Earnings call transcript: Hackett Group misses Q3 2025 earnings forecast

In its Q3 2025 earnings call, The Hackett Group Inc. reported adjusted earnings per share (EPS) of $0.37, falling short of the forecasted $0.43. Revenue also missed expectations, coming in at $73.1 million against a forecast of $80.08 million. The stock reacted by dropping 1.78% in after-hours trading, closing at $18, a significant decline from its 52-week high of $34.02. This continues a troubling trend, as InvestingPro data shows HCKT has suffered a 41.64% year-to-date price decline, with three analysts recently revising earnings estimates downward for upcoming periods.

Key Takeaways

• Hackett Group’s Q3 2025 EPS and revenue both missed analyst expectations.
• The company launched several new AI-driven products and platforms.
• Stock declined by 1.78% in after-hours trading following earnings miss.
• Reduced headcount and restructuring charges were noted in operational updates.
• The company announced a $40 million Dutch tender offer for stock buyback.

Company Performance

The Hackett Group faced a challenging Q3 2025, with revenues declining by 7% year-over-year to $72.2 million. Despite the shortfall in earnings, the company’s cash balance improved to $13.9 million from $10.1 million in the previous quarter. The firm has been actively investing in AI technologies, which it expects to drive future growth.

Financial Highlights

• Revenue: $72.2 million, a 7% decrease year-over-year.
• Earnings per share: $0.37, down from the forecasted $0.43.
• Adjusted gross margin: 42.6%.
• Cash balance: $13.9 million, up from $10.1 million last quarter.
• Net cash from operations: $11.4 million.

Earnings vs. Forecast

Hackett Group’s Q3 2025 EPS of $0.37 was 13.95% below the forecast of $0.43. Revenue also fell short by 8.72%, with actual figures at $73.1 million compared to the $80.08 million expected. This marks a significant miss compared to the company’s historical performance, where it has typically met or exceeded forecasts.

Market Reaction

Following the earnings announcement, Hackett Group’s stock dropped 1.78% in after-hours trading, closing at $18. The decline reflects investor disappointment with the earnings miss, as the stock remains closer to its 52-week low of $17.52 than its high of $34.02.

Outlook & Guidance

Looking ahead, Hackett Group provided Q4 2025 revenue guidance between $69.5 million and $71 million, with expected adjusted diluted EPS ranging from $0.38 to $0.40. The company anticipates accelerated growth in its GenAI revenues in Q4 and into 2026, driven by its AI Explorer and ZBrain platforms.

Executive Commentary

CEO Ted Fernandez emphasized the transformative potential of GenAI technologies, stating, "The unlimited potential of Gen AI will define an entirely new level of world-class performance standards." He also highlighted the strategic importance of the AgenTek Enterprise Transformation, describing it as a "generational opportunity."

Risks and Challenges

• Economic concerns impacting digital transformation demand.
• Potential execution risks associated with new AI product launches.
• Competitive pressures from other AI technology providers.
• Market volatility affecting stock buyback strategies.
• Dependence on strategic alliances to drive future growth.

Q&A

During the earnings call, analysts probed the company on its strategic alliances and AI capabilities. Executives expressed confidence in forming partnerships, particularly around the AI Explorer version 4. They also addressed concerns about labor resources, assuring that they are well-prepared to meet the growing demand for AI solutions.

Full transcript - The Hackett Group Inc (HCKT) Q3 2025:

Conference Operator: Welcome to the Hackett Group Third Quarter Earnings Conference Call. Your lines have been placed on listen only mode until the question and answer session. Please be advised the conference is being recorded. Hosting tonight’s call are Mr. Ted Fernandez, Chairman and CEO and Mr.

Rob Ramirez, Chief Financial Officer. Mr. Ramirez, you may begin.

Rob Ramirez, Chief Financial Officer, Hackett Group: Good afternoon, everyone and thank you for joining us to discuss The Hackett Group’s third quarter results. Speaking on the call today and here to answer your questions are Ted Fernandez, Chairman and CEO of The Hackett Group and myself, Rob Ramirez, Chief Financial Officer. A press announcement was released over the wires at 04:09 p. M. Eastern For a copy of the release, please visit our website at www.thehackettgroup.com.

We will also place any additional financial or statistical data that’s discussed in this call that is not contained in the release on the Investor Relations page of our website. Before we begin, I would like to remind you that in the following comments and in the Q and A session, we will be making statements about expected future results, which may be forward looking statements for the purposes of the federal securities laws. These statements relate to our current expectations, estimates and projections and are not a guarantee of future performance. They involve risks, uncertainties and assumptions that are difficult to predict and which may not be accurate. Actual results may vary.

These forward looking statements should be considered only in conjunction with the detailed information, particularly the risk factors contained in our SEC filings. At this point, I would like to turn it over to Ted.

Ted Fernandez, Chairman and CEO, Hackett Group: Thank you, Rob, and welcome, everyone, to our third quarter earnings call. As we normally do, I will open up the call with some overview comments on the quarter. I will then turn it back over to Rob to comment on detailed operating results, cash flow as well as guidance. We will then review our market and strategy related comments, after which we will open it up to Q and A. This afternoon, we reported revenues before reimbursements of $72,200,000 just below our quarterly guidance and adjusted earnings per share of $0.37 which was at the midpoint of our quarterly guidance respectively.

What is most promising about the quarter is the level of breakthrough innovation which has resulted in the highly differentiated capabilities of our AI Explorer platform version four. Specifically, the reactions from both clients and potential channel partners to our version four release, which we announced on September 8, has been extremely positive with one potential partner specifically referring to our Version four capabilities as being game changing. Correspondingly, we continue to work closely with several global channel partners and expect to announce alliances that could significantly expand our growth opportunities. Our ability to identify, design and build GenAI solutions based on client specific processes and enterprise application automation footprints in accelerated time is powerful. It is allowing us to position our platform as an enterprise AI center of excellence must have capability, which accelerates and enhances any clients’ GenAI adoption effort.

Our version four of AI Explorer capabilities is attracting new clients and it is resulting in an increasing pipeline and new engagements in this increasingly important area. During the quarter, we launched our alliance with Celonis, a leading provider of process intelligence software that provides clients with critical operating insight. By teaming with Celonis, we have now demonstrated that we are able to ingest their process intelligence insight into AI Explorer as well as Sebring to help identify high ROI agentic AI solutions with unmatched speed and detail. We are now finalizing a way for our clients to easily integrate the Salonis operating insight into AI Explorer that will allow us to promote a special ideation joint offering to all of our respective clients. The combination of AI plus PI or process intelligence will allow customers to quickly move from intention to action with measurable impact resulting in AgenTek transformation initiatives.

Our GSBT segment revenues were favorably impacted by the strong GenAI related revenue growth, which was offset by the expected weakness in our OneStream practice and the expiration of an iPass contract. Our iPass partner offered to redefine the agreement around an AI Explorer go to market partnership, which we rejected. We believe the current channel partner relationships we are considering will generate significantly greater value than what we were offered. Excluding the OneStream practice and iPass contract, our GSPT segment was up over 4%. Our Oracle Solutions segment was down as expected, Although activity continues to be solid, extended client decision making has continued to make the revenue replacement of a large Postco live engagement at the end of last year take longer than we planned.

This adversely impacted the second quarter and the third quarter, which was our peak Oracle prior year Q3 comparison and will continue to impact us into the fourth quarter. The result of this large client transition and our continued development of AI Accelerator, our GenAI assisted technology implementation platform that allows us to deliver technology engagements more efficiently led to our decision to more aggressively reduce our headcount to realize the expected GenAI productivity benefits and align with current requirements. Our SAP Solutions segment was up during the quarter as implementation revenues resulting from our increased software sales activity at the end of the quarter continued to ramp up. Although software sales in the quarter were lower than expected, we expect to make this back up with increased activity in the fourth quarter. Our new platform and implementation capabilities allow us to sell clients enterprise wide from ideation to implementation in one fully integrated platform.

It also provides a client with a single platform which they can license to fully support their entire AI center of excellence initiatives. We continue to see AgenTek transformation opportunities to emerge in many of our engagements as the need for GenAI capability and relevance continues to increase. These engagements also provide opportunities to serve clients strategically and more broadly. These capabilities should further expand through the new strategic alliances, which I said we expect to launch in the near future that provides us with the increased opportunities to sell our unique capabilities in the upcoming year. On the executive advisory front, we continue to invest in our growing executive and vendor intelligence program.

We launched the Gen AI premium program. We have integrated our Gen AI content into all of our executive programs and we also expanded our e procurement intelligence capabilities with the acquisition of SpendMatters. On the balance sheet side, our ability to generate strong cash flow from operation has allowed us to maintain our dividend and today we are announcing a $40,000,000 Dutch tender offer to acquire approximately 8% of the company’s common stock. This tender offer should be strongly accretive and on a cash basis the reduction of the dividend payment due to the buyback is expected to offset a meaningful portion of the net of tax interest expense that we expect to incur. With that said, let me ask Ralph 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?

Rob Ramirez, Chief Financial Officer, Hackett Group: Thank you, Chad. As I typically do, I’ll cover the following topics during this portion of the call. I’ll provide an overview of our third quarter results, along with an overview of related key operating statistics, an overview of our cash flow activities during the quarter, and I’ll then conclude with a discussion on our financial outlook for the 2025. For reference to this call, I’ll comment separately regarding the revenues of our Global SMPT segment, our Oracle Solutions segment, our SAP Solutions segment and the total company. Our Global SMPT segment includes the results of our North America and international Gen AI consulting implementation and licensing revenues, benchmarking and business transformation offerings, executive advisory, market intelligence and iPass programs and our OneStream and eProcurement implementation offerings.

Our Oracle Solutions and our SFP Solutions segments include the results of our Oracle and SFP offerings, respectively. Please note that 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. During 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 such as restructuring.

We’ve included reconciliations of GAAP to non GAAP financial measures in our press release filed earlier today, and we’ll post any additional information based on the discussions from this call on the Investor Relations page of the company’s website. For the 2025, our total revenues before reimbursements were $72,200,000 a decrease of 7% over the prior year. The third quarter reimbursable expense ratio on revenues before reimbursements was 1.3% as compared to 1.6% in the prior quarter and 2.3% when compared to the same period in the prior year. Total revenues before reimbursements from our Global SMT segment were $42,400,000 for the third quarter twenty twenty five, a decrease of 2% when compared to the same period in the prior year. Strong revenue growth from our Gen AI consulting and implementation offerings in this segment was more than offset by weakness in our OneStream implementation offerings and the nonrenewal of a meaningful iPaaS contract during the third quarter.

Excluding this decrease, our global SMT segment would have been up 4%. GNDI momentum is expected to continue in Q4 and accelerate in 2026. Total revenues before reimbursements from our Oracle Solutions segment were 16,400,000 for the 2025, a decrease of 25% when compared to the same period in the prior year. This was higher than expected due to continued protracted decision making. Total revenues before reimbursements from our SAP Solutions segment were $13,400,000 for the 2025, an increase of 4% when compared to the same period in the prior year.

This increase was primarily driven by implementation services that correspond to the volume of software sales for the last several quarters. Although software sales activity was lower than we expected in Q3, we expect this activity to be up meaningfully on a sequential basis in Q4. Approximately 23% of our total company revenues before reimbursements consist of recurring, multiyear and subscription based revenues, which include our executive advisory, application managed services and Gen AI license contracts. We are seeing the rapid migration of iPass to AI Explorer and ZBrain related recurring revenue opportunities. Total company adjusted cost of sales totaled $41,400,000 or 57.4% of revenues before reimbursements in the 2025 as compared to $44,200,000 or 56.8% of revenues before reimbursements in the prior year.

Total company consultant headcount was thirteen seventeen at the end of the third quarter as compared to total company consultant headcount of thirteen eighty two in the previous quarter and twelve sixty two at the end of the 2024. The third quarter reduction in headcount was due to actions taken to reduce staff to be commensurate with current demand and the expected productivity improvements from the leverage of our Gen I delivery platforms. Total company adjusted gross margin on revenues before reimbursements was 42.6% in the 2025 as compared to 43.2% in the prior year. Adjusted SG and A was $16,500,000 or 22.9 percent of revenues before reimbursements in the 2025. This compared to $17,000,000 or 21.8% of revenues before reimbursements in the prior year.

Adjusted EBITDA was $15,300,000 or 21.2% of revenues before reimbursements in the 2025 as compared to $17,700,000 or 22.7% of revenues before reimbursements in the prior year. GAAP net income for the 2025 totaled $2,500,000 or diluted earnings per share of $09 as compared to GAAP net income of 8,600,000.0 or diluted earnings per share of $0.31 in the third quarter of the previous year. Third quarter twenty twenty five GAAP net income includes noncash stock compensation expense from our stock price award program of $4,800,000 or $0.17 per diluted share and acquisition related cash and noncash compensation benefit of $2,100,000 or $05 per diluted share. In addition, GAAP net income also includes a $3,100,000 or $08 per diluted share restructuring expense for severance related costs to reduce staff to be commensurate with current transition demand and expected productivity improvements from the leverage of our Gen AI delivery platforms. Acquisition related cash and noncash stock compensation items relate to purchase consideration for the Leeway Hertz acquisition.

This consideration paid to the seller contains service vesting requirements and as such is reflected as compensation expense or benefit under GAAP rather than purchase consideration. Adjusted net income and diluted earnings per share for the 2025 totaled $10,200,000 or adjusted diluted net income per common share of $0.37 which is at the midpoint of our earnings guidance range and compares to prior year adjusted diluted net income per share of $0.43 The company’s cash balances were $13,900,000 at the end of the third quarter as compared to $10,100,000 at the end of the previous quarter. Net cash provided from operating activities in the quarter was $11,400,000 primarily driven by net income adjusted for noncash activity and a decrease in accounts receivable, partially offset by decreases in accrued expenses and contract liabilities. Our DSO or days sales outstanding was seventy one days at the end of the quarter as compared to seventy three days in the previous quarter and seventy days in the prior year. During the quarter, we repurchased 1,100,000.0 shares of the company’s stock for an average of $20.7 per share at a total cost of approximately 22,900,000.0 including purchases from employees to satisfy income tax withholding triggered by the vesting of restricted shares.

Our remaining stock repurchase authorization at the end of the quarter was $12,600,000 At its most recent meeting subsequent to quarter end, the company’s Board of Directors authorized a $40,000,000 increase in the company’s share repurchase authorization, bringing the available balance to $52,600,000 in order to accommodate the Dutch tender offer announced today. Additionally, the Board declared the fourth quarter dividend of $0.12 per share for its shareholders of record on 12/23/2025, to be paid on 01/09/2026. During the quarter, the company borrowed $21,000,000 from its credit facility. The balance of the company’s total debt outstanding at the end of the third quarter was $44,000,000 Before I move to guidance for the 2025, I would like to remind everyone of the seasonality of our business, specifically the increased holiday and vacation time that has historically taken in the fourth quarter will decrease our available billing days by approximately 8% to 10% when compared to the third quarter to the third quarter. Considering this, the company estimates total revenue before reimbursements for the 2025 to be in the range of 69,500,000.0 to 71,000,000 We expect global SMBT to be down as continued growth from Gen AI revenues will be more than offset by other segment revenue declines.

We expect Oracle Solutions segment revenue before reimbursements to be down by 15% when compared to the prior year. We expect SAP Solutions segment revenues before reimbursements to be down when compared to the prior year because of lower software sales activity given exceptionally strong software related sales in the prior year. We estimate adjusted diluted net income per common share in the 2025 to be in the range of $0.38 to $0.40 which assumes a GAAP effective tax rate on adjusted earnings of 24.5%. We expect the adjusted gross margin as a percentage of revenues before reimbursements to be approximately 46% to 47%. We expect adjusted SG and A and interest expense for the fourth quarter to be approximately $18,700,000 We expect fourth quarter adjusted EBITDA as a percentage of revenues before reimbursements to be in the range of approximately 22% to 23%.

Now let me provide some details regarding our tender offer that Ted mentioned. The company announced today that it’s planned to launch a tender offer to purchase up to $40,000,000 in value of its common stock at a price not less than $18.3 nor more than $21 per share. We expect to launch the tender offer tomorrow, which will mean it will expire on 12/04/2025. We plan to conduct a tender offer through a procedure commonly called a modified Dutch auction. This procedure allows stockholders to select the price within the specified range set by the company at which stockholders are willing to sell their shares.

Neither management nor our Board members will be participating in this Dutch. The company will select the single lowest purchase price within the range that will allow the company to purchase $40,000,000 in value of shares at such price based on the number of shares tendered. All shares purchased in the tender offer will be purchased at the same price. The tender offer will only be made pursuant to the offer to purchase, the related letter of transmittal and the other tender offer materials, which the company will file tomorrow with the SEC. Any specific questions should be addressed directly with the dealer manager or the information agent for the tender offer.

Their contact information will be included in the press release we will issue tomorrow announcing the tender offer and in the tender offer materials being filed with the SEC tomorrow as well. We will utilize our existing credit facility for the purchase of shares in the tender offer and the fees associated with this offer. Lastly, we expect cash flow from operations to be up strongly on a sequential basis. At this point, I’d like to turn it back over to Ted to review our market outlook and strategic priorities for the coming months.

Ted Fernandez, Chairman and CEO, Hackett Group: 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 strong in traditional areas, it continues to be impacted by the thoughtful decision making as organizations assess competing priorities due to economic concerns as well as the consideration of emerging Gen AI technologies. The unlimited potential of Gen AI will define an entirely new level of 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.

This 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 AgenTek Enterprise Transformation is a generational opportunity, which will fundamentally change the way companies operate as well as the way consulting services are sold and delivered. Our GenAI platform capabilities in the recently released version for of AIXplore leverages our proprietary solution language model, which by the way has a patent pending and Hackett process and performance IP, which significantly accelerates the speed in which we can identify and design AgenTek AI solutions. Another critical distinction of our new version four is the way we can design the AgenTek solutions while considering the client specific enterprise application automation footprint. This allows the client to consider where existing automation supports GenAI enablement allowing them to fully leverage the existing automation footprint where possible.

This ability to evaluate and consider a client’s current technology landscape to deploy Agenex solutions further differentiates our AI Explorer capabilities. We are clearly now at a point where AI Explorer will become a fully licensable platform, which provides several modular options to our clients. This is critical to our multiyear ARR growth vision. The Leeway Hertz acquisition also included a sophisticated Gen AI orchestration platform, ZBrain, which we agreed to contribute into a joint venture with the founder. The JV will bring together AI Explorer and ZBrain platforms and will focus on licensing the platforms and creating what we believe will be a first of a kind GenAI ideation through implementation software as a service offering.

We believe this JV creates an entirely new value creation opportunity for our shareholders that should result from growth of ARR or annual recurring licensing revenues. It would also allow the JV to have the opportunity to raise capital and achieve standalone valuations due to the GenAI software focus if that is deemed best. Another critical investment that we have made is to build our own GenAI assisted knowledge based solution called athacket.ai. Athacket.ai leverages our proprietary Hackett benchmarking, executive advisory and business transformation intelligence, which allows us to define and enable digital world class performance for our clients. Our IP will also be increasingly leveraged across all of our market facing and service delivery platforms.

We expect the integration of our valuable IP and content that leverages GenAI to significantly enhance and accelerate the delivery of our insight that we are asked to provide clients every day. We are ingesting and indexing all of our proprietary IP, including benchmarking best practices, transformation and research IP to support the myriads of queries that are required to support our executive advisory and consulting clients and associates. We have also embarked on a new initiative called Accelerator, which intends to also address the efficiency and quality of the delivery of our technology implementation related services. All these initiatives are harnessing the power of GenAI to improve and accelerate the delivery of our solutions and services with the intent of differentiating our capabilities and will result in improved revenue growth margins. We see potential commercial value for these innovations beyond our internal use.

Also in the works, Transformation Explorer, which will support all of our management consultants and we are looking at special modules in data and governance, which we believe will also further support and differentiate the current AI Explorer capabilities. On the talent side, competition from experienced executives with high technology agility continues. Overall, turnovers continued at acceptable levels during the quarter, and we expect that trend to continue. Lastly, even though we believe 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 and capability which accelerate our growth. It’s important to say that those kinds of acquisitions are not easily available.

As always, let me close by congratulating our associates on our innovation and performance and 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. Let me turn it over to our operator and let us move on to the Q and A section of our call. Operator?

Conference Operator: Thank Our first question comes from George Sutton with Craig Hallum. Please go ahead.

George Sutton, Analyst, Craig Hallum: Thank you. Ted, you mentioned a plan you plan to announce alliances that could significantly change your opportunities. And you’ve been, I know, having discussions for the last couple of quarters, I believe the range has been SIs and large software companies. Can you give us a sense of what’s practical for us to assume in terms of what you think you can accomplish and when?

Ted Fernandez, Chairman and CEO, Hackett Group: Excellent question, George. Look George, our ability to achieve that has significantly increased with the release of version four. I can’t overemphasize what a significant, I’ll call it leap in capability, version four has resulted in, and the reaction from both prospective clients and prospective channel partners. So as you know, yes, we started we had initial conversations with an enterprise software company toward the tail end of Q2. Those conversations move to companies like Celonis, also an enterprise application company, which resulted in their alliances.

Then we walked away from an offer with one of the large SIs that just we believe there were opportunities with others that would be just of significantly greater value. We’re currently in conversations with two. We have every expectation that there is strong desire on both parts to reach an agreement that’s meaningful to both sides. I can also tell you that the enterprise application opportunity that surfaced late in Q2, which I somewhat had put a set aside as the again, we had to do one thing. We stopped the licensing procedure to complete the licensing procedure for version three as Q2 was finishing.

We worked our tails off to make sure that the innovation that we targeted for Version four was achieved. We launched that on September 8. We think that the capabilities are significant and are being clearly acknowledged by these potential partners. What if I told you that before I got on the poll today, had a request from one of the big four asking if our platforms were also available to purchase or license. So I believe that the capability that we’re demonstrating when we get in front of clients is becoming more visible.

I believe that it helps that these large partners are participating in a process, putting us through this to demonstrate proof points, to demonstrate the capabilities of our platforms. That has also expanded, I’ll call it visibility to our capabilities. So yes, we remain confident that we will be able to attract one or two major alliance partners in the near future.

George Sutton, Analyst, Craig Hallum: Got Thank you for that. On the software side, mentioned that you had signed some new business and you should be able to make up some of the weakness in Q4. Can you just walk through that a little bit?

Ted Fernandez, Chairman and CEO, Hackett Group: Look, there’s no doubt again, I’ll go back. The impact of Version four and our ability now to move clients more aggressively has accelerated since we introduced that on September 8. Client engagement has improved, pipeline activity has improved and the engagement that we see now considering, I’ll call it, meaningful kind of engagement with AI Explorer as potentially picking up a significant level of responsibility for a client’s AI center of excellence. All of those things is what’s increasing our engagements and pipeline into Q4 around GenAI. We think that will continue to happen naturally.

And yes, we want the acceleration from one or two or the right channel partners that would then really allow us to then dramatically improve our visibility and access to the largest Gen AI opportunities. So it’s all of the above, George. It’s all of the above.

George Sutton, Analyst, Craig Hallum: Okay. Last question for me. Just on the Dutch auction, I’m just curious why a Dutch auction and why do a Dutch auction now?

Ted Fernandez, Chairman and CEO, Hackett Group: Well, we had that question asked by some of our shareholders at the end of Q2 actually. And I didn’t want to miss the opportunity to be able to acquire stock during what we knew was a more volatile Q3 given the guidance that we have provided and understanding what that looked like. Now that we got through the end of the quarter, then I had the same question that we continue to buy back stock aggressively in the open market. And we thought the best way to start doing that was to tender for $40,000,000 and provide the range that was articulated today so that we could be even more aggressive than we were in Q3. As you know, we’ve got a pristine balance sheet.

We’ve rarely used it. We believe that the debt post this Dutch and the aggressive cash flow generation that we normally get and anticipate in Q4 will have us somewhere around one times EBITDA by the time this whole process is over. And we know that’s virtually no leverage. So if we continue to believe our prospects are what they are, we will continue to be aggressive with our buybacks.

George Sutton, Analyst, Craig Hallum: Great. All right. Thank you.

Conference Operator: Thank you. I would now like to introduce Jeff Martin with Roth Capital Markets. Go ahead please.

Jeff Martin, Analyst, Roth Capital Markets: Thanks. Good afternoon. Ted, could you give us an update on where you are with license seeing progress so far with both dBrain and Explore? I mean, obviously, version four being launched in September, likely not a ton of traction there yet, but maybe give us some perspective on those clients that were potentially looking at licensing version three propensity to license version four in the next six months or so?

Ted Fernandez, Chairman and CEO, Hackett Group: So as mentioned in our comments, we were ready to have a version three and fully licensable form for early in the third quarter. Once we saw the potential enhancements that were coming from version four, we stopped all that licensing effort. It doesn’t mean we didn’t. We don’t have a lot accomplished. But we’ve completed version four.

We’re still making some enhancements. But we expect to license start licensing Explore sometime late in the Q4, no later than the beginning of Q1. And we expect that many of the opportunities that we’re currently fielding or responding to will become AI Explorer licensees.

Jeff Martin, Analyst, Roth Capital Markets: And on the zBrain side?

Ted Fernandez, Chairman and CEO, Hackett Group: On the zBrain side, since the zBrain side is differentiated through AI Explorer, yes, we would expect a portion, I don’t know if it’s half or a third of the AI Explorer led licenses to incorporate ZBrain as well.

Jeff Martin, Analyst, Roth Capital Markets: Okay. And then I was just curious if you could break down S and BT a little more. You did mention it grew 4% excluding OneStream and the iPass contract termination. But could you help us get a sense of the trends within the pieces of S and BT?

Ted Fernandez, Chairman and CEO, Hackett Group: I mean, look, the largest piece of ESBT is our Strategy and Business Transformation Group. So these are the teams that do large transformation initiatives. So that represents I’m going to go, I don’t know, more than half in GSBT. Then you also have our executive advisory business, which includes our executive advisory programs as well as the market intelligence programs. We also have our benchmarking services in there.

And it does include the OneStream practice, the licensing which we had in iPass and now it includes all of the GenAI related revenues. That business, I don’t know, Rob will have to correct me, but represents more than half represented more than half of our revenues in the quarter. It represented nearly probably short of this two thirds of our operating profit. We believe that that business by the 2026 will probably drive over 75% of our total operating profits with GenAI, I’ll call it led, GenTick transformation or GenAI transformation initiatives, which include both GenAI, but also you have to deal with the existing clients, if you call them the existing business process and enterprise applications that also need to be transitioned when you’re deploying agentic workflows. So we expect the halo effect, probably the best way to say it, we expect that the majority of our strategy and business transformation business executives will end up leading GenAI initiatives.

And we expect once the GenAI initiatives become more mature, you will also see halo effect back into these traditional transformation initiatives, which require you to fully implement the changes. So right now we’re in the ideation and solutioning ideation design and solutioning portion of these Gen AI engagements. As those engagements mature, they will create a halo effect to the largest portion of GSBT. That’s why we always kind of look and say GSBT sometime in the future will drive a greater portion of our total profit. Hopefully it also comes with more recurring revenue, which will result in higher gross margins and will be a substantial portion of our total value creation if you look a year out or two years out.

Jeff Martin, Analyst, Roth Capital Markets: Thank you. One other question. With respect to decision making, are you seeing any unjamming of the logs there? Is it getting a little better? Is it getting a little worse?

Same? Just kind of some directional trend would be helpful.

Ted Fernandez, Chairman and CEO, Hackett Group: What I can say is clearly better is clients making a 26 commitment, but our clients protecting 25 spend since economic volatility and some of the tariff distractions ended up creating a more difficult twenty five years. So I’m going to say economic volatility, tariff distraction and to some extent people pausing to decide the impact of GenAI on their total IT and related initiatives are impacting it. But at the same time, do I see clients clearly positioning for an enterprise and an agentic transformation world, which brings all, I’ll call new and existing capabilities will have to be transformed, better said, yes. But is it really changing? No, we expected it to be tough through the end of the year.

I see people protecting 25 earnings for obvious reasons. But I see an increasing level of activity with people wanting to aggressively invest and expand on both, I call it, traditional digital transformation as well as digital transformation that have a meaningful Gen AI component. We believe that meaningful Gen AI component will increase throughout 2026.

Jeff Martin, Analyst, Roth Capital Markets: Thank you.

Conference Operator: Thank you. Our next question comes from Vincent Colicchio with Barrington Research. Your line is open.

Vincent Colicchio, Analyst, Barrington Research: Ted, do you currently have the labor resources in GSPT to meet current AI demand? And do you have any concerns about that?

Ted Fernandez, Chairman and CEO, Hackett Group: None at all, especially with the productivity improvements of our Accelerator and Transformation Explorer products. Vince, what you got to understand is that the work that we have done traditionally and will do going forward will be, increasingly done by, platforms that, allow you to do that, delivering more value to doing allowing it to be more compelling and complete for clients, in reduced timeframes. So, growth will be less determined by headcount growth. It will be a combination of sophisticated platforms that bring talented professionals to bear to help clients identify opportunities, design opportunities, and build and deploy those opportunities. So no, I don’t believe that headcount is an issue for the balance of the year as we start 2026.

If it had been, we wouldn’t have taken the reduction that we did with our restructuring charge in the current quarter.

Vincent Colicchio, Analyst, Barrington Research: And circling back on Version four, just what is it that’s game changing versus the other alternatives in the market? Is it the speed? Or is it more than that?

Ted Fernandez, Chairman and CEO, Hackett Group: No, it’s much more than that. First, what we had built in version three that’s still very compelling that we walk into a client in any area of the business across 26 industries, and we can walk into a client and say we have the ability to simulate, and we have fully detailed thousands of AI solution opportunities for a client. So we start with this very strong simulation capability that we have built in version three. What really changed from version three to version four on that was that our ability to inform the actual capability, a client’s capability from its existing technology or automation footprint, we got really, really good at driving that the the the way we inform that automation information down to process or in some cases, subprocess level by capturing that client’s automation, existing automation footprint. So that single step resulted in much more powerful ideation capabilities.

And that not only impacted our ability to get in front of a client and say, before I recommend something significant to you, I wanna make sure that as I do that, we want you to know that we fully considered your automation footprint. That capability did not exist in version three, and it did exist at the level we’ve been able to take it down the process itself process level. So that was very, very meaningful. That also really opened up our ability to really gain more information around the data sources that we were gonna be dealing with, both from the existing client technology footprint and our ability then to consider additional data sources to then improve clients’, call it, data sources and knowledge base to to make the solutions that we are recommending smarter, more compelling. So that was kind of also the meaningful, step between version three and version four.

And then the the the the the star of the show is that, we were able to take, solutions that we had been delivering. This is not only detailing the to be process of a solution that was going to be significantly influenced by an agentic workflow and that integration of both, but our ability to now identify those enhancements in that to be processed, be able to integrate the agents and explain the role of the agents in those changes and do it at the level of detail that we’re currently delivering was more significant than version three. But we were doing the version three work primarily, I’ll call it, through hours to deployed expertise. And what really happened is that our Hackett solution language model has just gotten so sophisticated that we were able to take something that was happening over a four to six week period with numbers of professional and do that now in what we just find as an 80% solution in less than an hour, the proposed solution, which then allows us then in front and engage the client on validating the output so that we can get really detailed, really specific, so that recommendation of both complexity, the details required, the benefit that you’re going to deliver that we then carry into POC, it’s just been dramatically improved.

I think once we were able to get those capabilities in front of our clients the way we have post call mid September when we were able to do show this to, potential partners and have partners literally say, so what do you need? And we’d say, give us this information and allow us a couple days to come back to you with detailed recommendations in an area that they were, I’ll call it, for whatever reason, evaluating in one of their current clients or in a future contract in our ability. And that’s what we’re currently doing with them. What we’re doing right now are proof points by taking specific live situations and demonstrating that the capability of Explorer version four is actually distinctly better, more detailed, more accurate, which allows for a better estimation of effort of determining complexity so that when you align benefits to those costs, the ROI is significantly improved. That capability is what’s allowing us to now impact either a new client and say, you know, let us show you how different it is.

And now these channel partners, let us show you how different it can be. And they’ll literally say, had one. We were working through one on a very significant prospect for one of the clients. And they gave us this high level information. Said, can you give us this information of specifically the process you’re targeting, the information you have around that targeted process?

And they said to us, so, you know, look. Am I when am I gonna be able to see this? Am I gonna be able to see this in a month or what? And I said, call us back in two days. And we literally get that and use our two days to then validate what AI Explorer is creating.

And it’s just it’s just really, really impressing them. And, yes, to the point where one of them simply said, this is game changing, and we hope they really mean it. We hope they become a great partner with us and as soon as possible.

Vincent Colicchio, Analyst, Barrington Research: Appreciate all the color. Thanks, Ted.

Ted Fernandez, Chairman and CEO, Hackett Group: I think it’s I think it’s important because we you know, the future of the firm depends on unique capability, which is enhanced by very talented people, but without the unique platform capabilities in improving that solutioning language model and informing that solutioning language model with all of the Hackett IP that we have all the way down the process and subprocess level, including benchmark, I think it’s hard to replicate. I may wake up tomorrow and somebody say, Ted, I’ve got something dramatically better. Right now, sophisticated clients and these sophisticated channel partners are saying, we have not seen anything that produces the outcomes that you’re currently providing to us as part of our, if you call it, proof points.

Vincent Colicchio, Analyst, Barrington Research: Thanks.

Conference Operator: Thank you. At this time, I show no further questions. I would now turn the call back over to Mr. Fernandez.

Ted Fernandez, Chairman and CEO, Hackett Group: Thank you, operator. Let me thank everyone for participating in our third quarter earnings call and we look forward to updating you again when we report the fourth quarter and our total annual results. Thank you again.

Conference Operator: Thank you for your participation. Participants you may disconnect at this time.

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