The Hackett Group, Inc.

Welcome to the Hackett Group fourth quarter earnings conference call. Your lines have been placed on a listen only mode until the question 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.

Good afternoon everyone and thank you for joining us to discuss the Hackett Group's fourth quarter results. Speaking on the call today, we're here to answer your questions with 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 4.05 p.m. Eastern Time. For a copy of the release, please visit our website at .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 question and answer 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, and welcome everyone

to our fourth quarter earnings call. As we normally do, I'll open 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, and guidance. We will then review our market strategy-related comments, after which we will open it up to Q&A. This afternoon, we reported total revenues of 79.2 million and adjusted earnings per share of 47 cents, both exceeding our quarterly guidance. Our results were driven by the overperformance of our SAP segment and the strong performance of our GSBT segment, which continue to see increased revenue growth from our GENAI engagements. GENAI revenues have a higher margin than our traditional consulting and implementation revenues and are driven by highly differentiated capabilities of our AI Explorer XPLR platform and our recently acquired Z-Brain platform, as well as the Liwei Hertz implementation team. We are seeing clients moving from awareness and education to budgeted projects, and we saw that really towards the end of the fourth quarter, and we're also seeing it in the beginning of this quarter. Total GSBT segment revenues, which were up 4%, were partially offset by the weakness in our e-procurement practice. We believe GENAI-enabled transformation is a generational opportunity that will fundamentally change the way companies operate, as well as the way consulting services are sold and delivered. The GENAI platform capabilities of AI Explorer have now been extended with Z-Brain's ability to orchestrate and build complex multi-agent workflows, which should allow us to compete strongly in this rapidly growing space. More importantly, what's most differentiating is the power of our combined -to-end capability. AI Explorer's capability to dynamically ideate and evaluate agentic GENAI solutions with the advanced open source orchestration capabilities of Z-Brain is very unique. This capability allows us to serve clients from ideation to implementation in one fully integrated platform. It also provides a client with a single platform that they can license to fully support their entire AI center of innovation, or as we refer to it, our AI COI. Although Oracle activity continues to be solid, the segment was impacted by the wind down of one of our large post-goal life engagements. We continue to see strong overall EPM activity resulting from Oracle's reestablishment of their dedicated EPM sales force. Our SAP solutions segment overperformed for the fourth quarter in a row as it closed several significant value added reseller transactions, which strongly benefited the quarter. This increased reseller activity is directly attributable to our decision to expand our sales force in that group. We are also experiencing increasing demand from a market leading large sciences services group after several years of tempered spend in the sector. We continue to see JNI opportunities emerge. We conducted hundreds of meetings with global 2000 organizations from our introduction of AI Explorer earlier in the year. These demo meetings and conversations have provided us with valuable adoption insight along with the implementation concerns and limitations of our prospects. These initial meetings are now starting to become new JNI enabled transformation opportunities that position us to serve our clients strategically and broadly. We also continue to innovate and make powerful improvements to AI Explorer. In fact, we will release a new version three during this first quarter. The most important of the enhancements in version three is our ability to dynamically simulate an organization's enterprise JNI solutions by leveraging Hackett's proprietary IP to identify automation opportunities and related data source requirements at a work step level. This enables us to identify, design, and evaluate meaningful AI use cases and identify the related AI agents required to build these solutions. Given the strategic access and proprietary and expanding platform capabilities of AI Explorer, it was natural for us to extend our AI implementation capabilities to be able to fully develop and implement JNI solutions that we were identifying. This is what resulted in our acquisition of LiWei Hertz at the tail end of the third quarter, a highly recognized provider of advanced JNI solutions. This acquisition also included a sophisticated JNI orchestration platform, ZBrain, which we agreed to contribute into a joint venture with the LiWei Hertz founder. The JV, which is to be named ZBrain, brings together the AI Explorer and ZBrain software platforms and will focus on licensing the platforms and creating what we believe to be a first of a kind JNI 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 the 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 JNI software focus. Our acquisition of LiWei Hertz resulted in a creative revenue growth in the fourth quarter, and when combined with our AI Explorer and JNI consulting capabilities, are expected to have a consequential impact on our 2025 results. There is no doubt that in just one year, our aggressive pivot to become the architects of our clients' JNI journey is being well received and has significant value creation potential for our organization. On the executive advisory fund, we continue to invest in our growing RIP-based programs. We believe our move to fully integrate JNI content, which is now being further augmented by our JNI, the content infused by the LiWei Hertz acquisition, will be responsive to our clients' strong interest in this area. We experience sequential and -over-year revenue growth in the fourth quarter, driven by improvement advisory program sales and renewals. We are now working on launching a premium JNI solutioning advisory program to fully leverage our solutioning innovation and implementation knowledge from our platforms and clients' engagements that will be directly targeted, and the program will be directly targeted to AI leaders, CIOs, and CTOs who require this knowledge. On the balance sheet side, in the near term, you can expect us to use our strong cashflow from operations to continue our stock buyback program, rather than just focus on paying down the remaining outstanding balance of our credit facility while continuing to invest in our business. With that said, let me ask Rob to provide details on our operating results, cashflow, and also comment on Outlook. I will make additional comments on strategy and market conditions following Rob's comments.

Rob? Thank you, Ted. As I typically do, I'll cover the following topics during my portion of the call. I'll comment and make a commentary on an overview of our 2024 fourth quarter results, along with an overview of related key operating statistics. I'll cover an overview of our cashflow activities during the quarter, and I'll then conclude with a discussion on our financial outlook for the first quarter of 2025. For purposes of this call, I will comment separately regarding the revenues of our global SMBT segment, our Oracle Solutions segment, our SAP Solutions segment, and the total company. Our global SMBT segment includes the results of our North America and international GenAI consulting and implementation licensing revenues, benchmarking and business transformation offerings, executive advisory market intelligence, and IPASS programs, and our OneStream and e-Procurement 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. Reimburseable 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. 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 to the investor relations page of the company's website. Moving on, for the fourth quarter of 2024, our total revenue was 79.2 million. Our revenues before reimbursements were 77.5 million, which was above the high end of our quarterly guidance. The fourth quarter of 2024, our Reimburseable Updates Ratio on revenues before reimbursements was 2.3%, as compared to .3% in the prior quarter and .7% in the same period in the prior year. Total revenues from our global SNBT segment were 43.9 million for the fourth quarter of 2024. Revenues before reimbursements for our global SNBT segment were 43.2 million for the fourth quarter of 2024, an increase of 4% when compared to the same period in the prior year. The revenue growth from our GenA active salting and implementations in this segment was primarily offset by weakness in our e-procurement and one stream implementation offerings. Total revenues from our Oracle Solution segment were 18.2 million for the fourth quarter of 2024. Revenues before reimbursements for our Oracle Solution segment were 17.4 million for the fourth quarter of 2024, a decrease of 6% when compared to the same period in the prior year. This decrease is primarily due to the post-goal live wind down of a large engagement, which will also impact the Oracle momentum in the first quarter. Total revenues from our SAP Solution segment were 17.2 million for the fourth quarter of 2024. Revenues before reimbursements for our SAP Solution segment were 16.8 million for the fourth quarter of 2024, an increase of 51% when compared to the same period in the prior year, primarily driven by strong, software-related sales in the quarter, resulting from the increased sales investments we made in late 2023. The overall performance in the fourth quarter will temper our first quarter outlook, but we expect demand for our SAP services to be strong throughout the balance of the year. Approximately 22% of our total company revenues before reimbursements consist of recurring multi-year and subscription-based revenues, which includes our executive advisory, IP as a service, and application-managed service contracts. Total company-adjusted cost of sales, which excludes reimbursable expenses, non-cash stock-based compensation expense, and all acquisition-related cash and non-cash compensation expense, totaled 40.5 million, or .3% of revenues before reimbursements in the fourth quarter of 2024, as compared to 40.4 million, or .7% of revenues before reimbursements in the prior year. Total consultant headcount was 12, was 1,284 at the end of the fourth quarter, as compared to 1,262 in the previous quarter, and 1,168 at the end of the fourth quarter of 2023. Fourth quarter ending headcount was primarily driven by increases from our Gen. AI acquisition and increasing hiring in our Gen. AI practices. Total company-adjusted gross margin on revenues before reimbursements, which exclude reimbursable expenses and non-cash stock-based compensation expense, and all acquisition-related cash and non-cash compensation expense, was .7% in the fourth quarter of 2024, as compared to .3% in the prior year. The improvement in gross margin was primarily driven by higher value-added reseller sales during the quarter and the higher margin Gen. AI consulting and implementation revenue in global SWT. Adjusted SG&A, which excludes non-cash stock-based compensation expense and all acquisition-related cash and non-cash expenses, amortization of intangible assets, and one-time legal settlements, was 18.4 million, or .7% of revenues before reimbursements in the fourth quarter of 2024. This is compared to 15.4 million, or .6% of revenues before reimbursements in the prior year. The -over-year absolute dollar increase is primarily due to incremental commissions from increased SAP segment sales and increases in center compensation expense commensurate with company performance. Adjusted EBITDA, which excludes non-cash stock-based compensation expense, all acquisition-related cash and non-cash expenses, amortization of intangible assets and one-time legal settlements, was 19.5 million, or .2% of revenues before reimbursements in the fourth quarter of 2024, as compared to 16.3 million, or 23% of revenues before reimbursements in the prior year. Gap net income for the fourth quarter of 2024 totaled 3.6 million, or diluted earnings per share of 12 cents as compared to gap net income of 7.9 million for diluter earnings per share of 28 cents in the fourth quarter of the prior year. Our 2024 gap net income includes non-cash stock compensation expense from our recently approved Stock Price Award Program of 5.1 million and acquisition-related cash and non-cash compensation and related expenses of 2.3 million, which in total impacted our Q4 2024 gap results by 23 cents. 2023 gap net income includes the Gartner legal settlement and related costs of 1.2 million, or 3 cents per diluter earnings per share. Adjusted net income and diluted earnings per share, which exclude non-cash stock-based compensation expense, all acquisition-related cash and non-cash expenses, amortization of intangible assets, and one-time legal settlements for the fourth quarter of 2024 totaled 13.6 million, or adjusted diluted net income per common share of 47 cents, which is above the top end of our earnings guidance range and compares to prior year adjusted diluted net income per common share of 39 cents. Acquisition-related cash and non-cash stock compensation expense relates to a portion of the purchase consideration for the Lee Wehrens Acquisition completed in September 2024. The consideration contains either performance or service vesting requirements, and as such is reflected as compensation expense under gap rather than purchase consideration. The company's cash balances were 16.4 million at the end of the fourth quarter, as compared to 10 million at the end of the previous quarter. Net income added for modern activities in the quarter was 20.6 million, primarily driven by net income adjusted for non-cash activity, increases in accrued expenses, and decreases in accounts receivable. Our DSO, or day sales outstanding, was 66 days at the end of the quarter, as compared to 70 days at the end of the previous quarter and 65 days in the prior year. During the fourth quarter of 2024, the company paid down seven million on its credit facility. The balance of the company's total debt outstanding at the end of the fourth quarter of 2024 was approximately 13 million. During the quarter, we repurchased 117,000 shares of the company's stock for an average of $30.95 per share at a total cost of approximately 3.6 million. Our remaining stock repurchase authorization at the end of the fourth quarter was 27.5 million. At its most recent meeting, the company's board of directors authorized a 9% increase in its annual dividend from 44 cents to 48 cents per share to be paid quarterly and declared the first quarterly dividend of 12 cents per share for shareholders of record on March 21st, 2025 to be paid on April 4th, 2025. Before I move to guides for the first quarter of 2025, I'd like to remind everyone of the seasonality of our business relative to costs as we move sequentially from Q4 to Q1, specifically consistent with previous years, our first quarter guidance for 2025 will reflect the sequential increase in US payroll related taxes and sequential buildup of our vacation goals. The company estimates that total revenues before reimbursements for the first quarter of 2025 to be in the range of 75 to 76.5 million. We expect global SMBT segment revenue before reimbursements to be up five to 10% compared to the prior year driven by strong GNI revenue growth, partially offset by declines in one stream and RE procurement practices. We expect both Oracle Solutions and SAP Solutions segment revenue before reimbursements to be down compared to the prior year. On a combined basis, we expect them to be down eight to 10%. We estimate adjusted diluted net income per common share in the first quarter of 2025 to be in the range of 39 to 41 cents, which assumes a gap effective tax rate on adjusted earnings of 22%. We expect the adjusted gross margin as a percentage of revenues before reimbursements to be approximately 43 to 44%. We expect adjusted SG&A and interest expense for the first quarter to be approximately 18.8 million. We expect first quarter adjusted EBITDA as a percentage of revenues before reimbursements to be in the range of approximately 21 to 22%. Lastly, we expect cash balances in the first quarter excluding the impact of shared buyback activity to be tempered primarily due to the payment of 2024 performance-related bonuses. At this point, I'll turn it back over to Ted to review our market outlook and strategic priorities for the coming months. 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 the demand for digital transformation remains strong in traditional areas, it continues to be impacted by thoughtful decision-making as organizations assess competing priorities due to economic concerns and the consideration of emerging GEN.AI technologies. In 2025, we expect IT budgets to increase with increasing attention and allocations to the rapidly emerging GEN.AI solutions and the related opportunities and threats it brings to all industries. While in 2024, GEN.AI budgets will primarily focus on developing awareness of AI, in 2025, you will see increasing amount of IT budgets specifically allocated to GEN.AI initiatives in high-feasibility and high-impact areas. We also expect to see an increasing investment in data quality and value initiatives that are critical to any GEN.AI strategy. The unlimited potential of AI will define an entirely new level of .AI-enabled world-class performance standards, driving all software and services providers to extend the value of their existing offerings with the introduction of AI agent extensions. We believe this will result in unprecedented innovations which all organizations will have to consider. This shift is consistent with our aggressive pivot to .AI-enabled transformations which we believe positions a generational value-creation opportunity for our organization. Strategically, we continue to focus on recurring high-margin IP-related services. But what is new is the accelerated focus and investments we are making in all of our GEN.AI capabilities. The most significant investments have been in the development of our AI Explorer platform and in the training and development of our associates. Our strategic acquisition of LiWai Hertz further expanded and accelerated all of our efforts. This will further accelerate as we fund the expansion of our joint venture. We are utilizing the AI Explorer platform as the vehicle to integrate the GEN.AI capabilities and impact across all of our offerings. We also continue to hire and upgrade our skills in critical data and technology architecture resources to further support our efforts. These efforts are rapidly allowing us to become key architects, advisors, and consultants of our clients' GEN.AI journey. We now believe that AI Explorer will be our primary strategic entry point to clients that we will use to position our traditionally strong benchmarking digital transformation and executive advisory offerings and the platforms that result in our latest digital transformation and cloud application consulting relationships. The halo or downstream revenue impact of these offerings has traditionally been around 40% over the last several years. We believe this will only be expanded by our AI Explorer offering and the enterprise-wide strategic access it provides. AI Explorer significantly enhances the value of our IP and fully aligns it with emerging GEN.AI world-class performance standards. Another critical investment that we have made is to build our own .AI-assisted knowledge-based solution called Ask Hackett AI. We expect the integration of our valuable IP and content that leverages GEN.AI to significantly enhance the delivery of our insight that we are asked to provide to our clients every day but much faster and with significantly more personalized insight. We are ingesting proprietary IP, including benchmarking best practices, research IP to support the myriads of queries that we're required to support our executive advisory, consulting and consulting. We have also embarked on a new initiative called Accelerator. It intends to address the efficiency and quality of the delivery of our technology implementation-related services. All these initiatives are harnessing the power of GEN.AI to improve and accelerate the delivery of our solutions and services with the intent of differentiating our capabilities and result in improved revenue growth and margins. We also see the potential commercial value of these innovations beyond our internal use. On the talent side, competition for experienced executives with high technology agility continues. Overall, we saw turnover continue to moderate and remain low during the quarter. We expect that trend to continue. We also continue to explore strategic partnerships and acquisitions that will allow us to extend our GEN.AI capabilities and sell our IP through new channels that will allow us to reach beyond our current global 1,000 focus in an efficient manner. We are continuing to add videos of our new and expanding platforms on the investor relations page of our website that investors can review to become more familiar with our new capabilities. Lastly, even though we believe we have the client base and the offerings to grow our business, we continue to look for acquisitions and alliances that strategically leverage our IP and add scope, scale, and capability which can accelerate our growth. As always, let me close by congratulating our associates on our performance and by thanking them for their tireless efforts and always ask them to remain to stay focused on our clients and our people no matter what challenges we may encounter. Those conclude my comments. Let me turn it over to the operator who will move us into the Q&A section of our call. Operator?

Yes, the phone lines are now open for questions. If you would like to ask a question over the phone, please press star one and record your name. To withdraw your question, press star two. The first question in the queue is from George Sutton with Craig Hallam. Your line is open.

Thank you. Ted, it was nice to hear you call out some revenues and the influence that GEN-AI had in the fourth quarter and will have in Q1. I wondered if you could give us a little more detail on the breadth of what you're working on. Give us a sense of what the pipeline might look like.

Well, let me say at the highest level, let's just say that both our client entry points or meetings that we're having and even the content which our executive advisory and market intelligence clients are leveraging is being significantly skewed to -AI-related questions and comments and interests. So that really drives our meeting counts. It drives our client engagements. And look, George, you know we've worked really hard to get out in front of this by launching AX4 at the beginning of last year. All of that work we did in 2024, when you bring that together with the acquisition of leeway herds and the fact that they bring not only great engineering capability, but an orchestration, an agentic workflow orchestration platform really allows us to be incredibly competitive. We believe we're at the tip of the spear of on these opportunities. So look, whether it's meeting counts, whether it's discussion with clients and or revenue that we booked and saw on a sequential basis, look, the opportunities are expanding for us. And I think we're just, if you look back just a year, we're a dramatically different organizations with we believe very unique capabilities which we've assembled throughout 2024. And so hopefully that provides some context to your question.

So I thought about you immediately when I really understood what DeepSeq had done which was dramatically reduced the power of compute or the cost of compute. And it seemed right down central to really accelerate the application side of AI, which I thought you would be a direct beneficiary of. Can you give us a sense of how that news might've affected things in your pipeline?

Well, the capability of these foundational large language models is key and central to this Gen. AI revolution. And it powers the Gen. AI solutions which we identify, evaluate, and are working with our clients with. So one to see capabilities expand, supposedly the price points relative to those capabilities go down in my mind is very positive for the end user. It infers that you're gonna get greater, you're gonna get access to this knowledge base with all of this GPU power and now with a growing capability on its ability to infer and reason and help you and assist you in many ways. For us, our capability, we have focused and believe we are experts at solutioning a Gen. AI opportunity from ideation all the way through a fully deployed solution at scale. So I can tell you that the innovation we've had in developing our capability with every version of AX4 that we've released with the third one coming out this quarter. And now the addition, I can't tell you how capable this Leeway Hertz team, its founder is an incredibly talented individual and the C-Brain platform that they bring. But look, the capabilities are improving across all dimensions of Gen. AI deployment and the DeepSeq, I'll call it wake up call, I think is great news for end users and people that plan to adopt Gen. AI capabilities throughout these next few years.

One other question if I could, SAP is typically fairly lumpy business for you. Sounds like it really picked up this past quarter. Can you just give us a duration expectation? Is this a new level for the SAP business given the investments you've made or are these more one time projects?

Look, we strongly benefited from the sale of software at the tail end of the year. It was the highest level we've ever achieved. In fact, unfortunately, I can't say that we can continue at that pace from Q4 to Q1, primarily because one is end of year activity and the other is first quarter. But our SAP demand when we look throughout 2025, we're expecting it to be very strong and that's before we see some of the SAP agentic capabilities that it's now starting to tout. So we hope it's a strong year for SAP and our SAP group.

Okay, thanks guys.

As a reminder, if you would like to ask a question over the phone, please press star one and record your name. The next question in the queue is from Jeff Martin with Roth Capital Partners. Your line is open.

Hey, good evening Ted and Robert. How are you? Hey Jeff. Hey Jeff. I wanted to drill in a little bit more on your meetings in the past quarter or two specific to AI Explorer. Are you seeing those convert into implementation contracts and what kind of visibility do you have on pipeline conversion over the next couple of quarters here?

We see increasing activity but more importantly, we see clients with budgeted 2025 initiatives planned which really changes the engagement for us. So it's a combination of both we're better prepared and then when we were a year ago and clients don't need to be convinced about the Gen. AI opportunity, what it means to their industry of them. So we think that we're just gonna see velocity in the pipeline and we're also hoping that entry points are just that entry points and a client that learns how to leverage the Gen. AI capabilities that we have to develop and build and deploy solutions will increase their spend throughout the year with us. So we're hoping for a combination of both, a better budgeted client, we're significantly, I'll call it more prepared than we were 12 months ago and the fact that an entry point is just that. Once you're able to demonstrate value with a select or a few use cases or solutions as we refer to them, we believe that clients will continue to increase their spend in the category. So look, it's very promising.

And then I wanted to get your perspective on implementation projects, both in terms of scale and scope, what kind of duration are we looking at, what kind of average implementation projects are you doing today and where could that go one to two years out from here?

Well, if you really think through the 2024 cadence, right? And then the fact that we didn't close leeway hurts until the end of September. So consider that as you think of the progress that we've made in our capabilities today versus what was at the beginning, mid and now at the beginning of 2025. Both our capabilities and the opportunities are just better defined. Clients are better prepared to have a conversation on how to prioritize. And to give you some examples, look, we go all the way from offering a client something we call a fast start program so they have a chance to become familiar with our platforms and our capabilities. And they have resulted in licensing agreements that have been as long as three years. But know that all of these contracts and all of this activity kind of happened in the tail end and toward the second half of the year. So just know, I'm just adding context to how they're building and how they built for us. But I can't tell you the difference between budgeted clients with knowledge of GENAI versus educating clients, trying to understand and assess their opportunities in 2024 without having meaningful budgeted dollars last year. I think it's a significant difference. And we'll have a significant difference in the number of clients that we bring on board and the way clients scale throughout the year.

And then last question for me is, you mentioned EPOC Purement in one stream were headwinds to the fourth quarter. I was just curious if you could quantify that and then also give us a sense of what your outlook is for those two areas for the balance of this year.

Well, there is no doubt that the, let's call it, the GENAI opportunities are somewhat, or can be disruptive to the enterprise application companies. So as you've seen, just in recent weeks, I'm not even gonna say months, virtually every enterprise application company has announced some form of extended AI and their first introduction of AI agents or agentic workflows that extend the value of their existing enterprise applications. So that will be disruptive. But if you go to the person who I'll say moved earliest to capture the power of foundational model, which was Salesforce, and you look at the kind of momentum that they're seeing both in their new agent force, as well as what it's meant to their, I'll call it traditional cloud application sales. I think you get a feel for both the opportunity, which I think Salesforce is starting to harvest. But if you go back and look at Salesforce maybe six months earlier, as it was building out its Einstein capability, they had some disruption as well as they were looking at what GENAI meant to them. So are we surprised that it's creating a little bit of a pause when people think of their technology investment? The answer is no. Are the enterprise applications quickly responding to the challenge? The answer is yes. And you're gonna see the fight for the technology I'll call it agentic workflow and the delivery of enterprise functionality, utilizing and leveraging foundational models either through an enterprise application or through I'll call them independently built solutions, it's just gonna be fun to watch. Clients are gonna have significant opportunities to improve and they're gonna have technologies available to them. They didn't have 18 months ago, but that does not come without some disruption. So I'm not surprised that we're seeing that happen and we'll see that happen as people integrate agentic capabilities into their current cloud apps.

And then are you able to quantify the headwind from Ibro Kerman in one stream in the fourth quarter?

Well, they were meaningful enough for us to mention. So for us to say that our GSBT group, 4%, let's just say that without that disruption, that GSBT group would have been up meaningfully higher, just to give you some reference. But it was meaningful enough to affect the reported growth of the segment.

Fair enough, thank you, that's helpful.

And the next question, the queue is from Vincent Colicchio with Barrington Research, your line is open.

Hey, good afternoon, Ted. So what are your thoughts on the outlook for Oracle as we move beyond Q1? Oracle

activity remains, as I said, strong. On the EPM side, which you know we've strongly benefited from here over the last 24 months with them, probably stronger than on the ERP side. But look, we expect the enterprise application companies to participate in this extended AI capabilities delivered through agents. I think Salesforce has proven that. I expect Oracle, SAP, OneStream, all others to benefit in similar ways. They'll have to explain the additional value that comes from these new capabilities to clients and look at, may impact some of the velocity in their pipeline for some, it may not for others.

And do you need to ramp your gen AI labor capabilities to meet your demand expectations for 25? Well,

you saw the headcount increase both year on year and quarter on quarter and I think Ron mentioned that most of that headcount increase was in our gen AI groups.

And are you seeing any incremental interest in the joint venture? Any update there would be helpful.

I can report that it's starting to sign licenses. We are working through the details to the final, I'll call it agreement. So AI Explorer and ZBrain will be both reside inside of the joint venture. It will allow us to fully leverage, explore, use some of the ZBrain infrastructure capabilities which are gonna be very valuable to explore and we will offer the clients three options. The ability to, again, we offer both facilitated full consulting engagement or licensing which attaches a rate card to the license but we give the client a chance to either license these capabilities or have a consulting facilitated engagement be part of it. And so we expect the licensing activity to increase throughout the year.

Okay, that's it for me, nice quarter Ted. Thank you Vince.

At this time I show no further questions. I will turn the call back over to Mr. Fernandez.

Well thank you everyone for participating in our fourth quarter earnings call. As you can see 2025 is expected to be a very exciting year so we look forward to updating you when we report the first quarter. We'll see you in a few months.

This concludes today's call. Thank you for your participation. You may disconnect at this time.