in Europe to unfavorably impact available days by approximately 3% on a sequential basis. The company estimates total revenue before reimbursements for the third quarter of 2022 to be in the range of $70.5 million to $72.5 million. On a sequential basis, we expect SMBT and International to be up and EEA to be down as it continues to rebuild backlog after transition of several large engagements. We estimate adjusted diluted net income for common share in the third quarter of 2022 to be in the range of $0.34 to $0.36, which assumes an effective gap tax rate on adjusted earnings of 28 percent. The impact of moving to a gap effective tax rate for the third quarter is approximately one and a half cents. We expect adjusted gross margin on revenues before reimbursements to be approximately 42 to 43 percent. We expect adjusted SG&A and interest expense for the third quarter to be approximately 15 million. We expect third quarter adjusted EBITDA on revenues before reimbursements to be in the range of approximately 23% to 24%. We expect cash balances, excluding the impact of share buyback activity, to be up on a 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 weeks.
Ted Fernandez
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 organizations. As I've mentioned many times over the last four to six quarters, although the pandemic created unprecedented demand disruption, it also created high alertness that accelerated demand for digital transformation initiatives. This means that digital innovation in enterprise cloud applications, analytics, and infrastructure, workflow automation, and process mining 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. We also believe digital transformation will be critical for organizations to realize productivity improvement initiatives that may result from economic deceleration created by the fiscal, inflationary, supply chain, or geopolitical challenges our clients face. 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 increased digital transformation demand is also resulting in increased competition for experienced talent, unlike we've never seen in a very long time, and it clearly continued into the second quarter. We believe the emerging work from the remote service delivery model should help us address our short-term recruiting and retention concerns as 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 retain because of our demanding 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 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 capabilities 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 revenues. To this point, we expect our annualized contract value from recurring high margin research, market intelligence, and I-class clients to increase by approximately 28% by year end. We have also seen increasing downstream revenues from current 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 I-class clients. with over 40% of our consulting services coming from our research advisory and benchmark offerings. Simply put, organizations who rely on our IP research and benchmarking services are also more likely to utilize 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 1,000 focus in a very efficient manner. We expect 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 digital benchmark software-as-a-service solution, along with our digital transformation platform. These platforms allow us to deliver more information with significantly less client effort It also allows clients to leverage RIP to create compelling benefit case assessments, accelerate process flow and software configuration decisions, and track transformation initiatives over the life of their respective efforts. 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 demo to our investor relations page on our website so that investors can 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 at 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 pursuits. 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?
Operator
Thank you. At this time, if you would like to ask a question, please ensure that your phone is unmuted, press star one, and record your name clearly when prompted. If you'd 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 Hallam. You may go ahead.
George Sutton
Thank you. Nice job on Q2. I wanted to talk a little bit about Q3 if we could. Traditionally, not necessarily a big change seasonally from Q2. Obviously, last year was very unusual because of the one-time software sale. Can you talk about what's fallen out? And I think Rob had suggested there were some large SAP pieces of business that were finishing up. Can you just walk through that dynamically?
Ted Fernandez
Yes, I mean, there were a couple of scenarios, so I'll speak to 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 Oracle and SAP practices. Our SAP practice simply has, as you know, has been on a tear and is probably the highest performing group of our company over the last four to five years. But it did see a slowdown or just some deals that started to lengthen out in Q1 and that we expected to have in Q2 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 is slightly different. Oracle had an outstanding Q1. 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. It impacts Q3 because we're up into a tougher top, 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 grow on a year-over-year basis thereafter. Obviously, George, we don't want to see that EEA performance offset any of the great success we're having in SPT.
George Sutton
Sure. So I wanted to talk about the IPaaS deal and potentially 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?
Ted Fernandez
The interest, we did have somewhat of a pilot. We had licensed our data, 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 data information and brand permission to market. It clearly influenced the credibility of the benefit cases that they were presenting to their clients. As that, if you want to call it, pilot with them ended, we were nearing the completion and launching of both our Quantum Leap and DTP capabilities, but not only the initial versions, But we were moving on to be able to take many of the capabilities 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 platforms they wanted to use, what kind of support they wanted to have. It's a very significant engagement. As I said, it expanded the industry coverage that 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're utilizing our data and our, we call it, benefit case assessments and quantum lead products to create. I'll call it value propositions for clients leveraging our brand and capabilities. Number one. Number two, they're leveraging our solutioning 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's inside of our DTP platform. It also includes the utilization of the improve and monitor capabilities we have in our platforms that allows clients to load 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 this project tracking with what we believe is very unique capabilities to be able to validate the value realization or value proposition they presented to their clients. It also includes access to our research and 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, very significant, that's why I label it transformative.
George Sutton
Got you. One of the things for me, mentioned that you're looking to work with someone who could syndicate your IP through new channels. Can you just give us a little better picture of what that might look like?
Ted Fernandez
Yes, we were approached by a current firm that has a pretty unique platform which provides market intelligence to its clients on a global scale with with kind of a significant emphasis on the companies beyond the Global 1000. So we now have tried to identify those same capabilities across more of our IP. But in this scenario, you know, 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 capabilities and allow them to take our IP to market through 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 was great. Thanks, guys.
Ted Fernandez
Thanks, George. Thanks, George.
Operator
Thank you. And just as a reminder, if you would like to ask a question, please press star followed by one. Our next question is from Jeff Martin with Roth Capital Partners. You may go ahead.
Jeff Martin
Thanks. Good evening. Ted, I was hoping you could help us get some perspective on what the traction you're gaining with the IP as a service offering, what the implications on profit growth for 2023 could be, and maybe give More broadly, the outlook relative to your long-term growth and profit profile for next year.
Ted Fernandez
Well, one, look, they can vary in size. They don't all necessarily be the 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're complex transactions. We'll never know. But, you know, 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 at a... It's not only recurring. It results in multi-year contracts. It results in high margin multi-year contracts since you're really licensing IP and the capabilities of the platform. And it's intended to be used on, I'll call it, with limited support, which is some of the capabilities really important 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, call it our gross margin, very nicely. I would also say that 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, As I said on my script, we expect three or four of those programs to launch by year end. We've increased the sales capability of that entire group, and we'll continue to do so through the end of the year. We're absorbing all those costs at the moment. But it is clearly for us. I mean, I had one of the guys on the call comment saying, Ted, this sounds like a hack at 3.0. I think the fact of the matter 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 effective ways to take those to market. We believe that market intelligence programs like others have in the marketplace is one opportunity. The IPS of service is very unique to Hackett because we don't know anyone else that could provide this kind of a sales acceleration value realization, measurement, 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 reside somewhere else, but just provide properly contextualized IP through others that then we will then share 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 into 2023 as both these opportunities expand, the products launch, and we're able to realize the benefits, obviously, that we've targeted. So I don't have a specific answer to IP, IPaaS 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. I 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 research advisory or benchmarking client. The premise is 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 hope 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.
Jeff Martin
Great. That's helpful. And congratulations on the multi-year win there. Other question I had was on availability and retention capabilities of the consultants. SBT is growing very rapidly right now. Looks like that may take a little bit of a breather in Q3. But how are you balancing demand versus talent availability, and how have employee retention efforts gone so far this year?
Ted Fernandez
Look, 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, I'll call it, enhance the capability in many areas that we've had. Not all. There's 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 EEA. That's helped our margins. And look, the fact that we're not requiring people to do the normal Monday through Thursday travel. It's just allowing us to pursue, I'll call them the 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 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. Thank you, Ted.
Operator
Thank you. The next question is from Vince Colicchio with Barrington Research. You may go ahead.
spk05
Yeah, Ted. Any signs of economic headwinds in the EEA business, such as changes in sales cycles or less strength in pricing, things of that nature?
Ted Fernandez
Well, I commented that the activity for both of those groups remains strong. The impact that we had with SAP were really kind of pushes that you really can't correlate that to anything that was happening then. It would have simply been too early. So I can't correlate it to that. And then the Oracle issues have been different. So our activity is 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 of I'll call it end of year for SAP and Q1 with Oracle. So nothing that I can directly point to that is directly related to, I'll call it the expected slowing of the economy. Obviously that's required to avoid a recession.
spk05
And can you remind us, I apologize if I missed it, my connection is quite poor. What your priorities are in acquisitions?
Ted Fernandez
Well, the priorities have changed somewhat. Obviously, given the emphasis on the IP-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 SBT-focused, but there are areas an EA, which in the right circumstance and in the right market, we would clearly take, we would acquire if that was presented to us.
spk05
And again, I apologize for my connection. Did you mention your pipeline of IP deals you're close to in terms of number of landings?
Ted Fernandez
Yeah, I think the point that I wanted to make, I don't want to say that they're close to landing, but we clearly are having more meaningful discussions with larger providers that have been engaged with us now for a while. Some which had left some earlier discussions in return and some who've been talking with us throughout the year. So, boy, we'd like to get some of those opportunities. So that was just the point that I'm making. the pipeline for iPad's opportunities is strong. That's probably the point I was trying to make.
spk05
And it sounds like you're saying stronger than it's been in the past. Is that right?
Ted Fernandez
Stronger. What I was trying to emphasize is the scale and the type of company. So strong and with companies that obviously would enter into larger deals. Maybe that's the way I'll characterize it.
spk05
Okay. And do you think that's just timing or competitive pressures are compelling them to move in that direction?
Ted Fernandez
Well, it's not competitive pressures because I'm not sure someone has the capabilities that we're offering to these clients. So it's leverage up or start from scratch or build or leverage what you currently have in place. That's what we're seeing as the alternatives. So they just take time. getting involved and affecting the way somebody goes to market. So I hate to, you know, speak the time, especially since I was embarrassed that it took me so long to sign the one we did sign, which was significant and complex.
spk05
Okay. Thank you.
Operator
Thank you. At this time, I show no further questions. I would now turn the call back over to Mr. Fernandez.
Ted Fernandez
I'd like to thank everyone for participating in our second quarter earnings call and look forward to updating everyone again when we report the third quarter. Thank you.
Operator
Thank you. That does conclude today's conference. Thank you all for participating. You may disconnect at this time.
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