PART I - FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for the three and six months ended June 27, 2025, including Balance Sheets, Statements of Operations, Comprehensive Income, Cash Flows, and Shareholders' Equity, along with detailed Notes to the Financial Statements Consolidated Balance Sheet Highlights (Unaudited) | Account | June 27, 2025 ($ millions) | December 27, 2024 ($ millions) | | :--- | :--- | :--- | | **Total Assets** | **200.516** | **191.877** | | Total Current Assets | 80.207 | 76.346 | | Goodwill | 91.135 | 89.782 | | **Total Liabilities** | **80.714** | **76.303** | | Total Current Liabilities | 46.996 | 53.128 | | Long term debt, net | 22.774 | 12.734 | | **Total Shareholders' Equity** | **119.802** | **115.574** | Consolidated Statements of Operations Highlights (Unaudited) | Metric | Q2 2025 ($ millions) | Q2 2024 ($ millions) | Six Months 2025 ($ millions) | Six Months 2024 ($ millions) | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | **78.899** | **77.656** | **156.764** | **154.843** | | Income from Operations | 4.595 | 12.516 | 8.998 | 24.041 | | **Net Income** | **1.661** | **8.748** | **4.804** | **17.479** | | Diluted EPS | $0.06 | $0.31 | $0.17 | $0.63 | Consolidated Statements of Cash Flows Highlights (Unaudited) | Cash Flow Activity | Six Months Ended June 27, 2025 ($ millions) | Six Months Ended June 28, 2024 ($ millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | 9.843 | 16.511 | | Net cash used in investing activities | (4.221) | (1.832) | | Net cash used in financing activities | (11.801) | (16.477) | | **Net decrease in cash** | **(6.224)** | **(1.811)** | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the basis of financial statement presentation, significant accounting policies, and key events, including acquisitions, segment structure, a new stock compensation program, and upcoming restructuring charges - The company acquired LeewayHertz, an AI technology consulting firm, for **$7.8 million**, resulting in **$5.9 million** of goodwill and **$2.5 million** in intangible assets. This is part of a strategy to lead in Gen AI solutions[26](index=26&type=chunk)[27](index=27&type=chunk) - In May 2025, the company acquired assets from Spend Matters, a procurement and supply chain intelligence provider, for **$0.766 million** in cash, recognizing **$2.0 million** in provisional intangible assets[30](index=30&type=chunk) Disaggregated Revenue by Segment (Six Months Ended) | Segment | June 27, 2025 ($ millions) | June 28, 2024 ($ millions) | YoY Change | | :--- | :--- | :--- | :--- | | Global S&BT | 87.562 | 83.154 | +5.3% | | Oracle Solutions | 41.887 | 44.774 | -6.4% | | SAP Solutions | 27.315 | 26.915 | +1.5% | | **Total Segment Revenue** | **156.764** | **154.843** | **+1.2%** | - A new stock price award program was introduced for executives with performance-based RSUs tied to stock price hurdles of $30, $40, and $50. This program resulted in significant non-cash stock compensation expense of **$10.3 million** for the first six months of 2025[71](index=71&type=chunk)[74](index=74&type=chunk) - The company anticipates restructuring charges of approximately **$1.5 million to $2.0 million** in Q3 2025, primarily for severance costs, as it pivots its business towards Gen AI and adjusts staffing levels[95](index=95&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's strategic pivot to a Gen AI-focused consulting firm, leveraging recent acquisitions and proprietary platforms, detailing financial results, revenue growth, increased operating costs, and liquidity strategy - The company is aggressively repositioning as a global IP platform-based Generative AI (Gen AI) strategic consulting firm, leveraging its AI XPLR platform and the newly acquired ZBrain platform from LeewayHertz[101](index=101&type=chunk)[103](index=103&type=chunk) - The effective tax rate for Q2 2025 was **60.7%**, a sharp increase from **27.1%** in Q2 2024. This was primarily due to the limitation of executive compensation deductions related to the new stock price award program[128](index=128&type=chunk) [Results of Operations](index=28&type=section&id=MD%26A%20-%20Results%20of%20Operations) Total revenue for Q2 2025 increased slightly to $78.9 million, with growth in Global S&BT and SAP Solutions offset by Oracle Solutions decline, while operating costs rose significantly due to stock compensation, leading to lower net income Segment Revenue Performance (Q2 2025 vs Q2 2024) | Segment | Q2 2025 ($ millions) | Q2 2024 ($ millions) | YoY Change | | :--- | :--- | :--- | :--- | | Global S&BT | 44.2 | 42.3 | +4.6% | | Oracle Solutions | 20.8 | 23.0 | -9.7% | | SAP Solutions | 13.9 | 12.3 | +12.5% | - Personnel costs increased to **63% of total revenue** in Q2 2025 from **58%** in Q2 2024, primarily due to the stock price award program and acquisition-related non-cash stock compensation[116](index=116&type=chunk) - SG&A costs rose to **$23.4 million** in Q2 2025 from **$18.0 million** in Q2 2024, also driven by increased non-cash stock compensation from the new award program[119](index=119&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=MD%26A%20-%20Liquidity%20and%20Capital%20Resources) As of June 27, 2025, the company had $10.1 million in cash, with net cash from operations decreasing to $9.8 million, primarily used for share repurchases and dividends, partially funded by a credit facility drawdown Cash Flow Summary (Six Months Ended) | Activity | June 27, 2025 ($ millions) | June 28, 2024 ($ millions) | | :--- | :--- | :--- | | Cash from Operating Activities | 9.843 | 16.511 | | Cash used in Investing Activities | (4.221) | (1.832) | | Cash used in Financing Activities | (11.801) | (16.477) | - Major uses of cash in the first six months of 2025 included **$10.5 million** for common stock repurchases and **$6.3 million** for dividend payments[83](index=83&type=chunk)[86](index=86&type=chunk)[133](index=133&type=chunk) - The company drew down **$10.0 million** from its credit facility, ending the period with **$23.0 million** in outstanding debt and approximately **$77.0 million** in remaining borrowing capacity[133](index=133&type=chunk)[134](index=134&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company identifies interest rate risk from its variable-rate credit facility and foreign currency exchange rate risk from international operations as primary market exposures, noting minimal material impact from interest rate changes - The primary market risk exposure relates to variable interest rates on the company's Credit Facility[137](index=137&type=chunk) - The company is exposed to foreign currency fluctuations as a portion of its revenue and expenses are denominated in British Pounds, Euros, and Australian Dollars[138](index=138&type=chunk) [Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 27, 2025, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 27, 2025[139](index=139&type=chunk) - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[140](index=140&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings arising in the ordinary course of business, with management expecting no material adverse effect on financial position, cash flows, or results of operations - The company states that ongoing legal proceedings arising from the ordinary course of business are not expected to have a material adverse effect on its financial results[142](index=142&type=chunk) [Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) The report indicates that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 27, 2024 - There have been no material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 27, 2024[143](index=143&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q2 2025, the company repurchased 177,000 shares for $4.3 million, with $17.0 million remaining under authorization, and an additional $13.0 million approved by the Board post-quarter Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid per Share | Total Cost ($ millions) | | :--- | :--- | :--- | :--- | | Q2 2025 | 177,000 | $24.47 | 4.3 | - As of June 27, 2025, **$17.0 million** remained available for future purchases under the repurchase plan[144](index=144&type=chunk) - Subsequent to the quarter's end, the Board of Directors increased the share repurchase authorization by an additional **$13.0 million**[144](index=144&type=chunk) [Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q report, including CEO and CFO certifications required by Sarbanes-Oxley Act and interactive data files - The filing includes required certifications by the CEO (Exhibit 31.1) and CFO (Exhibit 31.2) pursuant to the Sarbanes-Oxley Act of 2002[147](index=147&type=chunk)

Group 1: Earnings Performance - Hackett Group reported quarterly earnings of $0.38 per share, matching the Zacks Consensus Estimate, but down from $0.39 per share a year ago [1] - The company posted revenues of $77.63 million for the quarter ended June 2025, exceeding the Zacks Consensus Estimate by 1.30% and up from $75.9 million year-over-year [2] - Over the last four quarters, Hackett Group has surpassed consensus EPS estimates three times and topped consensus revenue estimates four times [2][3] Group 2: Stock Performance and Outlook - Hackett Group shares have declined approximately 24.2% since the beginning of the year, contrasting with the S&P 500's gain of 7.6% [3] - The company's earnings outlook is crucial for assessing future stock performance, with current consensus EPS estimates at $0.43 for the coming quarter and $1.64 for the current fiscal year [4][7] - The estimate revisions trend for Hackett Group was mixed ahead of the earnings release, resulting in a Zacks Rank 3 (Hold), indicating expected performance in line with the market [6] Group 3: Industry Context - The Consulting Services industry, to which Hackett Group belongs, is currently ranked in the top 12% of over 250 Zacks industries, suggesting a favorable outlook [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Financial Data and Key Metrics Changes - The company reported revenues before reimbursements of $77.6 million, an increase of 2% over the prior year, which was above the high end of quarterly guidance [15] - Adjusted earnings per share were $0.38, at the midpoint of the earnings guidance range, compared to $0.39 in the prior year [20] - GAAP net income totaled $1.7 million, or diluted earnings per share of $0.06, down from $8.7 million or $0.31 in the previous year [19] - Adjusted gross margin was 42.8%, compared to 42.3% in the prior quarter [18] - Days sales outstanding (DSO) remained at 73 days, compared to 68 days from the prior year [21] Business Line Data and Key Metrics Changes - The Global S and BT segment reported revenues of $43.6 million, a 5% increase year-over-year, with GenAI consulting and implementation offerings driving growth [15][16] - The Oracle Solutions segment saw revenues decrease by 7.5% to $20.5 million, primarily due to the wind-down of a large engagement [17] - The SAP Solutions segment reported revenues of $13.5 million, an increase of 11% year-over-year, driven by increased software sales activity [17] - Excluding the OneStream practice, the GSBT segment was up 10% [7] Market Data and Key Metrics Changes - Approximately 21% of total revenues consist of recurring multiyear and subscription-based revenues [17] - The company expects global S and BT and SAP Solutions segment revenue to increase compared to the prior year, while Oracle Solutions segment revenue is expected to decline by over 20% [23] Company Strategy and Development Direction - The company is focusing on Generative AI (GenAI) solutions, viewing it as a generational opportunity that will change consulting services delivery [8][27] - A strategic partnership with Salonis was announced to enhance AI Explorer and ZBrain capabilities, aiming to accelerate growth in the GenAI space [6][41] - The company is investing in its AI Explorer platform, with a new version expected to significantly enhance its capabilities [30] - The acquisition of Leeway Hertz is aimed at expanding GenAI implementation capabilities [27] Management's Comments on Operating Environment and Future Outlook - Management noted that while demand for digital transformation remains strong, it is impacted by economic concerns and decision-making processes [26] - IT budgets are expected to increase, particularly for GenAI initiatives, which are seen as high-impact areas [26] - The company anticipates restructuring charges in Q3 due to adjustments in headcount to align with GenAI productivity improvements [23] Other Important Information - The company repurchased 180,000 shares at an average price of $24.5 per share, totaling approximately $4.4 million [22] - The board declared a third-quarter dividend of $0.12 per share [22] Q&A Session Summary Question: Discussion on Explorer 3.0 and interest levels - Management indicated that while services related to AI Explorer are seeing interest, licensing for the product has not yet been released due to ongoing improvements [36][37] Question: Status of strategic partnerships - A strategic alliance with Salonis was announced, which is expected to enhance market offerings [41][42] Question: Oracle segment challenges - Management acknowledged challenges in replacing a large engagement in the Oracle segment, impacting Q2 results and expected to continue into Q3 [44] Question: OneStream performance outlook - Management expects the impact from OneStream to decrease significantly in Q4, providing a cleaner comparison [48] Question: Examples of GenAI applications - Key areas of focus include customer service and revenue management, with significant engagement from clients in these areas [49] Question: Clarity on elevated uncertainty affecting client decisions - Management believes initial uncertainties had little impact on Q2, with expectations for demand to increase as clients understand GenAI's potential [51]

Second Quarter 2025 Results Overview [Management Commentary](index=1&type=section&id=Management%20Commentary) Management reported strong Q2 2025 operating results, exceeding revenue guidance and meeting adjusted EPS targets, while accelerating development of Gen AI platforms like AI XPLR V4 to drive future growth - Operating results were strong, with **revenue above guidance** and **adjusted EPS at the mid-range of guidance**[3](index=3&type=chunk) - The company is aggressively investing in and growing its **Generative AI (Gen AI) platforms** and associated revenues[3](index=3&type=chunk) - A key innovation this quarter was the accelerated release of **AI XPLR V4**, which helps clients design Gen AI solutions and workflows with unprecedented speed, a capability expected to drive future growth[3](index=3&type=chunk) [Financial Highlights](index=1&type=section&id=Financial%20Highlights) Total revenue in Q2 2025 increased to **$78.9 million**, exceeding guidance, while GAAP diluted EPS was **$0.06** and adjusted diluted EPS was **$0.38**, with capital actively managed through share repurchases and dividend declarations Q2 2025 Key Financial Results vs. Q2 2024 | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Total Revenue | $78.9 million | $77.7 million | | Revenue before reimbursements | $77.6 million | $75.9 million | | GAAP Diluted EPS | $0.06 | $0.31 | | Adjusted Diluted EPS | $0.38 | $0.39 | - Q2 2025 GAAP net income was significantly impacted by **$5.1 million** ($0.18 per share) in non-cash compensation from a stock price award program and **$2.5 million** ($0.07 per share) in acquisition-related expenses[6](index=6&type=chunk) - The company repurchased **180,000 shares** for **$4.4 million** and declared a third-quarter dividend of **$0.12 per share**[6](index=6&type=chunk) - The Board of Directors increased the share repurchase program authorization by **$13.0 million**, bringing the total available to **$30.0 million**[6](index=6&type=chunk) [Business Outlook for the Third Quarter of 2025](index=1&type=section&id=Business%20Outlook%20for%20the%20Third%20Quarter%20of%202025) For Q3 2025, The Hackett Group anticipates total revenue before reimbursements to range from **$73.0 million to $74.5 million**, with adjusted diluted EPS projected between **$0.36 and $0.38** Q3 2025 Guidance | Metric | Guidance Range | | :--- | :--- | | Total Revenue (before reimbursements) | $73.0 million - $74.5 million | | Adjusted Diluted EPS | $0.36 - $0.38 | Financial Statements [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) In Q2 2025, total revenue slightly increased to **$78.9 million**, but a significant rise in costs and operating expenses led to a sharp decline in operating income to **$4.6 million** and net income to **$1.7 million** ($0.06 per diluted share) Q2 2025 vs Q2 2024 Statement of Operations (in thousands) | Line Item | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Total Revenue | $78,899 | $77,656 | | Total Costs and Operating Expenses | $74,304 | $65,140 | | Operating Income | $4,595 | $12,516 | | Net Income | $1,661 | $8,748 | | Diluted EPS | $0.06 | $0.31 | - The increase in total costs was driven by higher **personnel costs**, which rose to **$49.7 million** from **$45.4 million**, and a rise in **SG&A costs** to **$23.4 million** from **$18.0 million** year-over-year, both including substantially higher non-cash stock-based compensation[14](index=14&type=chunk) [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 27, 2025, total assets increased to **$200.5 million**, while cash decreased to **$10.1 million** and long-term debt rose to **$22.8 million**, with shareholders' equity growing to **$119.8 million** Balance Sheet Highlights (in thousands) | Account | June 27, 2025 | Dec 27, 2024 | | :--- | :--- | :--- | | Cash | $10,142 | $16,366 | | Total Assets | $200,516 | $191,877 | | Long-term debt | $22,774 | $12,734 | | Total Liabilities | $80,714 | $76,303 | | Shareholders' Equity | $119,802 | $115,574 | [Segment Profit](index=6&type=section&id=Segment%20Profit) In Q2 2025, Global S&BT and SAP Solutions segments showed revenue and contribution growth, while the Oracle Solutions segment experienced declines in both revenue and contribution year-over-year Q2 2025 Segment Performance vs. Q2 2024 (in thousands) | Segment | Revenue (Q2'25) | Revenue (Q2'24) | Contribution (Q2'25) | Contribution (Q2'24) | | :--- | :--- | :--- | :--- | :--- | | Global S&BT | $43,611 | $41,562 | $12,988 | $12,750 | | Oracle Solutions | $20,494 | $22,157 | $4,451 | $5,368 | | SAP Solutions | $13,524 | $12,177 | $3,892 | $3,252 | - Total segment contribution remained relatively flat at **$21.3 million** in Q2 2025 compared to **$21.4 million** in Q2 2024[16](index=16&type=chunk) - Items not allocated to segments, including corporate expenses and stock compensation, significantly impacted overall profitability, reducing the total segment contribution of **$21.3 million** to an income before taxes of **$4.2 million**[16](index=16&type=chunk) Supplemental Information [Reconciliation of GAAP to Non-GAAP Measures](index=7&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Measures) For Q2 2025, GAAP net income of **$1.7 million** was adjusted upwards by **$5.1 million** for a stock price award program and **$2.8 million** for other non-cash stock compensation, resulting in an adjusted net income of **$10.7 million** ($0.38 per diluted share) Q2 2025 GAAP to Non-GAAP Reconciliation (in thousands) | Line Item | Amount | | :--- | :--- | | **GAAP NET INCOME** | **$1,661** | | Non-cash stock based compensation | $2,814 | | Stock price award program compensation | $5,142 | | Acquisition-related expenses (cash & non-cash) | $2,073 | | Other adjustments | $425 | | Tax effect of adjustments | ($1,424) | | **ADJUSTED NET INCOME** | **$10,691** | - The most significant adjustments, totaling over **$9.7 million** before tax effects, were related to equity compensation, excluded to better represent ongoing operational results[19](index=19&type=chunk)[20](index=20&type=chunk)[23](index=23&type=chunk) [Supplemental Financial Data](index=8&type=section&id=Supplemental%20Financial%20Data) Supplemental data indicates a year-over-year increase in total headcount to **1,685**, a decrease in top 10 customer concentration to **27%**, and an increase in Days Sales Outstanding (DSO) to **73 days** Key Metrics Comparison | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Consultant Headcount | 1,382 | 1,145 | | Total Headcount | 1,685 | 1,409 | | Days Sales Outstanding (DSO) | 73 | 68 | | Top 10 Customer Concentration | 27% | 33% | - Cash provided by operating activities was **$5.6 million** in Q2 2025, a decrease from **$13.7 million** in Q2 2024[24](index=24&type=chunk) - The company continued its share repurchase activity, buying back **177,000 shares** for **$4.3 million** during the quarter, leaving **$17.0 million** in its authorization plan at quarter-end[24](index=24&type=chunk)

PART I - FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents The Hackett Group, Inc.'s unaudited consolidated financial statements for Q1 2025, detailing financial position, operational performance, and cash flows [Consolidated Financial Statements (Tables)](index=4&type=section&id=Consolidated%20Financial%20Statements) Consolidated financial statements show a slight revenue increase to **$77.9 million** but a significant net income decrease to **$3.1 million** in Q1 2025, primarily due to rising operating expenses Consolidated Statements of Operations (Q1 2025 vs Q1 2024) | Metric | Q1 2025 (ended Mar 28) | Q1 2024 (ended Mar 29) | Change | | :--- | :--- | :--- | :--- | | **Total Revenue** | $77.9 million | $77.2 million | +0.9% | | **Income from Operations** | $4.4 million | $11.5 million | -61.8% | | **Net Income** | $3.1 million | $8.7 million | -63.9% | | **Diluted EPS** | $0.11 | $0.32 | -65.6% | Consolidated Balance Sheet Highlights (as of Mar 28, 2025) | Account | March 28, 2025 | December 27, 2024 | | :--- | :--- | :--- | | Cash | $9.2 million | $16.4 million | | Accounts Receivable & Contract Assets, net | $62.6 million | $57.1 million | | Goodwill | $90.2 million | $89.8 million | | Total Assets | $191.8 million | $191.9 million | | Long Term Debt, net | $17.8 million | $12.7 million | | Total Liabilities | $77.3 million | $76.3 million | | Total Shareholders' Equity | $114.4 million | $115.6 million | Consolidated Statements of Cash Flows (Q1 2025 vs Q1 2024) | Cash Flow Activity | Q1 2025 (ended Mar 28) | Q1 2024 (ended Mar 29) | | :--- | :--- | :--- | | Net cash provided by operating activities | $4.2 million | $2.8 million | | Net cash used in investing activities | ($1.5 million) | ($0.9 million) | | Net cash used in financing activities | ($9.7 million) | ($9.8 million) | | **Net decrease in cash** | **($7.2 million)** | **($8.0 million)** | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail key accounting policies and events, including the LeewayHertz acquisition, a new executive stock compensation program, increased debt, and segment performance breakdown - The company acquired LeewayHertz Technologies in September 2024 for a provisional consideration of **$7.8 million**, resulting in **$5.9 million** of goodwill and **$2.5 million** of intangible assets, enhancing its Generative A.I. capabilities[26](index=26&type=chunk)[27](index=27&type=chunk) - A new stock price award program was introduced for executives in September 2024, with vesting tied to share price hurdles (**$30, $40, $50**) and service conditions, leading to **$5.1 million** in non-cash stock compensation expense for this program in Q1 2025[66](index=66&type=chunk)[69](index=69&type=chunk) - Outstanding debt under the credit facility increased to **$18.0 million** as of March 28, 2025, from **$13.0 million** at the end of 2024, with an aggregate borrowing capacity of **$100.0 million**[61](index=61&type=chunk)[65](index=65&type=chunk) Segment Revenue (Q1 2025 vs Q1 2024) | Segment | Q1 2025 Revenue | Q1 2024 Revenue | Change | | :--- | :--- | :--- | :--- | | Global S&BT | $43.4 million | $40.9 million | +6.1% | | Oracle Solutions | $21.1 million | $21.7 million | -2.8% | | SAP Solutions | $13.4 million | $14.6 million | -8.2% | | **Total** | **$77.9 million** | **$77.2 million** | **+0.9%** | [Management's Discussion and Analysis (MD&A)](index=28&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the strategic shift to Gen AI consulting, noting a slight revenue increase to **$77.9 million** but a sharp operating income decline to **$4.4 million** due to increased stock compensation and SG&A costs - The company is aggressively positioning itself as a Gen AI strategic consulting firm, highlighted by the launch of its AI XPLR platform and the acquisition of LeewayHertz with its ZBrain platform[88](index=88&type=chunk)[89](index=89&type=chunk)[90](index=90&type=chunk) - Global S&BT segment revenue grew **6.1%** to **$43.4 million**, driven by Gen AI consulting and implementation offerings, partially offset by declines in Oracle Solutions (**-2.8%**) and SAP Solutions (**-8.2%**) revenues[97](index=97&type=chunk)[98](index=98&type=chunk)[99](index=99&type=chunk) - Operating expenses increased significantly due to non-cash stock compensation, with personnel costs rising by **$2.6 million (6%)** and SG&A costs by **$5.1 million (28%)**, primarily from the new stock price appreciation equity program[102](index=102&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk) - Cash and cash equivalents decreased from **$16.4 million** to **$9.2 million** during the quarter, with **$4.2 million** from operations, while financing activities used **$9.7 million** for share repurchases (**$6.2 million**), dividends (**$3.0 million**), and taxes on stock vesting (**$5.5 million**)[115](index=115&type=chunk)[117](index=117&type=chunk)[119](index=119&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks include interest rate risk from its variable-rate credit facility and foreign currency exchange risk from operations in British Pounds, Euros, and Australian Dollars - Exposure to interest rate risk is linked to the variable-rate Credit Facility, where a 100-basis point increase in interest rates would not have had a material impact on Q1 2025 results[123](index=123&type=chunk) - The company is exposed to foreign currency fluctuations as a portion of its business is conducted in British Pounds, Euros, and Australian Dollars[124](index=124&type=chunk) [Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 28, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[125](index=125&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[126](index=126&type=chunk) [Other Information](index=35&type=section&id=Item%205.%20Other%20Information) No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q1 2025 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement in Q1 2025[127](index=127&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, but management does not expect a material adverse effect on financial position, cash flows, or results of operations - Management believes that the disposition of ongoing legal proceedings will not have a material adverse effect on the company's financials[128](index=128&type=chunk) [Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 27, 2024, were reported - No material changes to the risk factors from the latest Annual Report on Form 10-K were reported[129](index=129&type=chunk) [Issuer Purchases of Equity Securities](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In Q1 2025, The Hackett Group repurchased **206,000** shares for **$6.2 million** at an average price of **$30.16**, with **$21.3 million** remaining for future repurchases Share Repurchase Activity (Q1 2025) | Metric | Value | | :--- | :--- | | Total Shares Repurchased | 205,569 | | Average Price Paid per Share | $30.16 | | Total Cost | $6.2 million | | Remaining Authorization | $21.3 million | [Exhibits](index=37&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents for interactive data - The filing includes required CEO and CFO certifications (Exhibits 31.1, 31.2, 32) and interactive data files (Exhibits 101, 104)[134](index=134&type=chunk)

Core Viewpoint - Hackett Group reported quarterly earnings of $0.41 per share, exceeding the Zacks Consensus Estimate of $0.40 per share, and showing an increase from $0.39 per share a year ago, indicating a positive earnings surprise of 2.50% [1] - The company also posted revenues of $76.23 million for the quarter, surpassing the Zacks Consensus Estimate by 0.46% and reflecting a year-over-year increase from $75.73 million [2] Financial Performance - Hackett Group has consistently surpassed consensus EPS estimates over the last four quarters, achieving this milestone four times [2] - The company experienced an earnings surprise of 11.90% in the previous quarter, where actual earnings were $0.47 compared to an expected $0.42 [1][2] Stock Performance - Hackett Group shares have declined approximately 13.2% since the beginning of the year, contrasting with the S&P 500's decline of 3.9% [3] - The current Zacks Rank for Hackett Group is 3 (Hold), indicating that the shares are expected to perform in line with the market in the near future [6] Future Outlook - The consensus EPS estimate for the upcoming quarter is $0.43, with projected revenues of $78.89 million, and for the current fiscal year, the estimate is $1.74 on revenues of $316.92 million [7] - The outlook for the consulting services industry is favorable, as it currently ranks in the top 30% of over 250 Zacks industries, suggesting potential for outperformance [8]

Financial Data and Key Metrics Changes - Total revenue for the first quarter of 2025 was $77.9 million, up 1% year-over-year, with revenues before reimbursements at $76.2 million, also up 1% [15][22] - Adjusted earnings per share were $0.41, at the high end of quarterly guidance, compared to $0.39 in the prior year [6][22] - GAAP net income for Q1 2025 was $3.1 million or diluted earnings per share of $0.11, down from $8.7 million or $0.32 in the previous year [20][22] - Adjusted gross margin improved to 43.4% from 41.4% year-over-year, driven by higher margin GenAI consulting and implementation revenue [19] Business Line Data and Key Metrics Changes - Global SMBT segment revenues were $43.4 million, with revenues before reimbursements at $42.6 million, a 6% increase year-over-year [15][16] - Oracle Solutions segment revenues were $21.1 million, with revenues before reimbursements down 3% year-over-year [16] - SAP Solutions segment revenues were $13.4 million, with revenues before reimbursements down 8% year-over-year, but expected to improve due to increased software sales [17] Market Data and Key Metrics Changes - Approximately 23% of total revenues before reimbursements were recurring, multi-year, and subscription-based revenues [18] - Days sales outstanding (DSO) increased to 73 days from 66 days in the previous quarter, attributed to extended terms on large client engagements [22] Company Strategy and Development Direction - The company is focusing on GenAI enabled transformations, viewing it as a generational opportunity that will change consulting services delivery [7][26] - The acquisition of Leeway Hertz and the development of the ZBrain platform are strategic moves to enhance GenAI capabilities [28][29] - The company plans to leverage its AI Explorer platform to integrate GenAI capabilities across all offerings, enhancing its competitive position [31][32] Management's Comments on Operating Environment and Future Outlook - Management noted that while demand for digital transformation remains strong, economic uncertainties and tariff negotiations could impact client decision-making [25][48] - The company expects IT budgets to increase, particularly for GenAI initiatives, with a shift from awareness to budgeted projects [25][26] - Management anticipates continued growth in GenAI revenue, with licensing revenues expected to start in July 2025 [51] Other Important Information - The company repurchased 379,000 shares at an average price of $30.93, totaling approximately $11.7 million [23] - A second-quarter dividend of $0.12 per share was declared, payable on July 7, 2025 [23] Q&A Session Summary Question: Can you elaborate on client interactions with AI Explorer and the pipeline for implementation projects? - Management highlighted unique capabilities in ideation and evaluation, leading to favorable client reactions and new engagements [38][39] Question: What is the current capacity for AI implementation and plans for scaling? - Management indicated a 60% to 70% increase in capacity since acquisitions, with ongoing hiring to expand resources [42][43] Question: What is the progress of the joint venture with ZBrain? - Management confirmed the addition of licensed clients to the ZBrain platform and expected to finalize the JV agreement soon [44] Question: How does economic disruption impact the business? - Management acknowledged the potential for clients to pause decisions due to economic concerns but noted strong engagement in GenAI capabilities [48][49] Question: What is the expected impact of GenAI on 2025 results? - Management expects meaningful growth in ARR and licensing revenues, with a focus on channel partnerships to enhance distribution [50][53] Question: What portion of AI revenue was implementation revenue in the quarter? - Management estimated a 50-50 split between implementation and ideation revenue, with expectations for implementation to grow significantly [61] Question: How is the pipeline looking for Oracle? - Management indicated that Oracle's activity is expected to be down, while SAP's momentum is improving [64]

Financial Data and Key Metrics Changes - The company reported total revenue of $77.9 million, up 1% year-over-year, with revenues before reimbursements at $76.2 million, also up 1% [13] - Adjusted earnings per share were $0.41, at the high end of quarterly guidance, compared to $0.39 in the prior year [19] - GAAP net income for the quarter was $3.1 million, or diluted earnings per share of $0.11, down from $8.7 million or $0.32 in the previous year [18] - Adjusted gross margin improved to 43.4% from 41.4% in the prior year, driven by higher margin GenAI consulting and implementation revenue [17] Business Line Data and Key Metrics Changes - The Global SMBT segment revenues were $43.4 million, with revenues before reimbursements at $42.6 million, a 6% increase year-over-year [13] - The Oracle Solutions segment saw revenues of $21.1 million, down 3% year-over-year, primarily due to the wind down of a large engagement [14] - The SAP Solutions segment reported revenues of $13.4 million, down 8% year-over-year, but expected to see strong demand due to increased software sales [15] Market Data and Key Metrics Changes - Approximately 23% of total revenues before reimbursements consist of recurring, multi-year, and subscription-based revenues [16] - Days Sales Outstanding (DSO) increased to 73 days from 66 days in the previous quarter, attributed to extended terms on large client engagements [20] Company Strategy and Development Direction - The company is focusing on GenAI enabled transformations, viewing it as a generational opportunity that will change consulting services delivery [6][24] - The acquisition of Leeway Hertz and the integration of ZBrain are expected to enhance the company's capabilities in GenAI solutions [25][27] - The company plans to leverage its AI Explorer platform to integrate GenAI capabilities across all offerings, enhancing its market position [29][30] Management's Comments on Operating Environment and Future Outlook - Management noted that while demand for digital transformation remains strong, economic concerns and tariff negotiations may impact client decision-making [23] - The company expects IT budgets to increase, with a focus on GenAI initiatives in high feasibility areas [24] - Management anticipates continued growth in GenAI revenue, with licensing expected to start in July [49] Other Important Information - The company repurchased 379,000 shares at an average price of $30.93, totaling approximately $11.7 million [21] - A second quarter dividend of $0.12 per share was declared, payable on July 7, 2025 [21] Q&A Session Summary Question: Can you elaborate on client interactions with AI Explorer and the pipeline for implementation projects? - Management highlighted unique capabilities in ideation and evaluation, leading to favorable client reactions and new engagements [35][36] Question: What is the current capacity for AI implementation and plans for scaling further? - Management indicated a 60% to 70% increase in capacity since acquisitions, with ongoing hiring to expand resources [39] Question: Update on the joint venture with ZBrain and any ARR contracts? - Management confirmed the addition of licensed clients to the ZBrain platform and expected to finalize the JV agreement soon [40] Question: How does economic disruption impact the business model? - Management acknowledged the need to address strategic cost reduction and efficiency in light of economic disruptions [44] Question: What is the expected impact of GenAI on 2025 results? - Management expects meaningful growth in GenAI revenue and licensing, with potential for accelerated growth through the JV [47][49] Question: What portion of AI revenue was implementation revenue in the quarter? - Management estimated a 50-50 split between implementation and discovery ideation revenue, with expectations for implementation to grow significantly [59] Question: Are you seeing cross-selling from GenAI consulting clients into other services? - Management confirmed cross-selling opportunities, integrating GenAI solutions into traditional digital transformation engagements [60]

[The Hackett Group First Quarter 2025 Earnings Release](index=1&type=section&id=The%20Hackett%20Group%20First%20Quarter%202025%20Earnings%20Release) [Overview and CEO Commentary](index=1&type=section&id=Overview%20and%20CEO%20Commentary) The company reported Q1 2025 results at the high end of guidance while investing heavily in its Gen AI platforms - Operating results for Q1 2025 were near the high end of revenue guidance and at the high end of **adjusted earnings per share guidance**[3](index=3&type=chunk) - The company is aggressively investing in its **Gen AI platforms**, highlighted by the release of AI XPLR version 3[3](index=3&type=chunk) - Management anticipates AI innovation will foster key channel partnerships and **accelerate growth** in the AI sector[3](index=3&type=chunk) [Q1 2025 Financial Highlights](index=1&type=section&id=Q1%202025%20Financial%20Highlights) Q1 2025 saw slight revenue growth, but GAAP EPS fell significantly due to non-cash expenses, while adjusted EPS increased Q1 2025 vs Q1 2024 Key Financials | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total Revenue | $77.9M | $77.2M | | Revenue before reimbursements | $76.2M | $75.7M | | GAAP Diluted EPS | $0.11 | $0.32 | | Adjusted Diluted EPS | $0.41 | $0.39 | | Cash flow from operations | $4.2M | $2.8M | - Q1 2025 GAAP net income was significantly impacted by **$5.1 million in non-cash compensation** and **$2.4 million in acquisition-related expenses**[6](index=6&type=chunk) [Q2 2025 Business Outlook](index=1&type=section&id=Q2%202025%20Business%20Outlook) The company projects Q2 2025 revenue before reimbursements between $76.0M and $77.5M and adjusted diluted EPS of $0.37 to $0.39 Q2 2025 Guidance | Metric | Q2 2025 Outlook | | :--- | :--- | | Revenue before reimbursements | $76.0M - $77.5M | | Adjusted Diluted EPS | $0.37 - $0.39 | [Shareholder and Capital Allocation Activities](index=1&type=section&id=Shareholder%20and%20Capital%20Allocation%20Activities) The company returned capital through share repurchases and dividends, ending the quarter with $9.2M in cash and $18.0M in debt - The Board declared a second quarterly dividend of **$0.12 per share**, payable on July 7, 2025[6](index=6&type=chunk) - In Q1 2025, the company repurchased **379,000 shares for $11.7 million**[6](index=6&type=chunk) - As of March 28, 2025, cash balance was **$9.2 million**, with **$18.0 million outstanding on its credit facility**[6](index=6&type=chunk) [Consolidated Financial Statements](index=4&type=section&id=Consolidated%20Financial%20Statements) Financial statements show stable assets and a net income drop, with segment performance mixed as Global S&BT grew while others declined [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) Q1 2025 Income Statement Highlights (in thousands) | Line Item | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total Revenue | $77,865 | $77,187 | | Total costs and operating expenses | $73,462 | $65,662 | | Operating Income | $4,403 | $11,525 | | Net Income | $3,143 | $8,731 | - The increase in total costs was driven largely by **non-cash stock-based compensation**, which rose to a combined **$9.7 million** in Q1 2025[14](index=14&type=chunk) [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Balance Sheet Key Items (in thousands) | Account | March 28, 2025 | December 27, 2024 | | :--- | :--- | :--- | | Cash | $9,179 | $16,366 | | Total Assets | $191,760 | $191,877 | | Long-term debt | $17,755 | $12,734 | | Total Liabilities | $77,345 | $76,303 | | Shareholders' Equity | $114,415 | $115,574 | [Segment Performance](index=6&type=section&id=Segment%20Performance) Segment Revenue and Contribution Margin (in thousands) | Segment | Q1 2025 Revenue* | Q1 2024 Revenue* | Q1 2025 Contribution Margin | Q1 2024 Contribution Margin | | :--- | :--- | :--- | :--- | :--- | | Global S&BT | $42,642 | $40,254 | $12,786 | $10,053 | | Oracle Solutions | $20,396 | $21,068 | $4,367 | $5,261 | | SAP Solutions | $13,193 | $14,406 | $4,250 | $4,882 | *Revenue before reimbursements - The **Global S&BT segment** was the only segment to show year-over-year growth in both revenue and contribution margin[16](index=16&type=chunk) [Reconciliation of GAAP to Non-GAAP Measures](index=7&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Measures) Non-GAAP measures adjust for items like stock compensation and acquisition costs to clarify core operational performance - The company presents non-GAAP results to exclude items not indicative of core operating performance for consistent comparison[9](index=9&type=chunk)[19](index=19&type=chunk) Q1 2025 GAAP to Non-GAAP Reconciliation (in thousands) | Line Item | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | GAAP Net Income | $3,143 | $8,731 | | Stock price award program comp. | $5,142 | - | | Non-cash stock based comp. | $2,765 | $2,599 | | Acquisition-related expenses (cash & non-cash) | $2,267 | - | | Other adjustments | $145 | $102 | | Adjusted Net Income | $11,606 | $10,724 | - The **$5.1 million stock price award program expense** relates to equity awards with a market share price hurdle of $30 per share[21](index=21&type=chunk) [Supplemental Information](index=2&type=section&id=Supplemental%20Information) This section provides administrative details and supplemental data, including a rise in headcount and Days Sales Outstanding - A conference call to discuss Q1 2025 results was scheduled for May 6, 2025, at 5:00 P.M. ET[7](index=7&type=chunk)[8](index=8&type=chunk) - The report contains forward-looking statements subject to risks and uncertainties, and the company disclaims any duty to update them[12](index=12&type=chunk) Key Metrics Comparison | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total Headcount | 1,618 | 1,414 | | Days Sales Outstanding (DSO) | 73 | 68 | | Cash from operating activities (in thousands) | $4,195 | $2,792 |

Revenue Performance - Total revenue for fiscal year 2024 increased to $313.9 million, compared to $296.6 million in 2023, primarily driven by increases in SAP Solutions segment revenue of $10.2 million and Oracle Solutions segment revenue of $7.9 million[144] - Total revenue for the company increased to $313.9 million in 2024, up from $296.6 million in 2023, representing a growth of 5.4%[147] - Global S&BT revenue decreased to $171.1 million in 2024, down from $171.9 million in 2023, a decline of 0.5%[147] - Oracle Solutions revenue rose to $85.7 million in 2024, an increase of 10.5% from $77.8 million in 2023[149] - SAP Solutions revenue increased to $57.1 million in 2024, up 21.5% from $46.9 million in 2023[150] - One customer accounted for 11% of total revenue in 2024, up from 6% in 2023, indicating increased customer concentration[146] Acquisitions and Goodwill - The Hackett Group acquired 100% of LeewayHertz Technologies for a provisional purchase consideration of $7.8 million, resulting in provisional goodwill of $5.9 million[133] - The provisional fair value of the net assets acquired from LeewayHertz includes cash of $1.02 million, current assets of $2.08 million, and intangible assets of $2.5 million[135] - Goodwill related to LeewayHertz has been allocated to the Global S&BT segment, increasing the total goodwill to $89.8 million as of December 27, 2024[137] - The company acquired LeewayHertz for $6.5 million in 2024, contributing to the increase in cash used in investing activities to $10.6 million[166] Operating Expenses and Costs - Total costs and operating expenses for fiscal year 2024 were $269.3 million, compared to $247.3 million in 2023, reflecting an increase in personnel and administrative costs[143] - Personnel costs before reimbursable expenses increased to $183.8 million in 2024, compared to $174.9 million in 2023, a rise of 5.1%[152] - SG&A costs increased by 19% to $78.5 million in 2024, compared to $65.9 million in 2023[155] - The company recognized stock compensation expenses of $10.5 million in 2024, compared to $6.2 million in 2023, indicating increased equity awards[143] Cash Flow and Dividends - Net cash provided by operating activities was $47.7 million in 2024, up from $37.4 million in 2023, an increase of 27.5%[165] - The company approved a 9% increase in the dividend, raising the annual dividend amount to $0.48 per share[173] - As of December 27, 2024, the company had $16.4 million in cash and $12.7 million outstanding under its Credit Facility[163] Market Risks and Currency Exchange - The company has exposure to market risk due to variable interest rates on its Credit Facility, but a 100-basis point increase would not materially impact 2024 results[178] - The company recognized foreign currency exchange losses of $19 thousand in 2024 and $0.4 million in 2023, compared to an income of $1.4 million in 2022[179] - Currently, the company does not hold any derivative contracts to hedge foreign currency risk but may consider adopting such strategies in the future[179] Strategic Initiatives - The Hackett Group completed over 27,500 benchmarking and performance studies, utilizing its Quantum Leap platform to drive digital transformation[125] - The company launched its AI assessment platform, AI XPLR, in early 2024 to help clients identify and design Gen AI enablement opportunities[123] - The joint venture with LeewayHertz aims to integrate AI XPLR and ZBrain platforms to provide advanced Gen AI solutions, expected to be formed by mid-2025[136]