HACKETT GROUP, INC. Q1 FY2025 earnings call

• Ted opened by noting Q1 revenues and adjusted EPS near guidance, driven by DSBT segment's gen AI engagements. • Rob discussed detailed operating results, cash flow, and guidance, including total revenue of $77.9 million, up 1% yoy. • Ted highlighted Gen AI as a generational opportunity, acquisition of LeewayHertz and ZBrain, and JV plans combining AI Explorer and ZBrain platforms. • Mentioned initiatives like AI Explorer version 3, Ask Hackett AI, and Aixelerator to leverage Gen AI for improved solutions. • Talked about hiring and talent management, strategic relationships, and acquisitions to extend Gen AI capabilities.

Total revenues before reimbursements were $76.2 million. Global S&BT segment revenues before reimbursements were $42.6 million, up 6% year-over-year, with Gen AI consulting and implementation driving growth but partially offset by weakness in OneStream and e-procurement; excluding the latter, up 13%. Oracle Solutions segment revenues before reimbursements were $20.4 million, down 3% yoy due to post-go live wind down. SAP Solutions segment revenues before reimbursements were $13.2 million, down 8% yoy, but demand expected strong later due to software sales. Total company adjusted gross margin on revenues before reimbursements was 43.4% in Q1 2025, up from 41.4% in the prior year, driven by higher margin Gen AI revenues.

• Total revenue before reimbursements for Q2 2025 estimated $76 million to $77.5 million. • Global S&BT segment revenue before reimbursements expected up ~5% yoy; Oracle and SAP combined down yoy. • Adjusted diluted EPS for Q2 2025 estimated $0.37 to $0.39. • Adjusted gross margin expected 43% to 44%, adjusted EBITDA 21% to 22%.

• Uncertainty from tariff negotiations impacting client decision making. • Competition for experienced executives with high technology agility. • Dependence on Gen AI engagements and potential risks to those engagements.

Q: Jeff Martin asked about AI Explorer client interactions, pipeline for implementation projects, capacity scaling, and JV progress.

A: Ted said clients find AI Explorer capabilities unique, with half of interactions leading to engagements; capacity expanded with hiring in U.S. and India; close to executing JV agreement for ZBrain platform.

Q: George Sutton asked about best practices consulting in change, impact of AI on business, consequential impact of AI Explorer, and ideal Gen AI implementation.

A: Ted noted tariff disruptions led to more strategic cost reduction work; AI Explorer's consequential impact includes ARR growth and JV opportunities; ideal situation is enterprise-wide AI solutions with top-down strategic approach.

Q: Vincent Colicchio asked about AI revenue breakdown, cross-selling, and Oracle pipeline.

A: Ted estimated 50/50 split of AI revenue between implementation and other; cross-selling occurs with digital transformation engagements including Gen AI scans; Oracle activity expected down with gaps from prior large post-go live engagement