Q2 2025 Hackett Group Inc Earnings Call

Ted Fernandez: Welcome to the Hackett Group's second quarter earnings conference call. Your lines have been placed on a listen-only mode until the question and answer session. Please be advised this 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.

Rob Ramirez: Good afternoon, everyone, and thank you for joining us to discuss the Hackett Group's second quarter results. Speaking on the call today and here to answer your questions are Ted Fernandez, Chairman and CEO of the Hackett Group, and myself, Rob Ramirez, CFO. A press announcement was released over the wires at 4:15 PM Eastern Time. For a copy of the release, please visit our website at www.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.

Welcome to the Hackett group, second quarter earnings conference call your lines have been placed on a listen-only mode until the question answer session. Please be advised. This conference is being recorded hosting tonight's call or Mr. Ted. Fernandez, chairman and CEO and Mr. Raab Ramirez Chief Financial Officer, Mr. Ramirez. You may begin.

Good afternoon, everyone and thank you for joining us to discuss the hacker group second quarter results.

Speaking on the call today and here to answer your questions or Ted, Fernandez, chairman and CEO of the hacker group and myself, Rob Ramirez CFO.

A press announcement was released over the wires at 4:15 p.m. eastern time.

for a copy of the release, please visit our website at www.behr.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.

Rob Ramirez: 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 SST filings. At this point, I would like to turn it over to Ted.

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 will lead to our current expectations, estimates, and projections.

And are not a guarantee of future performance. They involve risks, uncertainties and assumptions are difficult to protect and which may not be active.

Actual results May Vary.

Ted Fernandez: Thank you, Rob, and welcome everyone to our second quarter earnings call. As we normally do, I will 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 revenues before reimbursements of $77.6 million and adjusted earnings per share of $0.38, which were above and at the midpoint end of our quarterly guidance, respectively. Our quarterly results were as expected, but what is most distinguishing about the quarter is the level of breakthrough innovation we continue to develop, which are resulting in significant enhancements to our AI Explorer and ZBrain GenAI platforms.

These forward-looking statements should be considered only in conjunction with the detailed information. Particularly the risk factors that are contained in your SSC filings. At this point, I would like to turn it over to Tech.

Thank you Rob, and welcome everyone to our second quarter earnings call.

As we normally do, I will open the call with some overview comments on the order. I will then turn it back over to rob the comment on detailed operating results. Cash flow and guide you.

We will then review, our Market strategy related comments after which we will open it up to Q&A.

This afternoon we reported revenues before reimbursements of 77.6 million and adjusted earnings per share of 38 cents which were above and at the midpoint end of our quarterly guidance respectively. Our currently results were as expected. But what is most distinguishing about the quarter is the level of breakthrough in

Ted Fernandez: We believe our GenAI platform capabilities will attract clients and strategic partners, like the one we announced this afternoon with Solonus, which will accelerate our growth in this increasingly important area. Solonus is the leading provider of process intelligence software, which provides clients with critical operating insight. By teaming with Solonus, we will be able to inject their process intelligence insight into AI Explorer and ZBrain to help identify, design, and build high ROI agentic AI solutions with unmatched speed, which accelerates value realization. This partnership will allow us to market this valuable joint offering to our vast client bases, creating significant channel expansion opportunities for both companies. This combination of AI plus PI, or process intelligence, will allow customers to quickly move from intention to action and measurable impact, resulting in large GenAI-enabled transformation initiatives.

We continue to develop which are resulting in significant enhancements to our AI Explorer and zbrane Genai platforms.

We believe our dye platform capabilities will attract clients and strategic partners, like the one we announced this afternoon with Celonis, which will accelerate our growth in this increasingly important area.

Creating significant Channel expansion opportunities for both companies.

Ted Fernandez: Our quarterly results were driven by the performance of our GSPT segment, which included the strong revenue growth from our GenAI-related engagements. GenAI engagements also favorably impacted our gross margin, as 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 the related implementation teams. Clients continue to move from awareness to budgeted projects, a trend we expect to continue throughout the year. Total GSPT revenues, which were up 5% in the quarter, were partially offset by the weakness in our one-stream practice. Excluding the one-stream practice, our GSPT segment was up 10%. 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.

This combination of AI plus pi, or process intelligence will allow customers to quickly move from intention to action and measurable impact resulting in large Genai enabled transformation initiatives.

Our quarterly results were driven by the performance of our GST SE segment, which included the strong Revenue growth from our geni related engagements,

Jenny. I engagements also favorably impacted our gross margin as they demand a higher margin than our traditional consultants and implementation revenues in our driven. By the highly differentiated capabilities of our AI Explorer and zebra platforms as well as the related implementation teams.

Clients continue to move from awareness to budgeted projects a trend we expect to continue throughout the year total GST revenues which were up 5% in the quarter or partially offset by the weakness in our 1 screen. Practice, excluding the 1 Street practice. Our GST segment was up, 10%.

Ted Fernandez: The GenAI platform capabilities of our soon-to-be released version four of AI Explorer, which leverages our proprietary solution language model and Hackett Performance IP, significantly accelerates the speed in which we can identify and design agentic AI solutions and, with ZBrain, orchestrate and build complex agentic workflows. Another critical distinction of our new version four is the way we are able to design the agentic solutions while considering the client-specific enterprise application ecosystem. This allows the client to clearly understand where existing automation ends and where GenAI enablement extends and creates meaningful opportunities to improve enterprise performance. This is highly differentiated and allows us to compete strongly in this rapidly growing space. Our capabilities allow us to serve clients enterprise-wide, from ideation to implementation, in one fully integrated platform.

We believed Jenni 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 Jai platform capabilities of our soon-to-be released version 4 of AI Explorer.

Which leverages our proprietary solution, language model and Hackett performance IP significantly accelerates the speed in which we can identify and design, agentic a Solutions. And with Sebring orchestrate and build complex, agentic workflows.

Another critical distinction of our new version 4 is the way we are able to design the agentic solutions, while considering the client's Specific Enterprise application ecosystem.

This allows the client to clearly understand where existing automation ends and where G enablement extends and creates meaningful opportunities to improve Enterprise performance. This is highly differentiated and allows us to compete strongly in this rapidly growing space.

Ted Fernandez: It also provides a client with a single platform, which they can license to fully support their entire AI center of innovation, or as we refer to it, the AI COI. We continue to see GenAI-enabled transformation opportunities emerge in most of our engagements as the need for GenAI capability and relevance continues to increase. These engagements also provide us the opportunity to serve clients strategically and broadly. These capabilities are only being further expanded through new strategic alliances, which we expect to continue to pursue, which should also significantly expand our strategic entry points. Our Oracle Solutions Group segment was down, as expected. Although activity continues to be solid, extended client decision-making has continued to make the revenue replacement of a large Post-Go-Live engagement at the end of last year take longer than we planned.

Our capabilities allow us to serve clients Enterprise wide from ideation to implementation in 1 fully integrated platform. It also provides a client with a single platform which they can license to fully support their entire AI Center of or innovation, as or as we refer to it, the AIC COI.

We continue to see G enabled transformation opportunities. Um, emerge in most of our engagements as the need for Denny capability and relevance continues to increase these engagements. Also provide us of the opportunity to serve clients strategically and broadly.

These capabilities are only being further, expanded through new strategic alliances, which we expect to continue to pursue which should also significantly expand our strategic entry points.

Our Oracle solutions group submit was down as expected.

Ted Fernandez: This adversely impacted the second quarter and will do so more meaningfully in the third quarter, given the tough Oracle prior-year Q3 comp. As a result of this transition and given our continued development of Accelerator, our GenAI-assisted technology implementation platform, which allows us to deliver these engagements more efficiently, led to our decision to adjust our headcount to realize the expected GenAI productivity benefits. These reductions are addressed in a restructuring reserve, which Rob will discuss in more detail during guidance. Our SAP solutions segment was up during the quarter as implementation revenues resulting from our increased software sales activity at the end of last year started to ramp. We expect this momentum to continue through the balance of the year. On the executive advisory front, we continue to invest in our growing our IP-based programs. We have integrated our GenAI content into our executive advisory programs.

Although activity continues to be solid, extended client decision-making, has continued to make the revenue replacement of a large post, go live engagement, and at the end of last year, take longer than we planned.

This adversely impacted the second quarter and will do so more meaningful, more meaningfully in the third quarter, giving the tough Oracle prior Q3 cup.

As a result of this transition and given our continued development of accelerator, our Genai, assisted technology implementation platform, which allows us to deliver these engagements, more efficiently, led to our decision. To adjust our headcount

To realize the expected, Jenny out, productivity benefits. These reductions are addressed in a restructuring Reserve which Rob will discuss in more detail during guidance.

our sap, our sap Solutions segment was up during the quarter as implementation revenues resulting from increased software sales, activity at the end of last year, started to ramp

We expect this momentum to continue through the balance of the year.

Ted Fernandez: We recently launched a premium GenAI 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 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 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, cash flow, and also comment on Outlook. I will make additional comments on strategy and market conditions following Rob's comments. Rob?

On the executive advisory front, we can continue to invest in our growing growing, our IP based programs, we have integrated, our geni content into our executive advisory programs. We recently launched a a premium geni. 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, the AI leaders cios and ctOS who require this knowledge.

Your 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 remaining of standing balance of our credit facility.

while continuing to invest in our business,

Rob Ramirez: Thank you, Ted. As I typically do, I'll cover the following topics during my portion of the call. I'll provide an overview of our second quarter results for 2025, along with an overview of related key operating statistics. I'll provide an overview of our cash flow activities during the quarter, and I'll then conclude with a discussion on our financial outlook for the third quarter of 2025. For purposes of this call, I will comment separately regarding the revenues of our global SWT segment, our Oracle Solutions segment, our SAP solutions segment, and the total company. Our global SWT segment includes the results of our North America and international GenAI consulting and implementation and licensing revenues, benchmarking and business transformation offerings, executive advisory market intelligence and iPaaS programs, and our one-stream and e-procurement implementation offerings.

With that said, let me ask Ross to provide details on our operating results. Cash flow 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 all cover the following topics, during my portion of the call, I'll provide an overview of our second quarter results for 2025 along with an overview of of related key, operating statistics.

I'll provide an overview of our cash activities are in the quarter and I'll then conclude with a discussion on our financial outlook. For the third quarter of 2025 for purposes of this call, I will come in separately regarding the revenues of our Global sat segment, our Oracle Solutions segment, our sap solution segment and the toll company.

Our Global smbt segment includes the results of our North America and international Genai Consulting and implementation and Licensing, revenues benchmarking and business transformation. Offerings

Rob Ramirez: 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. 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. Specifically, all references to adjusted financial measures will exclude reimbursable expenses, non-cash stock-based compensation expense, all acquisition-related cash and non-cash expenses, amortization of intangible assets, and other non-recurring items. We have included reconciliations of GAAP to non-GAAP financial measures in our press release filed earlier today and will post any additional information based on the discussions from this call on the investor relations page of the company's website.

Executive advisory Market intelligence and iPad programs and our 1stream and e, e, procurement implementation offerings.

Our local Solutions and our S&P solution. 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.

Reimbursable expenses are primarily project travel-related expenses passed due to 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. Specifically all references to adjusted Financial measures will exclude reimbursable expenses, non-cash, stocks based compensation expense all acquisition related cash and non-cash expenses, amortization of intangible assets and other non-recurring items.

Rob Ramirez: For the second quarter of 2025, our total revenues before reimbursements were $77.6 million, an increase of 2% over the prior year, which was above the high end of our quarterly guidance. The second quarter reimbursable expense ratio on revenues before reimbursements was 1.6% as compared to 2.1% in the prior quarter and 2.3% when compared to the same period in the prior year. Total revenues before reimbursements for our global SWT segment were $43.6 million for the second quarter of 2025, an increase of 5% when compared to the same period in the prior year. The strong revenue growth from our GenAI consulting and implementation offerings in this segment was partially offset by weakness in our one-stream implementation offerings during the second quarter. Excluding this decrease, our global SWT segment would have been up 10%.

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 on the investor relations page of the company's website.

For the second quarter of 2025, our total revenues before reimbursements were $77.6 million, an increase of 2% over the prior year, which was above the high end of our quarterly guidance. The second quarter reversible expense ratio on revenues before reimbursements was 1.6%, compared to 2.1% in the prior quarter and 2.3% when compared to the same period in the prior year. Total revenues before reimbursements for our Global SMT segments were $433.6 million for the second quarter of 2025, an increase of 5% when compared to the same period in the prior year.

The strong Revenue growth from our Genai Consulting and implementation offerings. In this segment with parts of the offset by weakness and our 1 stream implementation offerings during second quarter.

Rob Ramirez: GenAI momentum across all of global SWT is expected to continue to accelerate through the balance of the year. Total revenues before reimbursements from our Oracle Solutions segment was $20.5 million for the second quarter of 2025, a decrease of 7.5% when compared to the same period in the prior year. This decrease is primarily due to the Post-Go-Live wind-down of a large engagement, as we have discussed last quarter. The replacement of the large engagement is taking longer than expected and will have its most significant year-over-year impact in the upcoming third quarter. Total revenues before reimbursements from our SAP solutions segment were $13.5 million in the second quarter of 2025, an increase of 11% when compared to the same period in the prior year.

Excluding this decrease. Our Global smt segment would have been up 10%.

Gen, AI momentum across all of global smbt is expected to continue to accelerate to the balance of the year.

Total revenues before reimbursements from our Oracle solution. Segment was 20.5 million for the second quarter of 2025. A decrease of 7.5% would compared to the same period in the prior year. This decreases primarily due to the postal code of wind down of a large engagement as we've discussed last quarter.

the replacement of the large engagement is taking longer than expected and will have its most significant year-over-year impact in the upcoming third quarter,

Total revenues before reimbursements from our sap solution. Segment were 13.5 million in the second quarter of 2025.

Rob Ramirez: This increase was primarily driven by implementation services that correspond to the volume of software sales from the last several quarters that will continue to favorably impact this segment. Approximately 21% of our total company revenues before reimbursements consist of recurring multi-year and subscription-based revenues, which include our executive advisory, IP as a service, and application managed services contracts. Total company adjusted cost of sales totaled $44.4 million, or 57.2% of revenues before reimbursements in the second quarter of 2025, as compared to $43.8 million, or 57.7% of revenues before reimbursements in the prior year. Total company consultant headcount was $1,382 at the end of the second quarter, as compared to total company consultant headcount of $1,332 in the previous quarter and $1,145 at the end of the second quarter of 2024.

An increase of 11% when compared to the same period in the prior year.

This increase was primarily driven by implementation services that correspond to the volume of software sales, but

several quarters that will continue to favorably impact this segment.

Approximately 21% of our total company revenues before reimbursements consists of recurring multi-year and subscription based revenues, which include our executive advisory IP as a service and application managed Services contracts.

57.2% of Revenue before reimbursements in the second quarter of 2025 as compared to 43.8 million or 57.7% of revenues before reimbursements in the prior year.

Rob Ramirez: Second quarter ending headcount was primarily driven by increased hiring for their GenAI practices and the legal heritage acquisition. Total company adjusted gross margin on revenues before reimbursements was 42.8% in the second quarter of 2025, as compared to 42.3% in the prior quarter. Adjusted SG&A was $18.2 million, or 23.4% of revenues before reimbursements in the second quarter of 2025. This is compared to $16.8 million, or 22.1% of revenues before reimbursements in the prior year. The year-over-year absolute dollar increase is primarily due to foreign exchange fluctuations, as well as the timing of incremental marketing events. Adjusted EBITDA was $16.1 million, or 20.7% of revenues before reimbursements in the second quarter of 2025, as compared to $16.3 million, or 21.5% of revenues before reimbursements in the prior year.

Total company consultant headcount was 1,382 at the end of the second quarter as compared to Total company. Consultant headcount of 1,332 in the previous quarter and 1,145 at the end of the second quarter of 2024,

Second quarter, ending, headcount was primarily driven by increased hiring for our generally at practices and the leeway Heritage acquisition.

Total company adjusted gross margin on revenues before reimbursements was 42.8% in the second quarter of 2025 as compared to 42.3% in the prior quarter. Adjusted sgna was 18.2 million or 23.4% of revenues before reimbursements in the second quarter of 2025.

This is compared to 16.8 million or 0.21% of revenues before reimbursements in the prior year.

The year-over-year absolute dollar increases primarily due to Foreign Exchange fluctuations, as well as the timing of incremental marketing events.

Rob Ramirez: GAAP net income for the second quarter of 2025 totaled $1.7 million, or diluted earnings per share of $0.06, as compared to GAAP net income of $8.7 million, or diluted earnings per share of $0.31 in the second quarter of the previous year. Second quarter 2025 GAAP net income includes non-cash stock compensation expense from our stock price award program of $5.1 million and acquisition-related cash and non-cash compensation and related expenses of $2.5 million, which in total impacted our Q2 2025 GAAP results by approximately $0.25. Acquisition-related cash and non-cash stock compensation expense relates to purchase consideration for the legal heritage acquisition. This consideration paid to the seller contains service vesting requirements, and as such is reflected as compensation expense under GAAP rather than purchase consideration. The acquisition of Spend Matters did not have an impact on our adjusted net income for the second quarter of 2025.

Adjusted even though was 16.1 million or 20.7% of revenues before reimbursements in the second quarter of 2025 as compared to 16.32% of revenues before reversing in the prior year.

Gaap net income for the second quarter of 2025 told, 1.7 million or deleted earnings per share of 6 cents as compared to the Gap. Net income of 8.7 million

For diluted earnings per share of 31 cents in the second quarter of the previous year.

Second quarter of 2025 gaap. Net income includes non-cash, stock, compensation expense from our stock price award program of 5.1 million and acquisition related cash and non-cash compensation and related expenses of 2.5 million, which in total impacted our Q2, 2025 Gap results by approximately 25 cents.

Acquisition related cash and non-cash stock compensation expense relates to purchase consideration for the leeward. Heads acquisition.

This consideration paid to the seller contains service resting requirements.

And as such is reflected as compensation expense under gaap, rather than purchase consideration.

Rob Ramirez: Adjusted net income and diluted earnings per share for the second quarter of 2025 totaled $10.7 million, or adjusted diluted net income per common share of $0.38, which is at the midpoint of our earnings guidance range and compares to prior year adjusted diluted net income per share of $0.39. The second quarter of 2025 results was negatively impacted by one penny due to unfavorable foreign exchange movements. The company's cash balances were $10.1 million at the end of the second quarter of 2025, as compared to $9.2 million at the end of the previous quarter. Net cash provided from operating activities in the quarter was $5.6 million, primarily driven by the income adjusted for non-cash activity and an increase in the credit expenses, primarily offset by the timing of income tax payments made during the quarter.

The acquisition of spend matters did not have an impact on our adjusted net income for the second quarter of 2025.

Adjusted net income and diluted earnings per share. For the second quarter of 2025, total 10.7 million or adjusted diluted. Net income per common. Share of 308 cents.

Which is at the midpoint of our earnings guidance range and compares to Prior year adjusted diluted net income per share of 39 cents. The second quarter of 2025 results was negatively impacted by 1, Penny, due to unfavorable foreign exchange movements.

Companies cash balances were 10.1 million at the end of the second quarter of 2025.

As compared to 9.2 million at the end of the previous quarter.

Rob Ramirez: Our DSO, or day of sales outstanding, was 73 days, both at the end of the second quarter as well as the previous quarter, compared to 68 days from the prior year. The increase in DSO is primarily due to extended terms and milestone deliverables on several large client engagements. During the quarter, we repurchased 180,000 shares of the company's stock for an average of $24.50 per share at a total cost of approximately $4.4 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 quarter was $17 million. At its most recent meeting subsequent to quarter end, the company's board of directors authorized a $13 million increase in the company share repurchase authorization, bringing it to $30 million.

Net cash provided from operating activities in the quarter was $5.6 million, primarily driven by the income adjusted for non-cash activity and the increase in crude expenses, primarily offset by the timing of income tax payments made during the quarter.

Our gso or DS sales outstanding was 73 days. Both at the end of the second quarter as well as the previous quarter, compared to 68 days from the prior year.

The increase in the associates primarily due to Extended terms and Malcolm deliverables on several large client engagements.

During the quarter, we repurchased 180,000 shares of the company's stock for an average of 24.50 cents per share and a total cost of approximately 4.4 million including purchases from employees to satisfy income tax withholding triggered by the besting of restricted shares.

Our remaining stock repurchase authorization. At the end of the quarter was 17 million.

Rob Ramirez: Additionally, the board declared the third quarter dividend of $0.12 per share for its shareholders of record on September 19th, 2025, to be paid on October 3rd, 2025. During the quarter, the company borrowed $5 million from its credit facility. The balance of the company's debt, total debt outstanding at the end of the second quarter, was $23 million. I'll now be moving to guidance and outlook for the third quarter. Consistent with seasonal and third quarter trends, we expect the impact of the additional US holiday and the typical increase in time off due to summer vacation in the US and Europe to unfavorably impact available days by approximately 2% on a surrendable basis. The company estimates total revenues before reimbursements for the third quarter of 2025 to be in the range of $73 million to $74.5 million.

At its most recent meeting, subsequent to quarter end, the company's board of directors, authorized a 13 million increase in the company. Share repurchase authorization, bringing it to 30 million.

Additionally, the board declared the third quarter, dividend of 12 cents per share for its shareholders of record on September 19th 2025 to be paid on, October 3rd 2025,

From credit facility.

The balance of the company's debt total debt outstanding, at the end of the second quarter was 23 million.

I'll now be moving to guidance. And now look for the third quarter.

Consistent with seasonal and third quarter trends.

We expect the impact of the additional Us holiday and the typical increase in time off due to summer vacation in the US and Europe.

To unfavorably impact available days, but approximately 2% on a regular basis.

Rob Ramirez: We expect global SVT and SAP solutions segment revenue before reimbursements to be up when compared to the prior year. We expect the Oracle Solutions segment revenue before reimbursements to be down by over 20% when compared to the prior year. As a result of the continued pivot of our business to generative AI, the company will incur restructuring charges in the third quarter of approximately $1.5 to $2 million dollars. These charges will primarily relate to severance costs, as we reduce staff to be commensurate with our current demand and expected productivity improvements from the leverage of our GenAI delivery platforms in our non-AI practices. These charges will be excluded from adjusted results. We estimate the adjusted diluted net income per share in the third quarter of 2025 to be in the range of $0.36 to $0.38, which assumes a GAAP effective tax rate on adjusted earnings of 26.5%.

The company estimates total revenues before reimbursements for the third quarter of 2025 to be in the range of 733 million to 74.5 million.

We expect Global smbt and sap Solutions segment Revenue before we reimbursements to be up when compared to the prior year.

We expect the Oracle solution segment Revenue before reimbursements to be down by over 20% when compared to the prior year.

As a result of the continued pivot of our business to generate AI.

The company will incur. We're restructuring charges in the third quarter of our proxy 1 and a half to 2 million dollars.

These charges will primarily relate to severance costs as we reduce staff to be commensurate with our current demand and expected productivity improvements from the leverage of our GenAI delivery platforms in our non-AI practices.

These charges will be excluded from adjusted results.

We estimate the adjusted diluted income per share in the third quarter of 2025.

Rob Ramirez: We expect the adjusted gross margin as a percentage of revenues before reimbursements to be approximately 43.5% to 44.5%. We expect the adjusted SG&A and interest expense for the third quarter to be approximately $18.5 million. We expect third quarter adjusted EBITDA as a percentage of revenues before reimbursements to be in the range of approximately 20.5% to 21.5%. Lastly, we expect cash flow from operations to be up on a spiritual 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.

To be in the range of 36 to 38 cents, which assumes a gap effective tax rate on adjusted earnings of 26.5%.

We expect the adjusted gross margin as a percentage of revenues before reimbursements to be approximately 43.5% to 44.5%.

We expected adjusted sgna and interest expense for the third quarter to be approximately 18.5 million.

We expect a third quarter adjusted Eva as a percentage of revenues before reimbursements, to mean the range of approximately 20.5 to 21.

5%.

Lastly, we expect cash flow from operations to be up on a spiritual basis.

Ted Fernandez: Thank you, Rob. As we look forward, let me share our thoughts on the near and long-term demand environment and the growth opportunities 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 assess competing priorities due to economic concerns and as well as the consideration of emerging GenAI technology. We continue to expect IT budgets to increase with increasing attention and allocations to the rapidly emerging GenAI solutions and the related opportunities and threats it brings to all industries. In 2025, we have seen the increasing amount of IT budgets specifically allocated to GenAI initiatives in high feasibility and high impact areas.

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 year 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, assess competing priorities, due to economic concerns and as well as the consideration of emerging genetic technology.

We continue to expect it. Budgets to increase with increasing attention and allocations to the rapidly emerging genetic Solutions, and the related opportunities and threats. It brings to all Industries.

Ted Fernandez: The unlimited potential of GenAI will define an entirely new level of world-class performance standards, driving all software and services providers to extend the value of their existing offerings with the introduction of identic AI capability. 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 creates a unique value creation opportunity for our organization. Given our 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 the GenAI solutions, which we were identifying, designing, and evaluating. This resulted in the acquisition of Legal Hertz, a highly recognized provider of GenAI solutions.

In 2025, we have seen the increasing amount of IT budgets specifically allocated to generic initiatives in high feasibility and high impact areas.

The unlimited potential of Genai will define an entirely new level of world class performance standards driving, all software and services providers to extend the value of their existing offerings with the introduction of agentic AI capability. We believe this will result in unprecedented in Innovations which all organizations will have to consider this shift is consistent with our aggressive pivot to G enabled Transformations which we believe creates a unique value creation opportunity for our organization.

Given our strategic access and proprietary, expanding platform capabilities of AI Explorer.

It was natural for us to extend our AI implementation capabilities to fully develop and implement the GENI solutions, which we were identifying, designing, and evaluating.

Ted Fernandez: This acquisition also included a sophisticated GenAI orchestration platform, ZBrain, which we agreed to contribute into a joint venture with the founder of Legal Hertz. The JV will bring together the AI Explorer and ZBrain software platforms and will focus on licensing platforms and creating what we believe to be a first-of-its-kind GenAI 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, and would also allow the JV to have the opportunity to raise capital and achieve standalone valuations due to its GenAI software focus. With our meaningful market insight, we continue to innovate and make powerful improvements to AI Explorer.

This resulted in the acquisition of leeway hurts, a highly recognized provider of gen, G Solutions. This acquisition also included sophisticated Demi, orchestration, platform zebra, which we agreed to continue into a joint venture with the founder of leeway Herz

the JB will bring together the AI Explorer and zbrane software platforms and will focus on licensing platforms and creating what we believe to be a first of its kind Genie ideation through implementation software as a service offering

We believe this JB creates an entirely new value creation opportunity for our shareholders that should result from the growth of ARR or annual recurring licensing revenues.

The opportunity to raise capital and achieve standalone valuations is due to its Geni software focus.

Ted Fernandez: In fact, our most meaningful innovation to date is the soon-to-be released version four, which brings significant enhancements that allow us to highly differentiate our offerings further. The most important of the enhancements in version four is the ability to fully design sophisticated AI solutions and agentic workflows, which allow us to consider a client's technology landscape and identifying high ROI GenAI solutions in record time. This enables us to identify thousands of GenAI solutions and to rapidly custom design and evaluate AI use cases prioritized by our clients and also recommend specific agents required to build these solutions. Our platform allows us to do this at a fraction of the time that other providers are offering.

With our meaningful Market Insight, we continue to innovate and make powerful improvements AI Explorer. In fact, our most meaningful Innovation today is the soon to be released version 4 which brings significant enhances and allow us to highly differentiate our offerings further.

The most important of the enhancements in version 4 is the ability to fully design sophisticated AI solutions in gender workflows, which allow us to consider our clients' technology landscape.

And identifying High Roi Jenni Solutions in record time.

AI use cases, prioritize by our clients and also recommend specific agents required to build these Solutions.

Ted Fernandez: Our unique combination of strategic access to clients, along with the speed and solutioning provided by our platform, is attracting large channel partners, which could increase our ability to introduce our platforms and related services and accelerate our growth. We are utilizing AI Explorer as the vehicle to integrate our GenAI capabilities across all of our offerings. We also continue to hire and upgrade our skills in critical areas 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 AI Explorer will be our primary strategic entry point to clients, and we will use it to position our traditionally strong benchmarking digital transformation and executive advisory offerings and other platforms that result in our largest consulting relationships.

The platform allows us to do this interaction at a time when other providers are offering a unique combination of strategic access to clients, along with speed and solutioning. The capabilities provided by our platform are attracting large channel partners, which could increase our ability to introduce our platforms and related services, accelerating our growth.

We are utilizing a Explorer as the vehicle to integrate our geni capabilities across all of our offerings. We also continue to hire an upgrade our skills in critical areas to further support our efforts, these efforts are rapidly allowing us to become key Architects. Advisors and Consultants of our clients G Journey.

We now believe that AI Explorer will be our primary strategic entry point to clients.

And we will use it to position our our traditionally strong, benchmarking, digital transformation, and executive advisory offerings.

And other platforms.

Ted Fernandez: At halo effect, or downstream revenue impact from our benchmarking executive advisory offerings to our implementation groups 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 GenAI world-class performance standards. Another critical investment that we have made is to also build our own GenAI-assisted knowledge base called @Hackett AI. @Hackett leverages our proprietary Hackett benchmarking, executive advisory, and business transformation intelligence, which allows us to define and enable digital world-class performance for our clients. Our IP will also be increasingly leveraged across all of our market-facing and service delivery platforms.

That result in our largest Consulting relationships.

At halo effect or downstream revenue impact from our benchmarking. Executive advisory offerings to our implementation groups have 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 accident, it provides a Explorer significantly, enhances the value of our IP and fully aligns it with the emerging Genai worldclass performance standards.

Another critical investment that we have made is to also build our own genius system knowledge Base called as Hackett AI as Hackett leverages our proprietary Hackett benchmarking executive advisory and business transformation intelligence which allows us to Define and enable digital world-class performance for our clients.

Ted Fernandez: We expect the integration of our valuable IP and content that leverages GenAI to significantly enhance and accelerate the delivery of our insight that we are asked to provide to our clients every day. We are ingesting proprietary IP, including benchmarking best practices and research IP to support the myriads of queries that are required to support our executive advisory and consulting clients and associates. This product was rolled out at the beginning of Q2, and it's had very favorable responses from all of the internal users that are currently availing itself to it. We have also embarked on a new initiative called Accelerator, which intends to address the efficiency and the quality of the delivery of our technology implementation services.

Our IP will also be increasingly leveraged across all of our Market facing and Service delivery platforms. We expect the integration of our valuable IP and content that leverages geni to significantly enhance. And accelerate the delivery of our Insight that we have asked that we are asked to provide to our clients every day.

We are ingesting proprietary IP including benchmarking best practice practices, re and research IP to support the myriads of queries that are required to support our executive advisory and Consulting, uh, and Consulting, clients and Associates.

This, uh, product was rolled out at the beginning of 2022 and has had very favorable, uh, responses from all of the internal users that are currently availing themselves of it.

Ted Fernandez: All these initiatives are harnessing the power of GenAI 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, turnover continued at acceptable levels during the quarter, and we expect that trend to continue. We are continuing to add videos to our new and expanding platforms on the investor relations page of our website that investors can review and become more familiar with our new and expanding capabilities.

We have also embarked on a new initiative called accelerator, which intends to address the efficiency and the quality of the delivery of our technology implementation services.

All these initiatives are harnessing, the power of dye 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 turnover continued at acceptable levels during the quarter and we expect that Trend to continue.

Ted Fernandez: Lastly, even though we believe we have the client base and 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 effort and urging them to stay highly focused on our clients and our people, no matter what challenges we may encounter. Those conclude my comments. Let me turn it over to our operator and let us move on to the Q&A section of our call. Operator?

We are continuing to add videos to 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 and expanding capabilities.

Lastly, even though we believe we have the client base and offerings to grow our business, we continue to look for acquisitions.

Those conclude my comments. Let me turn it over to our operator, and let us move on to the Q&A section of our call.

Ted Fernandez: Thank you. 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. One moment for the first question, please. And our first question is from George Sutton with Craig Hallup. Your line is now open.

Operator.

Thank you. The phone lines are now open for questions. If you would like to ask a question over the phone, please press star 1 and record your name 2 withdrawal. Your question press star, 2 1 moment for the first question, please.

And our first question is from George Sutton with Craig Hallum. Your line is now open.

George Sutton: Thank you. Ted, I wondered if we could talk about Explorer 3.0 and what interest you're seeing there, Legal Hertz, ZBrain. When we look at those in combination, they're seemingly a perfect solution for the current AI-first environment we are all living through. And you've mentioned higher budgets attached to that. It doesn't feel like we're seeing that impact yet. Can you just talk to that in terms of the opportunities? And are we seeing what you would have expected?

Thank you. Um so I wondered if we could talk about uh Explorer 3.0 and what interest you're seeing their leeway hurts, uh, Z brain. When we look at those in combination, they're seemingly a perfect solution for

Ted Fernandez: We are seeing it on the services side, but we have not seen it yet on the licensing side for AI Explorer because we have made so many changes and continue to improve the product so meaningfully that we have yet to release a licensable AI Explorer product. We expect to do that shortly. We're glad that we didn't do it prior to this most recent quarter, which we believe, as I said, the level of innovation into that product is just really impressive. And we say impressive not only because of the responses we're getting from clients who are seeing it, but because of the conversations that we have had with potential channel partners, which have an increasing interest in seeing how they can utilize it jointly with us to go to market. So is it all taking longer? Yes. But are the prospects tempered in any way?

The current AI first environment. We are all living through and you've mentioned higher budgets attached to that. Um, it I, it doesn't feel like we're seeing that impact yet. Can you just talk to that in terms of the opportunity and uh are we seeing what you would have expected?

We are seeing it on the services side.

Uh, but we have not seen it yet. On the licensing, side for AI Explorer because we have made so many changes and continue to improve the product. So, meaningfully

That we have yet to release a licensable AI Explorer. Um,

Uh product.

Uh, we expect to do that shortly. Um, we're glad that we didn't do it prior to this most recent quarter which we believe, as I said, the level of innovation into that product is

Is just, um, a really impressive. Uh, and we say impressive, not only because of the responses we're getting for clients who are seeing it. But because of the conversations that we have had with potential Channel Partners uh which have an increasing interest in seeing how they can utilize it jointly with us to go to market. So, uh,

Ted Fernandez: Absolutely not. The capability of the platforms, just like you said, is really well designed to take advantage of the market opportunity that is emerging. And we believe that once we fully license AI Explorer and continue to bring in strategic channel partners that simply give us access to more clients, especially directly into the technology areas, that you will see the expected revenue growth that we would like to see. With that said, our GenAI-related revenues were up significantly in Q2.

Is, is it all taking longer? Yes. Uh, but is, are the prospects of tempered in any way? Absolutely not the capability of the platforms. Just like you said, is really well designed to take advantage of the market opportunity is emerging and we believe that. Uh, once we fully license AI, explore and continue to bring in strategic Channel partners that simply give us access to more clients, specially directly into the technology areas that uh you will see the expected Revenue growth that we would like to see with that said our gen AI related revenues were up significantly in Q2.

George Sutton: Relative to the strategic partner side of this, are you surprised we don't have a large strategic partner yet? Where do those kinds of negotiations stand? I'm just trying to get a sense of expectation.

Relative to the Strategic partner side of this. Um, are you surprised we don't have a, a large strategic partner? Yet where do those kinds of negotiation stand?

Ted Fernandez: Well, we announced our first strategic alliance today. As I mentioned, Solonus in our opening comments, which is the leading process intelligence company, which is going to significantly expand the introduction of our offering and their offering to our joint client bases. So that was just announced today, shortly after we released earnings. So we've been working with them all quarter to develop a joint offering and decide exactly how we want to engage clients. And that will be ramping up very quickly throughout the third quarter. Having said that, we also continue to have conversations with other potential partners. We turned down one SI partner because we wanted a better offer from the offer they had made us made to us to go to market together. But we have other options, and we continue to evaluate their offer to us.

I just trying to get a sense of expectation.

Well, we announced our first strategic alliance today. As I mentioned, Celonis, on our opening comments.

Uh which is the leading process intelligence company, uh which is going to significantly expand. Um the introduction of our offering in their offering to our joint client basis. Uh so that was just announced today shortly after we released earnings. Uh, so we've been working with them all quarter uh, to uh, develop their joint offering and decide exactly how do we, how we want to engage clients and that will be, uh, ramping up very quickly, uh, throughout the third quarter.

Having said that we also continue to have conversations with other potential Partners. We turned down 1 as I partnered because we wanted a better offer

Ted Fernandez: So we expect to have more channel partner relationships expand throughout the balance of the year with large enterprise software companies and/or systems integrators.

From the offer they had made to us to go to market together. Um, but we have other options, and we can continue to evaluate their offer to us. Uh, so we expect to have more channel partner relationships, and expand throughout the balance.

of the year, uh, with uh, large enterprise software companies Andor, um,

Systems integrators.

George Sutton: One other thing you mentioned, you were making AI-related adjustments to your headcount. And I'm just wondering if this is any indication of what you expect from the Oracle side of the opportunity, given that you're challenged to fill in some of the Oracle piece. Is that just a suggestion that you're expecting a longer duration of a challenge there, or am I conflating things?

1 of the thing. You mentioned you were making AI related, uh, adjustments to your headcount.

And I'm just wondering if this is any indication of what you expect from the Oracle side of the opportunity. Given that you're challenged to fill in some of the Oracle piece, is that just a suggestion that...

Ted Fernandez: Well, first, let me make sure you know we have an incredible Oracle implementation group. It's highly recognized and has had a lot of success. But yes, it has struggled to replace a large go-live client that we thought would have happened sooner. And it negatively impacted our Q2 results. And it will significantly do so more meaningfully in Q3, which was the height of the go-live efforts with that client show up in last year's Q3 comparison. So that led us to look at the fact that, hey, do we have more resources that we need in some of the areas that are not fully benefiting from GenAI?

Uh, am I conflating things?

Well first, let me make sure, you know, we have an incredible Oracle implementation group, uh, it's highly recognized and has had a lot of success.

But yes, it has struggled to replace a large, go live client, uh, that we thought would have happened sooner and it negatively impacted our Q2 results and it will significantly. Uh, it will, it will do so more meaningfully in Q3, which was the height of the of the go live efforts with that client, uh, show up in last year's Q3 uh comparison.

So, uh, that led us to look at the fact that, hey, uh, do we have? Um,

Ted Fernandez: And secondly, that these implementation teams, both the Oracle and one-stream implementation teams, are benefiting from the rollout of a product we called Accelerator, which has specifically been created to provide GenAI-assisted support to those engagements, which is expected to drive productivity improvements in excess of 20%. So when we looked at both of those, we looked at the relative impact. We said, look, why don't we just address all potential non-GenAI, I'll call them headcount, potential headcount concerns that could negatively impact the balance of the year and 2026? And that's why we decided to take that restructuring reserve to do so in the third quarter so that you could get a realistic idea of what our businesses are producing without the severance of those individuals. And it should provide for a very clean Q4 top.

More resources that we need in some of the areas that are not fully benefiting from Genai. And secondly, that, uh, these implementation teams, both the Oracle and 1 screen. Implementation teams are benefiting from the rollout of a product. We called accelerator, which is specifically been created to provide Genai, uh, assisted support for those engagements, which is expected to drive. Um,

Productivity of improvements in excess of 20%.

George Sutton: All right. That's it for me. Thank you.

So when we looked at both of those, we looked at the relative impact, we said look, why don't we just uh address all potential non-gi? Um I'll call them headcount potential, headcount, uh, concerns with that. Could negatively impact the balance of the year and 2026, and that's why we decided to take that restructure and reserved to do so in the third quarter, so that you could get a realistic idea of what the, our businesses are producing without the severance of those individuals. And it'll and it should provide for a very clean Q4 cup.

Ted Fernandez: Thank you, George.

All right. That's it for me. Thank you.

Ted Fernandez: And 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 now open.

Thank you, George.

And as a reminder, if you would like to ask a question over the phone, please press star 1 and record your name.

Jeff Martin: Thank you. Good afternoon, Ted and Rob. Ted, I wanted to jump in. Sorry about that. I wanted to jump in on one stream. Do you have a feel for when that might level off here and become, you know, not necessarily a headwind to growth because you are posting some nice double-digit gains the last two quarters in global SBT?

The next question, the queue is from Jeff Martin with Roth Capital Partners your line is now open.

Thank you, good afternoon, Ted and Rob. Um,

Ted I wanted to jump in, sorry about that. Um, wanted to jump in on 1 stream.

Do you have a feel for when that might level off here and become? You know, not necessarily A headwind to growth, because you are posting some nice double digit gains the last 2 Quarters Inn in global SBT.

Ted Fernandez: Both Oracle and OneStream's comp peak are in the third quarter. So the relative comps, especially for Oracle, go down significantly from Q3 to Q4. And for OneStream, it also decreases. So the impact should be, I want to call it, meaningfully eliminated. And as I said, provide for a clean Q4 comp.

A both Oracle and 1 streams comp.

uh,

Peak are in the third quarter. So, the relative comps specially for Oracle goes down, significantly from Q3 to Q4.

And for 1 stream, uh, it also decreases. So the impact will be uh, should be. I want to call it.

Meaningfully, uh, eliminated. And as I said, provide for a clean Q4 top.

Jeff Martin: And then I was hoping you could give us a sense of maybe some examples of the types of applications or maybe the more common applications that your clients are engaging you for, you know, GenAI-related engagements.

and then I was I was hoping you could give us a sense of maybe some examples of the types of applications or maybe the more common applications that your clients are engaging you for

Ted Fernandez: We've seen a different number, but if I went to two, I would say that solutions dealing with customer service, customer attrition, and revenue management, customer sales effectiveness has been one area that's received significant focus from our clients where we have been delivering, have delivered solutions that have already gone live. We're also seeing a very significant increase in large organizations, GPS organizations coming in and really understanding that further improvements of operating improvements, which they're trying to realize, require the leverage of GenAI, that the automation functionality currently being provided by their core ERP systems have limitations, which can be really gapped very strongly and really smartly with GenAI automation. So I would call those two areas the areas where we're getting the most significant, both most where we've had the most engagements and where we're seeing.The

uh you know, a gen AI related, uh engagement. Um we we've seen we've seen uh a different number but if if if I went to 2 I would say that uh Solutions dealing with um customer service, customer attrition and um Revenue management. Um uh uh customer um a sales Effectiveness has been 1.

Area. That's received significant Focus from our clients, where we have been delivering have delivered, uh, solutions that have already gone live.

Ted Fernandez: opportunity that exists in our current pipeline.

Most where we've had the most the engagements, and where we're seeing, uh, the opportunity that exists in our current pipeline.

Operator: Great. And then the last one for me is, you know, there was quite a bit of discussion on the, you know, elevated uncertainty last quarter, delaying client decisions. Are you seeing, are you getting any clarity on that, you know, the cloud lifting here? And do you think, you know, large projects are still, you know, kind of being, you know, delayed or pushed out, you know, until we have further clarity here?

And then the last 1 for me is, you know, there was quite a bit of discussion on the, you know, elevated uncertainty. Last quarter, delaying decision client decisions. Are you seeing? Are you getting any Clarity on that? You know, the cloud lifting here and do you think you know large projects are still

Um, you know, kind of being, you know, delayed or pushed out, you know, until we have further clarity here.

Ted Fernandez: Jeff, my personal opinion is that the initial, if you want to call it, uncertainty that emerged relative to tariffs in April had little to no impact on Q2 and may have had extended decision-making. But the quarters that most of the services companies' Q2 results were primarily in place, you can look at, research advisory companies, you could look at the largest systems integration companies, and, you can look at the Big Four. And I believe that they are all, inferring and suggesting that, in their guidance that Q3 was being affected, instead of what I believe happened in Q2. I think most people were at or near, their projected Q2 numbers. So, I believe that it is playing out as we speak.

Jeff, my personal opinion is that the initial, if you want to call it, uncertainty that emerged relative to the tariffs in April.

Had little to no impact on Q2, it may have had extended decision-making, but the quarters that most of the services companies Q2 results were primarily in place. You can look at uh, research advisory companies. You could look at the largest systems integration companies. Uh,

and um, you can look at the Big 4 and I believe that they are all uh, inferring and suggestion and suggesting that um,

Ted Fernandez: And, some combination of, lower interest rates, a reduction of noise and tariffs, which don't confuse our clients, and our clients just continuing to develop a much stronger understanding of how strong the potential to deploy GenAI technology is beyond their current technology landscape. I think all of those three are going to emerge and create the kind of demand that we all expect, around, software and services that are associated with these solutions. It's first inning. It really is first inning. is Palantir an exception? Yes. Very unique capability. but for someone other than Palantir, no. so, that that would be my personal opinion on both market conditions, how it's affecting it. And I can see that everyone is making all sorts of resource changes and alignments. we saw the announcements.

Um, in your guidance, that Q3 was being affected. Uh, instead of what I believe happened in Q2, I think most people were at or near, uh, their projected Q2 numbers. So, uh, I believe that it is playing out as we speak and, uh, some combination of, uh, lower interest rates a reduction of noise and tariffs

uh which don't confuse our clients and our clients just continuing to develop a much stronger understanding of how

Strong. The potential to deploy GenAI technology is beyond their current technology landscape.

Ted Fernandez: And, when we looked at our numbers and we looked at how meaningful it was, to our technology implementation groups, we said we should probably address it now. But it also was followed by the fact that we think we've got a pretty powerful product that will bring productivity improvement into the delivery of those services. So we're positioning both.

I think all of those 3 are going to emerge and create the kind of demand that we all expect uh around uh software and services that are associated with these Solutions. It's its first inning, it really is first inning uh is pallante or an exception? Yes, very unique capability. Uh, but for someone other than palantir know, uh, so um, that that would be my personal opinion on both market conditions, how it's affecting it, and I can see that everyone is making all sorts of resource changes and alignments. Uh, we saw the announcements and um when we looked at our numbers and we looked at how meaningful it was uh to our technology implementation groups, uh we said we should probably address it now but it also

So was followed by the fact that we think we've got a pretty powerful product that will bring productivity Improvement into the delivery of those services. So we're positioning both.

Operator: Appreciate it. Thank you.

Appreciate it. Thank you.

Rachel Smith: And the next question in the queue is from Vincent Colicchio with Barrington Research. Your line is now open.

And the next question, the queue is from Vincent kikia, with barington research. Your line is now open

Rob Ramirez: Yeah. Ted, do you currently have the labor resources you need to meet the current AI demand in the GSPT segment?

Yeah. Uh Ted do you currently have the labor resources? You need to meet the current AI demand in the gbt segment?

Ted Fernandez: Yes, but we did continue to add resources in that space throughout the quarter. So the answer is yes, partly because we're seeing operating improvements from our platforms, even in the GenAI area. So, it's amazing, the capability of these platforms and how they accelerate, design and development of these solutions. So don't focus only on headcount. Focus on the ability to provide services along with a platform value, which is the way that, at least we will be, serving our clients.

Uh, yes. Oh, we did continue to add resources in that space throughout the quarter.

So the answer is yes, uh, partly because we're seeing operating improvements from our platforms even in the Gen AI area.

so, um,

It's amazing, uh, the capability of these platforms and how they accelerate. Um,

Uh, design and development of these Solutions.

So, don't Focus, only on headcount.

Focus on the ability to provide services along with a platform value, which is the way that, um, at least we will be, uh, serving our clients.

Rob Ramirez: And, is your utilization rate I would assume that your employees are involved in a lot of training and upskilling. I'm wondering if your utilization rate has been impacted by that.

Ted Fernandez: No. I mean, we have some ramp in the GenAI area. so that that takes a little time as we hire and then bring them up and make them and bring them up to speed, with our platforms, both on the Explorer and on the, a ZBrain side. but, no. I mean, look, where we saw the the weakness in utilizations is in the technology groups, which we mentioned last quarter, which we took a look at this quarter and said, let's deal with it right now and, you know, really make a more aggressive pivot to the GenAI, reliance that we're seeing on, I'm going to say that, over 50% of our new engagements include some element of GenAI involvement. so it's not just GenAI-specific opportunities we're seeing. the GenAI team is being brought into, traditional transformation and, and in some cases, traditional technology implementation engagements.

And uh, is your utilization rate? I would assume that you're you're, you're you're uh, uh, employees are involved in a lot of training and and, uh, upskilling um, wondering if your utilization rate has been impacted by that.

No. I mean, we have some ramp and the g area. Uh, so that that takes a little time as we hire, and then bring them up and make them and bring up the speed, uh, with our platforms, both on the Explorer, and on the, um, a zebra side.

Now, and, uh, you know, really make a more aggressive pivot to the GenAI reliance that we're seeing on. I'm going to say that, um, over 50% of our new engagements include some element of the GenAI involvement. Uh, so it's not just GenAI-specific opportunities. We're seeing, uh, the G team is being brought into.

Uh, traditional transformation. And and in some cases, uh, traditional technology, implementation engagements.

Rob Ramirez: And then the last one for me. Curious, you know, how your Explorer product stacks up against the competition. You've said some very favorable remarks in the past. Perhaps you could talk about the most recent feedback you've had on version three and then how version four might separate you.

and then the last 1 for me, uh,

Ted Fernandez: Well, all I can tell you is that I made a version, let's call it, three and a half presentation to one of the leading AI enterprise software companies today. And the feedback we got from the individuals, which were very skeptical of our assertions before we demoed our product, and this is a free full version four, which they will get to see shortly, was their comment back to us was excellent, that they had not seen anything as complete and thoughtful as our platform. And that is coming from a senior person at one of the most successful GenAI enterprise application companies.

Curious, you know how you're, uh, uh, Explorer product Stacks up against the competition. You've said some very favorable remarks uh, in in the past perhaps you could talk about the most recent feedback you've had on uh version 3 and then how version 4 might might separate you.

Well, all I can tell you is that I made a version. Let's call it 3 and a half.

presentation to one of the leading AI enterprise.

Software companies today, and the feedback we got from the individuals who were very skeptical of our assertions before we demoed our product, and this is pre full version, for which they will get to see shortly.

um,

uh, was they're coming back to us? Was excellent that they had not seen anything as complete and thoughtful as our platform

And that is coming from a senior person at 1 of the most successful Genai Enterprise application companies.

Rob Ramirez: Okay. Thanks, Ted.

Okay.

Ted Fernandez: Yep.

Thanks Ted. Yep.

Rachel Smith: At this time, I show no further questions. I will now turn the call back over to Mr. Fernandez.

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

Ted Fernandez: Let me thank everyone for participating in our second quarter earnings call. We look forward to updating everyone again when we report the third quarter. Again, thank you for participating.

Uh let me thank everyone for participating in our second quarter earnings call. We look forward to updating everyone again. When we report the third quarter again, thank you for participating.

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

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