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spk01: 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.
spk05: 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 over to Ted.
spk04: 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 which we will open it up to Q&A. Before I move to the quarterly results, let me start by congratulating our associates for our strong 2022 performance. Although the second half of the year was clearly more challenging as the Fed rate increases started to weigh in on our client spending decisions, our revenues before reimbursements were up 4% and our adjusted EPS was $1.50, which strongly exceeded our prior year results when you exclude the tax benefit on the SARS exercise in 2021. Also, to the fourth quarter this afternoon, we reported revenues of $70.1 million and adjusted earnings per share of $0.36, both exceeding our quarterly guidance. Our quarterly results were driven by revenues before reimbursements from our global SBT segment of 3.5% on a reported basis and 5% on a local currency basis. More specifically, our recurring revenue, high margin research advisory, and IPAS offerings grew over 20% in the quarter. Annual contract value growth for these offerings in 2022 was also over 20%. The success and market opportunity for our intellectual property offerings highlights the reasons why we have accelerated our sales and product development investments in this area. The quarter benefited from the growth of our IPaaS revenues as the large contract we signed towards the end of the second quarter continued to ramp. We also continue to be actively engaged in contract and or pilot discussions with 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 two market intelligence programs and we plan to launch additional programs throughout 2023. These programs allow us to compare the capabilities of software and service providers, which are valuable to our large Hackett benchmarking and consulting end user client base when considering purchasing their capabilities. The programs also allow us to work with the solution providers to strategically support their sales and marketing efforts. We have also added new content and IP to our existing functionally focused executive advisory programs. Improvements in our existing programs, along with new market intelligence programs, the launch of our new member Hackett Connect, along with our aggressive sales hiring, should allow us to continue to grow our higher margin recurring revenues and related annual contract value during 2023. The global SVT segment revenue growth was partially offset by the results of our Oracle solution segment, which was down 12%, and our SAP solution segment, which was flat with prior year. Our Oracle segment was further impacted in the quarter when one of the large implementations closed as we exited the third quarter decided to cancel our agreement after changing CIOs during the quarter. The unfavorable impact from that last project in Q4 was $0.02 to $0.03 and is estimated to be unfavorable by approximately $0.05 net of staff reductions in Q1 of 2023. We have made some key executive additions to the group in the second half of the year and now expect our Oracle group to level off in Q3 of 2023 and return to revenue growth in Q4 of 2023. Our SAP solutions segment leveled off earlier than expected with flat revenues before reimbursements and improved segment profits driven by increased software sales in the fourth quarter. In Q1, we expect the SAP segment revenues to be flat on a year-over-year basis. The investments we have made to fully digitize our IP and the development of our digital platforms, which includes Quantum Leap, our state-of-the-art global benchmarking platform, and our proprietary Hackett digital transformation platform, or DTP, are paying off. These platforms are allowing us to highly differentiate our offerings and also develop new licensing and research relationships with software and service providers across the enterprise. We also expect to launch our Hackett Connect platform in Q2, which will significantly improve our research and IPaaS member clients' ability who availed themselves to all hack at our IP as well as our expertise. On the balance sheet side, our ability to generate strong cash flow from operations has allowed us to increase our dividend, and in December we successfully settled our $120 million Dutch tender offer to acquire over 5 million shares of the company's common stock. The tender offer resulted in the buyback of nearly 4.9 million shares and returned nearly $115 million to our shareholders. This tender offer should be strongly accretive, and when you consider the after-tax impact of the interest expense we will incur and the elimination of over $2 million of our existing dividend, it's even more appealing on a cash basis. As we have discussed on our last few calls, we want to be more aggressive with our balance sheet by expanding our current credit facility 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 outlook. I will make additional comments on strategy and market conditions following Rob's comments. Rob? Thank you, Ted.
spk05: As I typically do, I'll cover the following topics during this portion of the call. I'll go through an overview of our 2022 fourth quarter results, along with an overview of related key operating statistics, I'll cover an overview of our cash flow activities during the quarter, and I'll conclude with a discussion on our financial outlook for the first quarter of 2023. Effective in the third quarter of 2022, the company reorganized its operating and internal reporting structure to better align with its primary market solutions. As a result, I will comment separately regarding the revenues of our global S&PT, our Oracle Solutions Group, our S&P Solutions Group, and the total company. Our global SAPT group includes the results of our North American international IP as a service offerings, our research advising programs and benchmarking services, our one-stream offerings, and our business transformation offerings. Our Oracle solutions and our SAP solution segments include the results of our Oracle and SAP offerings, respectively. Please note that we will be referencing 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 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'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 discussion from this call on the investor relations page of the company's website. For the fourth quarter of 2022, our total revenues was $70.1 million. Our revenues before reimbursements were $68.8 million, which was above the high end of our quarterly guidance. The Q4 2022 reimbursable expense ratio on revenues before reimbursements was 1.9% as compared to 1.5% in the prior quarter and 0.7% when compared to the same period in the prior year. Post-COVID, we've 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. Total revenues from our global SWT segment were $40.9 million. Revenues before reimbursements for our global SWT segment were $40.4 million, an increase of 3.5% when compared to the same period in the prior year, but up 5% on a local currency basis, utilizing the same foreign currency rates in Q4 of 2021. Global SMBT revenue before reimbursements benefited from strong growth in our recurring research advisory and IPAS programs, which grew annualized contract value over 20% for the fiscal year of 2022. Total revenues from our Oracle Solutions Group were $17.2 million. Revenues before reimbursements for our Oracle Solutions segment were $16.7 million, a decrease of 12% when compared to the same period in the prior year, as we continued to experience extended client decision-making during the quarter. Additionally, during the quarter, one of the large opportunities that was closed as we exited Q3 was canceled. The impact of that decision unfavorably impacted the fourth quarter by approximately $0.02 to $0.03. Total revenues from our SAP Solutions segment were $12.1 million. Revenues before reimbursements for our SAP Solutions segment were $11.7 million, essentially flat when compared to the same period in the prior year. As we have stated previously, SAP Solutions is coming off strong in 2021 results and continues to rebuild its pipeline to completion of some large S&P engagements. S&P results also benefited from strong software sales activity during the fourth quarter of 2022. Approximately 24% of our total company revenues before reimbursements consist of recurring multi-year and subscription-based revenues, which includes our research advisory, IP as a service, multi-year benchmarks, and application main services contracts. Total company adjusted cost of sales which exclude reimbursable expenses and non-cash stock-based compensation expense, totaled $37.8 million, or 54.9% of revenues before reimbursements in the fourth quarter of 2022 attributed to $40.8 million, or 58.5% of revenues before reimbursements in the prior year. Total company consultant headcount was 1,120 at the end of the fourth quarter as compared to total company consultant headcount of 1,121 in the previous quarter and 1,106 at the end of the fourth quarter of the prior year. Total company adjusted gross margin on revenues before reimbursements, which excludes reimbursable expenses and non-cash stock-based compensation expense, was 45.1% in the fourth quarter of 2022, as compared to 41.5% in the prior year period. The 360 basis point gross margin improvement was primarily driven by the relative mix of higher margin global SIPT IPAS and research advisory and benchmark revenues, as well as higher margin SIP software sales during the quarter. Adjusted SG&A which excludes non-cash stock-based compensation expense and intangible asset amortization expense, was 14.9 million, or 21.7% of revenues before reimbursements in the fourth quarter of 2022. This is compared to 14.4 million, or 20.6% of revenues before reimbursements in the prior year period. Adjusted EBITDA was 16.9 million, or 24.5% of revenues before reimbursements in the fourth quarter, as compared to 15.4 million, or 22% of revenues before reimbursements in the prior year. GAAP net income for the fourth quarter of 2022, totaled 9.7 million, or diluted earnings per share of 31 cents for the fourth quarter of 2022, as compared to GAAP net income of 16.5 million, or diluted earnings per share of 50 cents in the fourth quarter of the previous year. GAAP results for the fourth quarter of the previous year included a 7.7 million or 23 cent per diluted share tax benefit related to the exercise of 2.9 million outstanding share appreciation rights. Adjusted net income, which excludes non-cash stock-based compensation expense and intangible amortization for the fourth quarter of 2022 totaled 11.5 million or adjusted diluted net income per share of 36 cents, which is above the high end of our earnings guidance range. This compares to adjusted an income of 18.4 million or adjusted diluted net income per common share of 56 cents in the fourth quarter of the prior year. Adjusted income for the prior year, as already mentioned, included an effective tax benefit of 23 cents per diluted share due to the exercise of outstanding share appreciation rights. In Q2 of this year, we moved to an actual GAAP effective tax rate for adjusted income reporting purposes. For those of you reconciling to the prior year reporting results, we reported adjusted diluted income per common share of 33 cents, excluding this one-time tax benefit. The company's cash balances were $30.3 million at the end of the fourth quarter of 2022 as compared to $67 million at the end of the previous quarter. The sequential decrease in our cash balances was primarily driven by cash utilized in financing activities to fund our tender offer, which was completed in the fourth quarter of 2022. Net cash provided by operating activities in the quarter was $24.8 million primarily driven by net income adjusted for non-cash activity, decreases in accounts receivable, and increases in accounts payable, accrued expenses, and contract liabilities. Our DSO, or day of sales outstanding, at the end of the quarter was 63 days, as compared to 66 days at the end of the previous quarter. As Ted mentioned, we were pleased that during the fourth quarter of 2022, we were able to utilize our strong balance sheet and cash flow to return capital to our shareholders. By partially leveraging our new credit facility, we completed our stock tender offer, which resulted in the purchase of 4.9 million shares of the company stock at a price of $23.50 per share, excluding transaction-related fees. The tender offer was funded by borrowings on our credit facility of $60 million and approximately $56 million in cash, inclusive of transaction-related fees, for a total of approximately $116 million. Our remaining stock repurchase authorization at the end of the quarter was 14.7 million. Subsequent to the end of the quarter, the company's board of directors declared the first quarterly dividend of 11 cents per common share for shareholders of record on March 24th, 2023 to be paid on April 7th, 2023. Before I move to guides for the first quarter, I'd like to remind everyone of the seasonality of our business relative to costs as we move sequentially from Q4 to Q1. Specifically, consistent with the first quarter guidance provided in previous years, our first quarter guidance for 2023 will reflect the sequential increase in U.S. parent-related taxes and the sequential buildup of our vacation accruals. The company estimates total revenue before reimbursements for the first quarter of 2023 to be in the range of 69 to 70.5 million. We expect global SMBT and SIP solutions revenue before reimbursements to be flat to up on a year-over-year basis. We expect Oracle solutions to be down over 20% on a year-over-year basis, primarily due to the loss of a large client in fourth quarter and due to unfavorable macroeconomic conditions. we estimate adjusted diluted net income per common share in the first quarter of 2023 to be the range of 35 to 38 cents, which assumes an effective tax rate on adjusted earnings in the first quarter of 22%. As Ted mentioned, the first quarter of 2023 will reflect the incremental investment we're making in program development and the dedicated sales resources for benchmarking IPAS, Executive Advisory Market, Intelligence, and our other IPS offerings. These incremental costs are expected to impact our diluted net income per common share by approximately $0.03 on a year-over-year basis. We expect adjusted gross margin on revenues before reimbursements to be approximately 40% to 41%. We expect SG&A and interest expense for the first quarter to be approximately $15.7 million. We expect first quarter adjusted EBITDA on revenues before reimbursements to be in the range of approximately 20 to 22 percent. Lastly, we expect our cash balances, excluding of any buyback activity, to be tempered due to the payment of 2022 performance-related bonuses and the payment of employee income tax withholding triggered by net vesting of restricted shares. At this point, I'd like to turn it back over to Ted to review our market outlook and strategic priorities for the coming months.
spk04: Thank you, Rob. As we look forward, let me share our thoughts on the near and long-term demand environment and on the growth opportunity it offers our organization. The demand for digital transformation may be impacted by economic headwinds in 2023, but it continues to be a clear strategic priority. Digital innovation and enterprise cloud applications, analytics and artificial intelligence, cloud infrastructure, and workflow automation 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 to remain competitive. With that said, Digital transformation is being impacted by extended decision making as organizations assess competing priorities created by the increasing rates and the demand disruption which it is intended to affect. As I mentioned in my opening comments, during the quarter we experienced a disruption of a meaningful Oracle project as we exited the third quarter. We also continue to notice clients reassessing their spending priorities, so volatility has increased. We also saw other large projects go forward and expand. We believe clients used the year-end planning process to reassess their market risk, make headcount and spend reductions, and rebalance their spending with productivity and strategic cost reduction efforts, which are also core to our offerings. We believe that clients will become more comfortable with the headwinds they are experiencing, and we will see behavior improve throughout the year. Similar to us, many of our clients did not experience a demand disruption until late in Q2 of last year and will be more challenged by the strong year-over-year comps of the first half of the year, but most will face more favorable comps in the second half of the year. If we are correct, this will further support the behavior improvement we expect from the first half to the second half of the year. On the talent side, competition for experienced executives continues. but we saw turnover moderate during the quarter and expect that trend to also continue. Long-term, we have transitioned to a hybrid sales and delivery model which provides us 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 should allow us to attract and retain talent that we have struggled to retain in the past because of the demanding historical travel requirements of our industry. Strategically, we are accelerating our focus on recruiting high margin IP related services, I'm sorry, focus on recurring high margin IP related services by increasing the program development and sales and marketing resources dedicated to this area. Additionally, as I've mentioned, we have continued our investments on our new Hackett Connect member platform, which we plan to launch over the next several months. As I previously mentioned, we have launched a series of new market intelligence programs that will assess and highlight the unique capabilities of software and service providers across selected categories. We are absorbed in these increased costs, which approximate 3 cents in our Q1 guidance, but we believe they will result in incremental high margin recurring revenues, which are very important to our long-term value creation strategy. It is also important to note that we continue to see increasing downstream revenues from our benchmarking and research advisory clients to our business transformation and technology consulting services. This halo effect has been in excess of 40% over the last several years. 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 beyond our current Global 1000 focus in a very efficient manner. We signed the first of these agreements and expect our new partner to announce and launch the syndication of our IP and contact started on April 1st. Similar to our other licensing efforts, we expect new recurring high margin revenue to slowly build from this relationship as new markets and segments are offered our IP. We also continue to redefine our global benchmarking leadership through enhancements in Quantum Leap, our digital benchmarking software as a service solution, along with our digital transformation platform. These platforms allow us to deliver more information with significantly less effort. It also allows our 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 efforts. As I have repeated over the last several quarters, we believe there are no comparable IP-led platforms in the market. As I have mentioned on previous calls, we have added a 20-minute demo to our investor relations page of our website so that investors can become more familiar with the capabilities of our platforms. We will be updating our demo with our newly launched Hackett platform in the next few months. Lastly, even though we believe that we have the client base and the offerings to grow our business, We continue to look for acquisitions and alliances that strategically leverage our IP and add scope, scale, or capability which can accelerate our growth. 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's move on to the Q&A section of our call. Operator?
spk01: Thank you. Thank you. At this time, if you would like to ask a question, please ensure that your phone is unmuted, press star 1, and record your name clearly when prompted. If you would need to withdraw your question, please press star 2. Again, to ask a question, please press star 1. One moment for our first question. Our first question is from George Sutton with Craig Hallam. You may go ahead.
spk03: Thank you. Ted, I wonder if you could go into a little more detail on the thought process of the clients becoming more comfortable with the headwinds that they face. It sounds like you're anticipating you'll get back to sales growth in Q4 and beyond. I just want to kind of walk from Q1 and what we're looking at through the rest of the year and kind of how you see that all playing out.
spk04: Well, first of all, the Q4 reference is only specific to Oracle, which will be down on a year-over-year basis. We now expect them through Q3, level off in Q3, and then return to growth in Q4. As you recall, for Oracle and SAP, we thought that would happen in Q2 of 2023. We've done that. We've achieved that with SAP, but Oracle hit a pretty nice speed bump with that client loss in the fourth quarter, which we obviously didn't anticipate at the time. With that said, look, we've got two very strong quarters ahead. Q1 and Q2, as you know, were record quarters for us, and we exceeded guidance by three cents in both quarters. We were clearly experiencing demand improvement in that first half of 23 that we had not experienced before. Obviously, that trended down in the last two quarters of 2023, and as I mentioned, It wasn't just us because we're really reacting to what our very large clients experience and we started feeling that second guessing towards the end of the second quarter of last year. What did we see? Look, we saw that volatility, like Alka's sneak, show up for the first time late in Q2. We saw it impacted Q3 in clients' behavior, but it was really more limited. As we got into Q4, we saw clients clearly starting to do planning that was unlike what many of them have experienced in the past. You've seen many of the large companies, especially on the tech side, deal with some pretty aggressive headcount cuts. We think all of those decisions, we think were pretty carefully considered as clients went into Q4, did their annual planning, and then started launching all of their planned initiatives in the beginning of the quarter. So we see that activity for us increase from the beginning of the Q1 into the second quarter. We think clients, again, are launching these initiatives, and unless they are disrupted further, which remains to be seen, but if it's as expected, whether or not rates are increased, whether it's one more time or now as many as two or three times as recently as was mentioned today, and it impacted the market, but unless demand is not disrupted further, we do expect both the activity and behavior of clients to improve from Q1 to Q2, and then we also expect it to improve into Q3 and Q4, both because many of them dealt with many of their, I'll call it softness, as they exit at Q4 and are trying to deal with that in Q1, because clearly most of them will see favorable comps in Q3 and Q4 versus the Q1 and Q2. So it's the combination of both what comps they're facing, how aggressively they dealt with what they believe was right-sizing or resetting spending priorities, George, that I believe much of it has taken place. So should it be modified or will it be modified? Of course, it always is. But I believe 23 sets up more like the inverse of 22, which is a tougher... First half of 23, because of both comps and the decisions that many of the companies made to reset spending priorities as they exited 22, and then improved behavior as they go into more favorable comps in the second half of the year. And if they missed any of their, if you want to call it, cost reduction or resetting efforts, with their Q4 effort that they will have dealt with that no later than the end of Q1. So all of that leads us to believe that sales and revenue activity and pipeline velocity will improve from the first half to the second half.
spk03: One other question, if I could. This incremental investment that will cost $0.03 in the first quarter, can you just give us a little more detail in terms of what these investments are in terms of people, in terms of content, et cetera?
spk04: Well, the single largest expenditure is that we're trying to aggressively increase the sales headcount in our IP-related businesses. We started to do that earlier. Let's call it in the second quarter of last year accelerated that into the third and fourth And we've continued to increase it into q1 we have no plans to I'll call that turn that off I think we're trying to be smart in the way we ramp up the resources and the kind of Effectiveness that we expect so we've got all of those if you want to call it governors in place to make sure that we're not We're not throwing away or overspending what we shouldn't. But look, the prospects for us to continue to grow our research advisory, IPAS offerings, and new market intelligence programs is significant. We think that the biggest thing that we lack is a world-class sales group. We're adding both senior and entry and mid-level people to our team. We'll continue to do that throughout the year. We have improved the existing executive advisor, which are the functionally focused programs that we had previously put in place, added one in 2022, added content and tiers as we enter 2023 to that group. We've launched two of the market intelligence programs. We expect to add others throughout all of 2023, and we would expect all of that activity to result in what we believe. We want to maintain a pretty high level of growth in that group and the annual contract value to come to that group. We think that that significantly changes the valuation. I'll call it the valuation opportunities for Hackett. But it also, as we've seen, the halo effect from that improved client, that increasing client base, since it's been so productive downstream, primarily to the business transformation group, but it also has extended into the technology side as well, we hope we can have our cake and eat it too. And that is to drive that growth. It comes, obviously, at higher margins. It comes on a recurring basis. And then see if we can then harvest and get the kind of halo effect we've gotten historically over the last several years from that client base, but do that at an increasing basis as we add more clients. And then just to kind of complete the IP, I'll call it revenue growth investments, look, in order for us to syndicate our IP to this new partner that we'll launch, we'll start the syndication of some of our IP in April, that's taken time and effort, But we believe these are all things that allow us to become a really valuable IP-led research advisory into strategic consulting organization, and that's what we intend to prove.
spk00: Gotcha. Okay. Thanks, Seth.
spk01: Thank you. As a reminder, if you would like to ask a question, please press star followed by 1. Our next question is from Jeff Martin with Roth MKM. You may go ahead.
spk00: Thanks. Good evening, Ted and Rob. Hope you're doing well. Hey, Jeff. Hi, Jeff. Ted, wanted to get a sense for progression on the IP as a service pilots. I know in the past, converting pilots to contracts has been a matter of holding the line and sticking to your guns in terms of what you think value creation is to Hackett, that Hackett brings to the table. Just was curious if you've made progress that you're sufficiently satisfied with or if that continues to be kind of a to be determined situation.
spk04: Well, the answer is yes. First, the success of our existing programs, I believe, is becoming increasingly noticeable. The focus with software and service providers to find a way to provide a compelling way to sell and demonstrate the value realization that people can get by purchasing their software and services seems to be becoming more important to the software providers. What we learned from the process we went through in, if you want to call it, 21 and second half of 22, One, we needed to make sure that our platforms were commercially ready, and we've done that, I mean, just very, very well. We also wanted to make sure that we did not do any pilots that were not being paid. So the activity that we've got today, as people evaluate scope capability of our offering to them, is on a paid basis. So we think we're creating the right cadence, which is to expose companies to our capabilities, allow them to see how best they can leverage and understand the power. And yes, we hope that those pilots that we have launched, some of them will turn into meaningful, large multi-year agreements like the ones we have in place already.
spk00: Okay, and then wanted to clarify, on the third quarter call, there was discussion regarding a large transportation company impacting EPS by about two cents in both the third and fourth quarter. I wanted to clarify that's separate from the digital transformation project that was canceled and that was supposed to start in Q4, is that correct?
spk04: Yes, these were two two-by-fours we took to the head. One in the third quarter, with a very good and existing client of ours, but we lost an opportunity given their priorities and their focus. We didn't lose the client. Separate apart from that, and that did have an Oracle component, but it also had a business transformation component. The other was... a brand new sale. If you recall last quarter, I mentioned the fact that as we exited the quarter, we sold several large deals. So we were going into Q4 with a significant amount of momentum into Q4, which would also carry into Q1. And the group that was most impacted by those large transactions was the Oracle Group again, even though there was a business transformation piece to... The first one, not necessarily the second one. And that just, as we said, a new CIO came in, decided he wanted to make a change. They paid us for the work we had done to date, but it impacted some of the revenue we would have recognized at Q4. It clearly impacts Q1 in a very meaningful way. Those were setbacks, but they were separate and distinct. In fact, as we shared with the board, it would have been wonderful to see what 2022 and the beginning of 2023 would have looked like if we hadn't had those setbacks. But look, they happen. Client circumstances change. Sometimes relationships change, and they can impact the work that you're doing. And We have the ability to absorb those and continue to increase profitability and cash flow of the business, and we'll have a chance to demonstrate that over the next few quarters.
spk00: Okay, great. And then one more, if I could. On the Hackett Acceleration Matrix launch pending in a couple of months here, what all does that launch entail, and how should we think about the contribution over in the medium and long term from that initiative?
spk04: First, there's been some learning as we've come through the first few programs that we're launching. So the fact is that you will see the first one publicized pretty soon with the results. The second one is well underway. In fact, the third one already has a group of participants in place, and we will continue to try to add them throughout 2023. But if we can get... Let's call it four or five fully launched, meaning not just launched, actively pursuing participants, but having the results out and then allowing us to market them to our end user base as well as the participants. We have the ability to do both, to market to both. If we have an opportunity to do that even though they're in different levels by the beginning of the first year, we just start seeing revenue from those programs accrue in the third and the fourth quarter. In the meantime, Jeff, it's very important to note that as we're adding all of these sales resources to the team, they have the ability to sell both the existing executive advisory programs, which, as I said, we expanded in 22 and added some additional features and tiers to, as well as the new market intelligence programs. And they will also be incented to identify other benchmarking or IPaaS opportunities, even though the primary focus of the large Salesforce build is around IPaaS. recurring revenue annualized contract value programs we've separated we've decided we want to have a dedicated group for that as well as making additional investments for the non-recurring pieces which could be for example in a transformational benchmark so But we're making we're clearly accelerating the investments in that group and you'll see you'll see some some announcements soon as to some of the people that we're bringing on board in that group.
spk00: Great. Very helpful and look forward to following the progress there.
spk01: Thank you. The next question is from Vince Colicchio with Barrington Research. You may go ahead.
spk02: Yeah, Ted, if I'm correct, I think your market intelligence program rollout was slower than anticipated. Is that a resource issue or was there any particular challenge?
spk04: Well, it's both. We've been adding resources to that product development group, but we were also recruiting participants and getting the feedback back from those first initial programs. And yes, there was a little learning and improvement that happened as part of that, but we think it's resulting in an exceptional product.
spk02: Per your comments on clients have reset their expectations for spending, and just curious, you're not expecting growth in Oracle in the first half, first three quarters. Just curious, do you think cancellations and maybe delays are behind us, or is it just so tough to predict right now?
spk04: I mean, you never really know, but I would say that the events we've faced are clearly rare to us. I mean, do things happen, clients, again, change priorities, have to reset, of course. My sense is that clients had a really good chance to look and understand right-size and reset priorities in their 2023 planning process. And you're seeing it as they all announce and reset expectations for their earnings, which has included reductions and reprioritization of initiatives across all industries. We've seen it, and we'll continue to see it as people report and move into the beginning of the year. So when I think that that process was as thoughtful, that they had a pretty good feel for what the second half of 22 brought on and what they needed to pursue in 2023, when the market was being so clear and penalizing those who were not resetting and right-sizing, on a timely basis, we think that it's been a pretty good shakeout and that we will see clients accelerate their spend throughout Q1 and into Q2, and it'll improve in the second half of the year. That's what we believe. Interest rates, interest rate increases may disrupt demand a little bit more, but look, as the market also continues to say, a large share of those interest rate increases are in place. We know the demand disruption that it's created. It's allowed people, I think, to try to plan for 2023 properly. Those who, I think, those, I just can't imagine many that have deferred decisions as they've reported Q4 and guided Q1 and spoken to their employees.
spk02: Thanks for all the color. Thanks, Ted.
spk01: Thank you. And at this time, I show no further questions. I will turn the call back over to Mr. Fernandez.
spk04: Thank you, operator. And let me thank everyone for participating in our fourth quarter earnings call. Look forward to updating you again when we report the first quarter.
spk01: And that does conclude today's conference. Thank you all for participating. You may disconnect at this time.
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