The Hackett Group(US:HCKT)2025-05-06 22:02Financial 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]