HACKETT GROUP, INC. Q3 FY2025 earnings call

• Launched AI XPLR platform version 4, which has received positive reactions from clients and partners. - Formed an alliance with Celonis to integrate process intelligence into AI XPLR. - GSBT segment revenues were positively impacted by GenAI growth but offset by weakness in OneStream and an IPaaS contract expiration. - Oracle Solutions segment affected by extended client decision-making delaying revenue replacement. - SAP Solutions segment saw growth from implementation services tied to prior software sales. - Announced a $40 million Dutch tender offer to buy back common stock. - Invested in GenAI platforms like AI XPLR, ZBrain, and Hackett AI; launched initiatives like Accelerator to improve technology implementation efficiency.

For the third quarter of 2025, total revenues before reimbursements were $72.2 million. The Global S&BT segment had revenues before reimbursements of $42.4 million, a 2% decrease y-o-y; excluding the impact of OneStream and an IPaaS contract, it was up over 4%. The Oracle Solutions segment had revenues before reimbursements of $16.4 million, a 25% decrease y-o-y due to protracted client decision-making. The SAP Solutions segment had revenues before reimbursements of $13.4 million, a 4% increase y-o-y, driven by implementation services from software sales. Approximately 23% of total company revenues before reimbursements are recurring multiyear/subscription-based.

• Fourth quarter revenue before reimbursements expected to be in the range of $69.5 million to $71 million. - Adjusted diluted net income per common share estimated to be in the range of $0.38 to $0.40. - Adjusted gross margin expected to be approximately 46% to 47% of revenues before reimbursements. - Adjusted SG&A and interest expense expected to be approximately $18.7 million. - Adjusted EBITDA expected to be in the range of approximately 22% to 23% of revenues before reimbursements.

• Uncertainty in client decision-making processes affecting revenue realization, particularly in Oracle Solutions segment. - Dependence on successful GenAI adoption by clients and timely announcement of strategic alliances. - Volatility in stock market conditions and potential challenges in executing the Dutch tender offer as planned.

Q: George Sutton asked about alliances that could significantly change growth opportunities, software growth in Q4, and the reason for the Dutch auction.

A: Ted Fernandez responded that the release of AI XPLR version 4 has increased alliance prospects, software growth in Q4 is expected due to improved client engagement and pipeline around GenAI, and the Dutch auction was chosen as it allows stockholders to select a price within a range and aligns with the company's strategy to buy back stock.

Q: Jeff Martin inquired about licensing progress of XPLR and ZBrain, and trends within S&BT.

A: Ted Fernandez stated XPLR licensing is expected to start late in Q4 or early in Q1, ZBrain would be incorporated into some XPLR licenses, and S&BT's largest portion is the Strategy and Business Transformation Group with GenAI driving future growth.

Q: Vincent Colicchio asked about labor resources in GSBT to meet AI demand and details on version 4's game-changing aspects.

A: Ted Fernandez said labor resources are not an issue due to productivity improvements from Accelerator and transformation XPLR, and version 4's game-changing aspects include enhanced simulation capability, better integration with client automation footprints, and improved solutioning speed and detail using the Hackett solution language model.