Hackett Group HCKT Earnings Call Transcript

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Date

Feb. 17, 2026 at 5 p.m. ET

Call participants

• Chairman & Chief Executive Officer — Ted A. Fernandez
• Executive Vice President & Chief Financial Officer — Robert A. Ramirez

Takeaways

• Total revenues before reimbursements -- $74,800,000, exceeding management's guidance range for the quarter.
• Adjusted EPS -- $0.40, at the high end of guidance.
• Global S&BT segment revenue -- $38,600,000, down 11% year over year and representing the largest revenue segment.
• Oracle Solutions segment revenue -- $14,000,000, a 20% year-over-year decrease but cited as expected to grow sequentially.
• SAP Solutions segment revenue -- $22,200,000, up 32% year over year, driven by strong software-related sales and S/4HANA migration demand.
• Recurring multiyear and subscription-based revenue -- 22% of total, including executive advisory, application maintenance, and GenAI license contracts.
• Adjusted gross margin (company) -- 46.6%, versus 47.7% in prior year, with gross profit impacted by segment mix and commission structure.
• Adjusted EBITDA -- $15,900,000 or 21.3% of revenues before reimbursements, compared to $19,500,000 or 25.2% in the prior year.
• GAAP net income -- $5,600,000, or $0.21 diluted per share, up from $3,600,000 and $0.12 diluted per share in prior year, with reductions in noncash stock-based compensation and acquisition expenses cited.
• Adjusted net income -- $10,900,000, or $0.40 per diluted share, compared with $0.47 in the prior year, and at the high end of guidance.
• Consultant headcount -- 1,300, slightly down from 1,317 in Q3 and up from 1,284 at year-end 2024.
• Cash balance -- $18,200,000 at period end, up from $13,900,000 at the previous quarter's close.
• Net cash from operating activities -- $19,100,000 in Q4, attributed to net income adjusted for noncash items and working capital changes.
• DSO (day sales outstanding) -- 71 days, flat sequentially, but up from 66 days one year ago.
• Share repurchases -- 2,100,000 shares acquired at average $20.30 per share totaling $42,000,000; buyback authorization increased to $25,000,000 after quarter-end.
• Debt outstanding -- $76,000,000 as of quarter-end, with $32,000,000 borrowed to fund tender offer.
• Dividend -- Board declared $0.12 per share for Q1 2026, payable April 3, 2026.
• Q1 2026 guidance: revenue -- $70,500,000 to $72,000,000; Global S&BT and Oracle segments expected down year over year but up sequentially; SAP segment up year over year.
• Q1 2026 adjusted EPS guidance -- $0.34 to $0.36; assumes 26.3% GAAP effective tax rate, an increase from 20.1% in the prior year.
• Q1 2026 adjusted gross margin guidance -- 44%-45% of revenues before reimbursements.
• Q1 2026 adjusted EBITDA guidance -- 19.5%-20.5% of revenues before reimbursements.
• AI transition charges -- $1,000,000 to $1,500,000 expected in Q1 2026, tied to headcount reductions for GenAI productivity; further charges possible through 2026.
• AI-driven productivity improvements -- Fernandez said, "we are seeing productivity improvements that could result in some numbers that will be in excess of 25%" from new GenAI platforms.
• Launch of AI Explorer v5 and expanded GenAI suite -- All GenAI-enabled platforms are now licensable, with monetization and go-to-market initiatives underway.
• Planned channel partnerships -- Management expects to "execute and launch a global go-to-market collaboration agreement" with a global consulting partner soon.
• ServiceNow partnership -- Pilot market initiative launching this month, developing industry-specific use cases for joint pursuit.
• License model strategy -- Fernandez clarified, "we are not making our platform available to clients for free," emphasizing outcome-based pricing on deliverables and platform access.

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Risks

• Management guided that both the Global S&BT and Oracle Solutions segments are expected to remain down year over year in Q1 2026.
• Guidance includes $1,000,000 to $1,500,000 in Q1 2026 AI transition charges attributable to severance from headcount reduction as labor is replaced by GenAI platforms.
• The effective GAAP tax rate for Q1 2026 is projected at 26.3%, a material increase from 20.1% in the prior year, reducing net income.
• Day sales outstanding increased to 71 days from 66 days prior year, signaling a lengthening collections cycle.

Summary

The Hackett Group (NASDAQ:HCKT) delivered revenues before reimbursements above guidance and reported adjusted EPS at the high end of its forecast, underscoring the financial contribution of its AI transition. Management highlighted the release and licensing of AI Explorer version five and other GenAI-enabled platforms, confirmed a new monetization focus on these assets, and cited accretive effects on productivity and margins already underway. A pending global partnership, a live ServiceNow pilot, and early GenAI-driven margin expansion were identified as 2026 growth levers not previously captured. Guidance for the coming quarter anticipates sequential improvement in revenue and profitability, but acknowledges several transitional headwinds, including segment-level declines and restructuring charges. Generative AI integration is expected to further shift service delivery and revenue mix as client adoption accelerates, with recurring, license-based revenue opportunities actively developed.

• The company’s share repurchase activity significantly reduced outstanding shares but materially increased leverage, with net debt rising to $76,000,000 following the tender offer.
• Adjusted SG&A as a percentage of revenues before reimbursements rose to 26.7% from 23.7% due primarily to higher commissions on SAP license sales.
• Management noted early traction in outcome-based pricing models, with clients engaging around deliverables and platform usage rather than billable rates.
• Recurring revenue now encompasses a broader suite of multiyear and subscription contracts, including newer AI and benchmarking products.

Industry glossary

• GenAI: Generative Artificial Intelligence—AI solutions that generate text, code, or other content; here, refers to delivery platforms and IP-enabled advisory tools offered by the company.
• AI Explorer (XPLR): Hackett's proprietary platform utilizing GenAI to simulate, ideate, and design enterprise AI solutions based on process intelligence and benchmarks.
• XT: GenAI-enabled business transformation platform supporting operational modeling and transformation roadmap delivery.
• AIX: Platform for enterprise application (Oracle, OneStream) implementations to drive productivity and accelerated delivery.
• Ask Hackett: AI-driven executive intelligence platform for performance benchmarking and advisory.
• S/4HANA: SAP’s suite of enterprise resource planning (ERP) applications utilized in clients' cloud migration initiatives.
• iPaaS: Integration Platform-as-a-Service—refers here to prior cloud-based integration solutions transitioning towards proprietary IP-embedded analytics.
• Day sales outstanding (DSO): A measure of the average number of days it takes the company to collect payment after a sale has been made.

Full Conference Call Transcript

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 $74,800,000 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 intrinsic value we create.

Over the past two years, we have been systematically expanding our suite of GenAI-enabled platforms to lead in the rapidly emerging AgenTek 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 2024 when we first introduced AI Explorer’s version one, and in September 2024 when we acquired the globally recognized GenAI engineering capabilities of LeewayHertz to expand our authentic design and build capabilities and also enhance our platform innovation, as well as licensing efforts. Our AI Explorer version five release is now licensable.

AI Explorer 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 Explorer 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 Explorer, 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 Ask 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 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 Explorer. 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 six months with a global technology and consulting company demonstrating and testing AI Explorer’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 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 Explorer allows us to accelerate and better inform our ideation and solutioning recommendations which allows customers to accelerate their transformation initiative. We also plan to launch a 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?

Robert A. Ramirez: Thank you, Ted. As I typically do, I will cover the following topics during this portion of the call. I will cover an overview of the fourth quarter results for 2025, along with an overview of related key operating statistics, an overview of our capital activities during the quarter, and I will then conclude with a discussion on our financial outlook for 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 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. On 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 relating to headcount reductions. We have included reconciliations of GAAP to non-GAAP financial measures in our press release filed earlier today and we will post any additional information based on the discussion 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 $74,800,000 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 $38,600,000 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 Explorer platforms. We expect Q1 revenue to be up sequentially and gross margin to be up on a year-over-year basis, both to continue to increase throughout the year. Total revenues before reimbursements from our Oracle Solutions segment were $14,000,000 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 $22,200,000 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 SuccessFactors driving S/4HANA Cloud migrations. The strong software sales were coupled with significant implementation fees, and therefore, we expect demand for 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 maintenance services, and GenAI license contracts. We are seeing the natural migration of iPaaS requests to transition to the Hackett Intelligence IP capabilities embedded in the Ask Hackett, AI Explorer, and ZBrain-related recurring revenue opportunities. Total company adjusted cost of sales totaled $40,000,000 or 53.4% of revenues before reimbursements in the fourth quarter of 2025 as compared to $40,500,000 or 52.3% of revenues before reimbursements in the prior year.

Total company consultant headcount was 1,300 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 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 $20,000,000 or 26.7% of revenues before reimbursements in the fourth quarter of 2025. This is compared to $18,400,000 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 $15,900,000 or 21.3% of revenues before reimbursements in the fourth quarter of 2025 as compared to $19,500,000 or 25.2% of revenues before reimbursements in the prior year. GAAP net income for the fourth quarter of 2025 totaled $5,600,000 or diluted earnings per share of $0.21 as compared to GAAP net income of $3,600,000 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 $1,800,000 or $0.08 per diluted share and acquisition-related cash and noncash compensation expense of $1,100,000 or $0.04 per diluted share.

Fourth quarter 2024 GAAP net income includes noncash stock compensation expense from our stock price award program of $5,100,000 and acquisition-related cash and noncash compensation-related expenses of $2,300,000 which in total impacted our Q4 2024 GAAP results by $0.23. Acquisition-related cash and noncash stock comp compensation items related to purchase consideration of the LeewayHertz acquisition. This consideration paid to the sellers contains certain 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 $10,900,000 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 $18,200,000 at the end of the fourth quarter of 2025 as compared to $13,900,000 at the end of the previous quarter. Net cash provided from operating activities in the quarter was $19,100,000 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 day 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 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 a repurchase of 2,000,000 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 2,100,000 shares of the company's stock at an average $20.30 per share for a total cost of approximately $42,000,000. Our remaining stock repurchase authorization at the end of the quarter was $11,400,000. At its most recent meeting, subsequent to quarter end, the company's Board of Directors authorized a $13,600,000 increase in the company’s share repurchase authorization bringing it to a total of $25,000,000. 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 04/03/2026.

During the quarter, the company borrowed a net of $32,000,000 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 $76,000,000. Before I move to guidance for 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 sequential increases in U.S. payroll-related taxes and the sequential buildup of our vacation pools. The company estimates total revenues before reimbursements for the first quarter of 2026 to be in the range of $70,500,000 to $72,000,000.

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 $1,000,000 to $1,500,000. These charges are primarily related to severance costs due to headcount reductions from the leverage of our GenAI 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 a 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 $20,000,000.

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 through 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.

Ted A. Fernandez: 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 confusion of emerging GenAI technologies and what they offer. We have not been surprised by the powerful potential of 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 hybrid 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, 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 solutions. This is without even considering what it takes to fully then execute 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 era 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 hypergrowth automation environment. Based on our estimates, the automation expansion opportunity is somewhere between three to five times the existing automation footprint which exists today. Imagine all of the change that has 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 effect those changes. One of the critical questions that AI Explorer answers is what automation required by a proposed AI solution 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 to software and services companies as the current stock market volatility of that sector suggests? The answer is 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 will be delivered when and as existing automation footprints extend into cognitive and agentic workflows, and, therefore, who will provide it. Increasing automation opportunity should more than offset any disruption that software and services providers 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 will be key to accelerating the adoption. The unlimited potential of GenAI will define entirely new levels of AI world-class performance standards, driving all software and services providers to extend the value of their existing offerings with the introduction of AgenTek AI capability. We believe this will result in unprecedented innovations which all organizations will have to consider. The shift is consistent with our aggressive pivot to GenAI-enabled transformation which we believe creates a unique value creation opportunity for our organization.

We believe that the platforms that we have deployed and the unique capabilities of AI Explorer 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, and 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 urge them to stay highly focused on our clients and our people no matter what challenges we may encounter. Those conclude my comments. I will now turn the call over to our operator, and we will move on to the Q&A section of our call. Operator? Thank you.

Operator: Thank you, sir. At this time, if you would like to ask a question, please press 1. And you may press 2 to withdraw your question. Our first caller is George Frederick Sutton with Craig-Hallum. Your line is open, sir.

Ted A. Fernandez: Thank you. George, you threw out a couple big there, so I wanted to bite. First, on the six-month demonstration and testing work that you have 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 are 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 Explorer are really distinct. I am going to, yeah.

I know it sounds repetitive, but I want you to know where we believe we are. We just have extreme capability which continues to be very distinct. Our ability to first simulate an entire industry's AI opportunities across 26 industries and our ability to do so with AI Explorer 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 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, the acquisition of LeewayHertz allowed us to expand the solution design module of AI Explorer 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 are trying to pursue a specific area of their business or evaluate the performance of a specific area of the business. Our ability to use our AI Explorer capability to provide our partners with, and their clients with, significant productivity ideas supported by digital 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 Hackett, the credibility of the brand, and then the unique capability of AI Explorer.

So 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, I do not know if 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 would be going to market with them and any more details on that plan?

You know, 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 is a pilot to target. We have recommended, and we 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 is interesting because, obviously, the other parts we are talking about are go-to 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 two new platforms at the end of the year which include XT for our transformation professionals. This is where we do operational modeling and transformation roadmaps for clients, as well as AIX, originally known as Accelerator, which we use to help deliver our technology implementation solutions. We have rolled out that on the transformation side.

I believe that there are now 10 clients where we are leveraging this new capability to deliver the targeted outcome for the client and we think we are seeing productivity improvements 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 do not 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 cannot, then we will realize margin expansion as we believe we have already started to experience in Q1.

The Accelerator platform launched initially through our OneStream group, and it is 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 in an industry. I will just say, we had limited take 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 have now got it in front of two or three other opportunities.

So we are just seeing some success, but we clearly know that we have built the initial capability that looks at how to really eliminate what I will call production or data gathering or execution cost that would have been generally done by some of our junior consultants. Not that we have many of them because that is not the way our enterprise model works. But there is no doubt that our ability to take that and deliver a much more powerful outcome on a similar opportunity that we would have had without the new AIX capability is distinct and it is significant.

If we are able to demonstrate that enhanced capability with a high level of confidence leveraging the IP and the brand, the Hackett brand that people come to rely on and trust, we are going to capture a meaningful amount of those gains. The client will get a higher and better result at accelerated speed. And we will be able to provide that with, I will call it, people leading the implementations but being powerfully supported by these new platforms.

Since we just rolled out the platforms, and we started and launched 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. Super. Thank you. Appreciate it. You, George.

Operator: Thank you. Once again, if you would like to ask a question, please press 1. Our next caller is Jeffrey Michael Martin with Roth Capital Partners. Your line is open, sir.

Jeffrey Michael Martin: Thank you. Good evening, Ted and Rob. 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.

Ted A. Fernandez: We just, like we said, we announced that, I believe, it was in January. So we expect to start licensing the product here as we progress throughout the year. The product has been utilized in the version four capabilities to assist the delivery of a consulting engagement. But after a consulting engagement, once the client is exposed, then now if they would like to continue to either ideate opportunities on their own, because the module now resulted in two 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 of that capability.

So we expect to expose clients to version five, as we are, on any and all the engagements that we are launching. And then we expect clients to decide how they would like to avail themselves of those platforms. So they will make that determination.

Jeffrey Michael Martin: Got it. And then you mentioned that you are not quoting on rate anymore. You are quoting on outcome. I was curious if you could elaborate on that so we can understand that from a financial model point of view.

Ted A. Fernandez: We evaluate each job and respond to the client requirements. And we quote the completion of the tasks 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 are in a transition period, but we are not making our platform available to clients for free. Let us make sure that is clear.

We believe that it results in an accelerated deployment which the client values, and value realization and a greater value to any of these engagements that we have, whether we are doing AI discovery and solutioning with Explorer, business transformation with XT, or an Oracle or OneStream implementation for now using AIX.

Jeffrey Michael Martin: 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?

Ted A. Fernandez: Entirely up to them. They obviously have been exposed to and understand the capability of our engineering capabilities. So it will be determined on an engagement-by-engagement basis. Thank you.

Operator: Thank you. Our next caller is Vincent Alexander Colicchio with Barrington Research. Your line is open, sir.

Vincent Alexander Colicchio: Yeah. Ted, can you give us an update on the pieces within the business, how they are trending?

Ted A. Fernandez: Specifically, which ones are you thinking about, Vince? Is there something specific you have in mind? Or

Vincent Alexander Colicchio: No. Nothing specific. Just to get a sense for how things are trending. You know, you talked about the AI piece.

Ted A. Fernandez: We 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 is pretty well given the current environment. So the integration of our GenAI, or the introduction of our GenAI program, and now the fact that we are also providing our members with access to ideation capabilities of AI Explorer so that they can get, I mean, exposed to actionable AI opportunity identification through their program, we believe, is also helping. So that performed, I am 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. Group of S&BT is, like, as Rob says, expected to be up sequentially from Q4 to Q1. Same with Oracle. Same with 2025, we saw the, I 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 do not know if that is the background that you wanted or do you have something more specific, Vince?

Vincent Alexander Colicchio: That is helpful. And then with SAP and Oracle improving and expected to improve throughout the year, I assume we will still see a mix shift towards AI for the next twelve months. Is that accurate?

Ted A. Fernandez: Oh, yes. Absolutely. Yeah. Okay. Yeah. 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 is reflective on 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. Thanks, Ted.

Operator: Thank you. And at this time, I show no further questions. I will now turn the call back over to Mr. Fernandez.

Ted A. Fernandez: I would like to thank everyone for participating on our fourth quarter earnings call. We look forward to updating everyone again when we report the first quarter. Thank you, everyone.

Operator: Thank you. This concludes today's conference call. You may go ahead and disconnect at this time.

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