Hackett Group (HCKT) Q2 FY26 earnings call: guidance and Q&A

What is the reasoning behind the IBM deferral, and can you provide more details on the programs with TCS and Genpact?

IBM's deferral was unexpected but likely due to changing priorities. Hackett has launched a ServiceNow alliance, is closing a meaningful engagement with TCS, and is launching a new initiative with Genpact. AI project opportunities are increasingly coming from traditional transformation initiatives, requiring collaboration with partners.

“First, look, the IBM, if you want to call it, hold, caught us a little bit by surprise. However, we know that their priorities were changing throughout the quarter. So beyond that, we'll continue to wait for any guidance that they may have going forward. With that said, we did launch our ServiceNow alliance and are pursuing a list of clients that have been identified by both sides. We are currently actually closing a meaningful engagement with TCS and have another one that is currently being pursued as well. And we're launching a new initiative with Genpact that will include a list of joint clients that we believe we should be jointly pursuing.”

asked by George Sutton · answered by Ted Fernandez

Can you explain the deliverables, timing, and pricing of the $30 million in deals, and provide insight into the pipeline?

The $30 million in deals will extend through the end of 2027, with some ramping up in Q3. The win rate for platform-led efforts is very high, and the pipeline continues to include similar opportunities. Clients are impressed by Hackett's unique capabilities, integrated IP, and ability to accelerate execution and pursue new areas like data assurance.

“These will easily extend through the end of '27, not all of them, but at least a couple of them, and they'll be ramping up during the quarter. ... we know the clients are looking for innovation. We know the clients are looking for organizations that can demonstrate, I'll call it, AI agility and capability. We think we've demonstrated that both in the way we've continued to develop our people, but nothing is more evident than when we actually demonstrate to them a go-to-market that they find to be absolutely modern and powerful and has allowed these very significant brands to make very significant decisions against, I'm going to call it, top-of-the-line competition.”

asked by George Sutton · answered by Ted Fernandez

What are the common applications and organizational focus areas for the recent large technology-driven wins, and what are you seeing in the pipeline?

The wins were in OneStream and Oracle implementation offerings, specifically with major brands. The platform's ability to execute traditional engagements and extend into AI-enabled capabilities, providing a 'cradle-to-grave' solution, was a key driver for these significant wins.

“We introduced it first with the OneStream version of AIX, and we had a very significant win early in the year with the platform. We immediately moved to fully adopt the AIX platform in the sale and delivery of our Oracle implementation offerings. And the several engagements that we mentioned, one was OneStream and two were Oracle, major brands that you would know against major firms that you obviously would know as well, where simply the capability that we brought to bear to deliver, execute and also extend AI-enabled capabilities, but also AI extended capabilities within their platforms.”

asked by Jeff Martin · answered by Ted Fernandez

What inning are you in regarding the AI transition process, and when might it be complete, especially concerning gross margin gains?

The company estimates they are capturing about 20% of the AI transition's potential currently, aiming for 50% by year-end. This transition is driving substantial pricing and margin improvements, reflected in sequential gross margin gains from Q1 to Q2 and further expected in Q3 and Q4.

“We spent a lot of time talking about that. We were -- I don't want to say early innings, but if you said what kind of potential are we capturing 20% at the moment, do we believe that we should be closer to 50% by year-end? Yes. ... We saw it from Q1 to Q2. We're seeing it in a more meaningful way from Q2 to Q3. And in Q4, where we actually -- if you recall, last year had a very, very material and significant VAR sales. Look, we believe, again, that opportunity to exceed that Q4 related results with significantly fewer VAR sales, which are, as you know, higher margin, are an indication of both the ramping up of the engagements that we're closing and that we're obviously pursuing at the moment, but also both the margin improvements and scope expansions that we're experiencing from our new sales and delivery platform-led model.”

asked by Jeff Martin · answered by Ted Fernandez

Has generative AI changed how customers use your benchmarking data, specifically regarding demand for continuous versus point-in-time benchmarking?

GenAI has led to clients demanding 'AI world-class benchmarks,' which Hackett is providing through a stand-alone platform. This capability extends to subprocess levels and influences enterprise transformation and software implementation engagements. While it has the potential to shift to continuous benchmarking, it's not fully doing so today.

“The answer is, what it's changed is that people are asking and requiring for the market to provide AI world-class benchmarks. And as you know, we've been launching -- throughout the quarter, we launched our AI world-class benchmark capability. It's actually a stand-alone platform that takes not only our historic information across all of the industries that we serve that are in excess of 20. But more importantly, it's extending AI world-class benchmarks down to a subprocess level for all of those same industries.”

asked by Vincent Colicchio · answered by Ted Fernandez