The Hackett Group’s IBM Partnership on Hold, ServiceNow Alliance Launch Contradict Prior Guidance

Date of Call: Aug 4, 2026

Financials Results

• Revenue: $68.3M before reimbursements, up sequentially from $67.8M last quarter, but below the low end of guidance range.
• EPS: $0.34 adjusted diluted EPS, at the midpoint of guidance.
• Gross Margin: 44.1% adjusted gross margin, up from 42.3% in the previous quarter.

Guidance:

• Revenue before reimbursements for Q3 expected to be $68M-$70M.
• Adjusted diluted EPS for Q3 expected to be $0.37-$0.39, representing ~11.8% growth sequentially from Q2 midpoint.
• Adjusted gross margin expected to be 46%-47%.
• Adjusted EBITDA margin expected to be 21.5%-22.5%.
• AI transition charge of ~$1M expected in Q3.

Business Commentary:

Revenue and Earnings Inflection Point:

• The Hackett Group reported revenue before reimbursements of $68.3 million for Q2 2026, with adjusted diluted earnings per share of $0.34.
• This represents a sequential improvement from Q1 and is attributed to the adoption of AI-enabled platforms (XT and AIX), leading to increased differentiation and competitiveness in their offerings.

Segment Revenue Trends:

• The SAP Solutions segment saw a 9% sequential increase in revenue before reimbursements to $17.4 million, while the Oracle Solutions segment decreased by 1% to $15.3 million, and the Global S&BT segment decreased by 2% to $35.6 million.
• The SAP increase was driven by higher software sales volume and related implementation services. The decreases in Oracle and Global S&BT segments were due to clients questioning the value and ROI of AI-first strategies.

AI Transition and Margin Improvement:

• Adjusted gross margin improved sequentially to 44.1% from 42.3% in Q2 2026.
• This improvement is linked to the positive impact of AI-enabled delivery platforms, which are enhancing productivity, expanding project scope, and improving pricing capabilities.

Strategic Partnerships and Channel Expansion:

• The company has launched alliances with ServiceNow and is in the early stages of partnerships with TCS and Genpact, though IBM deferred joint go-to-market activities.
• These partnerships are aimed at expanding reach and accelerating AI adoption initiatives, with a focus on integrating AI into broader enterprise transformation and application implementation engagements.

Cash Flow and Financial Health:

• Strong cash flow from operations of $15.2 million allowed the company to reduce net debt by $6.1 million, repurchase stock, and maintain dividend payments.
• This financial stability supports ongoing investments in AI platforms and strategic growth initiatives while managing through a period of macroeconomic uncertainty.

Sentiment Analysis:

Overall Tone: Positive

• Management described Q2 as 'a sequential improvement quarter' and stated Q3 'remains our view' as the inflection point for adjusted EPS growth. They highlighted closing 'several significant proposals totaling over $30 million' and that 'our outlook reflects the operating and financial inflection impact.' The tone emphasized progress with AI platforms driving 'improving sequential revenues and year-over-year earnings per share growth' and setting up 'a very strong 2027.'

Q&A:

• Question from George Sutton (Craig-Hallum): Ted, I wonder if you could address the IBM deferral reasoning. You mentioned for the moment, so just curious what that means. You separately mentioned programs with TCS and Genpact. I wondered if you could go into those a little bit.
  Response: IBM's joint go-to-market activities were deferred due to changing priorities; Hackett will wait for further guidance. Partnerships with TCS and Genpact are active, with engagements being closed and pursued, and new initiatives launched. The trend shows more AI project opportunities emerging from traditional business transformation and application initiatives rather than standalone AI-first strategies.

• Question from George Sutton (Craig-Hallum): You mentioned $30 million in deals. I wondered if you could just explain what that means in terms of deliverables or timing, how you’re pricing these opportunities, and any sort of the pipeline behind that.
  Response: The win rate on platform-led deals is very high, leading to significant engagements. The pipeline includes similar opportunities. Clients are impressed by Hackett's integrated IP and platform capabilities, which accelerate execution and allow expansion into new areas like data assurance (XDA). Upgrades to the XT platform (XT version 2) aim to enhance competitiveness and continue the successful trajectory seen with the AIX platform.

• Question from Jeff Martin (Roth Capital Partners): Ted, I was curious if you could give us some context around these large technology-driven wins that are the common applications. What parts of the organization are they focused on? I’m curious if you’re seeing common denominators in those and also in the pipeline of business that you’ve got coming at you.
  Response: Large wins involve traditional engagements (e.g., OneStream, Oracle) extended with AI-enabled capabilities using Hackett's platforms. The ability to execute cradle-to-grave engagements with platform-led delivery and AI extension drove these wins, and the strategy is expected to continue.

• Question from Jeff Martin (Roth Capital Partners): To follow up on George’s question, what kind of timeline are these collective $30 million of wins going to take to play out? Over what period?
  Response: These significant wins will extend through the end of 2027, with at least a couple ramping up during the quarter.

• Question from Jeff Martin (Roth Capital Partners): It sounds like internally there’s a lot of work to do. A lot of work has been done. There’s gross margin gains to be had here. To use a baseball analogy, what inning do you feel like you’re at in the process of that, and when might it be complete?
  Response: Hackett estimates it has captured about 20% of potential from the transition but aims to reach closer to 50% by year-end. This is evidenced by substantial pricing and margin improvements reflected in sequential guidance, with Q4 expected to surpass prior year VAR sales results with fewer, higher-margin engagements.

• Question from Vincent Colicchio (Barrington Research): Ted, has Generative AI changed how customers are using your benchmarking data? Are you seeing increased demand for continuous benchmarking, for example, versus point in time?
  Response: Generative AI has increased client demand for AI world-class benchmarks, which are now a standalone platform offering sub-process level insights. While this capability is valuable and influencing engagements, it has not yet transformed the model from transactional to continuous benchmarking.

• Question from Vincent Colicchio (Barrington Research): How many clients does the joint venture have? Is the pipeline there healthy? Can you give us an update there?
  Response: The licensing pipeline for the joint venture is limited. However, the services and implementation side (part of LeewayHertz/Hackett) is seeing increased activity, with AI implementation opportunities extending from nearly all primary entry points.

• Question from Vincent Colicchio (Barrington Research): In terms of the launch of the ServiceNow Alliance, is there a pipeline there already? At what stage are you at?
  Response: The ServiceNow alliance has a list of target clients (starting with 15) and is underway in pursuing joint clients.

• Question from Vincent Colicchio (Barrington Research): Similar question with the Genpact.
  Response: The Genpact partnership is just launching, with the first list of clients being reviewed.

Contradiction Point 1

IBM Partnership Status and Contribution Timeline

Contradiction on whether the IBM partnership is active and contributing revenue, shifting from an expected near-term contribution to being placed on hold.

What were Craig-Hallum's earnings? - George Sutton (Craig-Hallum)

2026Q2: The IBM partnership is on hold due to changing priorities on their end; the company is waiting for further guidance. - Ted Fernandez(CEO)

Could you clarify the IBM deferral reasoning, explain what "for the moment" means, and provide details on the programs with TCS and Genpact? - George Sutton (Craig-Hallum)

2026Q1: The IBM partnership is expected to start contributing in Q2, becoming more noticeable in Q3. - Ted Fernandez(CEO)

Contradiction Point 2

Timeline for Ramp of New Platform-Led Engagements

Contradiction on when revenue from new engagements will materialize, moving from an inflection point in Q3 to ramping up in the current quarter.

Jeff Martin (Roth Capital Partners) - Jeff Martin (Roth Capital Partners)

2026Q2: These engagements will ramp up in the current quarter and extend through at least the end of 2027. - Ted Fernandez(CEO)

Over what period will the collective $30 million of wins play out? - George Sutton (Craig-Hallum)

2026Q1: Q3 is projected to be an inflection point where adjusted EPS exceeds prior year's even on flat revenues. - Ted Fernandez(CEO)

Contradiction Point 3

ServiceNow Alliance Timeline and Status

Contradiction on the alliance's launch status and client engagement stage, shifting from a planned launch to an active alliance with target clients.

Vincent Colicchio (Barrington Research) - Vincent Colicchio (Barrington Research)

2026Q2: The ServiceNow alliance has launched with a list of target clients (initially 15), and joint pursuits are underway. - Ted Fernandez(CEO)

Is there already a pipeline in place for the ServiceNow Alliance launch, and at what stage are you currently? - Jeff Martin (ROTH Capital Partners)

20260218-2025 Q4: The partnership is a pilot initiative that has been in pursuit for several months... with the hope of launching a joint initiative before the end of the month. - Ted Fernandez(CEO)

Contradiction Point 4

Platform Capability Launch Timeline

Conflicting statements on when new platform versions are expected to be available, from an active rollout to announcing a new version launch.

What did George Sutton of Craig-Hallum discuss in the earnings call? - George Sutton (Craig-Hallum)

2026Q2: A key market insight is that clients are more likely to pursue AI projects through broader enterprise transformation or application implementation engagements... The company is launching XT version 2 to bring similar competitive advantages... - Ted Fernandez(CEO)

Can you explain the $30 million in deals in terms of deliverables, timing, pricing, and pipeline? - Jeff Martin (ROTH Capital Partners)

20260218-2025 Q4: New platforms (XT for transformation and AIX for implementation) are being rolled out, enabling productivity improvements of more than 25%... - Ted Fernandez(CEO)

Contradiction Point 5

Licensing Pipeline Health and Timeline

Contradiction on the state and activity level of the licensing pipeline, shifting from an expected 2026 launch to a currently limited pipeline.

What does Barrington Research highlight in their earnings analysis? - Vincent Colicchio (Barrington Research)

2026Q2: The licensing pipeline for the joint venture (focused on AI world-class benchmarks) is limited. - Ted Fernandez(CEO)

Can you provide an update on the joint venture's client count and pipeline health? - Jeff Martin (ROTH Capital Partners)

20260218-2025 Q4: Licensing will begin in 2026. Clients will be exposed to version 5 of the platform during engagements and can then choose to license either the ideation or solutioning module (or both) based on their needs. - Ted Fernandez(CEO)