Hackett Group Inc (The). 2026 Q2 Earnings Call

Good afternoon, everyone. Thank you for joining us to discuss The Hackett Group second 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, Robert Ramirez, CFO. A press announcement was released over the wires at 4:08 P.M. Eastern Time. For a copy of the release, please visit our website at www.thehackettgroup.com. We will also place any additional financial or statistical data discussed on 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&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, that are contained in our SEC filings. At this point, I would like to turn it over to Ted.

Thank you, Rob. Welcome everyone, and thank you for joining us to discuss The Hackett Group second quarter 2026 results, and more importantly, to review the progress of our AI transition strategy. Our business is undergoing a powerful AI transition. We have been aggressively moving from a traditional consulting and implementation delivery model to a fundamentally different AI-enabled, platform-led model that we believe will create a structurally stronger, more scalable, and highly differentiated Hackett Group. Over the past two years, we have systematically built an integrated suite of proprietary platforms, starting with AI XPLR, which focuses on AI solution ideation, design, and build, and more recently with XT, which focuses on enterprise transformation solutions, and AIX, which focuses on software implementation solutions.

All of our platforms are uniquely informed by our Hackett Benchmarks and Process Best Practice Intelligence IP, as well as our domain-specific Hackett Solution Language Model or SLM. When we guided our Q2 results, we believed that as more clients were exposed to our new XT and AIX platforms, the more differentiated and competitive our primary go-to-market offerings would become. That became clearly evident toward the latter part of the quarter when we successfully closed several significant proposals totaling over $30 million, which are expected to drive improving sequential revenues and year-over-year earnings per share growth in the third quarter. This represents a significant operational and financial inflection point in our AI-enabled transition and earnings trajectory.

The positive market response to our platform reinforces our conviction that enterprises are seeking trusted, outcome-oriented solutions that accelerate value realization while reducing transformation risk, positioning Hackett to drive operating results and long-term shareholder value. As platform adoption scales across our clients throughout the balance of the year, we expect a favorable impact to our Q4 results and also to set up a very strong 2027. Our new XT and AIX platforms are at the heart of our aggressive adoption of our AI-enabled sales and delivery model at the beginning of the year. They allow us to leverage and deploy AI-enabled acceleration and enhanced value realization to our clients, which utilize our primary offerings and generate over 90% of our current lead flow. This is strengthening our ability to compete and realize higher gross margins. We also continue to innovate.

We are scheduled to release a more powerful XT version 2, which also integrates a significant portion of AI XPLR this coming Friday. Additionally, we have also launched a new platform, XDA, which focuses on data assurance and quality, an offering that aligns strongly with all of our primary offerings and delivery platforms. For the second quarter, we reported revenue before reimbursements of $68.3 million, with adjusted diluted earnings per share of $0.34. $0.34 was at the midpoint of our guidance. More importantly, we continued to demonstrate the earnings resilience and strong cash flow generation of our model, despite what could be considered to be a thoughtful demand environment and the ongoing transition activity across our entire organization.

We continue to see strong client interest in AI adoption and broad digital transformations initiatives defined by the reimagination of critical business processes and new operating model considerations, as well as the modernization of existing enterprise application footprints, both which facilitate or can extend into AI enablement. Perhaps most insightful is how clients are opting to pursue AI adoption strategies. Most are becoming more cautious by deciding to pursue extended AI initiatives that emanate from broader enterprise transformation and application implementation engagements. Rather than through standalone AI-first tech-driven adoption strategies. This is allowing us to pursue well-established relationships that drive broader revenue opportunities while also increasing the number of our AI engagements. Clients are including or extending the AI scope in nearly all of our new engagements, which is increasing our AI adoption opportunities while decreasing our reliance on channel partners. We are encouraged by three developments.

First, our AI-enabled delivery platforms are beginning to improve the outcome and economics of how we sell and deliver work. We are seeing our platforms increase delivery productivity, expand scope, and create more compelling client value propositions. Second, we are aligning our resources and expertise to the clients that are moving their attention from AI experimentation to measurable enterprise value realization, which plays strongly to our enterprise transformation and application implementation capabilities. Third, our outlook reflects the operating and financial inflection impact that we have been working hard to achieve. This expected revenue and margin improvement is driving a step up in Q3 adjusted EPS, which is important. It also supports the early benefits of the actions we have taken to reposition the business, improve delivery productivity, and align our operating model with AI-enabled future consulting and digital transformation activities.

As part of and in addition to our broad enterprise transformation and enterprise application pursuits, we continue to help organizations architect and execute their agentic enterprise transformation plans and actively support their AI centers of excellence. Partnerships can play an important role in expanding our reach and helping organizations accelerate AI adoption initiatives. In March, we executed and launched a global go-to-market collaboration with IBM to jointly serve existing and new client pursuits. While IBM has chosen to defer joint go-to-market activities at the moment, we continue to expand our channel strategy and expect ServiceNow, TCS, and Genpact, as well as other partners, to contribute to our pipeline and Q3 performance. On the balance sheet, we expect to continue to generate strong cash flow from operations, supporting our dividend and share repurchase program or pay down debt.

With that, let me ask Rob to provide details on our operating results, cash flow, as well as outlook. I will then return with additional strategy and market commentary following Rob's remarks.

Rob? Thank you, Ted, and good afternoon, everyone.

During this portion of the call, I will provide some context around our second quarter performance, and then I will spend some additional time on the financial and operating implications of our AI transition strategy. I will conclude with a detailed discussion on our financial outlook for the third quarter of 2026. For the purposes of this call, I will comment separately regarding the revenues of our Global S&BT segment, our Oracle Solutions segment, and our SAP Solutions segment, and the total company. Our Global S&BT segment includes the results of our North America and International Gen AI consulting and implementation and licensing revenues, benchmarking and business transformation offerings, executive advisory programs, and our OneStream and eProcurement implementation offerings. Our Oracle Solutions and our SAP Solutions segments include the results of our Oracle and SAP 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, our references to adjusted financial measures will exclude reimbursable expenses, non-cash stock-based compensation expense, all acquisition-related cash and non-cash compensation reversals and expenses, amortization of intangible assets, and other non-recurring items, including our AI transition charge. We have included reconciliations of GAAP to adjusted non-GAAP financial measures in our press release filed earlier today, and we will post any additional information based on the discussions from this call on the investor relations page of the company's website. Excuse me. As Ted mentioned, our second quarter revenue before reimbursements improved sequentially to $68.3 million from $67.8 million last quarter and came in slightly below the low end of our range, while adjusted earnings per share of $0.34 was at the midpoint of our guidance.