The Hackett Group, Inc.

Welcome to the Hackett Group first quarter earnings conference call. Your lines have been placed on a listen-only mode until the question and 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. Thank you, Mr. Ramirez. You may begin.

Good afternoon, everyone, and thank you for joining us to discuss the Hackett Group's first quarter results. Speaking on the call today and here to answer your questions are Ted Fernandez, Chairman and Chief Executive Officer of the Hacker 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 www.thehackergroup.com. We will also place any additional financial or statistical data discussed on this call that is not contained in the release of the Investor Relations Picture website. Before we begin, I'd 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 follow-looking statements should be considered only in conjunction with the detailed information, particularly the risk factors, 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 first quarter earnings call. As we normally do, I will open up 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 also provide guidance. We will then review our market and strategy-related comments, after which we will open it up to Q&A. This afternoon, we reported revenues before reimbursements of $76.2 million and adjusted earnings per share of 41 cents, near and at the high end of our quarterly guidance, respectively. Our results were driven by the performance of our GSBT segment, which was driven by the strong revenue growth from our Gen AI engagements. Gen AI engagements also favorably impacted our gross margin. They demand a higher margin than our traditional consulting and implementation revenues and are driven by the highly differentiated capabilities of our AI Explorer and ZBrain platforms, as well as our implementation teams. Clients continue to move from awareness to budgeted projects, a trend we expect to continue throughout the year. Total GSBT segment revenues were up over 6%, were partially offset by weakness in our one-stream and e-procurement practices. Excluding these practices, our GSBT segment was up 13%. We believe GenAI-enabled transformation is a generational opportunity which will fundamentally change the way companies operate as well as the way consulting services are sold and delivered. The GenAI platform's capabilities of AI Explorer version 3, with ZBrain's ability to orchestrate and build complex multi-agent workflows, is highly differentiated and allows us to compete strongly in this rapidly growing space. More importantly, Most differentiating is the value realization speed of our combined end-to-end capability. AI Explorer's version 3 capability to dynamically identify AI solutions or use cases, design client-specific solutions using Solution Explorer, evaluate feasibility and determine the use case ROI, as well as suggest the required AI agents necessary to orchestrate the agentic workflow is powerful and unique. Combined with the multi-agent orchestration capabilities of ZBrain, which allows our clients to build and deploy the AI solution at scale, creates a powerful combination. It also allows us to serve clients enterprise-wide from ideation to implementation in one fully integrated platform. It also provides a client with a single platform which they can license to fully support their entire AI center of innovation, which we refer to as AI COIs. As expected, our Oracle solutions was down, but activity continues to be solid. The segment was impacted by the wind-down of a large Postal Live engagement, which was partially offset by the continuing strength of the Enterprise Performance Management, or EPM, activity, resulting from Oracle's reestablishment of their dedicated EPM sales force. Our SAP solution segment was down against a strong Q1 VAR comp from last year, but increasing demand for our market-leading life sciences group and the related implementation revenues resulting from our increased software sales activity bodes well for this group for in the second quarter as well as for the remainder of the year. We continue to see Gen AI opportunities emerge. Our early introduction of AI Explorer gave us a great opportunity to engage with hundreds of clients in 2024. These early demo meetings and conversations provided us with valuable AI adoption insight, along with the implementation concerns of our prospects. These initial meetings also provide us an opportunity to propose new GenAI-enabled transformation engagements with these clients that position us to serve these clients both strategically and broadly. On the executive advisory front, we continue to invest in growing our IP-based programs. We believe our move to fully integrate Gen AI content, which is now being further augmented by our Gen AI content, which was infused by the Leeway Hertz acquisition, is being responsive to our clients' strong interest in this area. We recently launched a premium Gen AI solutioning advisory program, with a nationally recognized AI leader to fully leverage our solutioning innovation and implementation knowledge from our platforms and client engagements. This program will be directly targeted to the 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 cash flow from operations to continue our stock buyback program rather than just focus on paying down the remainder 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, cash flow, and also comment on outlook. I will make additional comments on strategy and market condition following Rob's comments.

Rob? Thank you, Ted. As I typically do, I'll cover the following topics during this portion of the call. I'll cover an overview of our first quarter results for 2025, along with an overview of related key operating statistics. I'll cover an overview of our cash flow activities during the quarter, and I'll then conclude with a discussion on our financial outlook for the second quarter of 2025. For purposes of this call, I will comment separately regarding the revenues of our global SMBT segment, our Oracle solution segment, our SAP solution segment, and the total company. Our global SMBT 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, market intelligence, and IPAS programs, and our one-stream and e-procurement implementation offerings. Our Oracle solutions and our SAP solution segments include the results of our Oracle and SAP offerings, respectively. Please note, that we will be referencing both total revenues and revenues 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. We have 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. For the first quarter of 2025, our total revenue was $77.9 million, up 1% over the prior year. Our revenues before reimbursements were $76.2 million, which was near the high end of our quarterly guidance, also up 1% over the prior year. The first quarter reimbursable expense ratio on revenues before reimbursements was was 2.1% as compared to 2.3% in the prior year and 1.9% when compared to the same period in the prior year. Total revenues from our global SMPT segment were $43.4 million for the first quarter of 2025. Revenues before reimbursements for our global SMPT segment were $42.6 million for the first quarter of 2025, an increase of 6% when compared to the same period in the prior year. The revenue growth from our general ad consulting and implementation offerings in this segment were partially offset by weaknesses in our one-stream and procurement implementation offerings during the first quarter. Excluding that decrease, our global SMT segment would have been up 13%. Total revenues from our Oracle Solutions segment were $21.1 million for the first quarter of 2025. Revenues before reimbursements for our Oracle Solutions segment were $20.4 million for the first quarter of 2025, a decrease of 3% when compared to the same period in the prior year. This decrease is primarily due to the post-go-live warm-down of a large patron, as we discussed last quarter. Total revenues from our SAP Solutions segment were $13.4 million for the first quarter of 2025. Revenues before reimbursements for our SIP solution segment were $13.2 million for the first quarter of 2025, a decrease of 8% when compared to the same period in the prior year as expected. This was primarily driven by strong software-related sales in the quarter, resulting from increased investments we made back in late 2023. The overall performance in the fourth quarter and in the first quarter results, however, tempered our first quarter results, However, we expect demand for our SAP services to be strong throughout the balance of the year due to the implementation services that correspond to the volume of software sales from these last two quarters. Approximately 23% of our total company revenues before reimbursements consist of recurring multi-year and subscription-based revenues, which includes our executive advisory, IT as a service, and application managed services contracts. Total company adjusted cost of sales which exclude reimbursable expenses, non-cash stock-based compensation expense, and all acquisition-related cash and non-cash compensation, totaled $43.1 million, or 56.6% of revenues before reimbursements in the first quarter of 2025, as compared to $44.4 million, or 58.6% of revenues before reimbursements in the prior year. This decrease is primarily due The decreased service costs related to selected headcount reductions in Global S17 in the prior year, as well as decreased use of subcontractors in the quarter. Total company consultant headcount was 1,332 at the end of the first quarter of 2025, as compared to total company consultant headcount of 1,284 in the previous quarter, and 1,154 at the end of the first quarter of 2024. First quarter ending headcount was primarily driven by increases from our Gen A acquisition and increased hiring for our Gen A practices. Total company adjusted gross margin on revenues before reimbursements, which excludes reversible expenses and non-cash stock-based compensation expense, and all acquisition-related cash and non-cash compensation, was 43.4% in the first quarter of 2025, as compared to 41.4% in the prior year. The improvement in growth margin is primarily driven by the higher margin in genetic consulting and implementation revenue in the global SABT segment. Adjusted SG&A, which excludes non-cash stock-based compensation expense and all acquisition-related cash and non-cash expenses and retention of intangible assets in one-time legal settlements, was 18.4 million, or 24.1% of revenues before reimbursements in the first quarter. This is compared to $17.1 million, or 22.6% of revenues before reimbursements in the prior year. The year-over-year absolute dollar increase, primarily due to incremental costs associated with the legal inheritance and seed rating acquisition, completed in September 2024, and increased recruitment costs in our GNI practices. Adjusted EBITDA, which excludes non-tax stock rates compensation expense, all acquisition-related cash and non-cash expenses, amortization of intangible assets, and one-time legal segments was $15.7 million, or 20.7% of revenues before reimbursements in the first quarter, as compared to $15.2 million, or 20% of revenues before reimbursements in the prior year. GAAP net income for the first quarter of 2025 totaled $3.1 million, or diluted earnings per share of $0.11 million, spare to GAAP net income of 8.7 million, with diluted earnings per share of 32 cents in the first quarter of the previous year. First quarter 2025 GAAP net income includes non-cash stock compensation expense from our stock price award program initiated in September of 2024 of $5.1 million and acquisition related cash and non-cash compensation and related expenses of $2.4 million, which in total impacted our Q1 2025 gap results by $0.23. Acquisition-related cash and non-cash compensation expense relates to a portion of the purchase consideration for the Lewa Hertz acquisition completed in September 2024. The consideration paid to the seller contains service investing requirements and as such is reflected as compensation expense under GAAP rather than purchase consideration. Adjusted net income and diluted earnings per share, 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 for the first quarter of 2025, totaled $11.6 million, where adjusted diluted net income per common share of $0.41, which is at the top end of our earnings guidance range and compares the prior year adjusted diluted net income per common share of 39 cents. The company's cash balances were 9.2 million at the end of the first quarter of 2025 as compared to 16.4 million at the end of our previous quarter. Net cash provided from operating activities in the quarter was 4.2 million, primarily driven by net income adjusted for non-cash activity and partially offset by decreases in accrued expenses due to the payment of 2024 performance bonuses and increases in accounts receivable. Our DSO for data sales outstanding was 73 days at the end of the quarter as compared to 66 days at the end of the previous quarter and 68 days in the prior year. The increase in DSO is primarily due to extended terms and milestone deliverables on several large client engagements, but we currently expect a reduction in DSO in the second quarter of 2025. During the quarter, we repurchased 379,000 shares of the company stock for an average of $30.93 per share, at a total cost of approximately $11.7 million, including purchases from employees to satisfy income tax withholding triggered by the vesting of restricted shares. our remaining stock repurchase authorization at the end of the fourth quarter was $21.3 million. During the quarter, the company borrowed $5 million from its credit facility. The balance of the company's total debt outstanding at the end of the first quarter was approximately $18 million. At its most recent meeting, subsequent to quarter end, the company's board of directors declared a second quarter dividend of $0.12 per share for its shareholder of record, on June 20th, 2025 to be paid on July 7th, 2025. Now moving to second quarter guidance, the company estimates total revenue before reimbursements for the second quarter of 2025 to be the range of 76 to 77.5 million. We expect global SMBT segment revenue before reimbursements to be up approximately 5% when compared to the prior year. We expect both Oracle Solutions and SAP Solutions segment on a combined basis revenue before reimbursements to be down when compared to the prior year. We estimate adjusted diluted net income per share in the second quarter of 2025 to be in the range of 37 to 39 cents, which assumes a GAAP effective tax rate on adjusted earnings of 27%. We expect adjusted gross margin as percentage of revenues before reimbursements to be approximately 43 to 44%. We expect adjusted SG&A and interest expense for the second quarter to be approximately 18.6 million. We expect second quarter adjusted EBITDA as a percentage of revenues before reimbursements to be in the range of approximately 21 to 22%. Lastly, we expect cash flow from operations to be up on a sequential basis. At this point, I'd like to 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 demand for digital transformation remains strong in traditional areas, it continues to be impacted by thoughtful decision-making as organizations affect competing priorities due to the economic concerns and the consideration of emerging Gen AI technologies. What is new is the increased uncertainty that tariff negotiations will have on client short-term decision-making. We continue to 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 were primarily focused on developing awareness in AI, in 2025, we expect to see an increasing amount of AIP budgets specifically allocated to Gen AI initiatives in high-feasibility, high-impact areas. We also expect to see an increasing investment in data quality and value initiatives, which are also critical to any Gen AI strategy. The unlimited potential of AI will define an entirely new level of GenAI-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 GenAI-enabled transformations, which we believe positions our company with unique value creation opportunities. 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 GenAI solutions that we were identifying. This resulted in our acquisition of Leighway Hertz, a highly recognized provider of advanced GenAI solutions. The acquisition also included a sophisticated Gen AI orchestration platform, Zbrain, which we agreed to contribute into a joint venture with the founder of Leeway Hertz. The JV will bring together the AI Explorer and Zbrain software platforms and will focus on licensing the platforms and creating what we believe will be a first-of-its-kind Gen AI 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 growth of ARR annual recurring licensing revenues. It should also allow the JV to have the opportunity to raise capital and achieve standalone valuations due to its Gen AI software focus. Our acquisition of Leeway and Hertz combined with our AI Explorer and Gen AI consulting capabilities is expected to have a consequential impact on our 2025 results. With our meaningful market insight, we continue to innovate and make powerful improvements to AI Explorer. And that's capital XPLR, by the way. In fact, we recently released version 3, which brings significant enhancements that allow us to highly differentiate our offerings further. The most important of the enhancements in version 3 is is our ability to simulate an organization's enterprise Gen AI solutions by leveraging Hackett's proprietary solutioning IP and identifying AI automation opportunities at a work step level. This enables us to identify thousands of Gen AI solutions and to rapidly custom design and evaluate AI use cases prioritized by our clients and also recommend the specific AI agents required to build these solutions. Our platform allows us to do this in a fraction of the time that other providers are offering. Our unique combination of strategic access to clients with the speed and solutioning provided by our platform is now attracting channel partners which could increase our ability to introduce our platforms and related services and accelerate our growth. We have never been in a situation with such unique capability and complete assets to be able to take advantage of such a powerful technology revolution. 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 and critical data and tech architecture resources to further support our efforts. These efforts are rapidly allowing us to become key architects advisors, and consultants of our clients' GenAI journey. We now believe that GenAI-enabled transformation augmented by 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 platforms that result in our largest digital transformation and cloud application consulting relationships. The handle effect 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 the emerging Gen AI world-class performance standards. Another critical investment that we have made is to also build our own Gen 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 insights. We are ingesting proprietary IP, including our benchmarking best practices research IP, to support the myriads of queries that are required to support our executive advisory and consulting clients, as well as our own associates. We have also embarked on a new initiative called Accelerator, A-I-X-E-L-E-R-A-T-O-R, which intends to also address the efficiency and quality of the delivery of our technology implementation 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, and we expect that trend to continue. We also continue to explore strategic relationships beyond the ones that I previously mentioned 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. As I previously mentioned on our calls, we are continuing to add videos of our new and expanding platforms on the investor relations page of our website that investors can review and become more familiar with our new capabilities. Lastly, even though we believe that 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 innovation, and performance and by thanking them for their tireless efforts and always urge them to stay highly focused on our clients and people no matter what challenges we may encounter. Those conclude my comments. Let me turn it over to our operator and let's move on to the Q&A section of our call. Operator?

Thank you. If you would like to ask a question, please unmute your phone, press star 1, and record your first and last name fully and clearly when prompted. Our first caller is Jeff Martin with Roth Capital Partners. You may go ahead.

Thanks. Good evening, Ted and Robert. Ted, I wanted to jump in by just asking you to elaborate on some of the client interactions you've had with AI Explorer, what the pipeline looks for implementation projects. You mentioned you expect acceleration throughout the year. How might that look as we progress into the back half?

Parties, please stand by. We're not getting any sound from the speakers. One moment, please.

I'm sorry. I'm sorry, Jeff. We were muted. Let me start again. Jeff, let me go back and specifically speak to the client interactions. What we continuously hear from the clients is the fact that our capabilities are very unique. Our ability to address ideation and evaluation, provide ROI assessments at a use case level, and associate all of that ideation and evaluation and assessment to specific AI agents that would be required to build those solutions is incredibly unique. That ability that we created from the onset to be able to evaluate the automation opportunities at a work step level and build that into full simulation now industry process flows is very, very unique That is why we continue to say we've never been in such a prepared and complete and powerful opportunity as an organization around such a powerful cycle. So what does that mean? I'm going to say that at least half of the times that we have that interaction, the client engagement and discussions continue. We've been given an opportunity to provide proposals and win work. and we're starting new relationships. So it's just a pretty – it's just been a very, very favorable reaction from clients. What we've now noticed that is unique and new is that we now notice that these large panel partners see how differentiated our capability is. So the question for us is whether we continue to pursue our own leads as we have been since the beginning, since we launched AI Explorer, and as we continued since the acquisition of ZBrain, is whether we will do that with significantly larger channel partners. The inquiries that we've gotten from both large systems integrators as well as enterprise software companies that are aggressively trying to position themselves in the space is – actually pretty surprising, but we believe, as I mentioned in our comment, that it's going to give us a chance to do something with some or a few of these partners that will allow us then to see more, advance our opportunities, and will allow us to do that with a broader entry point, since some of them bring stronger technology relationships that Hackett has. So it's not only we think we will see more opportunities, but we'll be in front of the technology buyer, as well as the business buyer who knows Hackett so well.

Very helpful. And then towards the end of 2024, you had completed, I believe, correct me if I'm wrong, a doubling of the implementation capacity on the AI side of the business. Just curious, how you feel about your current capacity and what's your plan to scale that further, perhaps in 2025 and 2026?

Yeah, it's probably closer to about 60% to 70% increase since acquisitions since we acquired, had some people that go, and then we aggressively hired. But you can see from the G&A spend that Rob mentioned, we're hiring and adding more resources, not only offshore, around the Z-Brain and the Leeway Hertz team, which are primarily based in and around New Delhi. But we've started to add market-facing resources and capabilities in the U.S. to interact with some of our new engagement opportunities. So we're expanding both the TIF and we're expanding the back end of the capabilities.

Okay. One more if I could and then I'll pass it on. Could you give us an update on the progress of the joint venture with ZBrain? Are you signing ARR contracts and, you know, anything else you are prepared at the moment to disclose on that?

Well, first let me answer the last part of your question. We are continuing to add licensed clients to the ZBrain platform. And we are close to completing and executing the JV agreement. We expect to do that. I don't know. We should be able to do that in the next 30 to 45 days. Thank you.

And our next question comes from George Sutton with Craig Hellam. You may go ahead.

Thank you. Ted, we had a first on this call. You were silent for 30 seconds. No one has ever left you speechless. So I found that interesting. So as a best practices consultant in an environment that's going through huge change, I'm just curious how that potentially benefits your business, how that potentially challenges your business as we look forward.

Well, we clearly – you know, what we did expect at the beginning of the year would be to develop any campaign around economic disruption. I mean, if you said, hey, you were developing a 2025 plan, did you consider the fact that there could be some introduction of this ambitious tariff plan that could – disrupt economic activity or at least allow clients to pause and consider the impact on them? The answer is no. So as that relates to our business model, well, we've clearly started communicating with our clients that to the extent they want to hunker down a little bit while they're making any of these considerations and looking at the specific of tariff-related disruptions that obviously the nature of the work we do around strategic cost reduction and the deployment of addressing efficiency and effectiveness at the highest level, we have brought that back out of our bag more aggressively than we expected in 2025. As it relates to the Gen AI-related work, no, we think that the client engagement around Gen AI-related capability continues to improve. I believe those things are budgeted. Could budgeted ideas be disrupted by larger budgeted items? I guess it could. But the interest, the engagement, the interaction, both from the clients and the channel partners, is very high.

You mentioned a consequential impact on 25 results from the AI Explorer. I'm just curious if you can give us a better sense of what you mean by consequential.

To me, I saw it one of two ways. First, it's already been consequential because the Gen AI growth, obviously, on a year-over-year basis is becoming more material each quarter. But the second consequence in my mind in 2025 that I still expect to realize is that if we see the licensing revenues, we haven't started to license Explorer yet, although the offer has been made out there and we expect the licensing of Explorer to start in July, even though we wanted that to be quicker. But for those who have a license interest in Explorer, We have this kind of 90-day kind of program, which is a fully facilitated engagement, which could then result in a license. And then the licensing activity in ZBrain has clearly started as well. But to me, the consequential impact would be that both the growth in ARR becomes meaningful and that the JV then has the opportunity to explore, if you want to call it value-accelerating activities, like doing some kind of a Series A round to fund a more accelerated growth in the JV itself and in the licensing of the platforms. So some combination of the impact we're already experiencing in Gen AI revenue growth which, as we said, is being offset. Like Rob said, GSBT would have been stronger, but we have some of the enterprise application groups inside of GSBT offsetting some of that growth. If not, it would be more prominent or visible. But we're already experiencing the revenue growth and higher margins. We started to drive license revenues, so we hope that that continues then to drive into the JV. And then the third that I believe consequential would be to bring in some combination of channel partners or investors who may also be channel partners into the JV and allowing that ARR pursuit to come with a much broader distribution channel. So those are the things, and that's how we evaluate consequences. to 25 as it relates to our J&I opportunity.

Got you. One other question. You, when we think of the ideation to implementation, I assume in most cases, LH would be involved. Would, can you give us an example of kind of what the ideal situation has been and what, you know, you'd love to see implemented across a lot of other companies?

Ideal situation is the overwhelming majority of the clients were introduced to AI through co-pilot and some of what I will call it employee productivity or individual productivity initiatives driven around the deployment of co-pilot or other, if you want to call it chatbot-related extended AI opportunities. The major opportunities to deploy Gen AI is when you identify the enterprise-wide opportunity for a company. So instead of saying a client saying, gosh, I'd like to get introduced to AI and let me pick an area that is of lower risk and lower ROI as a way of educating and launching our efforts, I would say that a majority of the clients are in that what I call bottoms-up process. Our value proposition comes by being able to engage clients top-down, providing the clients with an enterprise-wide opportunity of the AI solutions. In the best scenarios that we've had is when the organization then says, I'd like to pursue a basket. but they clearly include the more breakthrough or transformative solutions that require some level of sophistication, the way you bring data sources together to create a knowledge base that allow clients to make decisions that they wouldn't ordinarily be able to make, either as quickly or as precisely as you would expect. So I call that exponential intelligence. In the middle layer of the solutions, our clients can say, okay, I want to transform processes. So you're looking for significant both improvements in efficiency and effectiveness. I'm going to say that is where more of the ambitious opportunities are. I would talk about the exponential intelligence opportunities. to be those that have been moving to organizations. The way you saw Clark today mentioned on CNBC some of the solutions that Palantir has taken on, but there's just a myriad of those opportunities that go way beyond a Palantir, I'll call it, dedicated solution. And then at the bottom of those incremental is when you extend AI and just improve the capability and extend the capability of enterprise software solutions its use, its analysis, the way Salesforce has done so beautifully with AgentForce, and others are now trying to emulate that Salesforce lead. So perfect scenario, a client that looks at it top-down, selects sophisticated things, middle of the road, transformative and incremental solutions, and then you are building then, you know, then you've got a client that's committing to a multi-year plan, and you're talking millions of dollars to build that solution program out for the client. And then for us, we would like for them to not only look at that opportunity broadly, top down, but we see the combination of AI Explorer and Zbring as as I said, as positioning to the client a platform. We're telling the clients, you don't have to build ideation and evaluation capabilities, discovery ideation or evaluation capabilities. You don't need to build orchestration capabilities that allow you to deploy solutions at scale. You can license that capability from Hackett and have that end-to-end capability. And that is the capability that you will see – not surface, but increasingly gain attention as the JV becomes more prominent.

Gotcha. Perfect. Thank you. Thank you, George.

And our last question comes from Vincent Colicchio with Barrington Research. You may go ahead.

Yeah, Ted, what portion of revenue, excuse me, what portion of AI revenue was implementation revenue in the quarter, and how should that change going forward?

Rob is looking at me knowing that he hasn't provided me with this information, but I would estimate that it would be 50-50, if I have to say. And that 50-50 split, as the business grows, the actual building and deployment of solutions should become significantly greater than the discovery, ideation, and evaluation of the opportunities, multiples of it.

Okay. And are you seeing cross-selling from your Gen AI consulting clients and two other services as of yet?

The answer is yes. We've done it twofold. First, we want to make sure that our team stays focused on the provisional work because it's such a significant part of our 2025 plan. So what's probably been most prominent for us is to provide a digital transformation engagement that includes a Gen AI scan, a way to enhance that digital transformation initiative with something that would be more powerful and more ambitious that would come with a Gen AI solution. But there is no doubt every time we walk into the client to have a conversation about Gen AI, you have a conversation of pain points. Those pain points refer specifically to, I'll call it, more traditional digital transformation work we do. So the answer is yes, it goes both ways. But we like it. Obviously, we have bigger numbers in the traditional entry point and clients, traditional clients. So that idea of taking clients from digital transformation to Gen AI-enabled transformation with the AI scan makes our opportunity enterprise-wide, makes the opportunity broader. I mean, that would be a perfect path for us to be able to start traditionally, move into Gen AI, and then leave a client with a complete AICOI platform that supports all of their AI solution efforts.

And then how is the pipeline looking for Oracle, and should we expect sequential flatness or any help on the direction of that as we move through the year?

No, I think Rob said that Oracle and SAP would be down. I would expect Oracle's activity is probably down. SAP's momentum is clearly up. Oracle's demand, overall activity, is solid. But as we mentioned, we're still trying to fill gaps from the large post-go-live engagement that we had in Q4 and into Q1. Okay. Thank you.

And at this time, I show no further questions. I will now turn the call back to Mr. Fernandez.

Thank you, Operator. Let me thank everyone for participating in our first quarter earnings call. I look forward to bringing everyone back up to speed once we have a chance to report the second quarter. Thank you for participating today.

And this concludes today's conference. Thank you for participating. You may disconnect at this time and have a great rest of your day.