Hackett Group Q4 2025 Earnings Transcript Analysis
Key Financial Highlights and Takeaways
The Hackett Group delivered impressive results for the fourth quarter of 2025, with total revenues before reimbursements reaching $74,800,000, surpassing the upper limit of the management’s previously provided guidance range for that period. Adjusted earnings per share stood at $0.40, aligning perfectly with the highest point of the forecasted range. In the Global Strategic Business Transformation segment, known as S&BT, revenues amounted to $38,600,000, marking an 11% decline compared to the same quarter in the previous year, and this remains the company’s most substantial revenue-generating division. The Oracle Solutions segment generated $14,000,000 in revenue, reflecting a 20% decrease year over year, though company executives noted that this segment is poised for sequential growth moving forward. Meanwhile, the SAP Solutions segment saw revenues climb to $22,200,000, representing a robust 32% increase from the prior year, fueled by robust demand for software sales and migrations to S/4HANA platforms.
Recurring revenue streams from multiyear contracts and subscription-based services accounted for 22% of the overall total, encompassing executive advisory services, application maintenance agreements, and contracts for Generative AI licenses. The adjusted gross margin for the entire company came in at 46.6%, down slightly from 47.7% in the corresponding period last year, influenced by shifts in segment revenue mix and adjustments to commission structures. Adjusted EBITDA reached $15,900,000, equivalent to 21.3% of revenues before reimbursements, compared to $19,500,000 or 25.2% in the prior year period. On a GAAP basis, net income was $5,600,000, translating to $0.21 per diluted share, an improvement from $3,600,000 or $0.12 per diluted share a year earlier, thanks to lower noncash stock-based compensation expenses and reduced costs associated with acquisitions.
Adjusted net income totaled $10,900,000, or $0.40 per diluted share, matching the top end of guidance and down from $0.47 in the previous year. Consultant headcount stood at 1,300 by quarter-end, a minor decrease from 1,317 in the third quarter but an increase from 1,284 at the close of 2024. Cash on hand grew to $18,200,000 from $13,900,000 at the end of the prior quarter. Net cash generated from operating activities amounted to $19,100,000 during the fourth quarter, driven by net income after adjustments for noncash items and favorable changes in working capital components.
Days sales outstanding, or DSO, remained steady at 71 days sequentially but rose from 66 days a year ago. The company repurchased 2,100,000 shares at an average price of $20.30 per share, totaling $42,000,000, and subsequently increased its share buyback authorization by $13,600,000 to $25,000,000. Outstanding debt was $76,000,000 at quarter-end, including $32,000,000 borrowed specifically to finance a tender offer. The Board of Directors declared a quarterly dividend of $0.12 per share for the first quarter of 2026, scheduled for payment on April 3, 2026.
Guidance for First Quarter 2026
Looking ahead to the first quarter of 2026, management projects revenues before reimbursements between $70,500,000 and $72,000,000. Both the Global S&BT and Oracle Solutions segments are anticipated to decline year over year but show sequential improvement from the fourth quarter. The SAP Solutions segment is expected to continue its upward trajectory on a year-over-year basis. Adjusted earnings per share guidance is set at $0.34 to $0.36, incorporating a GAAP effective tax rate of 26.3%, which is higher than the 20.1% from the prior year’s first quarter. Adjusted gross margin is forecasted at 44% to 45% of revenues before reimbursements, while adjusted EBITDA is projected to range from 19.5% to 20.5% of those revenues.
The company anticipates AI transition charges ranging from $1,000,000 to $1,500,000 in the first quarter, primarily related to severance costs from headcount reductions as Generative AI platforms enhance productivity. Additional such charges may occur throughout 2026. Chairman and CEO Ted A. Fernandez highlighted substantial productivity gains, stating that new Generative AI platforms are delivering improvements potentially exceeding 25%. The company has launched AI Explorer version 5 along with an expanded suite of Generative AI tools, all now available for licensing, with active monetization and market expansion strategies in progress.
Strategic Initiatives and Partnerships
Management plans to soon execute and launch a global go-to-market collaboration agreement with a major consulting partner, aimed at jointly serving new and existing clients. A pilot market initiative with ServiceNow is set to launch this month, focusing on developing industry-specific use cases for collaborative opportunities. Fernandez emphasized the license model strategy, clarifying that the company is not offering its platform for free to clients but instead employing outcome-based pricing tied to deliverables and platform access.
Key Risks and Challenges
Several risks were outlined by management. Both the Global S&BT and Oracle Solutions segments are projected to continue declining year over year in the first quarter of 2026. The anticipated AI transition charges of $1,000,000 to $1,500,000 stem from severance related to replacing labor with Generative AI platforms. The GAAP effective tax rate’s rise to 26.3% from 20.1% will pressure net income. Additionally, DSO has increased to 71 days from 66 days a year prior, indicating a slower collections process.
Executive Summary of Performance
The Hackett Group exceeded revenue guidance and hit the top of its adjusted EPS forecast, highlighting the positive financial impact of its ongoing transition to AI technologies. Executives spotlighted the release and licensing of AI Explorer version five and other Generative AI-enabled platforms, along with a sharpened focus on monetizing these assets. They noted early benefits to productivity and margins from these initiatives. Key growth drivers for 2026 include a forthcoming global partnership, an active ServiceNow pilot, and initial margin expansion driven by Generative AI, elements not fully reflected in prior projections. First-quarter guidance points to sequential revenue and profitability gains, tempered by transitional challenges such as segment declines and restructuring expenses. As Generative AI integration deepens, it is set to reshape service delivery models and revenue composition, with accelerating client adoption fostering opportunities in recurring and license-based revenues.
The aggressive share repurchase program notably reduced outstanding shares but elevated leverage, with net debt climbing to $76,000,000 post-tender offer. Adjusted selling, general, and administrative expenses as a percentage of revenues before reimbursements increased to 26.7% from 23.7%, largely attributable to elevated commissions from SAP license sales. Management observed promising early adoption of outcome-based pricing, where clients are committing based on deliverables and platform utilization rather than traditional billable hours. The recurring revenue portfolio has broadened to include an expanded array of multiyear and subscription contracts, incorporating newer AI tools and benchmarking offerings.
Industry Terminology Glossary
- GenAI: Generative Artificial Intelligence encompasses AI systems capable of producing text, code, or other content; in this context, it refers to the company’s delivery platforms and intellectual property-enabled advisory tools.
- AI Explorer (XPLR): The Hackett Group’s proprietary platform that employs Generative AI to simulate, ideate, and design enterprise AI solutions, drawing on process intelligence and benchmarking data.
- XT: A Generative AI-enabled platform designed for business transformation, facilitating operational modeling and the creation of transformation roadmaps.
- AIX: A platform supporting enterprise application implementations, such as those for Oracle and OneStream, to boost productivity and expedite delivery timelines.
- Ask Hackett: An AI-powered executive intelligence platform providing performance benchmarking and advisory services.
- S/4HANA: SAP’s comprehensive suite of enterprise resource planning applications, commonly used in clients’ cloud migration projects.
- iPaaS: Integration Platform-as-a-Service, here referring to earlier cloud integration solutions evolving toward proprietary intellectual property-embedded analytics.
- Day Sales Outstanding (DSO): A key metric indicating the average number of days required to collect payments following a sale.
Complete Earnings Conference Call Transcript
Thank you, Rob, and a warm welcome to everyone joining our fourth quarter earnings conference call. As is our standard practice, I will begin by offering some high-level commentary on the quarter’s performance. Following that, I will hand it over to Rob to delve into the specifics of our operational results, cash flow dynamics, and forward-looking guidance. We will then discuss market trends and strategic updates before opening the floor for questions and answers. This afternoon, we announced revenues before reimbursements of $74,800,000 alongside adjusted earnings per share of $0.40, figures that exceeded our revenue guidance and hit the pinnacle of our EPS expectations, respectively. Although short-term market moods and demand fluctuations are beyond our direct influence, we maintain firm control over the fundamental value we generate for stakeholders.
In the last two years, we have methodically broadened our portfolio of Generative AI-enabled platforms to position ourselves at the forefront of the fast-evolving AgenTek enterprise landscape. By integrating our intellectual property into these innovative platforms and delivery models, we are confident in our ability to unlock novel revenue streams characterized by elevated margins, enabling us to provide transformative value propositions to our clients. The results from this quarter continue to mirror broader market shifts as well as the internal disruptions stemming from our bold pivot toward AI technologies. Our core strategy revolves around cultivating highly specialized Generative AI capabilities that capitalize on our unparalleled domain expertise and proprietary intellectual property assets. The ultimate objective is to not only speed up but, more crucially, amplify the value embedded in the solutions we deliver to customers.
Our leadership in AI and its strategic relevance are being shaped by our unique proficiency in assisting clients to pinpoint, assess, architect, and implement high-impact AI solutions through our flagship AI Explorer, or XPLR, platform. The transformations necessitated by this AI shift come as no surprise to us; we were pioneers in adoption and foresaw these evolutions. Our journey commenced in January 2024 with the debut of AI Explorer version one, followed by the September 2024 acquisition of LeewayHertz’s esteemed Generative AI engineering expertise. This move bolstered our genuine design and development capacities, propelled platform innovation, and strengthened our licensing endeavors. Today, AI Explorer version five is fully licensable to interested parties.
What sets AI Explorer apart is its comprehensive enterprise-level simulation, ideation, and intricate process and agentic design functionalities, all underpinned by solution-tailored return-on-investment analyses. This platform is exclusively ours, fueled by our proprietary Hackett solution language model and enriched by our world-renowned Hackett process benchmarks and best practices intelligence. While AI Explorer marked our entry point, we have since unveiled complementary platforms: XT for bolstering business transformation projects, AIX for streamlining enterprise application implementations, and Ask Hackett, launched last summer to power our executive applied intelligence offerings.
As we announced recently, our suite of Generative AI-enabled platforms now covers virtually every aspect of our service portfolio. We pride ourselves on being trailblazers in innovation within our sector. These platforms dramatically hasten and elevate the quality of our services, paving the way for revenue expansion and substantial margin enhancements as we transition from purely labor-intensive delivery to a labor-guided model augmented by potent Generative AI platforms and our globally acknowledged intellectual property. Our responsibility is to ensure clients fully grasp the pivotal role of their business process frameworks in achieving successful AI adoption.
True value from AI emerges only through a granular comprehension of a client’s unique business processes, coupled with a reimagining of those processes via a meticulous evaluation of AI augmentation potential at every operational step. This forms the bedrock of AI Explorer’s capabilities. We are convinced that our platform-centric delivery approach will spawn significant avenues for revenue growth at superior margins, while empowering clients to seize this once-in-a-generation transformation window. Furthermore, we see channel partnerships as accelerators, broadening client reach and thereby spurring additional revenue expansion.
Over the past six months, we have collaborated intensively with a leading global technology and consulting firm, showcasing and validating AI Explorer’s formidable features on intricate, enterprise-scale client challenges. This has led to our platform being hailed as revolutionary. We anticipate promptly finalizing and activating a worldwide go-to-market alliance agreement, enabling collaborative service to both prospective and current clients, with our inaugural joint client deployment on the horizon. We also remain optimistic about delivering substantial benefits to users of Celonis software and similar process mining tools.
By assimilating their rich datasets on process volumes and execution into AI Explorer, we can expedite and refine ideation and solution recommendations, thereby fast-tracking customers’ transformation agendas. Additionally, we are gearing up to initiate a market pilot with ServiceNow this month—a pursuit we have nurtured for months, and we are keen to observe the results of our combined go-to-market efforts. From a balance sheet standpoint, our operational cash flow generation remains robust, supporting sustained dividend payments and an aggressive share repurchase initiative. With that overview, I will now pass the discussion to Rob for a deeper dive into operational metrics, cash flows, and outlook.
I will circle back with further insights on strategy and market dynamics after Rob’s presentation. Rob?
Robert A. Ramirez: Detailed Financial Review
Thank you, Ted. In line with my usual approach, I will address several key areas: a summary of fourth quarter 2025 results, pertinent operating metrics, capital allocation activities during the period, and our financial projections for 2026. For clarity, I will break down revenues across our Global S&BT segment, Oracle Solutions segment, SAP Solutions segment, and consolidated company totals.
The Global S&BT segment aggregates revenues from North American and international Generative AI consulting and implementation licensing, benchmarking services, business transformation projects, executive applied intelligence advisory programs, and implementations for OneStream and eProcurement solutions. Our Oracle and SAP Solutions segments capture their respective offering performances. Note that we will reference both total revenues and revenues before reimbursements. Reimbursable expenses mainly consist of client-passed project travel costs, which do not affect profitability. Today, we will also highlight certain non-GAAP measures that we deem valuable for investor insights.
These adjusted metrics exclude reimbursable expenses, noncash stock-based compensation, acquisition-related cash and noncash costs, intangible asset amortization, other one-off items, and AI transition charges linked to headcount optimizations. Reconciliations from GAAP to non-GAAP appear in today’s press release, with supplementary details to be posted on our Investor Relations website post-call. For Q4 2025, revenues before reimbursements totaled $74,800,000, surpassing our guidance ceiling.
The reimbursable expense ratio relative to revenues before reimbursements was 1.2% in Q4, versus 1.3% last quarter and 2.3% a year ago. Global S&BT revenues before reimbursements were $38,600,000, down 11% year over year. As Ted noted, the market is shifting toward AI-augmented services, with AI comprising a growing share of engagements amid the rapid fusion of legacy and AI-driven services.
Leveraging our enhanced platform capabilities, including XT and AI Explorer, we are accelerating value delivery and productivity. We project sequential revenue growth in Q1 for this segment, alongside year-over-year gross margin expansion, with both trends strengthening through 2026. Oracle Solutions revenues before reimbursements were $14,000,000, a 20% year-over-year drop. The rollout of AIX for Oracle implementations has begun yielding productivity gains, and we foresee sequential uplifts in revenue and gross margins in Q1, continuing upward throughout the year.
SAP Solutions revenues before reimbursements hit $22,200,000, up 32% year over year, propelled by robust software sales from heightened investments and SAP SuccessFactors fueling S/4HANA Cloud migrations. Strong software performance paired with hefty implementation revenues suggests sustained SAP service demand across 2026. Roughly 22% of consolidated revenues before reimbursements derive from recurring multiyear and subscription sources, including executive advisory, app maintenance, and Generative AI licenses. We observe iPaaS demand evolving toward Hackett Intelligence IP in Ask Hackett, AI Explorer, and ZBrain, fostering recurring revenue.
Company-wide adjusted cost of sales was $40,000,000, or 53.4% of revenues before reimbursements, compared to $40,500,000 or 52.3% last year. Consultant headcount ended at 1,300, down from 1,317 prior quarter but up from 1,284 year-end 2024. Adjusted gross margin on revenues before reimbursements was 46.6%, versus 47.7% prior year. Adjusted SG&A reached $20,000,000 or 26.7% of revenues before reimbursements, up from $18,400,000 or 23.7%, mainly from higher SAP license commissions.
Adjusted EBITDA was $15,900,000 or 21.3%, down from $19,500,000 or 25.2% last year. GAAP net income was $5,600,000 or $0.21 diluted EPS, improved from $3,600,000 or $0.12. Q4 2025 GAAP includes $1,800,000 ($0.08/share) in noncash stock comp and $1,100,000 ($0.04/share) acquisition costs. Prior year Q4 had $5,100,000 stock comp and $2,300,000 acquisition items, totaling $0.23/share impact, tied to LeewayHertz earnouts treated as comp under GAAP.
Adjusted net income was $10,900,000 or $0.40 diluted EPS, at guidance high, versus $0.47 prior year. Cash balances grew to $18,200,000 from $13,900,000. Operating cash flow was $19,100,000, fueled by net income post-noncash adjustments, accounts payable/accrued rises, offset by receivables growth. DSO held at 71 days sequentially, up from 66 prior year.
In 2025, strong cash enabled shareholder returns via credit facility-funded tender offer repurchasing 2,000,000 shares at $20.29/share plus fees. Including tax withholding shares, total 2,100,000 shares at $20.30 average for $42,000,000. Remaining authorization was $11,400,000; Board added $13,600,000 post-quarter to $25,000,000. Q1 dividend: $0.12/share, record March 20, pay April 3, 2026. Net borrowing $32,000,000 for tender; debt at $76,000,000.
Before guidance, note Q4-to-Q1 seasonality: higher U.S. payroll taxes, vacation accruals. Q1 2026 revenues before reimbursements: $70,500,000-$72,000,000. Global S&BT/Oracle down YoY but up sequentially; SAP up YoY. AI transition charges $1M-$1.5M (severance from GenAI leverage), excluded from adjusted; more possible in 2026. Adjusted EPS $0.34-$0.36 at 26.3% tax rate (vs. 20.1% prior, ~$0.04/share headwind). Adjusted gross margin 44-45%; SG&A/interest ~$20M; EBITDA 19.5-20.5%. Cash tempered by bonuses, tax withholding absent buybacks. Back to Ted for market outlook and priorities.
Ted A. Fernandez: Market Outlook and Strategy
Thank you, Rob. Gazing ahead, allow me to outline our perspectives on the immediate and extended demand landscape, alongside the expansive growth prospects for our firm. While digital transformation demand holds steady in conventional domains, it faces moderation from deliberate prioritization amid economic uncertainties and the complexities surrounding nascent Generative AI technologies. Organizations are navigating these dynamics with care, balancing traditional investments against the disruptive promise of AI.
