Hackett Group, Inc. Stock price
Is Hackett Group, Inc. a Top Scorer Stock based on the Dividend, High-Growth-Investing or Leverman Strategy?
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Key metrics
📘 Market Capitalization
📈 What is it?
Market capitalization shows how much a company is currently worth on the stock market.
🧮 How is it calculated?
🏛️ Why is it important?
It helps classify companies by size (Large, Mid, Small Cap) and indicates their market presence and relative stability.
🧮 Calculation
🎯 What does this mean for investors?
- Large-cap companies tend to be more stable, often pay dividends, but may grow more slowly.
- Smaller firms may offer higher growth potential but come with more volatility.
- Market capitalization is a useful indicator of company size — but not a measure of whether a stock is undervalued or overvalued.
📘 Enterprise Value (EV)
📈 What is it?
Enterprise Value represents the total cost to acquire a company — including its debt and excluding its cash reserves.
🧮 How is it calculated?
(= Market Cap + Net Debt)
🏛️ Why is it important?
EV gives a more complete picture of a company's value than market cap alone and is used in key valuation ratios like EV/FCF or EV/Sales.
🧮 Calculation
🎯 What does this mean for investors?
- Enterprise Value shows the true cost of buying a company, including all financial obligations.
- It is more accurate than just looking at market cap, especially when comparing companies with different levels of debt or cash.
- Professional investors prefer EV-based multiples because they better reflect the company’s full financial footprint.
📘 Net Debt
📈 What is it?
Net Debt shows how much debt remains after subtracting a company’s available cash reserves.
🧮 How is it calculated?
🏛️ Why is it important?
It indicates how dependent a company is on borrowed money and how easily it can service its debt in the short term.
🧮 Calculation
🎯 What does this mean for investors?
- Low or negative net debt signals financial strength and flexibility.
- Companies with strong cash positions are better positioned in crises.
- High net debt increases financial risk — especially in environments with rising interest rates or economic downturns.
📘 Cash
📈 What is it?
Cash represents all liquid assets a company can access immediately — including cash, bank deposits, and short-term investments.
🧮 How is it calculated?
🏛️ Why is it important?
It reflects a company’s financial flexibility and resilience — enabling investments, buybacks, or buffer in downturns.
🧮 Calculation
🎯 What does this mean for investors?
- A strong cash position means greater room for maneuver and crisis resistance.
- Cash-rich companies can invest, pay down debt, or repurchase shares.
- But excess idle cash might indicate a lack of growth opportunities.
📘 Shares Outstanding
📈 What is it?
Shares outstanding represent the total number of a company’s shares currently held by investors — excluding treasury stock.
🧮 How is it calculated?
🏛️ Why is it important?
It’s the basis for key metrics like Earnings Per Share (EPS), Market Capitalization, or the Price/Earnings ratio (P/E).
🧮 Calculation
🎯 What does this mean for investors?
- Fewer shares in circulation typically increase earnings per share — making each share more valuable.
- Share buybacks reduce the number of shares and boost per-share metrics.
- Issuing new shares does the opposite — diluting shareholder value and lowering per-share figures.
📘 Price-to-Earnings Ratio (P/E)
📈 What is it?
The P/E ratio shows how many times a company's earnings per share are reflected in its current share price — in other words, how "expensive" the stock appears relative to its profits.
🧮 How is it calculated?
🏛️ Why is it important?
The P/E ratio is one of the most widely used valuation metrics. It helps investors assess whether a stock appears cheap or expensive compared to its earnings power.
🧮 Calculation
📊 P/E (TTM) = Based on earnings from the last 12 months (Trailing Twelve Months):🎯 What does this mean for investors?
- A low P/E may indicate undervaluation — or signal underlying issues.
- A high P/E may reflect strong growth expectations — or an overvalued stock.
📘 Price-to-Sales Ratio (P/S)
📈 What is it?
The P/S ratio shows how much investors are paying for $1 of the company’s revenue – regardless of profitability.
🧮 How is it calculated?
🏛️ Why is it important?
P/S is especially useful for evaluating growth companies or businesses not yet profitable. It reflects how the market values the company’s sales.
🧮 Calculation
Market Cap = $249.53m | Revenue (TTM) = $286.99m
Market Cap = $249.53m | Estimated Revenue = $284.11m
🎯 What does this mean for investors?
- A low P/S may indicate undervaluation — or low profitability.
- A high P/S can reflect strong growth expectations — or excessive optimism.
- Especially helpful when evaluating companies where profits are low, volatile, or negative.
📘 Enterprise Value to Sales (EV/Sales)
📈 What is it?
EV/Sales shows how much investors are paying for $1 of revenue — considering not just equity, but also debt and cash. It’s the capital structure–adjusted version of the P/S ratio.
🧮 How is it calculated?
🏛️ Why is it important?
It’s ideal for comparing companies with different levels of debt. It reflects a company's true cost relative to its revenue.
🧮 Calculation
Enterprise Value = $316.22m | Revenue (TTM) = $286.99m
Enterprise Value = $316.22m | Forward Revenue = $284.11m
🎯 What does this mean for investors?
- EV/Sales allows for capital structure–neutral company comparisons.
- A lower ratio may indicate undervaluation; a higher one may signal strong growth expectations or overvaluation.
- Especially helpful when evaluating high-growth companies with low or negative earnings.
📘 Enterprise Value to Free Cash Flow (EV/FCF)
📈 What is it?
EV/FCF shows how many years it would take for a company to "pay back" its enterprise value using its free cash flow.
🧮 How is it calculated?
🏛️ Why is it important?
It focuses on real cash generation, ignoring accounting noise — ideal for assessing profitability and value based on liquidity, not earnings.
🧮 Calculation
🎯 What does this mean for investors?
- A low EV/FCF may signal undervaluation and strong cash generation.
- A high EV/FCF might reflect weak recent cash flow or aggressive growth expectations.
- Best suited for stable, mature businesses with predictable free cash flows.
📘 Price-to-Book Ratio (P/B)
📈 What is it?
The P/B ratio compares a company’s market value to its book value — showing how much investors are paying for each dollar of net assets.
🧮 How is it calculated?
🏛️ Why is it important?
P/B is commonly used for asset-heavy industries like banks or industrials. It helps assess whether a stock is trading above or below its net asset value.
🧮 Calculation
🎯 What does this mean for investors?
- A P/B below 1 may signal undervaluation — or weak profitability.
- A P/B above 1 implies the market expects future value creation (e.g., brand, IP, growth).
- Best used for companies with tangible assets and strong balance sheets.
📘 Dividend per Share (DPS)
📈 What is it?
Dividend per Share shows how much cash a company pays out to shareholders for each share they own – usually on an annual or quarterly basis.
🧮 How is it calculated?
🏛️ Why is it important?
DPS is the absolute value of the payout per share – crucial for income-focused investors and dividend strategies.
🧮 Calculation
🎯 What does this mean for investors?
- A stable or growing DPS often signals a strong, shareholder-friendly business.
- DPS alone doesn’t tell you how attractive the payout is – the stock price also matters (→ see Dividend Yield).
- Long-term dividend growth is often a hallmark of high-quality companies – like the dividend aristocrats.
📘 Dividend Yield
📈 What is it?
Dividend yield shows how large a company’s dividend is in relation to its current share price.
🧮 How is it calculated?
🏛️ Why is it important?
It allows investors to compare dividend payouts across stocks, regardless of price or payout size.
🧮 Calculation
🎯 What does this mean for investors?
- A stable yield can reflect reliable distributions.
- Comparing 1Y and 5Y yield shows whether dividend growth keeps pace with stock price appreciation.
- A low yield isn’t always negative – it can signal strong past performance or growth focus.
📘 Dividend Growth
📈 What is it?
Dividend growth shows how much a company has increased its dividend per share over time.
🧮 How is it calculated?
5Y: Compound Annual Growth Rate (CAGR)
🏛️ Why is it important?
Consistently rising dividends are often a sign of financial strength and shareholder orientation – especially relevant for long-term investors.
🧮 Calculation
🎯 What does this mean for investors?
- Stable dividend growth is a sign of sustainable earning power.
- High dividend growth can significantly boost your total return:
- If a company pays $1 in dividends and increases it by 15% annually over 5 years, you’ll receive $2 per share in year 5 – twice as much as at the start!
📘 Payout Ratio
📈 What is it?
The payout ratio shows what percentage of a company’s earnings (per share) is distributed to shareholders as dividends.
🧮 How is it calculated?
🏛️ Why is it important?
It helps assess whether the dividend is sustainable – especially in relation to the company’s profitability.
🧮 Calculation
🎯 What does this mean for investors?
- A low payout ratio means the company retains more earnings for reinvestment – typical for growth companies.
- A moderate payout (e.g. 25–50%) indicates a healthy balance between returns and reinvestment.
- High payout ratios may seem attractive but can carry risk if earnings decline.
📘 Consecutive Dividend Increases
📈 What is it?
This metric shows how many consecutive years a company has raised its dividend per share – without any cuts or pauses.
🧮 How is it calculated?
(Special dividends are not considered.)
🏛️ Why is it important?
A long track record of increases reflects financial strength, consistency, and shareholder commitment.
🎯 What does this mean for investors?
- A long dividend increase streak builds confidence – especially in volatile markets.
- Such companies are seen as reliable and income-friendly investments.
- The longer the streak, the stronger the company’s dividend discipline.
📘 Revenue
📈 What is it?
Revenue shows how much a company earns in total from selling its products and services – the gross income before any costs are deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Revenue is one of the key figures to assess a company’s size, market position, and growth potential.
🧮 Calculation
🎯 What does this mean for investors?
- Growing revenue indicates rising demand and can be an early signal of future earnings growth.
- Comparing actual and expected revenue reveals trends in the market environment and analyst sentiment.
- Note: Strong revenue alone isn’t enough – margins and profitability matter just as much.
📘 EBITDA
📈 What is it?
EBITDA stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization.” It reflects a company’s operating profit before the effects of financing, taxes, and accounting depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
EBITDA is widely used to evaluate a company’s operating performance – especially across capital-intensive sectors or international comparisons.
🧮 Calculation
🎯 What does this mean for investors?
- A high or growing EBITDA indicates strong operational profitability – independent of taxes, interest, or accounting methods.
- It’s especially useful for comparing companies across sectors or geographies.
- Important: EBITDA is not a net income figure – it excludes key costs like depreciation and interest.
📘 EBIT
📈 What is it?
EBIT stands for “Earnings Before Interest and Taxes.” It reflects a company’s operating profit after depreciation, but before interest and tax expenses.
🧮 How is it calculated?
🏛️ Why is it important?
EBIT is a core profitability metric that shows how well the company performs in its main business operations – independent of capital structure and tax environment.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT indicates strong profitability from the company’s core business – before financial and tax effects.
- It allows better comparison between companies with different debt levels or tax structures.
- Compared to EBITDA, EBIT already accounts for depreciation and reflects capital intensity more clearly.
📘 Net Income
📈 What is it?
Net income is the company’s total profit – the amount left after all expenses, taxes, interest, and depreciation have been deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Net income is the most comprehensive measure of a company’s profitability – showing how much actual profit remains after all business and financing costs.
🧮 Calculation
🎯 What does this mean for investors?
- Growing net income indicates that the company is managing all of its costs efficiently.
- It directly influences valuation metrics like P/E ratio and the company’s dividend capacity.
- Over time, net income trends reveal how resilient and profitable the business model really is.
📘 Free Cash Flow (FCF)
📈 What is it?
Free Cash Flow shows how much actual cash remains after a company covers its operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
FCF reflects a company’s real financial strength – regardless of accounting profits. It shows how much flexibility a company has for dividends, share buybacks, or debt reduction.
🧮 Calculation
🎯 What does this mean for investors?
- High free cash flow means the company generates real, usable cash – independent of reported net income.
- It’s often the most reliable base for sustainable dividends and buybacks.
- Declining FCF can be an early warning sign – even when profits appear stable.
📘 Revenue Growth
📈 What is it?
Revenue growth shows how much a company’s sales have changed compared to the previous year – both on a trailing basis (TTM) and based on forward projections.
🧮 How is it calculated?
Forward = (Expected revenue ÷ Revenue in prior year − 1) × 100
Forward growth is based on analyst estimates for the current fiscal year.
🏛️ Why is it important?
Rising revenue signals growing demand, business expansion, and market share gains – especially important for growth-oriented companies.
🧮 Calculation
🎯 What does this mean for investors?
- Growth is the engine of long-term value creation – especially in tech and growth sectors.
- What matters is not just current growth, but its sustainability.
- Forward projections reflect whether analysts expect continued momentum – or a slowdown.
📘 EBITDA Growth
📈 What is it?
EBITDA growth shows how much a company’s operating profit (before interest, taxes, depreciation, and amortization) has increased or decreased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBITDA ÷ EBITDA from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
Growing EBITDA indicates improving operational profitability – regardless of financing or accounting effects.
🧮 Calculation
🎯 What does this mean for investors?
- Strong EBITDA growth signals operational efficiency and scalability – especially during growth phases.
- EBITDA growth can be an early indicator of margin and earnings expansion – but should be assessed alongside revenue and EBIT.
📘 EBIT Growth
📈 What is it?
EBIT growth shows how much a company’s operating profit (after depreciation, but before interest and taxes) has increased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBIT ÷ EBIT from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
EBIT growth is a direct indicator of a company’s business performance – taking into account capital intensity through depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- Rising EBIT signals improving operating profitability – even after accounting for depreciation.
- It’s especially important for evaluating companies with significant capital expenditures.
- Combined with revenue and EBITDA growth, EBIT growth provides a well-rounded view of operational progress.
📘 Net Income Growth
📈 What is it?
Net income growth shows how much a company’s bottom-line profit has increased or decreased compared to the previous year – both on a trailing basis (TTM) and based on analyst projections.
🧮 How is it calculated?
Forward = (Expected net income ÷ Net income from prior year − 1) × 100
The forward estimate reflects analysts’ expectations for the current fiscal year.
🏛️ Why is it important?
Net income is the ultimate measure of profitability. Growing net income signals stronger efficiency, cost control, and sustainable earnings power.
🧮 Calculation
🎯 What does this mean for investors?
- Stronger net income boosts valuation, dividend potential, and investor confidence.
- If profits stall while revenue grows, it may signal margin pressure.
📘 Free Cash Flow Growth
📈 What is it?
Free cash flow (FCF) growth shows how a company’s available cash – after covering operating expenses and capital expenditures – has changed compared to the previous year.
🧮 How is it calculated?
🏛️ Why is it important?
Free cash flow reflects real financial strength. Growing FCF indicates more flexibility for dividends, share buybacks, and reinvestment.
🧮 Calculation
🎯 What does this mean for investors?
- Declining FCF may point to rising investments, increasing costs, or weaker operating performance.
- Especially for dividend investors, FCF growth is critical – since dividends are paid from actual available cash.
- A negative trend isn't always bad, but it deserves closer attention.
📘 Gross Margin
📈 What is it?
Gross margin shows how much of a company’s revenue remains after deducting the direct costs of goods sold (like materials and production). It represents the company’s “raw profit” before fixed costs, taxes, and interest.
🧮 How is it calculated?
Or simply: Gross Margin = Gross Profit ÷ Revenue × 100
🏛️ Why is it important?
Gross margin indicates how efficiently a company can produce or procure what it sells. It is a key measure of product-level profitability and pricing power.
🧮 Calculation
🎯 What does this mean for investors?
- A high gross margin suggests strong pricing power and efficient production.
- Falling margins may signal rising input costs or competitive pressure.
- Compared to peers, gross margin offers insights into the quality of a business model.
📘 EBITDA Margin
📈 What is it?
The EBITDA margin shows how much of a company’s revenue remains as operating profit before interest, taxes, depreciation, and amortization.It reflects operating efficiency without being distorted by financing or accounting factors.
🧮 How is it calculated?
🏛️ Why is it important?
The EBITDA margin reveals how much operating income a company generates per dollar of revenue – independent of capital structure and tax effects.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBITDA margin reflects strong core profitability – before accounting distortions.
- It allows for effective comparisons across companies and sectors.
- A stable or growing margin signals efficient cost control and business scalability.
📘 EBIT Margin
📈 What is it?
The EBIT margin shows what percentage of revenue remains as operating profit after depreciation but before interest and taxes.
🧮 How is it calculated?
🏛️ Why is it important?
The EBIT margin reflects a company’s core profitability while accounting for capital intensity (e.g. machinery, infrastructure). It’s especially useful for comparing businesses with different levels of depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT margin shows that the company remains efficient even after factoring in depreciation.
- It’s especially relevant for capital-intensive industries.
- Stable or rising EBIT margins over time are a strong indicator of pricing power and business quality.
📘 Net margin
📈 What is it?
Net margin shows how much of a company’s revenue remains as bottom-line profit after deducting all costs, interest, taxes, and depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
Net margin reflects a company’s overall efficiency – across operations, financing, and taxation. It shows how much actual profit is generated from each dollar of revenue.
🧮 Calculation
🎯 What does this mean for investors?
- A high net margin means the company is not only strong operationally but also manages financing and taxes efficiently.
- Peer comparisons reveal business quality and competitiveness.
- Declining margins despite revenue growth can be a red flag for rising costs or inefficiencies.
📘 Free cash flow margin
📈 What is it?
The free cash flow (FCF) margin shows how much of a company’s revenue remains as actual free cash after covering all operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
This margin reflects the true liquidity generated by the business – independent of accounting rules or depreciation. It’s especially relevant for dividends, buybacks, and reinvestment decisions.
🧮 Calculation
🎯 What does this mean for investors?
- A high FCF margin means a company consistently generates strong cash flow.
- It’s a positive signal for financial stability and shareholder returns.
- The long-term trend is key – a declining margin may indicate rising investments or weakening operating efficiency.
📘 Equity Ratio
📈 What is it?
The equity ratio indicates what portion of a company’s total assets is financed by shareholders’ equity – in other words, how much it relies on its own capital.
🧮 How is it calculated?
🏛️ Why is it important?
A high equity ratio reflects financial strength and stability, especially during downturns. It’s a key indicator of a company’s solvency and long-term risk profile.
🧮 Calculation
🎯 What does this mean for investors?
- Companies with high equity ratios are generally more resilient and less dependent on external debt.
- Low equity ratios can signal higher risk or aggressive financial strategies.
- Important: Always assess the equity ratio in combination with the return on equity (ROE). This shows not just how stable the company is – but also how efficiently it uses shareholder capital.
📘 Return on Equity (ROE)
📈 What is it?
Return on equity (ROE) shows how efficiently a company uses its shareholders’ equity to generate profit. In other words: how much net income is earned per dollar of equity.
🧮 How is it calculated?
🏛️ Why is it important?
ROE is a core profitability metric. It helps investors understand whether a company delivers attractive returns on the capital provided by its shareholders.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROE indicates that the company is using its capital efficiently and profitably.
- It’s especially meaningful for capital-intensive businesses or firms with high equity bases.
- Important: A very high ROE can also result from high debt levels – always interpret it alongside the equity ratio to assess financial health.
📘 Return on Capital Employed (ROCE)
📈 What is it?
ROCE measures how efficiently a company generates profits from its total capital – including both equity and interest-bearing debt.
🧮 How is it calculated?
It evaluates the return on all capital employed, regardless of how it’s financed.
🏛️ Why is it important?
ROCE is ideal for comparing companies with different financing structures. It shows how well management uses capital to create value for both shareholders and creditors.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROCE means the company uses its capital efficiently – regardless of whether it's funded by debt or equity.
- The higher the ROCE compared to peers, the more value the company creates with its invested capital.
- Especially relevant for capital-intensive sectors like industrials, energy, or infrastructure.
📘 Return on Invested Capital (ROIC)
📈 What is it?
ROIC measures how efficiently a company generates returns from the capital invested in its core operations – regardless of whether the capital comes from equity or debt.
🧮 How is it calculated?
- NOPAT = Net Operating Profit After Taxes
- Invested Capital = Operating assets minus non-interest-bearing liabilities
🏛️ Why is it important?
ROIC is one of the most accurate indicators of capital efficiency. Unlike return on equity, it is not distorted by leverage and shows how much value is created for all capital providers.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROIC shows how effectively a company uses the capital that is truly invested in its core operations.
- Unlike ROCE, ROIC focuses only on the capital that is actively used to run the business – and that requires a return (i.e. interest-bearing).
- Especially useful when comparing companies with large amounts of excess cash or non-interest-bearing liabilities – giving a more realistic picture of capital efficiency.
📘 Leverage Ratio (Debt-to-Equity)
📈 What is it?
The leverage ratio indicates how much a company relies on interest-bearing debt (such as loans and bonds) relative to its shareholders’ equity.
🧮 How is it calculated?
🏛️ Why is it important?
This ratio helps assess a company’s financial structure and risk profile. High leverage can enhance returns – but also increases exposure to interest rate changes and financial stress.
🧮 Calculation
🎯 What does this mean for investors?
- A low leverage ratio signals financial strength and independence.
- A higher ratio can improve returns in good times but increases risk during downturns or rising interest rate periods.
- 👉 Always interpret in the context of industry, capital intensity, and interest rate environment.
📘 Earnings per share (EPS)
📈 What is it?
Earnings per Share (EPS) shows how much profit is attributable to a single share – and is one of the most important metrics for evaluating a company's performance.
🧮 How is it calculated?
The diluted share count reflects potential new shares that could be issued through options, convertible bonds, or other rights.
🏛️ Why is it important?
EPS is the basis for many key valuation metrics like P/E ratio, PEG ratio, or payout ratio. It enables comparisons of profitability across companies, regardless of their size.
🧮 Calculation
🎯 What does this mean for investors?
- EPS captures per-share profitability and is especially useful for comparisons over time or with analyst estimates.
- Rising EPS may signal consistent growth or share buybacks.
- Important: Always use diluted EPS for more realistic valuations – especially in companies with stock-based compensation.
📘 Free cash flow per share (FCF per share)
📈 What is it?
Free Cash Flow per Share shows how much free cash flow a company generates per outstanding share – after investments, but before dividends or debt repayments.
🧮 How is it calculated?
Free cash flow is calculated as operating cash flow minus capital expenditures (CapEx).
🏛️ Why is it important?
FCF per Share reveals how much real cash is available per share – useful for dividends, buybacks, or reducing debt. Unlike net income, free cash flow is harder to manipulate and often seen as a more reliable metric.
🧮 Calculation
🎯 What does this mean for investors?
- High FCF per share signals strong financial flexibility.
- It shows how much capital the company can effectively reinvest or return to shareholders.
- Particularly relevant for dividend payers and capital-efficient businesses.
📘 Short interest
📈 What is it?
Short interest indicates how many shares of a company are currently sold short – that is, borrowed and sold by investors who expect the price to decline.
🧮 How is it calculated?
It reflects the percentage of a company’s shares that are being shorted relative to the total shares available.
🏛️ Why is it important?
Short interest serves as a sentiment indicator: A high value may signal skepticism or bearish expectations – but also increases the potential for a short squeeze if prices rise unexpectedly.
🧮 Calculation
🎯 What does this mean for investors?
- Low short interest usually indicates market confidence in the company.
- High short interest can be a warning sign – or an opportunity if sentiment shifts.
- Especially relevant in volatile markets or ahead of key earnings releases.
📘 Employees
📈 What is it?
The employee count shows how many people a company employs worldwide – offering insights into its size, structure, and business model.
🧮 How is it calculated?
🏛️ Why is it important?
It helps assess operational scale, labor intensity, and cost structure. Combined with revenue and profit, it enables key metrics like revenue per employee or productivity.
🧮 Calculation
🎯 What does this mean for investors?
- A high headcount can signal operational complexity – but also significant growth capacity.
- Revenue per employee is a key indicator of efficiency.
- Especially useful for comparing tech, industrial, or service-heavy companies.
📘 Turnover per employee
📈 What is it?
Revenue per employee indicates how much revenue a company generates on average per employee – a key measure of efficiency and productivity.
🧮 How is it calculated?
The employee count is typically taken from the most recent annual report.
🏛️ Why is it important?
This metric helps compare business models – especially between labor-intensive and technology-driven companies. A high value suggests automation, operational efficiency, or strong value creation per head.
🧮 Calculation
🎯 What does this mean for investors?
- A high revenue per employee indicates a scalable and margin-strong business model.
- A low figure may reflect labor-intensive operations or lower value-add.
- Especially helpful when comparing tech companies to industrial or service sectors.
Hackett Group, Inc. Stock Analysis
Analyst Opinions
9 Analysts have issued a Hackett Group, Inc. forecast:
Analyst Opinions
9 Analysts have issued a Hackett Group, Inc. forecast:
Hackett Group, Inc. Events
Past Events
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AUG
4
Q2 2026 Earnings Call
about 2 months ago
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MAY
5
Q1 2026 Earnings Call
5 months ago
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FEB
17
Q4 2025 Earnings Call
7 months ago
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NOV
4
Q3 2025 Earnings Call
11 months ago
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StocksGuide Free
Hackett Group, Inc. — Q2 2026 Earnings Call
1. Management Discussion
Good evening and welcome to The Hackett Group Second Quarter Earnings Conference Call. [Operator Instructions] Please be advised the conference is being recorded. Hosting tonight's call are Mr. Ted Fernandez, Chairman and CEO, and Mr. Rob Ramirez, Chief.
Mr. Ramirez, you may begin. Good afternoon, everyone, and thank you for joining us to discuss The Hackett Group 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, CFO. A press announcement was released over the wires at 4:08 p.m. Eastern Time. For a copy of the release, please visit our website at www.thehackettgroup.com. We are also placing additional financial or statistical data discussed in 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 Q&A 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. 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.
Thank you, Rob, and welcome, everyone, and thank you for joining us to discuss The Hackett Group's second quarter 2026 results, and more importantly, to review the progress of our AI transition strategy. Our business is undergoing a powerful AI transition. We have been aggressively moving from a traditional consulting and implementation delivery model to a fundamentally different AI-enabled platform-led model that we believe will create a structurally stronger, more scalable, and highly differentiated Hackett Group.
Over the past two years, we have systematically built an integrated suite of proprietary platforms, starting with AI Explorer, which focuses on AI solution ideation, design, and build, and more recently with XT, which focuses on enterprise transformation solutions, and AIX, which focuses on software implementation solutions. All of our platforms are uniquely informed by our Hackett benchmarks and process best practice intelligence IP, as well as our domain-specific Hackett Solution Language Model, or SLM.
When we guided our Q2 results, we believed that as more clients were exposed to our new XT and AIX platforms, the more differentiated and competitive our primary go-to-market offerings would become. That became clearly evident toward the latter part of the quarter when we successfully closed several significant proposals totaling over $30 million, which are expected to drive improving sequential revenues and year-over-year earnings per share growth in the third quarter.
This represents a significant operational and financial inflection point in our AI-enabled transition and earnings trajectory. The positive market response to our platform reinforces our conviction that enterprises are seeking trusted, outcome-oriented solutions that accelerate value realization while reducing transformation risk, positioning Hackett to drive operating results and long-term shareholder value. As platform adoption scales across our clients throughout the balance of the year, we expect a favorable impact to our Q4 results and also to set up a very strong 2027.
Our new XT and AIX platforms are at the heart of our aggressive adoption of our AI-enabled sales and delivery model at the beginning of the year. They allow us to leverage and deploy AI-enabled acceleration and enhanced value realization to our clients, which utilize our primary offerings and generate over 90% of our current lead flow. This is strengthening our ability to compete and realize higher gross margins. We also continue to innovate. We are scheduled to release a more powerful XT version 2, which also integrates a significant portion of AI Explorer this coming Friday.
Additionally, we have also launched a new platform, XTA, which focuses on data assurance and quality, an offering that aligns strongly with all of our primary offerings and delivery platforms. For the second quarter, we reported revenue before reimbursements of $68.3 million, with adjusted diluted earnings per share of $0.34. $0.34 was at the midpoint of our guidance. But more importantly, we continue to demonstrate the earnings resilience and strong cash flow generation of our model despite what we consider to be a thoughtful demand environment and the ongoing transition activity across our entire organization.
We continue to see strong client interest in AI adoption and broad initiatives defined by the reimagination of critical business processes and new operating model considerations, as well as the modernization of existing enterprise application footprints, both which facilitate or can extend into AI enablement. Perhaps most insightful is how clients are opting to pursue AI adoption strategies. Most are becoming more cautious by deciding to pursue extended AI initiatives that emanate from broader enterprise transformation and application implementation engagements, rather than through standalone, AI-first, tech-driven adoption strategies.
This is allowing us to pursue well-established relationships that drive broader revenue opportunities also increasing the number of our AI engagements. Clients are including or extending the AI scope in nearly all of our new engagements, which is increasing our AI adoption opportunities while decreasing our reliance on channel partners. We are encouraged by community engagement developments. First, our AI-enabled delivery platforms are beginning to improve the outcome and economics of how we sell and deliver work. We are seeing our platforms increase delivery productivity, expand scope, and create more compelling client value propositions.
Second, we are aligning our resources and expertise to the clients that are moving their attention from AI experimentation to measurable enterprise value realization, which plays strongly to our enterprise transformation and application implementation capabilities. Third, our outlook reflects the operating and financial inflection impact that we have been working hard to achieve. This expected revenue and margin improvement is driving a step up in Q3 adjusted EPS, which is important.
It also supports the early benefits of the actions we have taken to reposition the business, improve delivery productivity, and align our operating model with AI-enabled future consulting and digital transformation activities. As part of and in addition to our broad enterprise transformation and enterprise application pursuits, we continue to help organizations architect and execute their agentic enterprise transformation plans and actively support their AI centers of excellence.
Can play an important role in expanding our reach and helping organizations accelerate AI adoption initiatives. In March, we executed and launched a global go-to-market collaboration with IBM to jointly serve existing and new client pursuits. While IBM has chosen to defer joint go-to-market activities at the moment, we continue to expand our channel strategy and expect ServiceNow, TCS, and Genpact, as well as other partners to contribute to our pipeline and Q3 performance. On the balance sheet, we expect to continue to generate strong cash flow from operations, supporting our dividend and share repurchase program, or pay down debt. With that, let me ask Rob to provide details on our operating results, cash flow, as well as outlook. I will then return with additional strategy and market commentary following Rob's remarks. Rob?
Thank you, Ted, and good afternoon, everyone. During this portion of the call, I'll provide some context around our second quarter performance and then I will spend some additional time on the financial and operating implications of our AI transition strategy. I'll then conclude with a detailed discussion on our financial outlook for the third quarter of 2026. For the purposes of this call, I will comment separately regarding the revenues of our Global S&BT segment, our Oracle Solutions segment, and our SAP Solutions segment, and the total company.
Our Global S&BT segment includes the results of our North America and international Gen AI consulting and implementation and licensing revenues, benchmarking and business transformation offerings, executive advisory programs, and our OneStream and eProcurement implementation offerings. Our Oracle Solutions and our SAP Solutions 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 into our clients that have no associated impact on our profitability. During our call today, we will also reference certain non-GAAP financial measures which we believe provide useful information to investors. Specifically, all references to adjusted financial measures will exclude reimbursable expenses, non-cash stock-based compensation expense, all acquisition-related cash and non-cash compensation reversals and expenses, amortization of intangible assets and other non-recurring items including our AI transition charge.
We have included reconciliations of GAAP to adjusted non-GAAP financial measures in our press release called earlier today, and we'll post any additional information based on the discussions from this call on the Investor Relations page of the company's website. As Ted mentioned, our second quarter revenue before reimbursements improved sequentially to $68.3 million from $67.8 million last quarter and came in slightly below the low end of our range, while adjusted earnings per share of $0.34 was at the midpoint of our guidance.
In our first quarter call, we described Q2 as a sequential improvement quarter and indicated that Q3 was expected to be the more meaningful reflection point for adjusted EPS growth. That remains our view and therefore we are emphasizing sequential improvements as we continue to transition our sales and delivery model. We expect sequential revenues, along with gross margins, to improve due to the impact of the increasing number of new projects benefiting from value delivered and productivity enhancements from the transition to our AI delivery platforms, as well as headcount actions taken to reflect productivity improvements.
Correspondingly, based on the current outlook, we expect revenue before reimbursements of approximately $68 to $70 million and adjusted diluted earnings per share in the range of $0.37 to $0.39. The expected sequential EPS increase reflects several primary factors. Firstly, we expect modest sequential revenue improvement across the business despite lower available days and lower software sales revenues. More importantly, we are beginning to realize the benefit of actions taken to our resource base with the current demand environment and with the productivity potential of our AI-enabled delivery model while we continue to embed AI into our delivery platforms.
This is changing how work is staffed, priced, managed, and delivered. In the meantime, I'll discuss some revenue highlights from a segment perspective. Total revenues before reimbursements from our Global S&BT segment were $35.6 million for the second quarter of '26, a sequential decrease of 2%. As clients continue to question the underlying value of AI and are also confused by the return on investment of AI-first adoption strategies. Next slide.
Total revenues before reimbursements from our Oracle Solutions segment were $15.3 million for the second quarter of 2026, a sequential decrease of 1%. More importantly, however, we expect both revenue and gross margins for both the S&BT and Oracle segments to sequentially improve as the differentiation and acceleration by our AIX and XT platforms is fundamentally changing our ability to attract new clients.
Total revenues before reimbursements from our SAP Solutions segment were $17.4 million for the second quarter of '26, a sequential increase of 9%. This increase was primarily driven by increased volume of software sales as compared to the prior quarter, as well as the implementation services that correspond to these software sales and the historical ones we experienced throughout 2025 and during the first six months of 2026. Total company adjusted gross margin on revenues before reimbursements was 44.1% in the second quarter, up from 42.3% in the previous quarter.
As expected, we reported sequential gross margin improvements across all segments. More importantly, we expect further margin improvements the third quarter consistent with our guidance. Adjusted SG&A was $17.4 million or 25.5% of revenues before reimbursements in the second quarter of 2026. This is compared to $16.1 million or 23.7% of revenues before reimbursements in the prior quarter, the sequential increase primarily due to the timing of marketing-related events and movements in foreign currency.
Adjusted EBITDA was $13.9 million in the second quarter of '26 as compared to $13.8 million in the prior quarter, both representing 20.3% of revenues before reimbursements. GAAP net income for the second quarter of 2026 totaled $4.4 million, or diluted earnings per share of $0.18, as compared to $4.3 million, or $0.17, in the previous quarter. The company's cash balances were $14.2 million at the end of the second quarter of '26 as compared to $6.1 million at the end of the previous quarter.
Net cash provided from operating activities in the quarter was $15.2 million, primarily driven by net income adjusted for non-cash activity and decreases in accounts receivable. The strong cash flow provided from operations allowed us to reduce our net debt position by $6.1 million, buy back company stock, and continue to pay dividends to our shareholders. During the quarter, we repurchased 377,000 shares of the company stock for an average of $10.58 per share, a total cost of approximately $4 million. Our remaining stock purchase authorization at the end of the second quarter was $18.1 million.
Given the increase in VAR-related revenue over the last two years that carry multi-year terms and consistent with last quarter, we revised our DSO calculation to exclude those revenues and receivables. Our DSO was 56 as compared to 67 in the previous quarter. Our accounts receivable balance has decreased by $8.3 million from the previous quarter as expected. At its most recent meeting subsequent to quarter end, the company's board of directors declared the third quarter dividend of $0.12 per share for shareholders of record on September 18, 2026, to be paid on October 2, 2026.
The balance of the company's total debt outstanding at the end of the second quarter was $81 million. Subsequent to quarter end, the company amended and restated its credit facility to extend the maturity date and increase its borrowing capacity to $125 million. I'll now discuss a little more detail around our guidance for Q3. Consistent with seasonal third quarter trends. We expect the impact of the additional U.S. holiday and the typical increase in time off due to summer vacations in the U.S. and in Europe. The unfavorable impact available days by approximately 2% on a sequential basis.
As previously noted, the company estimates total revenues before reimbursements for the third quarter of 2026 to be in the range of $68 to $70 million. We expect both Global S&BT and Oracle Solution segments to be sequentially up from the second quarter. We expect SAP Solution segment revenue before reimbursements to be sequentially down due to expected lower VAR software sales revenues.
As a result of the continuing transition of our business to AI platforms-related delivery, the company expects to incur an AI transition charge in the third quarter of approximately $1 million. These charges will primarily relate to severance costs due to headcount reductions and will be excluded from our non-GAAP financial results. We estimate adjusted diluted net income per share in the third quarter of 2026 to be in the range of $0.37 to $0.39, assumes a GAAP effective tax rate on adjusted earnings of 26.5%.
At the midpoint, this would represent modest sequential revenue growth from Q2 and adjusted earnings per share growth of approximately 11.8% from Q2 to the midpoint of the Q3 range of $0.38. We expect the adjusted gross margin as a percentage of revenues before reimbursements to be approximately 46 to 47%. We expect adjusted SG&A and interest expense for the quarter to be approximately $19 million. We expect third quarter adjusted EBITDA as a percentage of revenues before reimbursements to be in the range of 21.5% to 22.5%. Point, I'd like to turn it back over to Ted to review our market outlook and strategic priorities for the coming months.
Thank you, Rob. As we look forward, let me share our view of the near and long-term demand environment and the growing opportunity it creates for The Hackett Group. Although the demand for digital transformation initiatives remains solid, clients' decision-making continues to be impacted by macroeconomic and ROI return uncertainty. From a broader market perspective, we are finally seeing the first tech providers, the AI-first tech providers start to acknowledge that high-impact ROI solutions require complex process expertise and IP to properly reimagine and validate client-specific requirements in order to accurately execute and determine the ROI of AI initiatives.
Forward delivery engineers are important, but they require the critical forward delivery business expertise that our consultants possess. These new developments play strongly to our expertise, brand permission, and trusted client relationships. Our message to the market and to clients is clear. Do not simply deploy AI tools. Real ROI requires that organizations reimagine how work gets done and clearly understand the value of strategic IP or so-called alpha.
We are applying these principles internally to build our own strategic competitive advantage, we believe that we are early leaders in this consulting services transformation, helping define an emerging category of platform-enabled solution services what industry analysts increasingly describe as service as a product. AI is not technology first, it is process first, domain specific, and orchestration driven. Without validated company specific enterprise process context, AI value realization remains limited, while true transformation value is truly substantial.
A key challenge and a major market opportunity is ensuring that clients and strategic partners fully understand the importance of capturing and analyzing and validating this business process context. As I said, there is limited AI value realization without this detailed understanding of the client's real end-to-end process execution, assessing AI enablement opportunities at a detailed level. This is foundational to AI success.
We believe our platform-enabled delivery strategy will create meaningful revenue growth opportunities with attractive and improving margins while helping clients capture large enterprise transformation opportunities. We also believe that The Hackett Group is uniquely positioned because we are not simply advising clients on AI, we are leaders in embedding AI by designing and building our proprietary platforms to accelerate value realization. This, along with our AI and digital world-class benchmarks, best practice content, process expertise, and enterprise data assurance model are allowing us to create a very differentiated foundation that will help clients improve performance in a measurable way.
On the talent side, competition for experienced talent and experienced delivery and market-facing executives with strong technology agility continues. Overall turnover remained at acceptable levels during the quarter and we expect that trend to continue. Finally, we believe we have the client base and offerings to grow organically. We will continue to evaluate acquisitions and alliances that strategically leverage our IP platforms and transformation expertise and we'll add scale and scope and acceleration to our pursuits.
As always, I'll close by congratulating our associates on their continuous innovation and contributions and thanking them for their tireless efforts. Please remain highly focused on our clients and our people. These conclude my comments. Operator, please open the call for Q&A.
The phone lines are now open for questions. [Operator Instructions] The first question in the queue is from George Sutton with Craig-Hallum. Your line is now open.
2. Question Answer
Ted, I wonder if you could address the IBM deferral reasoning, and you mentioned for the moment, so just curious what that means. You separately mentioned programs with TCS and Genpact. I wondered if you could go into those a little bit.
First, look, the IBM, if you want to call it, caught us a little bit by surprise. However, we know that their priorities were changing throughout the quarter. So beyond that, we'll call it continue to wait for any guidance that they may have going forward. With that said, we did launch our ServiceNow alliance and are pursuing a list of clients that have been identified by both sides. I'm currently actually closing a meaningful engagement with TCS and have another one that currently being pursued as well. And we're launching a new initiative with Genpact that will include a list of joint clients that we believe we should be jointly pursuing.
Critical part about that, George, is twofold. We found that in the market during the quarter is that we're seeing more AI project opportunities from our traditional or primary entry points, business transformation and enterprise application initiatives, than we are by going directly to AI-related initiatives. I believe this is probably similar to other providers and it really requires a partnership where that collaboration allows the client to accelerate their decision-making, which we believe we make available to all of the partners we're currently working with.
So you mentioned $30 million in deals. I wondered if you could just kind of explain what that means in terms of deliverables or timing, how you're pricing these opportunities, and any sort of sense of the pipeline behind that.
Well, first of all, the win rate on the deals that we have, where we have utilized our platform to lead our effort, is very high. Yes, it led to several very significant engagements, and our pipeline continues to include opportunities at similar levels. So what do we know? And we found out during the quarter that clients really are impressed not only by the way we've structured our platforms, but that we've created capabilities that, again, appear to be pretty unique to us, especially the way we integrate our IP and the way it allows us to accelerate the execution of an engagement, but also the way it allows us to pursue new areas for them, like I mentioned the capability, the new capability around data assurance and quality, which is a new platform we call XTA, which also becomes a core component both a transformation or and software implementation initiative.
So look, we know the clients are looking for innovation, we know the clients are looking for an organization that can demonstrate, I'll call it, AI agility and capability. We think we demonstrate that both in the way we continue to develop our people, but nothing is more evident than when we actually demonstrate to them, they go to market, that they find to be absolutely modern and powerful and has allowed these very significant brands to make very significant decisions against, I'm going to call it, top-of-the-line competition. So very encouraging for us.
It's that same impression that we have been getting directly from AIX, which was the very first platform that we started going to market with in late last year, [ 2023 ], to now really do a very significant upgrade to XT, and we're launching XT version 2 to make sure it has the similar capabilities and qualities of AIX so that it can not only impact the delivery of our product and the scope that we cover, but also allow us to really impact the way we compete and win business, which has been so successful with the AIX platform.
Got you. I'll turn it over.
[Operator Instructions] The next question in the queue is from Jeff Martin with Roth Capital Partners. Your line is open.
Ted, I was curious if you could give us some context around these large projects, you know, technology-driven wins that are the common applications with parts of the organization are they focused on? In case if you're seeing common denominators in those and also in the pipeline of business that you've got coming at you.
Well, we introduced it first with the OneStream version of AIX, and we had a very significant win early in the year with the platform. We immediately moved to fully adopt the AIX platform into the sale and delivery of our Oracle implementation offerings. And the several engagements that we mentioned, one was OneStream and two were Oracle. Major brands that you would know, against major firms that you obviously would know as well, were simply the capability that we brought to bear to deliver, execute, and also extend AI-enabled capabilities, but also AI-extended capabilities within their platforms. That both ability to execute a, I'll call it a more traditional engagement, but also extend that engagement into AI-enabled capabilities and having that call it cradle-to-grave execution of an engagement in a platform drove some huge wins. And we hope and believe that should continue.
To follow up on George's question, what kind of timeline are these collective $30 million of wins going to take to play out?
You know, over what period? No, that's very significant. So these will easily extend through the end of '27, not all of them, but at least a couple of them.
And they'll be ramping up during the quarter. Okay. And then it sounds like internally there's a lot of work to do, a lot of work has been done. There's gross margin gains to be had here. To use a baseball analogy, what inning do you feel like you're at in the process of that, and when might it be complete? Yes.
You know, we spent a lot of time talking about that. I don't want to say early innings, but if you said what kind of potential are we capturing? 20% at the moment? Do we believe that we should be closer to 50% by year-end? Yes. What does that mean? Well, we're seeing pricing and margin improvements that are substantial and are being reflected in our sequential in our guidance. We saw it from Q1 to Q2. We're seeing it a more meaningful way from Q2 to Q3. And in Q4, where we actually, if you recall, last year had very, very material and significant VAR sales.
Look, we believe, again, that opportunity to exceed that Q4-related results with significantly fewer VAR sales, which are, as you know, higher margin, are an indication of both the ramping up of the engagements that we're closing and that we're obviously pursuing at the moment, but also both the margin improvements and scope expansions that we're experiencing from our new sales and delivery platform-led model.
Thank you. That's it for me.
Next question in the queue is from Vincent Colicchio with Barrington Research. Your line is now open.
Yes, Ted, has generative AI changed how customers are using your benchmarking data? Are you seeing increased demand for continuous benchmarking, for example, versus point in time?
The answer is, what has changed is that people are asking and requiring for the market to provide AI world-class benchmarks. And as you know, we've been launching throughout the quarter, we launched our AI world-class benchmark capability. It's actually a standalone platform that takes not only our historic information across all of the industries that we serve that are in excess of 20, but more importantly, it's extending AI world-class benchmarks down to a sub-process level for all of those same industries.
And we believe that capability can only be achieved by somebody who has a very strong foundational peer and digital world-class benchmark from which to launch from. But the only other way to determine or develop those AI world-class benchmarks or calculate them, is to be able to fully simulate the automation impact at those sub-process levels, which is what we built in our platforms. So one, is it valuable? Yes, are clients demanding not only what you know, but a kind of, if you want to call it, AI world-class benchmarking, with some timeline associated with that achievement? Yes.
Do we believe that it's influencing some of the enterprise transformation and software implementation engagements where people want to be able to use strong comparisons to not only evaluate the current but to also the future opportunities that are available to them if they make AI-related investments? The answer is yes. So does it change the model from transactional to continuous? Yes, it has that potential. Has it done that? Is it doing that today? No.
And how many clients does the joint venture have and is the pipeline there healthy? Can you give us an update there?
The licensing pipeline for the joint venture is limited. With that said, the opportunities and the engagements that drive into AI implementation, which is the services portion, which sits inside of the LeewayHertz component which is inside of Hackett is incredibly active and is, as I said, they're seeing now increased activity from nearly all of our primary entry points extending the scope into AI enablement. So remember there was two components, the JV was to focus on licensing only, that continues to have a number of clients, but the volume of activity is on the services and implementation side, which is entirely in the Hackett four walls.
In terms of the launch of the ServiceNow alliance, is there a pipeline there already? At what stage are you at?
There is a list of clients. It was launched. It started with targeting 15. It's underway. It's underway. In pursuit of joint clients with both the go-to-market teams, seem to know each other pretty well.
And a similar question with Genpact. Just launching.
Just launching.
Thanks, Ted.
We actually have the first list of clients that are being reviewed tomorrow.
Thank you. At this time, I show no further questions. I will now turn the call back over to Mr. Fernandez.
Let me thank everyone. Those are our comments and questions. Let me thank everyone for participating in this quarter's call. Look forward to updating everyone next quarter when we report the third quarter. Thank you.
This concludes today's call. Thank you for your participation. You may disconnect at this time.
Hackett Group, Inc. — Q1 2026 Earnings Call
1. Management Discussion
Good evening, and welcome to The Hackett Group First Quarter Earnings Conference Call. [Operator Instructions]. 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 First Quarter Results.
Speaking on the call today and here to answer your questions are Ted Fernandez, Chairman and CEO of The Hackett Group; and myself, Rob Ramirez, Chief Financial Officer.
A press announcement was released over the wires at 4:06 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 Q&A 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. 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.
Thank you, Rob, and welcome, everyone, to our first quarter earnings call.
As usual, I'll begin with a brief overview, comments on the quarter and the progress we are making in our strategic transition. I will then turn it back over to Rob to comment on detailed operating results, cash flow as well as outlook. After Rob's remarks, I will return with market and strategy commentary, and then we will open the call for Q&A.
As I mentioned last quarter, while we do not control short-term market sentiment for software and services or near-term demand velocity, we do control the intrinsic value that we create. Our focus remains on building a structurally stronger, more differentiated Hackett Group, positioned to lead as enterprise AI shifts from experimentation to measurable value realization. Over the past 2 years, we have made disciplined systematic investments to build a cohesive and highly differentiated AI foundation.
We have now an integrated suite of proprietary AI platforms, including AI XPLR, which include our Hackett Process Intelligence IP, which informs our proprietary solution language model. We also acquired LeewayHertz, adding AI's engineering depth and agentic orchestration platform named ZBrain. Most recently, we introduced our latest delivery platforms, XT and AIX, which support the delivery of our business transformation and software implementation services. All of these bring critical capabilities to strategic solutions we deliver to clients.
With this foundation in place at the beginning of the year, we made our most significant move to date, which was migrating aggressively to an AI platform-enabled sales and delivery model. This shift affects pricing, resourcing and delivery economics. More importantly, it allows our business and software experts to accelerate and enhance client value, adds non-labor-based scale and expands actionable insight into the services we deliver. No one should underestimate the magnitude of this transition.
We're not only deploying these capabilities for clients, and we are also using the same technology internally to execute engagements and deliver our services more effectively. While disruptive in the near term, we believe it positions Hackett to lead a fundamental consulting industry transition and create an entirely new category from labor-based services to what industry analysts increasingly describe as service as a product.
Our message to the market is straightforward. Enterprises should not simply deploy AI tools. They must fundamentally rethink how work gets done and how it redefines their industries. We are applying the same principle internally to create our own structural competitive advantage. This afternoon, we reported revenues before reimbursements of $68.7 million and adjusted earnings per share of $0.34, which was at the low end of our quarterly guidance. Our results continue to reflect 2 realities: near-term demand pressure driven by macroeconomic uncertainty and elongated client decision cycles, primarily due to AI ROI uncertainty.
With that said, we believe that the increasing enterprise demand is unquestionable. We also believe our unique IP and platform capabilities are also unquestionable. This has driven our accelerated internal transition to AI platform-enabled delivery, providing our organization with a compelling value creation opportunity.
Early indications from our platform-enabled strategy are very promising. We have seen productivity improvements and expanding scope on engagements leveraging our platforms. Q1 project margins in our U.S. Strategy & Business Transformation Group increased by approximately 500 basis points through the leverage of our XT and XPLR platforms. However, in Q1, this benefit was offset by lower utilization as we used the quarter to adjust headcount to reflect the realized productivity improvements.
With the anticipated SBT growth in revenue in Q2, we expect the gross margin improvement will materialize in Q2 and continue to improve throughout the remainder of the year. In our Oracle segment, we have already seen projected margin increases from the deployment of the Oracle AIX platform in our second quarter margins. We have also experienced strong client and partner response in competitive pursuits. We recently won 2 large OneStream engagements in industry and markets where we had limited exposure. Brand and delivery capability were important, but it was clear, the wins were driven by the differentiated impact of the OneStream AIX platform.
As platform adoption scales across our client base throughout the year, we expect sequential improvements in both revenue and margins consistent with the guidance Rob will discuss. Overall, we see Q3 as an inflection point where adjusted EPS should exceed last year's adjusted EPS, and that's assuming flat revenues year-on-year.
From a business perspective, we believe this transition can drive revenue growth with higher margins and expand our addressable market by enabling us to help clients and strategic partners architect and implement their emerging enterprise AI transformation plans. While this pivot is disruptive given the magnitude of the change required, it creates clear focus on the highest value growth opportunities. Our strategy is to develop highly differentiated AI-enabled capabilities that leverage our globally trusted brand, expertise and IP.
The objective is not only to accelerate delivery, but to materially enhance the value and the scope of our solutions we deliver. A key challenge and a major market opportunity is ensuring that clients and strategic partners fully understand the importance of capturing, analyzing and validating their specific business process context. There is limited AI value realization without detailed understanding of the clients' real end-to-end process executions, and this must be done at a very detailed level. That is a foundation element of our solution language model as well as AI XPLR.
Our message to the market and to the clients is clear. Simply deploying AI tools will not work. You must reimagine how work gets done based on the specific and strategic requirements of your business and industry and then decide what technology will best support your efforts. Our AI leadership is being defined by our distinct capability to help clients identify, evaluate, design and deploy high-impact AI solutions using AI XPLR as well as our other platforms. We believe our platform-enabled delivery will create meaningful growth opportunities with attractive margins while helping clients capture this transformative opportunity.
We also believe channel partners can expand our pipeline -- product pipeline by increasing client access. During the quarter, we executed and launched a global go-to-market collaboration with IBM to jointly serve existing and new client pursuits. We have initiated an extensive client prioritization process to identify the most meaningful client opportunities. Additionally, we recently collaborated on a new client pursuit, which defines the framework for similar new pursuits.
Although we expect limited impact from this partnership in Q2, we believe the prospects to work together provide significant market opportunities as our joint efforts scale. We also continue to believe we can bring significant value to organizations that use process mining software, including Celonis. Our ability to ingest process execution data into AI XPLR improves and accelerates ideation and solution design, helping clients move faster on transformation initiatives. Our recent campaign to process mining users has resulted in a very strong response to our marketing offer to avail themselves to AI XPLR.
On the balance sheet, we expect to continue generating strong cash flow from operations, supporting our dividend and share repurchase program.
With that, let me ask Rob to provide details on our operating results, cash flow and outlook. I will return with additional strategy and market commentary following Rob's remarks.
Rob?
Thank you, Ted.
As I typically do, I'll cover the following topics during this portion of our call. I'll cover an overview of our first quarter results for 2026, along with an overview of related key operating statistics. I'll have an overview of our cash flow activities during the quarter, and I'll then conclude with a discussion on our financial outlook for the second quarter of 2026.
For the purposes of this call, I will comment separately regarding the revenues of our Global S&BT segment, our Oracle Solutions segment, our SAP Solutions segment and the total company. Our Global S&BT segment includes the results of our North America and International Gen AI Consulting and implementation and licensing revenues, benchmarking and business transformation offerings, executive advisory programs and our OneStream and eProcurement implementation offerings.
Our Oracle Solutions and our SAP Solutions segments include the results of our Oracle and SAP offerings, respectively. Please note that we will be referencing both total revenues and revenues before reimbursements in our discussions. Reimbursable expenses are primarily project travel-related expenses passed through to our clients that have no associated impact on our profitability.
During our call today, we will also reference certain non-GAAP financial measures, which we believe provide useful information to investors. Specifically, all references to adjusted financial measures will exclude reimbursable expenses, non-cash stock compensation expense, all acquisition-related cash and non-cash compensation reversals and expenses, amortization of intangible assets and other non-recurring items, including an AI transition charge. We have included reconciliations of GAAP to non-GAAP financial measures in our press release filed earlier today and will post any additional information based on the discussions from this call on the Investor Relations page of our company's website.
For the first quarter of 2026, our total revenues before reimbursements were $67.8 million, down 11% from the first quarter of 2025. The first quarter reimbursable expense ratio on revenues before reimbursements was 1.4% as compared to 1.2% in the prior quarter and 2.1% when compared to the same period in the prior year. Total revenues before reimbursements from our Global S&BT segment were $36.4 million for the first quarter of 2026, a decrease of 15% when compared to the same period in the prior year. As Ted mentioned, elongated client decision-making persisted throughout the quarter.
During the quarter, we continue to see an increasing number of clients utilizing our AI delivery platforms, which is expected to increase throughout the balance of the year. More importantly, sequentially, we expect revenues to be up from Q1 to Q2, along with an improvement in gross margins due to the impact of an increasing number of new projects benefiting from our transition to AI platform-enabled delivery as well as headcount actions we took in the previous quarter to reflect the realized productivity improvements.
Total revenues before reimbursements from our Oracle Solutions segment were $15.4 million for the first quarter of 2026, a decrease of 24% when compared to the same period in the prior year. Sequentially, the segment has stabilized from the completion of a large client engagement, which will hurt year-on-year comparables until Q3 of this year. More importantly, we expect both revenue and gross margin improvements to sequentially improve in Q2. We also expect these improvements to continue to increase throughout the balance of the year.
Total revenue before reimbursements from our SAP Solutions segment were $16 million for the first quarter of 2026, an increase of 21% when compared to the same period in the prior year. This increase was primarily driven by implementation services that correspond to the increasing volume of software sales we experienced throughout 2025. Most of the software sales were coupled with significant implementation fees, and therefore, we expect demand for our SAP services to be strong throughout the balance of the year.
Approximately 24% of our total company revenues before reimbursements consist of recurring multi-year and subscription-based revenues, which include our executive advisory, AMS and Gen AI license contracts. We are seeing the natural migration of IPaaS requests to transition to the Hackett Intelligence IP capabilities, which are now embedded in our AI delivery platform-related revenues and our new executive advisory AI programs.
Total company adjusted cost of sales totaled $39.2 million or 57.7% of revenues before reimbursements in the first quarter of 2026 as compared to $43.1 million or 56.6% of revenues before reimbursements in the prior year. Total company consultant headcount was 1,247 at the end of the first quarter of 2026 as compared to 1,301 in the previous quarter and 1,332 at the end of the first quarter of 2025. The year-over-year decrease in headcount was primarily due to actions taken to reduce staff to be commensurate with productivity improvements we have realized from our AI delivery platforms.
Total company adjusted gross margin on revenues before reimbursements was 42.3% in the first quarter of 2026 as compared to 43.4% in the prior year. Q2 margin improvements are expected to increase and be noticeable in both our Global S&BT and Oracle segments in Q2, given our transition to AI-enabled delivery, which was launched at the beginning of the year.
Adjusted SG&A was $16.1 million, or 23.7% of revenues before reimbursements in the first quarter of 2026. This is compared to $18.4 million, or 24.1% of revenues before reimbursements in the prior year. The year-over-year decrease is primarily due to reduced variable compensation expense, commensurate with the quarter's performance.
Adjusted EBITDA was $13.8 million, or 20.3% of revenues before reimbursements in the first quarter as compared to $15.7 million, or 20.7% of revenues before reimbursements in the prior year. GAAP net income for the first quarter of 2026 totaled $4.3 million, or diluted earnings per share of $0.17 as compared to $3.1 million, or $0.11 in the first quarter of the previous year. Adjusted net income and diluted earnings per share for the first quarter of 2026 totaled $8.7 million or $0.34, which is at the low end of our earnings guidance range and compares to prior year adjusted diluted net income per share of $0.41.
The company's cash balances were $6.1 million at the end of the first quarter as compared to $18.2 million at the end of the previous quarter. Net cash utilized in operating activities in the quarter was $5.1 million, primarily driven by net income adjusted for non-cash activity, which is more than offset by increases in accounts receivable and decreases in accrued expenses, primarily due to the payment of 2025 performance bonuses.
Given the increase in VAR-related revenue over the last 2 years that carry multi-year terms, we revised our DSO calculation to exclude those revenues and receivables. Our DSO was 67 days as compared to 55 days at year-end. The increase in DSO is primarily driven by milestone delivery terms on several large technology engagements. We currently expect a significant reduction in accounts receivable by the end of the second quarter of approximately $8 million to $9 million. VAR-related receivables of $4 million that were expected to be collected by the end of the first quarter were delayed by SAP and were collected in early Q2.
During the quarter, we repurchased 333,000 shares of the company's stock for an average of $13.94 per share at a total cost of approximately $4.6 million, including purchases from employees to satisfy income tax withholding triggered by the vesting of restricted shares. Our remaining stock repurchase authorization at the end of the first quarter was 22 million. At its most recent meeting subsequent to quarter end, the company's Board of Directors declared the second quarter dividend of $0.12 per share for its shareholders of record on June 22, 2026, to be paid on July 6, 2026.
I'm going to now have a discussion on our guidance for the second quarter. The company estimates total revenue before reimbursements for the second quarter of 2026 to be in the range of $68.5 million to $70 million. We expect both Global S&BT and Oracle Solutions segments to be sequentially up from Q1 and down from prior year. The year-on-year unfavorable comparables extend into Q2 for Oracle and Q3 for S&BT.
We expect SAP Solutions segment revenue before reimbursements to continue to be up on a year-over-year basis, but sequentially down due to lower VAR sales revenues in the second quarter. As a result of the continued transition of our business to AI platforms-related delivery, the company expects to incur an AI transition charge in the second quarter of approximately $500,000. These charges will primarily relate to severance costs due to headcount reductions from the increasing leverage of our Gen AI delivery platforms. These charges are expected to decrease, but may continue throughout 2026. These charges will be excluded from our non-GAAP financial results.
We estimate adjusted diluted net income per common share in the second quarter of 2026 to be in the range of $0.33 to $0.35, which assumes a GAAP effective tax rate on adjusted earnings of 26.6% as compared to GAAP effective tax rate of 27.2% in the second quarter of the prior year. We expect the adjusted gross margin as a percentage of revenues before reimbursements to be approximately 44% to 45%. We expect adjusted SG&A and interest expense for the second quarter to be approximately $19.5 million.
Overall, we see Q3 as an inflection point where adjusted EPS should exceed last year's adjusted EPS on flat revenues. We expect second quarter adjusted EBITDA as a percentage of revenues before reimbursements to be in the range of approximately 20% to 21% Lastly, we expect cash flow from operations to be up on a sequential basis.
At this point, I would like to turn it back over to Ted to review our market outlook and strategic priorities for the coming months.
Thank you, Rob.
As we look forward, let me share our view of the near and long-term demand environment and the growth opportunity it creates for Hackett. Let me start with the AI reality check and why has value lagged. Enterprise AI adoption is widespread, but value realization remains the key question. Despite rapid model improvements and significant investment, many organizations are struggling to realize their targeted ROI from AI initiatives.
The limiting factor is not foundational LLM capability. It is critical detailed workflow intelligence and expertise that defines important critical AI opportunities, undocumented exceptions, fragmented systems and governance gaps. Most organizations began their AI adoption strategies with tactical low ROI initiatives, copilots, point agents, automation overlays without first understanding how work is actually executed and properly evaluated. This environment creates a clear market inflection.
The winners will be firms that combine deep process expertise, which allows them to accurately design high-impact ROI solutions with production-grade AI orchestration. Hackett's core strengths align directly with this shift. With the right exposure, we believe Hackett can capture a growing number of clients accelerated by partnership strategies as enterprises reset AI strategies from tools and tactical automation to truly reimagine ROI-based AI transformation.
So again, what's changed? Models are no longer the bottleneck. Cost accuracy and reliability have improved to production-ready levels. Enterprise workflows are the bottleneck. Many processes are not accurately analyzed or even considered and therefore, evaluated as executed. Not only do clients are not getting the right detailed information, they're assuming that standard operating procedures actually define the work -- how the work is actually being done, which in many instances does not.
AI overlays can fail silently. Copilots, point agents and AI-native applications can increase rework and risk with limited ROI. Then there's the issue of agent sprawl, also resulting in disconnected agents that introduce security, compliance and maintenance exposure. This means organizations must shift from AI strategy and tools to validate company-specific process requirements that drive accurate design, orchestration and ongoing monitoring and sound run operations.
Hackett's strategic edge is rooted in long-standing strengths that are now essential for AI to work. First, our benchmark-based process intelligence and KPI orientation focused on cycle time, throughput, error rates and return on investment, not theory. Second, our credibility in understanding what actually happens versus what is assumed to happen when compared, as I mentioned, by standard operating procedures. Third, AI XPLR's ability to validate true as-is workflows, automation footprints and data dependencies before AI design and deployment. It is not technology first. It is process first, domain-specific and orchestration driven.
Without validated company-specific enterprise process context, AI value realization will remain limited. We are entering the agentic era, which will dramatically expand enterprise automation footprints across organizations. As deterministic automation evolves into intelligent -- cognitive and intelligent systems, enterprises must manage increasing complexity related to security, compliance, monitoring and governance. This creates substantial opportunities, but only for the firms that understand both enterprise processes and agent behavior at production scale.
Hackett's role is to help organizations architect and execute their agentic enterprise transformation plans and actively support their AI centers of excellence. Partnerships will play an important role in expanding our reach and accelerate adoption. On talent, competition for experienced delivery and market-facing executives with strong technology agility continues. Overall, turnover remained at acceptable levels during the quarter, and we expect that trend to continue.
Finally, we believe we have the client base and offerings to grow organically. We will continue to evaluate acquisitions and alliances that strategically lever our IP, platforms and transformation expertise and add scope, scale and acceleration to our business plans. As always, I'll close by congratulating our associates on their contributions and thanking them for their tireless efforts. Please remain highly focused on our clients and our people.
Those conclude my comments. Operator, please open the call for Q&A.
[Operator Instructions] The first question in the queue is from George Sutton with Craig-Hallum.
2. Question Answer
Ted, you talked about the short-term disruption and the pivot that you are making and the challenges in sort of client decision-making. I wondered if you could address sort of how much longer do we see this disruption? And then how do we see the benefits from the massive long-term opportunity, particularly with the IBM relationship? When do we start to see the impacts from that?
Well, first, I know since we're all disappointed with the Q1 results, George, you'll wonder when I say that we actually saw some of those benefits start to accrue in the first quarter. But as we mentioned in our comments, since we were also taking people out as we deploy these platforms and realize the productivity improvements that come from it, there's a natural inefficiency in that, and I'll call it, in rightsizing both skill and scale to this new platform-enabled capability.
So, our best way to demonstrate how that progresses is; one, that we believe margin improvements will increase quarter-on-quarter. And if you look at what Rob guided based on what we consider a small revenue increase, which we expect, as Rob said, across most of our segments, that we will start realizing the productivity benefits from the change in that platform. That's also why the AI transition charge dramatically increases from Q1 to Q2.
We also mentioned the fact that if you then looked out -- if you went out and looked out another quarter and looked at the potential increase, small -- I'll just say, small potential increase in revenue, if you were to look at Q3 and how it compares with Q3 of the prior year, that our ability then to demonstrate EPS increases year-on-year will actually also start to emerge because to some extent, the transition started with changes that we implemented last summer. But that was just to start looking at talent skill mismatches, demand, if you want it, matching some demand with our resource plan. So, that was kind of the initial spot. But really, the bold move was, as I said on our comments, which is by literally launching all the platforms and putting all of our new engagements, leveraging these platforms is pretty significant.
However, both the success being realized in productivity improvements and the impact that we've had by some of the examples we cited in how differentiated and how powerful these platforms are impacting both the time that we deliver engagements, the way we deliver engagements and the value that we extend to the client has been significant enough to bring us some pretty significant wins. But did that also then distract us from, let's call it, less high-potential areas?
To some extent, we're having to give away some of the things we used to do because we believe we will not continue to do them and really put all our chips in to where the business is going and where the platforms and the clients need our help the most. And I define that broadly as ROI-based AI transformation. And that requires the capability of all of our platforms. So, we're not only talking about leveraging AI XPLR, which is so critical in Gen AI process design and the definition of AI opportunities in the sophisticated way we design agentic workflows. But the way we execute our business transformation engagements using XT. And then I got to tell you, we've been just beautifully surprised by our -- the competitive response on the proposals where we've had a chance to introduce AIX. That obviously has happened in a meaningful way in our OneStream group, but we're also seeing that happening in on the Oracle side as well.
So, a long way of saying we believe it's happening. It has started to happen. Yes, we don't eliminate all those. We created inefficiencies by affecting it. But we're dealing with the inefficiencies at the same time. And if we are correct, we'll see that improvement quarter-on-quarter. And as you then get toward the end of the year, as the percentage of engagements that are being supported by our platforms starts to really take hold, that's when you get to see then the long-term impact on the revenue growth that we would expect to see.
So, you answered my question very much on an AI internal process basis. I'm looking more at the go-to-market changes that you might see with these new partners who have a meaningfully larger footprint than you do in terms of bringing additional deals your way and when that might start to occur.
Well, we expect that to start to occur during the second quarter, but actually start being noticeable as we get into the third quarter since the number of opportunities and the scale of the opportunities are very substantial. But I also -- I want to mention something else, which is this acknowledgment that ROI and return on AI investments requires a deep process knowledge is becoming pretty well founded and spoken. And in fact, we've had 2 inbound calls from some of the large hyperscalers just asking for us to demonstrate our capability and why we believe it's so distinct and how we believe it both accelerates AI adoption, but more importantly, leads to accurate deployment of solutions, which provide the targeted investments, which everyone expects to realize.
Just one other question for me. Rob had mentioned Q3 inflection point. I think he's referring to the Oracle year-over-year getting easier. But I'm wondering what beyond that would you view as the inflection that comes in Q3?
Well, the Oracle one is not a small one. So it's -- and we're seeing not only does it give us -- right, you now start to see a stabilized Oracle with the platform benefits of AIX. But yes, as you know, we were trying to -- we had very tough comps all the way through Q3. And Q3 is -- if you recall, last year was a $72 million quarter. But let's call it, the comps -- if the comps extended any other areas. And by the way, this is removing value-added software sales, which you know can be lumpy and volatile.
So, I'm really talking about all else. We have some small comp then issues as we go into Q4. But what we're really saying is with some revenue growth from Q2 to Q3, our model starts to demonstrate the power, not all the way through to the bottom line. As you know, we manage this both for EPS growth, and we look at EBITDA and free cash flow very closely.
[Operator Instructions] The next question is from Jeff Martin with ROTH Capital Partners.
Jeff?
Yes. Sorry about that. Ted, I wanted to drill down on your comments about kind of the customer approach to deploying agentic AI. It sounds like that's both a headwind and a tailwind for what you're attempting to accomplish here. Could you maybe speak to both ends of that spectrum with respect to kind of customer readiness to adopt agentic AI versus your opportunity to help them be ready and actually deploy it?
Well, first -- let me first start by saying what I already covered that the demand for AI impact is very, very significant and continues to increase. So, you're correct. There's a positive and a negative. Clients are clearly -- clients don't like the kind of returns that they've gotten from some of their, I'll call it, technology-first initiatives. But that's because we believe they were not as strategic and did not have the necessary business context that really drive high ROI returns. So, you've got some very strong technology companies, all of them, which we hear about every single day.
So, there's continuance marketing and demonstration of technology value. So, we think that also is creating demand -- is driving demand. But again, I think that there is now increasing acknowledgment that in order to get the kind of return that people are looking for across sophisticated areas of their business, the need for detailed understanding of the workflow requirements in that solutioning and in that process is becoming increasingly critical. If that is correct, and that is what we're hearing, we believe the demand for our kind of capabilities and platforms will only increase.
And then I know that IBM is a relatively new strategic partner. Just curious what you can share anecdotally about some of the introductions that have been made and the progress you're making with those potential clients?
Well, I mean, high level, the process started by trying to evaluate a list of over 500 existing clients and has now moved to discussions into new client opportunities. So, we're doing a lot of training, education. And yes, we're also being pulled in and asked to demonstrate the difference in our capability versus what others have brought to bear or what they bring to bear in order to further differentiate the capabilities of our firm as well as AI XPLR. We believe that those proof points continue to be very powerful.
And the next question in the queue is from Vincent Colicchio with Barrington Research.
Yes. Ted, given the importance of understanding context and the gap that you have with your XPLR capability versus the competition, it would appear that you've got a very substantial opportunity ahead of you. I guess my question is, is the gap narrowing? What does the competitive set look like?
You mean competitive gap?
Yes.
Look, there's innovation. We're seeing new approaches, playbooks, all of these things from many competitors. I'll go back. We think that the distinct difference in AI XPLR are foundational ones. Our ability to analyze processes at a WorkStep level, our ability to bring in automation context -- existing automation context so that clients don't spend money automating things that they already have the ability to from their existing AI investments, how that extends into data sources and how that drives to a detailed design of the agentic workflow and how -- I'm going to call it detailed and accurately we're able to do that, we still believe is a very powerful competitive advantage. And we're going to work as hard as we can to show that capability to all, I'll call it, partners that could really help us expand our client reach.
So, we believe that, that is probably -- the most important emphasis is not only to continue to innovate, but also to make sure that everyone understands the unique capabilities we have. As you know, as we were building it out, we were always concerned about competition and IP infringement and the like, but we realized we've got no time to wait. So, we've got to go ahead and let as many people see and touch our platforms and see how that drives the kind of revenue and margin opportunity we think is available to our organization.
Is there anything new to report on the ServiceNow or Celonis relationships?
The Celonis -- well, the Celonis relationship really has turned out to be a process mining marketing campaign, which we did launch in the quarter. And we're getting probably a higher response rate from our offer to those process mining users who avail themselves to AI XPLR. So, we'd like to see some of that come in, in Q2, but we think that creates a very substantial opportunity. With ServiceNow, we just got a little stuck in signing an agreement. It actually took a little longer with IBM as well and it related to the IP infringement rights that we're asking for in order to launch these initiatives and share our platform as openly as we would like.
At this time, I show no further questions. I will now turn the call back over to Mr. Fernandez.
Thank you, operator.
Let me again thank everyone for participating in our first quarter earnings call. We look forward to updating everyone when we report the second quarter. Thanks again.
This concludes today's call. Thank you for your participation. You may disconnect at this time.
Hackett Group, Inc. — Q4 2025 Earnings Call
1. Management Discussion
Welcome to The Hackett Group Fourth Quarter Earnings Conference Call. [Operator Instructions] 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, sir.
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, Rob Ramirez, Chief Financial Officer.
A press announcement was released over the wires at 4:08 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 that's 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 are considered difficult to predict and which may not be accurate. 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.
Thank you, Rob, and welcome, everyone, to our fourth quarter earnings call. As we normally do, I will open up the call by providing overview comments on the quarter. I will then turn it back over to Rob to comment on detailed operating results, cash flow and guidance. We will then review our market and strategy-related comments, after which we will open it up to Q&A.
This afternoon, we reported revenues before reimbursements of $74.8 million and adjusted earnings per share of $0.40, which were above and at the high of our quarterly guidance, respectively. While we cannot control the short-term market sentiment or demand volatility, we can control the value -- the intrinsic value we create.
Over the past 2 years, we have been systematically expanding our suite of GenAI-enabled platforms to lead in the rapidly emerging agentic enterprise era. By embedding our IP into our new platforms and models, we believe we will be able to generate new revenue with higher margins in entirely new ways that allow us to deliver breakthrough value to clients.
Our quarterly results continue to reflect the market and our own disruptive effects given our aggressive AI transition. Our strategy has been to develop highly differentiated GenAI-enabled capability that leverages our unique expertise as well as our proprietary IP. The goal was to be able to accelerate and more importantly, enhance the value of solutions we deliver to clients.
Our AI leadership and relevance is being defined by our distinct capabilities to help clients identify, evaluate, design and deploy high-impact AI solutions utilizing our AI Explorer or XPLR platform. We are not surprised by the changes required by the AI transition. We were early adopters and anticipated the required changes.
We started in January of 2024 when we first introduced AI XPLR's version 1 and in September of 2024, when we acquired the globally recognized GenAI engineering capabilities of LeewayHertz to expand our agentic design and build capabilities and also enhance our platform innovation as well as licensing efforts.
Our AI XPLR version 5 release is now licensable. AI XPLR is distinct due to its enterprise-wide solution simulation, ideation and detailed process and agentic design capabilities, which are supported by solution-specific ROI. AI XPLR is uniquely ours because it is powered by our proprietary Hackett solution language model and informed by our globally recognized Hackett process benchmarks and best practices process intelligence IP.
Although we started with AI XPLR, we have now introduced new platforms, which include XT to support our business transformation engagements and AIX to support our enterprise application implementation engagements and as Hackett, which we rolled out last summer to support the delivery of our executive applied intelligence programs.
As we recently announced, we now have a complete suite of GenAI-enabled platforms to support nearly all of our services. We believe we have been innovative leaders in our industry. As I mentioned, these platforms significantly accelerate and enhance the value of our services and should allow us to grow our revenues and realize meaningful margin increases as we move from labor-based delivery to labor-led services supported by our powerful GenAI delivery platforms and globally recognized IP.
Our job is to make sure our clients understand the importance of their business process context and the critical role it plays in the successful adoption of AI. There is little to no value realization without a detailed understanding of a client's specific business process and reimagining those specific client requirements by assessing the AI enablement opportunity of each work step.
That is the critical foundational element of AI XPLR. We believe that our platform-enabled delivery strategy will provide significant new revenue growth opportunities with higher margins while helping clients capture this unprecedented transformative opportunity. We also believe that channel partners can help us accelerate our efforts by increasing client access, which should also result in revenue growth.
We have spent nearly 6 months with a global technology and consulting company demonstrating and testing AI XPLR's powerful capabilities on global, highly complex client solutions that have resulted in our platform being described as game changing. We expect to execute and launch a go-to-market -- a global go-to-market collaboration agreement that will allow us to jointly serve new and existing clients.
We expect to finalize our agreement and launch our first client shortly. We also continue to believe that we can bring significant value to all organizations that utilize Celonis' software and other process mining software. Our ability to ingest their valuable volume and process execution detail into AI XPLR allows us to accelerate and better inform our ideation and solutioning recommendations, which allows customers to accelerate their transformation initiatives.
We also plan to launch a go-to-market pilot initiative with ServiceNow this month. We have been pursuing this opportunity for several months and are eager to see the outcome from our joint pursuits. On the balance sheet side, we continue to generate strong cash flow from operations, which has allowed us to maintain our dividend and continue our strong buyback program.
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. As I typically do, I'll cover the following topics during this portion of the call. I'll cover an overview of the fourth quarter results for 2025, along with an overview of related key operating statistics, an overview of our cash flow activities during the quarter, and I'll then conclude with a discussion on our financial outlook for the first quarter of 2026.
For the purposes of this call, I will comment separately regarding the revenues of our global S&BT segment, our Oracle Solutions segment, our SAP Solutions segment and the total company. Our global S&BT segment includes the results of our North America and International GenAI consulting and implementation licensing revenues, benchmarking and business transformation offerings, executive Applied Intelligence Advisory programs and our OneStream and eProcurement implementation offerings.
Our Oracle Solutions and our SAP Solutions segments include 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 on our profitability. During our call today, we will also reference certain non-GAAP financial measures, which we believe provide useful information to investors.
Specifically, all references to adjusted financial measures will exclude reimbursable expenses, noncash stock-based compensation expense, all acquisition-related cash and noncash expenses, amortization of intangible assets and other nonrecurring items and AI transition charges related to headcount reductions.
We have included reconciliations of GAAP to non-GAAP financial measures in our press release filed earlier today and will post any additional information based on the discussions from this call on the Investor Relations page of our company's website.
For the fourth quarter of 2025, our total revenues before reimbursements were $74.8 million, which exceeded the high end of our guidance. The fourth quarter reimbursable expense ratio on revenues before reimbursements was 1.2% as compared to 1.3% in the prior quarter and 2.3% when compared to the same period in the prior year.
Total revenues before reimbursements from our Global S&BT segment were $38.6 million for the fourth quarter of 2025, a decrease of 11% when compared to the same period in the prior year. As Ted mentioned, the market is moving to AI-enabled services. AI is becoming an increasing percentage of all of our client engagements as the convergence of traditional and new AI-oriented services is occurring at an accelerated rate.
Given our expanded platform delivery capabilities, we can accelerate value realization and realize productivity improvements utilizing our XT and AI XPLR platforms. We expect Q1 revenue to be up sequentially and gross margin to be up on a year-over-year basis and both to continue to increase throughout the year.
Total revenues before reimbursements from our Oracle Solutions segment were $14 million for the fourth quarter of 2025, a decrease of 20% when compared to the same period in the prior year. With the recent introduction of our AIX platform, which supports the delivery of our Oracle implementation engagements, we have started to realize delivery productivity improvements. Correspondingly, we expect both revenue and gross margin improvement in Q1 on a sequential basis, and we expect those improvements to continue to increase throughout the year.
Total revenues before reimbursements from our SAP Solutions segment were $22.2 million for the fourth quarter of 2025, an increase of 32% when compared to the same period in the prior year. This was primarily driven by strong software-related sales in the quarter, resulting from the increased sales investments we have made and the SAP success driving S/4HANA cloud migrations. The strong software sales were coupled with significant implementation fees, and therefore, we expect demand for our SAP services to be strong throughout the year.
Approximately 22% of our total company revenues before reimbursements consist of recurring multiyear and subscription-based revenues, which include our executive advisory, application managed services and GenAI license contracts. We are seeing the natural migration of iPass requests to transition to the Hackett Intelligence IP capabilities embedded in Ask Hackett, AI XPLR and ZBrain related recurring revenue opportunities.
Total company adjusted cost of sales totaled $40 million or 53.4% of revenues before reimbursements in the fourth quarter of 2025 as compared to $40.5 million or 52.3% of revenues before reimbursements in the prior year. Total company consultant headcount was 1,301 at the end of the fourth quarter as compared to total company consultant headcount of 1,317 in the previous quarter and 1,284 at the end of the fourth quarter of 2024.
Total company adjusted gross margin on revenues before reimbursements was 46.6% in the fourth quarter of 2025 as compared to 47.7% in the prior year. Adjusted SG&A was $20 million or 26.7% of revenues before reimbursements in the fourth quarter of 2025. This is compared to $18.4 million or 23.7% of revenues before reimbursements in the prior year. The year-over-year increase is primarily due to incremental commissions from increased license sales in the SAP segment.
Adjusted EBITDA was $15.9 million or 21.3% of revenues before reimbursements in the fourth quarter of 2025 as compared to $19.5 million or 25.2% of revenues before reimbursements in the prior year.
GAAP net income for the fourth quarter of 2025 totaled $5.6 million or diluted earnings per share of $0.21 as compared to GAAP net income of $3.6 million or diluted earnings per share of $0.12 in the fourth quarter of the previous year.
Fourth quarter 2025 GAAP net income includes noncash stock compensation expense from our stock price award program of $1.8 million or $0.08 per diluted share and acquisition-related cash and noncash compensation expense of $1.1 million or $0.04 per diluted share.
2024 GAAP net income includes noncash stock compensation expense from our stock price award program of $5.1 million and acquisition-related cash and noncash compensation and related expenses of $2.3 million, which in total impacted our Q4 2024 GAAP results by $0.23.
Acquisition-related cash and noncash stock compensation items related to purchase consideration for the LeewayHertz acquisition. This consideration paid to the sellers contain service vesting requirements, and as such, is reflected as compensation expense under GAAP rather than purchase consideration.
Adjusted net income and diluted earnings per share for the fourth quarter of 2025 totaled $10.9 million or adjusted diluted net income per common share of $0.40, which is at the high end of our earnings guidance range and compares to prior year adjusted diluted net income per share of $0.47.
The company's cash balances were $18.2 million at the end of the fourth quarter of 2025 as compared to $13.9 million at the end of the previous quarter. Net cash provided from operating activities in the quarter was $19.1 million, primarily driven by net income adjusted for noncash activity and increases in accounts payable and accrued expenses, partially offset by an increase in accounts receivable.
Our DSO or days sales outstanding was 71 days at the end of the fourth quarter as well as in the previous quarter and 66 days in the prior year.
As Ted mentioned, we were pleased that during the fourth quarter of 2025, we were able to utilize our strong balance sheet and cash flow to return capital to our shareholders. By leveraging our credit facility, we completed our stock tender offer, which resulted in the repurchase of 2 million shares of the company's stock at a price of $20.29 per share, including transaction-related fees.
In total, including purchases from employees to satisfy income tax withholding triggered by the vesting of restricted shares, the company acquired 2.1 million of the company's stock at an average of $20.30 per share for a total cost of approximately $42 million. Our remaining stock repurchase authorization at the end of the quarter was $11.4 million.
At its most recent meeting, subsequent to quarter end, the company's Board of Directors authorized a $13.6 million increase in the company's share repurchase authorization, bringing it to a total of $25 million. Additionally, the Board declared the first quarter dividend of $0.12 per share for its shareholders of record on March 20, 2026, to be paid on April 3, 2026.
During the quarter, the company borrowed a net of $32 million from its credit facility to fund the tender offer. The balance of the company's outstanding debt at the end of the fourth quarter was $76 million.
Before I move to guidance for the first quarter of 2026, I would like to remind everyone of the seasonality of our business relative to costs as we move sequentially from Q4 to Q1. Specifically, consistent with first quarter guidance provided in previous years, our first quarter guidance for 2026 will reflect the sequential increase in U.S. payroll-related taxes and the sequential buildup of our vacation accruals.
The company estimates total revenues before reimbursements for the first quarter of 2026 to be in the range of $70.5 million to $72 million. We expect both global S&BT and Oracle Solutions segments to be down when compared to the prior year, but sequentially up from Q4. We expect SAP Solutions segment revenue before reimbursements to continue to be up on a year-over-year basis.
As a result of the continuing pivot of our business to generative AI, the company will incur AI transition charges in the first quarter of approximately $1 million to $1.5, these charges primarily relate to severance costs due to headcount reductions and the leverage of our JI delivery platforms. The company may continue to incur additional charges during 2026. These charges will be excluded from adjusted results.
We estimate adjusted diluted net income per common share in the first quarter of 2026 to be in the range of $0.34 to $0.36, which assumes a GAAP effective tax rate on adjusted earnings of 26.3% as compared to GAAP effective tax rate of 20.1% in the first quarter of the prior year, an unfavorable increase in taxes of approximately $0.04 per diluted share.
We expect the adjusted gross margin as a percentage of revenues before reimbursements to be approximately 44% to 45%. We expect adjusted SG&A and interest expense for the first quarter to be approximately $20 million. We expect first quarter adjusted EBITDA as a percentage of revenues before reimbursements to be in the range of approximately 19.5% to 20.5%.
Lastly, we expect cash balances, excluding the impact of share buyback activity, to be tempered due to the payment of 2025 performance-related bonuses and the payment of employee income tax withholding triggered by the net vesting of restricted shares.
At this point, I would like to turn it back over to Ted to review our market outlook and strategic priorities for the coming months.
Thank you, Rob. As we look forward, let me share our thoughts on the near- and long-term demand environment and the growth opportunity it offers our organization. Although demand for digital transformation remains solid in traditional areas, it continues to be impacted by thoughtful decision-making as organizations assess competing priorities partly due to economic concerns and also partly due to the consideration and also confusion of emerging GenAI technologies and what they offer.
We have not been surprised by the powerful potential to the compute and inference power of the large language models to drive transformative change. But rather, the confusion created by the frequent introductions of new technology, primarily build capabilities is where we believe the confusion lies. What requires greater understanding is what is necessary to realize high returns from the deployment of the available emerging capabilities.
To assess and design high ROI solutions requires client-specific process knowledge in order to reimagine and enhance the new workflows to determine Agentic workflows, which should be designed and deployed, which can provide targeted returns. That is where our process knowledge expertise, benchmarks and the powerful capability of our Hackett solution language model, which powers all our platforms are distinct.
The rapidly emerging build capabilities which are being introduced by the client providers like Anthropic and OpenAI are only accelerating and reducing the cost to build agents and Agentic workflows. However, they do not eliminate the need to fully understand the exact client-specific business process requirements it's the client's existing automation footprint and the need to assess existing and potential data sources necessary to fully optimize the value of AI in the design, build and deployment of solution.
This is without even considering what it takes to fully then execute a highly -- a high-impact, high productivity solution, which impacts both the number of people that support that activity as well as the new cognitive capabilities that are going to be utilized and how.
We believe we are entering the greatest automation expansion area of our lifetime, which will dramatically increase the enterprise automation footprint of every organization, the opportunity of all technology players to provide the underlying application and infrastructure solutions is obviously massive, and therefore, their marketing is understandable.
But no one should underestimate the incumbent enterprise application providers' ability to thrive in this hyper-growth automation environment. Based on our estimates, the automation and expansion opportunity is somewhere between 3 to 5x the existing automation footprint, which exists today. Imagine all of the change that was to happen if you really were transitioning an organization from what is primarily static and rule-based automation to fully cognitive automation, which allows for the deployment of digital labor, again, do not underestimate the opportunity for software and services companies to be able to grow in this environment given the significant amount of automation, which will and can be deployed and the help they will need to affect those changes.
One of the critical questions that AI XPLR answers is what automation is required by a proposed AI solution, which already exists in the client's enterprise application footprint. Clients have no desire to duplicate any automation they have worked so hard to deploy.
So is the transition as disruptive as software and services companies and as the current stock market volatility of that sector suggests?
The answer is yes, yes. But again, at the same time, what has not been equally or properly reported is the total addressable market increase for enterprise automation, which -- that will be delivered when and as existing automation footprints extend into the cognitive and agentic workflows and therefore, who will provide it.
Increasing automation opportunity should more than offset any disruption that software and services provider experience if they expand their current application footprint and related services capability to capture the significant growth. All organizations will need to understand the potential productivity and intelligence force multiplier that will emerge when existing static rule-based automation starts to transition to cognitive automation.
We expect IT budgets to increase with increasing attention and allocations to the rapidly emerging GenAI solutions and the related opportunities and threats that it brings. Eliminating confusion, as I say, will only -- will be key to accelerating the adoption.
The unlimited potential of GenAI will define an entirely new level of AI world-class performance standards, driving all software and services providers to extend the value of their existing offerings with the introduction of agentic AI capability. We believe this will result in unprecedented innovations, which all organizations will have to consider.
This shift is consistent with our aggressive pivot to GenAI-enabled transformation, which we believe creates a unique value creation opportunity for our organizations.
We believe that the platforms that we have deployed and the unique capabilities of AI XPLR have already significantly expanded our opportunity to help clients address areas and opportunities that we were not previously pursuing. Another critical investment that we have made is to also build our own GenAI-assisted knowledge-based solution, which I previously shared is called Ask Hackett AI. Ask Hackett leverages our proprietary Hackett benchmarking executive advisory business transformation intelligence, which allows us to define and enable digital world-class performance for clients.
Our IP will also be increasingly leveraged across all of our market-facing service delivery platforms. We are continually ingesting and indexing all IP in order to make sure that it is available to support our clients as well as our associates.
On the talent side, competition for experienced executives with high technology agility continues. Overall turnover continued at acceptable levels during the quarter, and we expect that trend to continue.
Lastly, even though we believe that we have the client base and offerings to grow our business, we continue to look for acquisitions and alliances that strategically leverage our IP, platforms and transformation expertise and can add scope, scale or capability, which can accelerate our growth. As always, let me close by congratulating our associates on our innovation and performance and by thanking them for their tireless efforts and always urgent 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 Instructions] Our first caller is George Sutton with Craig-Hallum.
2. Question Answer
Ted, you threw out a couple of big nuggets there, so I wanted to bite. First, on the 6-month demonstration and testing work that you've been doing with what sounds like an international potential reseller and partner. Can you just talk a little bit more about what the ultimate outcome you're looking for from that specific relationship would be?
Yes. Look, it goes without saying that I would have loved to have been able to announce the agreement on the call, but we expect to do so shortly. But with that said, look, the capabilities of AI XPLR are really distinct. I know it sounds repetitive, but I want you to know where we believe we are just -- we have extreme capability, which continues to be very distinct.
Our ability to first to simulate an entire industry's AI opportunities across 26 industries and our ability to do so with AI XPLR are distinct. Our ability to capture a client's automation footprint inside of the client so that we understand any automation considerations the client wants to consider or make, we believe, are distinct.
Our ability to evaluate the return on investment on any AI solution, which a client asks us to review, we believe it may not be distinct. But in that performance intelligence side, gosh, our IP is as strong or stronger than anyone.
And as you know, George, we've had -- that acquisition from LeewayHertz allowed us to expand the solution design module of AI XPLR to just incredible capabilities. We call this our ability to develop an 80% solution with specific client input that we require.
But our ability to do that to develop a detailed functional design and soon to extend that same capability within ZBrain to a technical design, we think are also going to be highly distinct. It is those capabilities that will allow a partner to provide us the required information we normally request or they provide us when they're trying to pursue a specific area of their business, or evaluate the performance of specific area of the business.
Our ability to use our AI XPLR capability to provide our partners with -- and their clients with significant productivity ideas supported by detailed agentic workflows with a Hackett prepared return on investment is very valuable.
And I believe that those organizations that are considering strategic alliances with us is because of the hack, the credibility of the brand and then the unique capability of AI XPLR. So that -- I would describe that relationship and leveraging that for existing or actually prospecting new clients would be where we intend to initially start.
Just to be clear on this relationship, if you do get this signed, that would be something you would announce intra-quarter hypothetically?
Yes. If we get it signed, they would like to announce it as -- I don't know as much as we do. But they obviously would like to announce that relationship as well.
Okay. And then separately, you actually mentioned ServiceNow and going forward with that partnership. Can you just give us a sense of how you'd be going to market with them? And any more details on that plan?
We were trying to do something with them for months, and they were looking for specific go-to-market areas to use, again, this unique capability we have and to see what the impact is in introducing their existing platform capabilities. So it's a pilot to target. We've recommended and we've discussed a specific industry that, again, the hope is to be able to launch that before the end of the month.
Got you. And just one final question. You mentioned transition costs from GenAI, meaning your headcount can actually now be reduced in certain areas due to GenAI. So that's interesting because, obviously, the other parts we're talking about our go-to-market strategies with AI. This would be your costs are actually starting to come down because of GenAI. Can you just give us a better sense there?
Yes. If you will recall, we launched 2 new platforms at the end of the year, which include XT for our transformation professionals. This is where we do operational modeling and transformation road maps for clients as well as AIX, originally known as Accelerator, which we use to help deliver our technology implementation solutions.
We've rolled out that on the transformation side. I believe that there's now 10 clients where we have -- we are leveraging this new capability to deliver the targeted outcome for the client. And we think we're seeing productivity improvements that will that could result in some numbers that will be in excess of 25%.
Let me just leave it there. And as you and I have mentioned, we don't quote rates anymore. We quote outcomes, and we put a value on that outcome and the client can determine whether that outcome can be delivered by anyone else as powerfully and as efficiently as we can. And if they can't, then we will realize margin expansion as we believe we've already started to experience in Q1.
The Accelerator platform launched initially through our OneStream group, and it's now rolling out into Oracle. And that platform -- the best story for that platform is that we were asked to jump in late in the game to a very significant OneStream opportunity in an industry we -- I'll just say, we have limited capabilities in.
The power of our platform to demonstrate how we are able to execute, configure, build, test that OneStream opportunity was powerful enough for us to come in late in the game and win this over a list of who's who -- we expect similar results. So we've now got it in front of 2 or 3 other opportunities. So we're just seeing some success, but we are -- we clearly know that we have built the initial capability looks at how to really eliminate what I'll call production or data gathering or execution costs that would have been generally done by some of our junior consultants, not that we have many of them because that's not the way our enterprise model works.
But there is no doubt that our ability to take that and deliver a much powerful outcome on a similar opportunity that we would have had without the new AIX capability is distinct, and it's significant. And if we're able to demonstrate that enhanced capability with a tremendous -- with a high level of confidence, leveraging the IP that and the brand -- the Hackett brand that people come to rely on and trust, we're going to capture a meaningful amount of those gains.
The client will get a higher and better result and accelerated speed, and we will be able to provide that with a -- I'll call it, people leading the -- obviously, leading the implementations, but being, gosh, powerfully supported by these new platforms.
Since we just rolled out the platforms and we started and launched these -- all these new engagements, we saw that there was both an opportunity that we were going to have additional people that we may not need under this new service delivery environment. So we decided that we should make sure that the marketplace knew that we were realizing those productivity gains and how they were impacting our operating results.
[Operator Instructions] Our next caller is Jeff Martin with ROTH Capital Partners.
Ted, I wanted to dive in. You mentioned at the start of the call that your products are all licensable now. Just curious how things are progressing on the licensing front.
We just -- like we said, we announced that, I believe it was the first week of January. So we will -- we expect to start licensing the product here as we progress throughout the year.
The product has been utilized in the version 4 capabilities to assist the delivery of a consulting engagement. But after a consulting engagement, once the client is exposed to the platform, now if they would like to continue to either ideate discover opportunities on their own because the module now resulted in 2 modules, an ideation Explorer module and a solutioning module.
The client has the option to license either one or both depending on how they want to avail themselves to that capability. So we expect the clients to expose clients to version 5 as we are on any and all of the engagements that we're launching. And then we expect clients to decide how they would like to avail themselves to those platforms. So they'll make that determination.
Got it. And then you mentioned that you're not quoting on rate anymore, you're quoting on outcome. I was curious if you could elaborate on that so we can understand that from a financial model point of view.
Well, we evaluate each job and respond to the client requirements. And we quote the completion of the pass that the client has either in an RFP or whatever the detailed request is, and we quote that fee. If the client wants to have a rate discussion, which some may, then we talk about the licensing aspect of the platform during the engagement.
If the client wants to -- most of the clients want to focus on specific deliverables and the outcome from those deliverables, then we quote a fee. So we know we're in a transition period, but we are not making our platform available to clients for free.
Let's make sure that's clear. We believe that it results in an accelerated deployment, which the client values and value realization and greater value to any of these engagements that we have, whether we are doing AI discovery and solutioning with Explore, business transformation with XT or an Oracle or OneStream implementation for now using AIX.
Great. And then I was curious on this large international channel partner, would that be a relationship where you could leverage some of their implementation? Or would you need to continue to staff up additional implementation resources as you go along?
Entirely up to them. They obviously have been exposed and understand the capability of our engineering capabilities. So it will be determined on an engagement basis.
Our next caller is Vincent Colicchio with Barrington Research.
Ted, can you give us an update on the pieces within the SBT business, how they're trending?
Specifically, which ones are you thinking about, Vince? Is there something specific you have in mind or...
No, nothing specific, just to get a sense for how things are trending. You talked about AI, the AI piece.
Clearly, the number of clients that have an AI element is going to be increasing meaningfully throughout the year. The other big pieces that are in there, the advisory business actually did pretty well given the current environment. So the integration of our GenAI -- the introduction of our GenAI program and now the fact that we're also providing our members with access to ideation capabilities of AI XPLR so that they can get, I mean, exposed to actual actionable AI opportunity identification through their program, we believe, is also helping.
So that performed, I'm going to say, in the environment and seeing what others have presented, we performed pretty well. And OneStream, well, I mean, that group is up sequentially SPT, as Rob said, is expected to be up sequentially from Q4 to Q1, same with Oracle, same with SAP. Well, maybe not to go to SAP because of the bar, but year-on-year, SAP is in a very strong position.
So again, we -- look, in '25, we saw the -- if you want to call it, demand disruption and the confusion I referred to at the beginning. We believe that new capabilities, better understanding of adoption. And if the technology providers actually describe their capabilities a little bit more precisely, I think it will help all of us as well. But I don't know if that's the background that you wanted or you had some more specific.
That's helpful. And then with SAP and Oracle improving and expected to improve throughout the year, I assume we'll still see a mix shift towards AI for the next 12 months. Is that accurate?
Yes, absolutely. I mean the SAP performance, as we mentioned, has been coming on for a few quarters because SAP has done a terrific job with convincing clients to migrate to S/4HANA.
So that's reflective in our business. And the Oracle sequential decline is important for us. So we continue to be very hopeful that with that increase and with the AI accelerator capability rolling out inside of that practice that it gives our Oracle group an opportunity to start growing in 2026 -- resume growth in 2026.
And at this time, I show no further questions. I would now turn the call back over to Mr. Fernandez.
I'd like to thank everyone for participating on our fourth quarter earnings call. Look forward to updating everyone again when we report the first quarter. Thank you, everyone.
Thank you. This concludes today's conference call. You may go ahead and disconnect at this time.
Hackett Group, Inc. — Q3 2025 Earnings Call
1. Management Discussion
Welcome to The Hackett Group Third Quarter Earnings Conference Call. 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 third quarter results. Speaking on the call today and here to answer your questions are Ted Fernandez, Chairman and CEO of the Hackett Group; and myself, Rob Ramirez, Chief Financial Officer. Press in outer released over the wires at 4:09 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 Q&A 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. Actual results may vary. These forward-looking statements should be considered only in conjunction with the detailed information, particularly the risk factors contained in our SEC filings. At this point, I would like to turn it over to Ted. .
Thank you, Rob, and welcome, everyone, to our third quarter earnings call. As we normally do, I will open up 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 guidance. We will then review our market and strategy-related comments, after which we will open it up to Q&A.
This afternoon, we reported revenues before reimbursements of $72.2 million just below our quarterly guidance and adjusted earnings per share of $0.37, which was at the midpoint of our quarterly guidance, respectively. What is most promising about the quarter is the level of breakthrough innovation, which has resulted in the highly differentiated capabilities of our AI Explorer platform version. Specifically, the reactions from both clients and potential channel partners to our version for release, which we announced on September 8, has been extremely positive with 1 potential partner specifically referring to our version 4 capabilities as being game changing.
Correspondingly, we continue to work closely with several global channel partners and expect to announce alliances that could significantly expand our growth opportunity. Our ability to identify, design and build Gen-AI solutions based on client-specific processes and enterprise application automation footprints in accelerated time is powerful. It is allowing us to position our platform as an enterprise AI Center of Excellence must have capability, which accelerates and enhances any client's Gen-AI adoption effort.
Our version 4 of a Explorer capabilities is attracting new clients, and it is resulting in an increasing pipeline and new engagements in this increasingly important area. During the quarter, we launched our alliance with Solovis, a leading provider of process intelligence software that provides clients with critical operating insight. By teaming with Solovis we have now demonstrated that we are able to ingest their process intelligence insight into AI Explorer as well as Sebring to help identify high ROI agentic AI solutions with unmatched speed and detail.
We are now finalizing a way for our clients to easily integrate the Solovis operating insight into explore that will allow us to promote a special ideation joint offering to all of our respective clients. The combination of AI plus PI or process intelligence will allow customers to quickly move from intention to action with measurable impact resulting in a Gentex transformation initiatives.
Our GSP segment revenues were favorably impacted by the strong Geni related revenue growth, which was offset by the expected weakness in our OneStream practice and the expiration of an iPass contract. Our iPass partner offered to redefine the agreement around an AI Explorer go-to-market partnership, which we rejected.
We believe the current channel partner relationships we are considering will generate significantly greater value than what we were offered. Excluding the OneStream practice and iPass contract, our GSBT segment was up over 4%. Our Oracle Solutions segment was down as expected, although activity continues to be solid, extended client decision-making has continued to make the revenue replacement of a large post-go-live engagement at the end of last year takes longer than we planned.
This adversely impacted the second quarter and the third quarter, which is our peak Oracle prior year Q3 comparison, and we will -- and will continue to impact us into the fourth quarter. The result of this large client transition and our continued development of AI accelerator, our Gen-AI assisted technology implementation platform that allows us to deliver technology engagements more efficiently led to our decision to more aggressively reduce our head count to realize the expected Gen-AI productivity benefits and align with current requirements.
Our SAP Solutions segment was up during the quarter as implementation revenues resulting from our increased software sales activity at the end of the quarter continued to ramp up. Although software sales in the quarter were lower than expected, we expect to make this back up with increased activity in the fourth quarter.
Our new platform and implementation capabilities allow us to sell clients enterprise-wide from ideation to implementation in 1 fully integrated platform. It also provides a client with a single platform, which they can license to fully support their entire AI Center of Excellence initiatives. We continue to see Agentic transformation opportunities to emerge in many of our engagements as the need for Gen-AI capability and relevance continues to increase. These engagements also provide opportunities to certify strategically and more broadly. These capabilities should further expand through the new strategic alliances, which I said we expect to launch in the near future.
That provides us with the increased opportunities to sell our unique capabilities in the upcoming year. On the executive advisory front, we continue to invest in our growing executive and vendor intelligence program. We launched the Gen-AI premium program. We have integrated our donated content into all of our executive programs and we also expanded our e-procurement intelligence capabilities with the acquisition of spend matters.
On the balance sheet side, our ability to generate strong cash flow from operations has allowed us to maintain our dividend. And today, we are announcing a $40 million Dutch tender offer to acquire approximately 8% of the company's common stock. This tender offer should be strongly accretive and on a cash basis, the reduction of the dividend payment due to the buyback is expected to offset a meaningful portion of the net of tax interest expense that we expect to incur.
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. As I typically do, I'll cover the following topics during this portion of the call. I'll cover an overview -- I'll provide an overview of our third quarter results, along with an overview of related key operating statistics. An overview of our cash flow activities during the quarter, and I'll then conclude with a discussion on our financial outlook for the fourth quarter of 2025.
Performance of this call, I'll comment separately regarding the revenues of our global SMBT segment, our Oracle Solutions segment, our SAP Solutions segment and the total company. Our global SMBT segment includes the results of our North America and international Gen-AI consulting and implementation and licensing revenues benchmarking and business transformation offerings.
Executive advisory, Market Intelligence and iPass programs and our onstream and procurement implementation offerings. Our Oracle Solutions and RSP Solutions segments include the results of our Oracle and SV 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 on our profitability. During our call today, we will also reference certain non-GAAP financial measures, which we believe provide useful information to investors. Specifically, all references to adjusted financial measures will exclude reimbursable expenses, noncash stock-based compensation expense, all acquisition-related cash and noncash expenses, amortization of intangible assets and other nonrecurring items such as restructure.
We've included reconciliations of GAAP to non-GAAP financial measures in our press release filed earlier today and we'll post any additional information based on the discussions from this call on the Investor Relations page of the company's website. For the third quarter of 2025, our total revenues before reimbursements were $72.2 million, a decrease of 7% over the prior year. The third quarter reimbursable expense ratio on revenues before reimbursements was 1.3% and as compared to 1.6% in the prior quarter and 2.3% when compared to the same period in the prior year.
Total revenues before reimbursements from our global SMT segment were $42.4 million for the third quarter of 2025, a decrease of 2% when compared to the same period in the prior year. Strong revenue growth from our Gen-AI a consulting and implementation offerings in this segment was more than offset by weakness in our onstream implementation offerings and the nonrenewal of a meaningful iPass contract during the third quarter.
Excluding this decrease, our global SMT would have been up 4%. The Gen-AI momentum is expected to continue in Q4 and accelerate in 2026. Total revenues before reimbursements from our Orca Solutions segment were $16.4 million for the third quarter a decrease of 25% when compared to the same period in the prior year.
This was higher than expected due to continued protracted decision making. Total revenues before reimbursements from our SAP Solutions segment were $13.4 million for the third quarter of 2025, an increase of 4% compared to the same period in the prior year. This increase was primarily driven by implementation services that correspond to the volume of software sales through the last several quarters. Although software sales activity was lower than we expected in Q3, we expect this activity to be up meaningfully on a sequential basis in Q4.
Approximately 23% of our total company revenues before reimbursements consist of recurring multiyear and subscription-based revenues, which include our executive advisory, application managed services and Gen-AI license contracts. We are seeing the rapid migration of iPass to AI Explorer and Zebra related recurring revenue opportunities.
Total company adjusted cost of sales totaled $41.4 million or 57.4% of revenues before reimbursements in the third quarter of 2025 as compared to $44.2 million or 56.8% of revenues before reverses in the prior year. Total company consultant head count was 1,317 at the end of the third quarter as compared to total company consultant head count of 1,382 in the previous quarter and 1,262 at the end of the third quarter.
The third quarter reduction in head count was due to actions taken to reduce staff to be commensurate with current demand and the expected productivity improvements for the leverage of our Gen-AI delivery platforms. Total company adjusted gross margin on revenue before reimbursements was 42.6% in the third quarter of 2025 as compared to 43.2% in the prior year. Adjusted SG&A was $16.5 million or 22.9% of revenues before reimbursements in the third quarter of 2025.
This compared to $17 million or 21.8% of revenues before reimbursements in the prior year. Adjusted EBITDA was $15.3 million or 21.2% of revenues before reimbursements in the third quarter of 2025 as compared to $17.7 million or 22.7% of revenues before reimbursements in the prior year.
GAAP net income for the third quarter of 2025 totaled $2.5 million or diluted earnings per share of $0.09 as compared to GAAP net income of $8.6 million or diluted earnings per share of $0.31 in the third quarter of the previous year.
Third quarter 2025 GAAP net income includes noncash stock compensation expense from our stock price award program of $4.8 million or $0.17 per diluted share and acquisition-related cash and noncash compensation benefit of $2.1 million or $0.05 per diluted share. In addition, GAAP net income also includes a $3.1 million or $0.08 per diluted share restructuring expense for severance related costs to reduce staff to be commensurate with current transition demand and expected productivity improvements from the leverage of our Gen-AI delivery platforms.
Acquisition-related cash and noncash stock compensation items related to purchase consideration for the Leeway Hertz acquisition. This consideration paid to the seller contains service investment requirements and as such, is reflected as compensation expense or benefit under GAAP rather than purchase consideration.
Adjusted net income and diluted earnings per share for the third quarter of 2025 totaled $10.2 million or adjusted diluted net income per common share of $0.37 which is at the midpoint of our earnings guidance range and compares to prior year adjusted diluted net income per share of $0.43. The company's cash balances were $13.9 million at the end of the third quarter as compared to $10.1 million at the end of the previous quarter.
Net cash provided from operating activities in the quarter was $1.4 million, primarily driven by net income adjusted for noncash activity and a decrease in accounts receivable, partially offset by decreases in accrued expenses and contract liabilities. Our DSO or Day Sales Outstanding was 71 days at the end of the quarter as compared to 73 days in the previous quarter and 70 days in the prior year. During the quarter, we repurchased 1.1 million shares of the company's stock for an average of $20.70 per share at a total cost of approximately $22.9 million, including purchases from employees to satisfy income tax will hold being triggered by the vesting of restricted shares.
Our remaining stock repurchase authorization at the end of the quarter was $12.6 million. At its most recent meeting, suit the quarter end, the company's Board of Directors authorized a $40 million increase in the company's share repurchase authorization, bringing the available balance to $52.6 million in order to accommodate the Dutch tender offer announced today.
Additionally, the Board declared the fourth quarter dividend of $0.12 per share for shareholders of record on December 23, 2025, to be paid on January 9, 2026. During the quarter, the company borrowed $21 million from its credit facility. The balance of the company's total debt outstanding at the end of the third quarter was $44 million.
Before I move to guidance for the fourth quarter of 2025, I would like to remind everyone of the seasonality of our business. Specifically, the increased holiday and vacation time that is historically taken in the fourth quarter will decrease our available billing days by approximately 8% to 10% when compared to the third quarter -- to the third quarter.
Considering this, the company estimates total revenue before reimbursements for the fourth quarter of 2025 to be in the range of $69.5 million to $71 million. We expect global S&BT to be down as continued growth from Gen-AI revenues will be more than offset by other segment revenue declines. We expect Oracle Solutions segment revenue before reimbursements to be down by 15% when compared to the prior year.
We expect SAP Solutions segment revenues before reimbursements to be down when compared to the prior year because of lower software sales activity, given exceptionally strong software-related sales in the prior year. We estimate adjusted diluted net income per common share in the fourth quarter of 2025 to be in the range of $0.38 to $0.40, which assumes a GAAP effective tax rate on adjusted earnings of 24.5%.
We expect the adjusted gross margin as a percentage of revenues before reimbursements to be approximately 46% to 47%. We expect adjusted SG&A and interest expense for the fourth quarter to be approximately $18.7 million. We expect fourth quarter adjusted EBITDA as a percentage of revenues before reimbursements to be in the range of approximately 22% to 23%.
Now let me provide some details regarding our tender offer that Ted mentioned. The company announced today that it's planned to launch a tender offer to purchase up to $40 million in value of its common stock at a price not less than $18.30 or more than $21 per share. We expect to launch the tender offer tomorrow, which will mean it would expire on December 4, 2025.
We plan to conduct a tender offer through a procedure commonly called a modified Dutch auction. This procedure allows stockholders to select the price within the specified range set by the company at which stockholders are willing to sell their shares. Neither management nor our Board members will be participating in this Dutch.
The company will select a single lowest purchase price within the range that will allow the company to purchase $40 million in value of shares at such price based on the number of shares tendered. All shares purchased in the tender offer will be purchased at the same price. The tender offer will only be made pursuant to the offer to purchase, the related letter of transmittal and the other tender offer materials, which a company will followup tomorrow with the SEC.
Any specific questions should be addressed directly with the dealer manager or the information agent for the tender offer. The contact information will be included in the press release we will issue tomorrow announcing the tender offer and in the tender offer materials being filed with the SEC tomorrow as well.
We will utilize our existing credit facility for the purchase of the shares in the tender offer and the fees associated with this offer. Lastly, we expect cash flow from operations to be up strongly 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 months.
Thank you, Rob. As we look forward, let me share our thoughts on the near and long-term demand environment and the growth opportunity it offers our organization. Although demand for digital transformation remains strong in traditional areas, it continues to be impacted by the thoughtful decision-making. As organizations assess competing priorities due to economic concerns as well as the consideration of emerging Gen-AI technologies.
The unlimited potential of DNA will defined an entirely new level of world-class performance standards, driving all software and services providers to extend the value of their existing offerings with the introduction of Agentic AI capability. We believe this will result in unprecedented innovations, which all organizations will have to consider.
This shift is consistent with our aggressive pivot to Gen-AI-enabled transformation which we believe creates a unique value creation opportunity for our organization. We believe Agentic enterprise transformation is a generational opportunity, which will fundamentally change the way companies operate as well as the way consulting services are sold and delivered.
Our Gen-AI platform capabilities in the recently released version for of Xplore leverages our proprietary solution language model which, by the way, has a patent pending and Hackett process and Performance IP, which significantly accelerates the speed in which we can identify and design Agentic AI solutions. Another critical distinction of our new version 4 is the way we can design the Agentic solutions while considering the client-specific enterprise application automation footprint.
This allows the client to consider where existing automation supports Gen-AI enablement, allowing them to fully leverage the existing automation footprint where possible. This ability to evaluate and consider a client's current technology landscape to deploy a Gen-AI solutions further differentiates our AI Explorer capabilities.
We are clearly now at a point where AXL will become a fully licensable platform, which provides several modular options to our clients. This is critical to our multiyear ARR growth vision. The Leeway Hertz acquisition also included a sophisticated Gen-AI platform, Z-Ben which we agreed to contribute into a joint venture with the founder.
The JV will bring together Xplore and ZBrain platforms, and we'll focus on licensing the platforms and creating what we believe will be a first-of-a-kind Gen-AI ideation through implementation, Software-as-a-Service offering. We believe this save creates an entirely new value creation opportunity for our shareholders that should result from growth of ARR or annual recurring licensing revenues. It would also allow the JV to have the opportunity to raise capital and achieve stand-alone valuations due to the Gen-AI software focus, if that is deemed best.
Another critical investment that we have made is to build our own Gen-AI-assisted knowledge-based solution called -- at Hackett AI. At Hackett AI leverages our proprietary Hackett benchmarking Executive Advisory and Business Transformation intelligence, which allows us to define and enable digital world-class performance for our clients.
Our IP will also be increasingly leveraged across all of our market-facing and service delivery platforms. we expect the integration of our valuable IP and content that leverages Jennie to significantly enhance and accelerate the delivery of our insights that we are asked to provide clients every day.
We are ingesting and indexing all of our proprietary IP, including benchmarking best practices, transformation and research IP to support the myriads of queries that are required to support our executive advisory and consulting clients and associates. We have also embarked on a new initiative called Accelerator, which intends to also address the efficiency and quality of the delivery of our technology implementation-related services.
All these initiatives are harnessing the power of Gen-AI to improve and accelerate the delivery of our solutions and services with the intent of differentiating our capabilities and will result in improved revenue growth margins. We see potential commercial value for these innovations be on our internal use.
Also in the works transformation Xplorer, which will support all of our management consultants and we are looking at special modules in data and governance, which we believe will also further support and differentiate the current AI Xplorer capabilities.
On the talent side, competition from experienced executives with high technology agility continues. Overall, turnovers continued at acceptable levels during the quarter, and we expect that trend to continue.
Lastly, even though we believe we have the client base and offerings to grow our business, we continue to look for acquisitions and alliances that strategically leverage our IP, platforms and transformation expertise and can add scope, scale and capability, which accelerate our growth. It's important to say that those kinds of acquisitions are not easily available.
As always, let me close by congratulating our associates on our innovation and performance and 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 Instructions] Our first question comes from George Sutton with Craig-Hallum.
2. Question Answer
Ted, you mentioned a plan -- you plan to announce alliances that could significantly change your opportunities. And you've been -- I know having discussions for the last couple of quarters. I believe the range has been SIs and large software companies. Can you give us a sense of what's practical for us to assume in terms of what you think you can accomplish and when.
Excellent question, George. -- look, George, our ability to achieve that has significantly increased with the release of Version 4. I can't overemphasize what a significant, I'll call it, leap in capability Version 4 has resulted in the reaction from both prospective clients and prospective channel partners. So as you know, yes, we started -- we had initial conversations with an enterprise software company towards the tail end of Q2.
Those conversations move to companies like Celonis, also an enterprise application company, which resulted in their alliances. Then we walked away from an offer with 1 of the large SIs that just we believe there were opportunities with others that would be just a significantly greater value -- we're currently in conversations with 2.
We have every expectation that there's a strong desire on both parts to reach an agreement that's meaningful to both sides. I can also tell you that the enterprise application opportunity that surfaced late in Q2, which I somewhat have put us set aside as the -- again's, we have to do 1 thing. We stopped the licensing procedure to complete the latency procedure for version 3 as Q2 was finishing.
We worked our tails off to make sure that the innovation that we targeted for Version 4 was achieved. We launched that on September 8. We think that the capabilities are significant and are being clearly acknowledged by these potential partners -- what if I told you that before I got on the boat today, I had a request from 1 of the big 4 asking if our platforms were also available to purchase or license.
So I believe that the capability that we're demonstrating when we get in front of clients, is becoming more visible. I believe that it helps that these large partners are participating in the process, putting us through this to demonstrate proof points to demonstrate the capabilities of our platforms. That has also expanded, I'll call it, visibility to our capabilities. So yes, we remain confident that we will be able to attract 1 or 2 major alliance partners in the near future.
Got you. On the software side, you mentioned that you had signed some new business, and you should be able to make up some of the weakness in Q4. Can you just walk through that a little bit .
Look, -- there is no doubt -- again, I'll go back. The impact of version 4 and our ability now to move client more aggressively has accelerated since we introduced that on September 8, and Client engagement has improved pipeline activity has improved and the engagement that we see now considering I'll call it, meaningful kind of engagement with AI Xplorer as potentially picking up a significant level of responsibility for a client's AI Center of Excellence. All of those things is what's increasing our engagements and pipeline into Q4 around Gen AI.
We think that will continue to happen naturally. And yes, we want the acceleration from 1 or 2 or the right channel partners that would then really allow us to then dramatically improve our visibility and access to the largest Gen AI opportunity. So it's all of the above, George. It's all of the above. .
Okay. Last question for me. Just on the Dutch auction, I'm just curious why a Dutch auction and why do a Dutch auction now? .
Well, we had that question asked by some of our shareholders at the end of Q2, actually. And I didn't want to miss the opportunity to be able to acquire stock during what we knew was a more volatile Q3, given the guidance that we have provided, and understanding what that looked like. Now that we got through the end of the quarter, then I had the same question, do we continue to buy back our stock aggressively in the open market? And we thought the best way to start doing that was to tender for $40 million and provide the range that was articulated today so that we could be even more aggressive than we were in Q3.
As you know, we've got a pristine balance sheet. We've rarely used it. We believe that the debt post this Dutch and the aggressive cash flow generation we normally get anticipated in Q4, will have us somewhere around 1x EBITDA by the time this whole process is over. And we know that's that's virtually no leverage. So if we continue to believe our prospects are what they are, we will continue to be aggressive with our buybacks.
[Operator Instructions] I would now like to introduce Jeff Martin with ROTH Capital Markets.
Ted, could you give us an update on where you are with licensing progress so far with both brain and Xplore. I mean, obviously, Xplore version 4 being launched in September, likely not a ton of traction there yet, but maybe give us some perspective on those clients that were potentially looking at licensing version 3, propensity to license version 4 in the next 6 months or so? .
So as I mentioned in our comments, we were ready to have version 3 and fully licensable form for early in the third quarter. Once we saw the potential enhancements that were coming from version 4, we stopped all that licensing effort. It doesn't mean we didn't -- we don't have a lot accomplished, but -- we've completed version 4. We're still making some enhancements, but we expect to license -- start licensing Xplorer sometime late into Q4, no later than the beginning of Q1. And we expect that many of the opportunities that we're currently fielding or responding to will become Xplorer licensees.
And on the Z brain side .
On the Z brain side, since the ZBrain side is differentiated to AI Xplorer, yes, we would expect a portion. I don't know if it's half or 1/3 of the Xplore led licenses to incorporate ZBrain as well. .
Okay. And then I was just curious if you could break down S&BT a little more. You did mention it grew 4%, excluding OneStream and the iPass contract termination. But could you help us get a sense of the trends within the pieces of SMB .
I mean, look, the largest piece of ESBT is our Strategy and Business Transformation Group. So these are the teams that do large transformation initiatives. So that represents -- I'm going to go, I don't know. Clearly, more than half in GSBT, then you also have our executive advisory business, which includes our executive advisory programs as well as the market intelligence programs. We also have our benchmarking services in there. And it does include the OneStream practice, the licensing, which we had in iPass, and now it includes all of the Gen AI-related revenues. .
That business, I don't know, Rob will have to correct me, but represents more than half -- represented more than half of our revenues in the quarter. It represented nearly probably short of this, 2/3 of our operating profit, we believe that, that business by the end of '26 will probably drive over 75% of our total operating profits with Gen AI, I'll call it, lead transfer Agentic transformation or Gen AI transformation initiatives, which include both Gen AI, but also you have to deal with the existing clients if you call them, the existing business process and enterprise applications that also need to be transitioned when you're deploying Agenda workflows.
So we expect that halo effect, probably the best way to say it. We expect that the majority of our Strategy and Business Transformation business, executives will end up leading Gen AI initiatives and we expect once the Gen AI initiatives become more mature, you will also see halo effect back into these traditional transformation initiatives, which require you to fully implement the changes. So right now, we're in the ideation and solutioning, ideation, design and solutioning portion of these GAI engagements. As those engagements mature, they will create a halo effect to the largest portion of GSBT. That's why we always kind of look and say, GSBT, sometime in the future will drive a greater portion of our total profit.
Hopefully, it also comes with more recurring revenue, which will result in higher gross margins and will be a substantial portion of our total value creation, if you look a year out or 2 years out.
One other question. With respect to decision making, are you seeing any jamming of the logs there, is it getting a little better? Is it getting a little worse, the same? Just kind of some directional trend would be helpful. .
What I can say is clearly better as clients making a '26 commitment, but our clients protecting '25 spend since economic volatility and some of the tariff distractions ended up creating a more difficult 25 years. So I'm going to say economic volatility, tariff distraction, and to some extent, people pausing to decide the impact of Gen AI on their total IT and related initiatives are impacting it. .
But at the same time, do I see clients clearly positioning for an Agentic enterprise in an Agentic transformation world, which brings all I'll call, new and existing capabilities that will have to be transformed or better said. Yes, but is it really changing? No. We expected it to be tough through the end of the year. I see people protecting '25 earnings for obvious reasons. And -- but I see an increasing level of activity with people wanting to aggressively invest and expand on both I call it, traditional digital transformation as well as digital transformation that have a meaningful Gen AI component. We believe that meaningful Gen AI component will increase throughout 2026.
Our next question comes from Vincent Colicchio with Barrington Research.
Ted, do you currently have the labor resources in GSBT to meet current AI demand? And do you have any concerns about that?
Not at all, especially with the productivity improvements of our accelerator and transformation Explore products. I mean, Vince, what you've got to understand is that the work that we have done traditionally and will do going forward, will be increasingly done by platforms that allow you to do that, delivering more value to -- allowing it to be more compelling and complete for clients in reduced time frames. So growth will be less determined by head count growth, and it will be a combination of sophisticated platforms that bring talented professionals to bear to help clients identify opportunities, design opportunities and build and deploy those opportunities.
So No, I don't believe that head count is an issue for the balance of the year as we start 2026. If it had been, we wouldn't have taken the reduction that we did with our restructuring charge in the current quarter.
And circling back on version 4, just what is it that's game changing versus the other alternatives in the market? Is it the speed? Or is it more than that?
No, it's much more than that. First what we had built in version 3, that's still very compelling that we walk into a client in any area of the business across 26 industries and we can walk into a client and say, we have the ability to simulate and we have fully detailed thousands of AI solution opportunities for clients. So we start with this very strong simulation capability that we have built in version 3.
What really changed from version to version 4 on that was that our ability to inform the actual capability client's capability from its existing technology or automation footprint we got really, really good at driving that -- the way we inform that automation information down to process or, in some cases, subprocess level, by capturing that client's automation, existing automation footprint.
So that single step resulted in much more powerful ideation capabilities and that not only impacted our ability to get in front of a client and say, before I recommend something significant to you. I want to make sure that as I do that, we want you to know that we fully considered your automation footprint.
That capability did not exist in version 3, and it didn't exist at the level we've been able to take it down the process at subprocess level. So that was very, very meaningful. That also really opened up our ability to really gain more information around the data sources that we were going to be dealing with, both from the existing client technology footprint and our ability then to consider additional data sources to then improve clients, call it, data sources and knowledge base to make the solutions that we are recommending smarter, more compelling, so that was kind of also a meaningful step between version 3 and version 4.
And then the star of the show is that -- we were able to take solutions that we have been delivering. This is not only detailing the to-be process of a solution that was going to be significantly influenced by Agentic workflow and that integration of both, but our ability to now identify those enhancements and that to be processed, be able to integrate the agents and explain the role of the agents in those changes and do it at the level of detail that we're currently delivering was more significant than version 3, but we were doing the version 3 work primarily, I'll call it, through hours through deployed expertise and what really happened is that our Hackett solution language model has just gotten so sophisticated that we were able to take something that was happening over a 6-week period with numbers of professionals and do that now in what we just find as an 80% solution in less than an hour, the proposed solution, which then allows us then front and engage the client on validating the output so that we can get really detailed, really specific so that recommendation of both complexity, the details required, the benefit that you're going to deliver that we then carry into POC.
It's just been dramatically improved I think once we were able to get those capabilities in front of our clients, the way we have post call mid-September when we were able to do -- show this to potential partners and have partners literally say, so what do you need? And we say, give us this information and allow us a couple of days to come back to you with detailed recommendations in an area that they were, I'll call it, for whatever reason, evaluating in 1 of their current clients or in a future contract in our ability, and that's what we're currently doing with them.
What we're doing right now are proof points by taking specific live situations and demonstrating that the capability of Xplorer version 4 is actually distinctly better, more detailed, more accurate, which allows for a better estimation of effort of determining complexity so that when you align benefits to those costs, the ROI is significantly improved.
That capability is what's allowing us to now impact either a new client and say, let us show you how different it is. And now these channel partners, let us show you how different it can be. and they'll literally say, well, we have one.
We were working through 1 on a very significant client prospect for 1 of the clients, and they gave us this high-level information said, can you give us this information of specifically the process you're targeting, the information you have around that targeted process. And they said to us -- so look, when am I going to be able to see this? Am I going to be able to see this in a month or what? And I said, call us back in 2 days and we literally get that and use our 2 days then to validate what Xplorer is creating.
And it's just -- it's just really, really impressing them. And yes, to the point where 1 of them simply said, this is game changing. And we hope they really mean it. We hope they become a great partner with us. and as soon as possible.
Appreciate all the color. .
I think it's important because we -- the future of the firm depends on unique capability, which is enhanced by very talented people, but without the unique platform capabilities and improving that solutioning language model and informing that solutioning language model with all of the Hackett IP that we have all the way down the process and subprocess level, including benchmark. I think it's hard to replicate.
I may wake up tomorrow and somebody say, hey, I've got something dramatically better. Right now, these sophisticated clients and the sophisticated channel partners are saying -- we have not seen anything that produces the outcomes that you're currently providing to us as part of our, if you call it, proof points.
At this time, I show no further questions. I would now turn the call back over to Mr. Fernandez.
Thank you, operator. Let me thank everyone for participating in our third quarter earnings call, and we look forward to updating you again when we report the fourth quarter and our total annual results. Thank you again. .
Thank you for your participation. Participants, you may disconnect at this time.
Financial data from Hackett Group, Inc.
Revenue
Revenue is the sum of all sales generated by a company, e.g. for its products or services.
Revenue (TTM) metric explainedDirect Costs
Direct costs are the costs incurred directly in connection with the manufacture of the product or service.
Gross Profit
Gross Profit indicates how much of the revenue remains in the company after deducting direct production costs. If the percentage share of sales is calculated, this is referred to as the gross margin.
Gross Profit metric explainedSelling and Administrative Expenses
Selling, general and administrative expenses (SG&A) include all expenses for marketing and sales as well as the general administration of the company.
Research and Development Expense
Research and development costs (R&D) provide information on how much the company invests in the research and development of its products. The costs are particularly interesting as a percentage of revenue and in comparison to direct competitors.
EBITDA
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is the company's earnings before interest, taxes, depreciation and amortization. The EBITDA margin is calculated as a percentage of sales.
Depreciation and Amortization
Depreciation represents reductions in the value of the company's assets (e.g. due to wear and tear on machinery).
EBIT (Operating Income)
EBIT (Earnings Before Interest and Taxes) is the company's profit before interest and taxes, also known as the operating income. The EBIT Margin is calculated as a percentage of sales at
.
Net Profit
Net Profit represents the profit or loss after deduction of all costs.
Net Profit metric explainedStocksGuide Premium
| Jun '26 |
+/-
%
|
||
| Revenue | 287 287 |
9%
9%
100%
|
|
| - Direct Costs | 169 169 |
15%
15%
59%
|
|
| Gross Profit | 118 118 |
0%
0%
41%
|
|
| - Selling and Administrative Expenses | 82 82 |
8%
8%
28%
|
|
| - Research and Development Expense | - - |
-
-
|
|
| EBITDA | 42 42 |
25%
25%
15%
|
|
| - Depreciation and Amortization | 5.67 5.67 |
27%
27%
2%
|
|
| EBIT (Operating Income) EBIT | 37 37 |
24%
24%
13%
|
|
| Net Profit | 17 17 |
1%
1%
6%
|
|
In millions USD.
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Hackett Group, Inc. Stock News
Company Profile
The Hackett Group, Inc. is an intellectual property-based strategic consultancy and enterprise company, which engages in the provision of business and technology consulting services. The firm offers services include benchmarking, executive advisory, business transformation, enterprise performance management, training and advisory to global business services. It also produces digital transformation including robotic process automation and enterprise cloud application implementation. The company was founded by Ted A. Fernandez and David N. Dungan in 1991 and is headquartered in Miami, FL.
StocksGuide Premium
| Head office | United States |
| CEO | Mr. Fernandez |
| Employees | 1,503 |
| Founded | 1991 |
| Website | www.thehackettgroup.com |


