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HACKETT GROUP, INC. (HCKT)·Q4 2024 Earnings Summary

Executive Summary

  • Revenue and adjusted EPS exceeded guidance; total revenue was $79.2M and adjusted diluted EPS was $0.47, both above the high end of management’s range, driven by outperformance in SAP reseller activity and higher‑margin Gen AI engagements within Global S&BT; GAAP EPS of $0.12 was impacted by a $5.1M stock price award expense and $2.3M of acquisition-related compensation/expenses tied to LeewayHertz .
  • Mix improved: adjusted gross margin rose to 47.7% (from 43.3% y/y) and adjusted EBITDA margin to 25.2% (from 23.0% y/y), reflecting strong software-related sales in SAP and growing Gen AI revenues; recurring multiyear/subscription revenue held ~22% of revenue before reimbursements .
  • Q1 2025 guidance: revenue before reimbursements $75.0–$76.5M and adjusted EPS $0.39–$0.41; management framed a seasonal step-down after a strong Q4 in SAP and called out GSBT up 5–10% y/y, with Oracle+SAP combined down 8–10% y/y; adjusted gross margin 43–44%, adjusted EBITDA margin 21–22% (tax rate 22%) .
  • Capital returns and balance sheet: dividend raised 9% to $0.48 annualized ($0.12 quarterly); $3.6M buybacks in Q4; net debt reduced with $7M debt paydown; cash from operations was $20.6M in Q4 (DSO improved to 66) .

What Went Well and What Went Wrong

  • What Went Well

    • Outperformance vs guidance: “reported operating results that exceeded our revenue and adjusted earnings per share guidance,” attributable to SAP reseller strength and higher‑margin Gen AI revenue in GSBT; adjusted EPS of $0.47 vs $0.39 last year (beat guidance high end) .
    • Margin expansion: adjusted gross margin improved to 47.7% (from 43.3% y/y) and adjusted EBITDA to $19.5M (25.2% of RBR), driven by “higher value‑added reseller sales” and “higher‑margin Gen AI consulting and implementation revenue” .
    • Strategic AI progress: CEO highlighted imminent AI XPLR v3 with dynamic enterprise simulation and multi‑agent workflows and the LeewayHertz acquisition creating “end‑to‑end Gen AI consulting and implementation capability,” positioning Hackett as a leading Gen AI consultancy with differentiated platforms (AI XPLR and ZBrain) .

  • What Went Wrong

    • GAAP EPS compression: $0.12 vs $0.28 y/y due to $5.1M non‑cash stock price award expense ($0.17/sh) and $2.3M LeewayHertz‑related compensation/expenses ($0.06/sh); prior‑year included a $1.2M legal settlement (~$0.03/sh) .
    • Segment headwinds: GSBT up 4% y/y, but growth was “partially offset by weakness in e‑procurement and OneStream implementation offerings,” and Oracle faced wind‑down of a large post‑go‑live engagement impacting near‑term momentum .
    • Near‑term cadence: Management expects Q1 moderation after Q4 SAP reseller strength (“highest level we’ve ever achieved”), noting seasonality and segment mix will temper Q1 margins (43–44% adjusted gross; 21–22% adjusted EBITDA) .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Total Revenue ($USD Millions)$72.4 $79.8 $79.2
Revenue Before Reimbursements ($USD Millions)$71.2 $77.9 $77.5
GAAP Diluted EPS ($)$0.28 $0.31 $0.12
Adjusted Diluted EPS ($)$0.39 $0.43 $0.47
Net Income ($USD Millions)$7.85 $8.6 $3.56
Adjusted Gross Margin (%)43.3% 43.2% 47.7%
Adjusted EBITDA ($USD Millions)$16.3 $17.7 $19.5
Adjusted EBITDA Margin (% of RBR)23.0% 22.7% 25.2%

Segment revenue and profit

  • Revenue Before Reimbursements by Segment
SegmentQ4 2023 ($M)Q3 2024 ($M)Q4 2024 ($M)
Global S&BT41.60 43.25 43.21
Oracle Solutions18.44 21.84 17.41
SAP Solutions11.13 12.86 16.84
Total RBR71.17 77.95 77.46
  • Segment Profit (where available)
SegmentQ4 2023 Profit ($M)Q4 2024 Profit ($M)
Global S&BT13.51 14.69
Oracle Solutions4.09 2.96
SAP Solutions3.44 6.91
Total Segment Profit21.04 24.56

KPIs and cash/returns

KPIQ4 2023Q3 2024Q4 2024
Consultant Headcount1,168 1,262 1,284
Total Headcount1,416 1,534 1,553
DSO (days)65 70 66
Cash from Operations ($M)25.59 10.58 20.64
Shares Repurchased (k)— 65 117
Avg Price for Buybacks ($)— 26.77 30.95
Remaining Repurchase Auth. ($M)13.94 11.15 27.52
Cash ($M)20.96 —16.37
Debt ($M)32.71 —12.73

Notes:

  • GAAP EPS decline reflects $5.1M non‑cash stock price award expense (~$0.17/sh) and $2.3M acquisition-related non‑cash and related expenses ($0.06/sh) in Q4 2024 .
  • SAP Solutions delivered outsized y/y growth and profit expansion on elevated reseller activity; Oracle declined y/y on post‑go‑live wind‑down .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue Before Reimbursements ($M)Q1 2025N/A$75.0–$76.5New range issued
Adjusted Diluted EPS ($)Q1 2025N/A$0.39–$0.41 (tax rate 22%)New range issued
Adjusted Gross Margin (%)Q1 2025N/A~43–44New detail (call)
Adjusted SG&A + Interest ($M)Q1 2025N/A~18.8New detail (call)
Adjusted EBITDA Margin (%)Q1 2025N/A~21–22New detail (call)
GSBT RBR growthQ1 2025N/AUp 5–10% y/yNew directional (call)
Oracle + SAP RBRQ1 2025N/ADown 8–10% y/y combinedNew directional (call)
Dividend (annual)Ongoing$0.44$0.48 (+9%); $0.12 quarterly declaredRaised
Capital AllocationNear termN/AContinue buybacks alongside investment, temper cash by bonus paymentsNew commentary

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
Gen AI platform (AI XPLR) and pipelineLaunching v2; hundreds of meetings; low conversions but rising; simulation & ROI analyzer emphasized v2 live; higher conversion; pre‑acq. collab with LeewayHertz; JV concept introduced v3 imminent with enterprise simulation and multi‑agent workflows; end‑to‑end with LeewayHertz; licensing JV progressing Improving adoption and monetization
SAP SolutionsQ2: above expectations; some reseller activity Q3: above expectations third quarter in a row; reseller momentum; life sciences demand Q4: “highest level” software sales; expect Q1 step‑down from year‑end seasonality, strong demand through 2025 Strong but lumpy; structural demand favorable
Oracle SolutionsQ2: EPM momentum post sales-force reemphasis Q3: continued strength; EPM favored Q4: impacted by post‑go‑live wind‑down; near‑term momentum tempered Moderating near term
GSBT (incl. Gen AI, e‑procurement, OneStream)Q2: GSBT down 3% y/y; e‑procurement weakness Q3: GSBT flat y/y; Gen AI growth offset by e‑procurement weakness Q4: GSBT up 4% y/y; e‑procurement and OneStream still headwinds Gradual improvement with continued pockets of weakness
Macro/IT budgets2024: extended decision cycles; 2025 budgets to shift toward Gen AI Expect 2025 allocations to Gen AI, with data quality focus 2025: increased IT budgets targeting Gen AI; data quality investment critical Tailwind for AI spend
Talent & hiringHybrid model; retention improving Turnover moderated, remain low Turnover remained low; ramping Gen AI capacity Stable workforce; AI talent build

Management Commentary

  • “We reported operating results that exceeded our revenue and adjusted earnings per share guidance while aggressively investing and growing our Gen AI related capabilities and revenues.” — Ted A. Fernandez, Chairman & CEO .
  • “Our SAP solutions segment overperformed… closing several significant value‑added reseller transactions… directly attributable to our decision to expand our sales force.” — Ted A. Fernandez .
  • “Gen AI revenues have a higher margin… driven by… AI XPLR… ZBrain… and LeewayHertz implementation team.” — Ted A. Fernandez .
  • “Adjusted EBITDA… was $19.5 million or 25.2% of revenues before reimbursements… improvement… driven by higher value‑added reseller sales… and higher‑margin Gen AI consulting and implementation revenue.” — Rob Ramirez, CFO .
  • “We estimate RBR for Q1 2025 to be $75.0–$76.5 million… adjusted diluted EPS $0.39 to $0.41… adjusted gross margin ~43%–44%… adjusted EBITDA margin ~21%–22%.” — Rob Ramirez .

Q&A Highlights

  • Gen AI pipeline conversion: Clients now have 2025 budgets; entry points converting to implementation and licensing, with expectations for increasing velocity and spend expansion across use cases through 2025 .
  • Compute cost dynamics (DeepSeek): Lower LLM compute cost/greater capability seen as a positive catalyst for end users and Hackett’s solutioning; reinforces application-side acceleration .
  • SAP durability: Q4 was record reseller sales; management does not expect Q1 to match, but sees strong full‑year demand for SAP, aided by agentic capabilities ahead .
  • Segment headwinds: e‑procurement and OneStream were meaningful headwinds; without them GSBT growth would have been “meaningfully higher” .
  • JV/licensing: ZBrain JV signing licenses; offering options for licensing or consulting‑facilitated engagements expected to scale in 2025 .

Estimates Context

  • S&P Global consensus for Q4 2024 and Q1 2025 could not be retrieved at this time due to API request limits; therefore, we cannot quantify Street beat/miss versus consensus. The company did state results exceeded its own revenue and adjusted EPS guidance high end and issued Q1 guidance ranges detailed above . Wall Street consensus values were unavailable from S&P Global at the time of this analysis.

Key Takeaways for Investors

  • Mix shift tailwind: Higher‑margin Gen AI and SAP reseller mix expanded margins; sustained focus on software/licensing via AI XPLR/ZBrain JV could further support structural margin improvement in 2025 .
  • Near‑term moderation, constructive 2025: Q1 guide implies seasonal and mix normalization after a strong Q4; management expects strong GSBT growth and healthy SAP demand through 2025 despite Oracle’s near‑term wind‑down impact .
  • AI monetization inflection: v3 of AI XPLR (enterprise simulation and multi‑agent workflows) plus LeewayHertz/ZBrain implementation and licensing capabilities position Hackett to benefit from rising 2025 AI budgets; watch ARR/licensing traction in JV .
  • Capital returns intact: Dividend increased 9% and buybacks accelerated with $27.5M authorization remaining; balanced by continued investment in AI platforms and talent .
  • Balance sheet de‑risking: Debt reduced to ~$12.7M from ~$32.7M y/y; strong Q4 cash from operations ($20.6M) and improving DSO (66) support flexibility .
  • Watch segment cadence: SAP likely remains lumpy (reseller timing), Oracle comps softer near term; GSBT benefits from Gen AI but e‑procurement/OneStream remain watchpoints .
  • Execution markers: Track Q1 margins vs guide (43–44% gross; 21–22% EBITDA), GSBT y/y growth (5–10%), JV licensing wins, and Gen AI services backlog build as primary stock catalysts in upcoming quarters .