The Hackett Group Bets Big on AI

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Written By Joel Gbolade

The Hackett Group continues to invest in its Generative AI capabilities. The company’s current situation reflects slower revenue growth and a seemingly full stock price valuation, with clients delaying decisions within its primary revenue segment, Global S&BT.

The near-term outlook remains neutral due to these factors, though there is medium-term potential for AI-related engagement growth.

The Hackett Group’s Market And Approach

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The firm reports in three revenue segments: Global S&BT (Solutions & Business Transformation), Oracle Solutions, and SAP Solutions.

Hackett’s specific services within these major segments include:

  • Strategic Consulting
  • Benchmarking Research
  • Oracle & SAP Solutions
  • OneStream Platform and Marketplace Solutions
  • Business Transformation
  • Market Intelligence Service
  • Ancillary Services

According to a 2022 market research report by Business Research Insights, the global digital transformation consulting market was an estimated $53.3 billion in 2021 and is forecasted to reach $235 billion by 2031.

This equates to an expected CAGR of 13.2% from 2022 to 2031. The main reasons for this forecasted growth rate include a continued transition from on-premise systems to cloud-based environments that feature more complicated architectures.

Additionally, the pandemic likely accelerated the need for updating enterprise systems to both improve efficiencies and increase resilience, producing future growth opportunities for digital transformation consulting companies.

Recent Financial Trends

Total revenue by quarter has plateaued in recent quarters due to tepid client spending in the company’s Global S&BT segment. Operating income by quarter has turned lower because of higher SG&A expenses.

Gross profit margin by quarter has remained relatively stable, while Selling and G&A expenses as a percentage of total revenue by quarter have increased due to higher headcount and severance costs. Earnings per share (Diluted) have improved sequentially on slightly higher revenue and reduced interest expense.

For balance sheet results, HCKT ended the quarter with $13 million in cash and equivalents and $30.7 million in total debt, all of which was long-term. Over the trailing twelve-month period, free cash flow was an impressive $39.3 million, and capital expenditures were only $4.0 million.

The company paid $10.9 million in stock-based compensation (SBC) in the last four quarters, slightly higher than in previous periods but not unduly so.

In the past 12 months, HCKT’s stock price has fallen by 3.6% vs. that of the SPDR S&P Software & Services ETF’s (XSW) gain of 13.1%.

Current Market Position and Challenges

HCKT is experiencing slower growth as it navigates uncertain client decision-making behaviors, similar to many consulting companies in the current environment. The firm’s largest revenue segment, Global S&BT, has seen slowing client demand due to macroeconomic headwinds, indicating a broader issue for the company.

The firm is reallocating management resources toward its generative AI initiatives. However, many organizations are not moving quickly toward AI engagements. Instead, companies are initiating small pilot projects for cost-takeout functions without proceeding to more discretionary, transformation-level projects.

This results in consulting companies spending on AI initiatives, employee training, and retention to be prepared for future AI project growth, which may not materialize for several quarters. Consequently, there could be a mismatch between spending and revenue generation, impacting earnings growth.

Consulting firm management teams face a dilemma between maintaining their trained employee base and allowing for greater attrition or layoffs. While large-scale layoffs have not been widely reported, there are instances of increased attrition, small layoffs, and rescinded or delayed new hire commitments.

Additionally, HCKT’s forward revenue growth is now expected to be around 3.0% compared to year-over-year growth of 4.5%, indicating a further slowing of revenue growth.


A discounted cash flow calculation, based on the company’s current free cash flow per share and an 11% discount rate (4.3% 10-year + 6.7% ERP), indicates the stock is currently fully valued.

With an apparent full stock valuation, issues with its major revenue segment’s growth rate, and a wider economic slowdown, the near-term outlook for The Hackett Group, Inc. remains neutral.

Long Term Potential, Near Term Uncertainty

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The Hackett Group, Inc. faces a challenging environment with slowing revenue growth and macroeconomic headwinds impacting its largest revenue segment. While the company’s investments in generative AI capabilities hold medium-term potential, the near-term outlook remains uncertain.

The firm’s stock appears to be fully valued, and the anticipated slowdown in revenue growth further supports a more neutral stance on HCKT shares.

Investors should closely monitor the company’s progress in AI initiatives and any signs of improved client spending as potential indicators for future growth.


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