• Total Revenue: $77.2 million, up 8% year-over-year.

• Revenues Before Reimbursements: $75.7 million, also up 8% from the previous year.

• Adjusted Earnings Per Share (EPS): $0.39, at the high end of guidance.

• Global S&BT Segment Revenue: $40.9 million, down 3% year-over-year.

• Oracle Solutions Segment Revenue: $21.7 million, up 26% year-over-year.

• SAP Solutions Segment Revenue: $14.6 million, up 26% year-over-year.

• Adjusted Gross Margin: Improved by 100 basis points to 41.4%.

• GAAP Net Income: $8.7 million, with diluted EPS of $0.32.

• Adjusted Net Income: $10.7 million, with adjusted diluted EPS of $0.39.

• Cash Balance: $13 million at the end of the quarter.

• Net Cash from Operating Activities: $2.8 million.

• Stock Repurchase: 205,000 shares at an average price of $23.57 per share.

• Warning! GuruFocus has detected 1 Warning Sign with PFMT.

Release Date: May 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• The Hackett Group Inc (NASDAQ:HCKT) reported total revenues of $77.2 million, an 8% increase over the prior year, exceeding the high end of their guidance.

• Adjusted earnings per share reached $0.39, aligning with the high end of their guidance, driven by strong performance in both Oracle and SAP segments.

• The launch of the Gen AI assessment platform, AI Explorer, has received positive feedback and led to numerous client engagements, indicating potential for future revenue growth.

• The Hackett Group Inc (NASDAQ:HCKT) continues to invest in high-margin, IP-based programs and executive advisory services, aiming to integrate Gen AI content to respond to market shifts.

• The company's strong cash flow from operations is being strategically used to pay down debt and fund acquisitions, positioning them well for future growth.

Negative Points

• The Global SBT segment saw a 3% decline compared to last year, impacted by economic headwinds and extended decision-making processes in eProcurement.

• Despite the introduction of AI Explorer, the revenue impact in Q1 was nominal, suggesting that significant financial benefits from this investment may take time to materialize.

• Conversion rates for the company's offerings have been lower than planned, which could affect short-term revenue growth.

• The company noted an increase in SG&A expenses due to investments in sales resources and higher commissions, which could impact profitability if not offset by corresponding revenue increases.

• Extended client decision-making continues to impact demand for digital transformation services, indicating potential delays in achieving revenue growth from these segments.

Q & A Highlights

Q: Ted, could you quantify the level of investment you're making related to Gen AI and specifically Explorer? A: Ted A. Fernandez, Co-Founder, Chairman & CEO of The Hackett Group, explained that the majority of the investment in Gen AI, particularly in the AI Explorer, involves reallocating and refocusing senior executives to the initiative. He highlighted the efficiency of this process, leveraging existing capabilities from the RPA development era. Despite nominal revenue impact in the quarter, the market response and engagement from the AI Explorer have been significant, indicating a promising payoff.

Q: Can you provide examples of client interactions with AI Explorer and how it expands within organizations? A: Ted A. Fernandez described that AI Explorer is initially presented to C-level officers, often involving IT personnel. The strategy is to showcase the platform's capabilities to one executive, anticipating broader organizational exposure. Engagements often start at the executive level, leading to significant and meaningful projects.

Q: Regarding the ongoing delayed decision-making in the Global S&BT segment, when do you expect this to resolve? A: Ted A. Fernandez acknowledged the delay but expressed optimism for resolution as budget allocations for AI become clearer. He anticipates an increase in broad business transformation initiatives and noted that the primary impact has been in the eProcurement area. The expectation is for stabilization and growth resumption, driven by new engagements and AI Explorer demos.

Q: Ted, you mentioned Oracle has reemphasized its sales commitment. Could you elaborate on that and its expected outcomes? A: Ted A. Fernandez noted that Oracle's renewed focus on building a dedicated EPM sales force has benefited The Hackett Group, given their strong reputation in this area. This focus is also creating significant ERP opportunities, contributing to robust growth prospects for the company.

Q: With strong AI consulting demand, do you need to hire more professionals outside the organization? A: Ted A. Fernandez confirmed the need for additional hiring to meet the growing demand in AI consulting. The company is training and certifying current associates and seeking external expertise through hiring and strategic partnerships to enhance capabilities.

Q: Have you expanded your sales force this quarter, and how does it relate to your investment in executive advisory and market intelligence? A: Ted A. Fernandez explained that the increase in SG&A reflects both the expansion in sales resources in software segments and investments in the executive advisory team. He emphasized the importance of adapting to demand shifts towards Gen AI-related content and capabilities, which he expects to drive significant growth in the coming years.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.