The Hackett ((HCKT)) has held its Q1 earnings call. Read on for the main highlights of the call.
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The Hackett Co.’s latest earnings call struck a cautious but constructive tone as management balanced near-term financial pressure with tangible strategic progress in its AI platform pivot. Revenue and earnings fell year over year, cash and collections were under strain, yet leaders pointed to early productivity gains, rising recurring revenue, and a credible path to margin recovery later this year.
Platform-Enabled Transition and Early Productivity Gains
The company accelerated migration to its proprietary AI platforms, including AI XPLR, XT, AIX and ZBrain, embedding them into both sales and delivery. Management highlighted that U.S. Strategy & Business Transformation projects using XT and XPLR posted roughly a 500 basis‑point margin uplift, showcasing early proof that the platform strategy can structurally improve profitability.
Adjusted EPS and Emerging Inflection Point
Adjusted diluted EPS came in at $0.34 for Q1, landing at the low end of prior guidance and reflecting the revenue decline and margin compression. For Q2, management projected adjusted EPS of $0.33–$0.35 and flagged Q3 as a key inflection when adjusted EPS should exceed last year’s level even if revenues remain flat.
Strong SAP Segment Growth
SAP Solutions was a bright spot, with revenue before reimbursements rising 21% year over year to $16.0 million. Growth was driven mainly by implementation services tied to earlier software sales, underscoring the leverage in Hackett’s SAP ecosystem even as other segments softened.
Expanding Recurring Revenue Base
Roughly 24% of Hackett’s total revenues before reimbursements now come from recurring multi‑year and subscription-based streams. These include executive advisory, application management services and Gen AI licenses, providing a more stable revenue foundation and supporting scalable monetization of the firm’s new platforms.
New Wins and Strategic Partnerships
Hackett secured two large OneStream engagements powered by the OneStream AIX platform, signaling traction in performance management solutions. It also launched a global go‑to‑market collaboration with IBM and reported strong inbound interest from hyperscalers and process‑mining users, particularly via a Celonis-linked AI XPLR campaign.
Cost Discipline in SG&A
Despite revenue pressure, the company showed some operating discipline as adjusted SG&A fell to $16.1 million, or 23.7% of revenues before reimbursements. This compared with $18.4 million, or 24.1%, a year earlier, with the decline largely driven by lower variable compensation tied to the weaker quarter.
Capital Returns: Share Repurchases and Dividend
Hackett continued returning capital to shareholders, repurchasing 333,000 shares for about $4.6 million at an average price of $13.94. The board also approved a Q2 dividend of $0.12 per share, and the company noted it still has roughly $22 million of remaining share repurchase authorization.
Revenue Decline Across Key Segments
Total revenues before reimbursements were $67.8 million in Q1, down 11% from the prior year as demand softened. Global Strategy & Business Transformation revenue fell 15% to $36.4 million, while Oracle Solutions dropped 24% to $15.4 million, reflecting tougher comparables and slower client decisions.
Adjusted Gross Margin Compression
Profitability came under pressure as adjusted gross margin on revenues before reimbursements slipped to 42.3% from 43.4%, a decline of about 110 basis points. Adjusted cost of sales rose to 57.7% of revenues from 56.6%, reflecting mix shifts and the impact of ramping platform investments.
Adjusted Earnings and EBITDA Under Pressure
Adjusted net income per diluted share fell to $0.34 from $0.41 a year earlier, a roughly 17% drop that tracked the revenue decline and lower margins. Adjusted EBITDA decreased to $13.8 million, or 20.3% of revenues, from $15.7 million, or 20.7%, showing only modest margin erosion but a clear step down in absolute profits.
Cash and Operating Cash Flow Strains
The balance sheet showed stress as cash declined to $6.1 million at quarter end from $18.2 million the prior quarter. Net cash used in operating activities was $5.1 million, driven by higher accounts receivable balances and the payment of 2025 performance bonuses, amplifying the impact of softer earnings.
DSO and Receivables Timing Issues
Collections slowed, with days sales outstanding rising to 67 days from 55 days at year-end after excluding VAR-related revenues. Management expects accounts receivable to fall by roughly $8–$9 million by the end of Q2, helped by the collection of SAP VAR-related receivables that were delayed but received early in the second quarter.
Headcount Reductions and Transition Charges
Consultant headcount dropped to 1,247 from 1,332 a year ago, and from 1,301 last quarter, as Hackett rightsized to reflect productivity gains from its platforms. The company expects about $0.5 million of AI transition-related severance charges in Q2 and signaled that similar restructuring costs could continue into 2026 as the transformation progresses.
Demand and Decision-Cycle Headwinds
Management cited macroeconomic uncertainty and longer client decision cycles, particularly as customers grapple with AI return-on-investment questions. The Oracle segment faces difficult year-over-year comparisons into Q2, and Strategy & Business Transformation will see tough comps into Q3, all of which weigh on near-term revenue visibility.
Forward-Looking Guidance and Q3 Inflection
For Q2 2026, Hackett guided revenues before reimbursements to $68.5–$70.0 million and adjusted EPS of $0.33–$0.35, with adjusted gross margin targeted at roughly 44%–45% and adjusted EBITDA at 20%–21% of revenues. Management expects better operating cash flow, a reduction in receivables, sequential revenue improvement in Global S&BT and Oracle, and reiterated that Q3 should mark an earnings inflection even on flat sales.
The earnings call painted a company managing through a choppy demand environment while aggressively leaning into AI platforms and higher-value software-enabled work. Near-term revenue and margin pressure, cash strain and restructuring costs remain, but early platform benefits, rising recurring revenues and disciplined capital returns suggest Hackett is positioning for improved profitability once demand stabilizes and adoption scales.