HACKETT GROUP, INC. Q4 FY2024 earnings call

Thank you, everyone, to our fourth quarter earnings call. Total revenues were $79.2 million and adjusted earnings per share $0.47, exceeding quarterly guidance. Results driven by SAP and GSBT segments' Gen AI engagements, which have higher margins. Gen AI revenues are boosted by AI XPLR platform and LeewayHertz acquisition. AI XPLR version 3 to be released, with enhanced capabilities. Acquisition of LeewayHertz and ZBrain platform led to a joint venture creation. Adjusted gross margin improved in Q4 2024. Adjusted SG&A increased due to incremental commissions from SAP sales and performance. Cash balances were $16.4 million at quarter end, net cash from operating activities $20.6 million, shares repurchased, and dividend increased.

Total revenues for the fourth quarter were $79.2 million. The Global S&BT segment had total revenues of $43.9 million in Q4 2024, with revenues before reimbursements at $43.2 million, a 4% increase year-over-year, but impacted by weakness in eProcurement and OneStream implementations. The Oracle Solutions segment had total revenues of $18.2 million, with revenues before reimbursements at $17.4 million, a 6% decrease year-over-year due to the post-go-live wind down of a large engagement. The SAP Solutions segment had total revenues of $17.2 million, with revenues before reimbursements at $16.8 million, a 51% increase year-over-year driven by strong software-related sales from late 2023 investments. Approximately 22% of total company revenues before reimbursements consist of recurring multi-year and subscription-based revenues.

For the first quarter of 2025, total revenues before reimbursements are estimated to be in the range of $75 million to $76.5 million. Global S&BT segment revenue before reimbursements is expected to be up 5% to 10% y-o-y driven by Gen AI growth, partially offset by declines in OneStream and eProcurement. Oracle Solutions and SAP Solutions segments are expected to be down 8% to 10% combined. Adjusted diluted net income per common share is estimated to be in the range of $0.39 to $0.41, adjusted gross margin as a percentage of revenues before reimbursements is approximately 43% to 44%, and adjusted EBITDA as a percentage of revenues before reimbursements is in the range of approximately 21% to 22%.

Disruption from enterprise application companies' AI extensions which may impact eProcurement and OneStream. Uncertainties in maintaining Gen AI revenue growth and successfully executing the joint venture with ZBrain.

Q: Could you give detail on the breadth of what you're working on and the pipeline?

A: Client entry points and content are skewed to Gen AI-related questions. AI XPLR was launched last year, acquisition of LeewayHertz and ZBrain platform enhances capabilities, opportunities are expanding.

Q: What's the impact of DeepSeek's news on your pipeline?

A: Foundational LLM capabilities are key, price points for capabilities going down is positive for end users, enhancing solutioning capability from ideation to deployment.

Q: SAP business duration and if it's a new level?

A: Strong SAP demand in 2025, Q4 software sale was highest, but not sustainable Q4-Q1, but 2025 expected strong.

Q: On AI XPLR meetings converting to contracts and pipeline visibility?

A: Increasing activity, clients have budgeted 2025 initiatives, better prepared now, expecting velocity in pipeline.

Q: Quantify eProcurement and OneStream headwinds and outlook?

A: Gen AI opportunities are disruptive to enterprise apps, eProcurement and OneStream were headwinds, GSBT would be higher without disruption, enterprise apps are responding to AI disruption.

Q: Oracle outlook beyond Q1 and Gen AI labor needs?

A: Oracle activity strong, EPM stronger, enterprise apps participating in AI, headcount increase in Gen AI groups.

Q: Update on the joint venture?

A: Joint venture starting to sign licenses, AI XPLR and ZBrain in JV, offering licensing and consulting options, licensing activity expected to increase.