Hackett Group, Inc. Q4 FY2024 Earnings Call

Welcome to The Hackett Group Fourth Quarter Earnings Conference Call. Your lines have been placed on a listen-only mode until the question-and-answer session. Please be advised the conference is being recorded. Hosting tonight's call are Mr. Ted Fernandez, Chairman and CEO; and Mr. Rob Ramirez, Chief Financial Officer. Mr. Ramirez, you may begin.

Good afternoon, everyone, and thank you for joining us to discuss The Hackett Group's fourth 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, Chief Financial Officer. A press announcement was released over the wires at 4:05 p.m. Eastern Time. For a copy of the release, please visit our website at www.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. 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 SEC filings. At this point, I would like to turn it over to Ted.

Thank you, Rob, and welcome, everyone, to our fourth quarter earnings call. As we normally do, I'll 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 and strategy-related comments, after which we will open it up to Q&A. This afternoon, we reported total revenues of $79.2 million and adjusted earnings per share of $0.47, both exceeding our quarterly guidance. Our results were driven by the overperformance of our SAP segment and the strong performance of our GSBT segment, which continue to see increased revenue growth from our Gen AI engagements. Gen AI revenues have a higher margin than our traditional consulting and implementation revenues and are driven by highly differentiated capabilities of our AI XPLR platform and our recently acquired ZBrain platform, as well as the LeewayHertz implementation team. We are seeing clients moving from awareness and education to budgeted projects, and we saw that really towards the end of the fourth quarter and we're also seeing it in the beginning of this quarter. Total GSBT segment revenues, which were up 4%, were partially offset by the weakness in our eProcurement practice. We believe Gen AI-enabled transformation is a generational opportunity that will fundamentally change the way companies operate as well as the way consulting services are sold and delivered. The Gen AI platform capabilities of AI XPLR have now been extended with ZBrain's ability to orchestrate and build complex multi-agent workflows, which should allow us to compete strongly in this rapidly growing space. More importantly, what's most differentiating is the power of our combined end-to-end capability. AI XPLR's ability to dynamically ideate and evaluate Agentic Gen AI solutions with the advanced open-source orchestration capabilities of ZBrain is very unique. This capability allows us to serve clients from ideation to implementation in one fully integrated platform. It also provides clients with a single platform that they can license to fully support their entire AI center of innovation, or as we refer to it, our AI COI. Although Oracle activity continues to be solid, the segment was impacted by the wind down of one of our large post-go-live engagements. We continue to see strong overall EPM activity resulting from Oracle's reestablishment of their dedicated EPM sales force. Our SAP Solutions segment overperformed for the fourth quarter in a row as it closed several significant value-added reseller transactions, which strongly benefited the quarter. This increased reseller activity is directly attributable to our decision to expand our sales force in that group. We are also experiencing increasing demand from our market-leading life sciences services group after several years of tempered spend in the sector. We continue to see Gen AI opportunities emerge. We conducted hundreds of meetings with Global 2000 organizations from our introduction of AI XPLR earlier in the year. These demo meetings and conversations have provided us with valuable adoption insight along with the implementation concerns and limitations of our prospects. These initial meetings are now starting to become new Gen AI-enabled transformation opportunities that position us to serve our clients strategically and broadly. We also continue to innovate and make powerful improvements to AI XPLR. In fact, we will release a new version 3 during this first quarter. The most important of the enhancements in version 3 is our ability to dynamically simulate an organization's enterprise Gen AI solutions by leveraging Hackett's proprietary IP to identify automation opportunities and related data source requirements at a work step level. This enables us to identify, design, and evaluate meaningful AI use cases and identify the related AI agents required to build these solutions. Given the strategic access and proprietary and expanding platform capabilities of AI XPLR, it was natural for us to extend our AI implementation capabilities to fully develop and implement Gen AI solutions that we were identifying. This is what resulted in our acquisition of LeewayHertz at the tail end of the third quarter, a highly recognized provider of advanced Gen AI solutions. This acquisition also included a sophisticated Gen AI orchestration platform, ZBrain, which we agreed to contribute into a joint venture with the LeewayHertz founder. The JV, which is to be named ZBrain, brings together the AI XPLR and ZBrain software platforms and will focus on licensing the platforms and creating what we believe to be a first-of-a-kind Gen AI ideation through implementation software-as-a-service offering. We believe this JV creates an entirely new value creation opportunity for our shareholders that should result from the growth of ARR or annual recurring licensing revenues. It would also allow the JV to have the opportunity to raise capital and achieve standalone valuations due to the Gen AI software focus. Our acquisition of LeewayHertz resulted in accretive revenue growth in the fourth quarter, and when combined with our AI XPLR and Gen AI consulting capabilities, are expected to have a consequential impact on our 2025 results. There is no doubt that in just one year, our aggressive pivot to become the architects of our clients' Gen AI journey is being well received and has significant value creation potential for our organization. On the executive advisory front, we continue to invest in our growing IP-based programs. We believe our move to fully integrate Gen AI content, which is now being further augmented by our Gen AI, the content infused by the LeewayHertz acquisition, will be responsive to our clients' strong interest in this area. We experienced sequential and year-over-year revenue growth in the fourth quarter, driven by improved advisory program sales and renewals. We are now working on launching a premium Gen AI solutioning advisory program to fully leverage our solutioning innovation and implementation knowledge from our platforms and clients' engagements that will be directly targeted and the 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.

Thank you, Ted. As I typically do, I'll cover the following topics during my portion of the call. I'll comment and make a commentary on an overview of our 2024 fourth quarter results, along with an overview of related key operating statistics. I'll cover an overview of our cash flow activities during the quarter. And I'll then conclude with a discussion on our financial outlook for the first quarter of 2025. For purposes of this call, I will comment separately regarding the revenues of our Global S&BT segment, our Oracle Solutions segment, our SAP Solutions segment, and the total company. Our Global S&BT segment includes the results of our North America and international Gen AI consulting and implementation and licensing revenues, benchmarking and business transformation offerings, executive advisory market intelligence and IPaaS programs, and our OneStream and eProcurement implementation offerings. 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. We've included reconciliations of GAAP to non-GAAP financial measures in our press release filed earlier today. And we'll post any additional information based on the discussions from this call to the Investor Relations page of the company's website. Moving on, for the fourth quarter of 2024, our total revenue was $79.2 million. Our revenues before reimbursements were $77.5 million, which was above the high end of our quarterly guidance. The fourth quarter of 2024 reimbursable expense ratio on revenues before reimbursements was 2.3% as compared to 2.3% in the prior quarter and 1.7% in the same period in the prior year. Total revenues from our Global S&BT segment were $43.9 million for the fourth quarter of 2024. Revenues before reimbursements for our Global S&BT segment were $43.2 million for the fourth quarter of 2024, an increase of 4% when compared to the same period in the prior year. The revenue growth from our Gen AI consulting and implementations in this segment was primarily offset by weakness in our eProcurement and OneStream implementation offerings. Total revenues from our Oracle Solutions segment were $18.2 million for the fourth quarter of 2024. Revenues before reimbursements for our Oracle Solutions segment were $17.4 million for the fourth quarter of 2024, a decrease of 6% 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, which will also impact the Oracle momentum in the first quarter. Total revenues from our SAP Solutions segment were $17.2 million for the fourth quarter of 2024. Revenues before reimbursements for our SAP Solutions segment were $16.8 million for the fourth quarter of 2024, an increase of 51% when compared to the same period in the prior year, primarily driven by strong software-related sales in the quarter, resulting from the increased sales investments we made in late 2023. The overall performance in the fourth quarter will temper our first quarter outlook, but we expect demand for SAP services to be strong throughout the balance of the year. Approximately 22% of our total company revenues before reimbursements consist of recurring multi-year and subscription-based revenues, which includes our executive advisory, IP-as-a-Service, and application managed service contracts. Total company adjusted cost of sales, which excludes reimbursable expenses, non-cash stock-based compensation expense, and all acquisition-related cash and non-cash compensation expense, totaled $40.5 million or 52.3% of revenues before reimbursements in the fourth quarter of 2024 as compared to $40.4 million or 56.7% of revenues before reimbursements in the prior year. Total consultant headcount was 1,284 at the end of the fourth quarter as compared to 1,262 in the previous quarter and 1,168 at the end of the fourth quarter of 2023. Fourth quarter ending headcount was primarily driven by increases from our Gen AI acquisition and increasing hiring in our Gen AI practices. Total company adjusted gross margin on revenues before reimbursements, which exclude reimbursable expenses and non-cash stock-based compensation expense and all acquisition-related cash and non-cash compensation expense, was 47.7% in the fourth quarter of 2024 as compared to 43.3% in the prior year. The improvement in gross margin was primarily driven by higher value-added reseller sales during the quarter and the higher margin Gen AI consulting and implementation revenue in Global S&BT. Adjusted SG&A, which excludes non-cash stock-based compensation expense and all acquisition-related cash and non-cash expenses, amortization of intangible assets, and one-time legal settlements, was $18.4 million or 23.7% of revenues before reimbursements in the fourth quarter of 2024. This is compared to $15.4 million or 21.6% of revenues before reimbursements in the prior year. The year-over-year absolute dollar increase is primarily due to incremental commissions from increased SAP segment sales and increased incentive compensation expense commensurate with company performance. Adjusted EBITDA, which excludes non-cash stock-based compensation expense, all acquisition-related cash and non-cash expenses, amortization of intangible assets, and one-time legal settlements, was $19.5 million or 25.2% of revenues before reimbursements in the fourth quarter of 2024 as compared to $16.3 million or 23% of revenues before reimbursements in the prior year. GAAP net income for the fourth quarter of 2024 totaled $3.6 million or diluted earnings per share of $0.12 as compared to GAAP net income of $7.9 million or diluted earnings per share of $0.28 in the fourth quarter of the prior year. Our 2024 GAAP net income includes non-cash stock compensation expense from our recently approved stock price award program of $5.1 million and acquisition-related cash and non-cash compensation and related expenses of $2.3 million, which in total impacted our Q4 2024 GAAP results by $0.23. 2023 GAAP net income includes the Gartner legal settlement and related costs of $1.2 million or $0.03 per diluted earnings per share. Adjusted net income and diluted earnings per share, which exclude non-cash stock-based compensation expense, all acquisition-related cash and non-cash expenses, amortization of intangible assets, and one-time legal settlements for the fourth quarter of 2024 totaled $13.6 million or adjusted diluted net income per common share of $0.47, which is above the top end of our earnings guidance range and compares to prior year adjusted diluted net income per common share of $0.39. Acquisition-related cash and non-cash stock-compensation expense relates to a portion of the purchase consideration for the LeewayHertz acquisition completed in September 2024. The consideration contains either performance or service vesting requirements and as such, is reflected as compensation expense under GAAP rather than purchase consideration. The company's cash balances were $16.4 million at the end of the fourth quarter as compared to $10 million at the end of the previous quarter. Net cash provided from operating activities in the quarter was $20.6 million, primarily driven by net income adjusted for non-cash activity, increases in accrued expenses, and decreases in accounts receivable. Our DSO or day sales outstanding was 66 days at the end of the quarter as compared to 70 days at the end of the previous quarter and 65 days in the prior year. During the fourth quarter of 2024, the company paid down $7 million on its credit facility. The balance of the company's total debt outstanding at the end of the fourth quarter of 2024 was approximately $13 million. During the quarter, we repurchased 117,000 shares of the company's stock for an average of $30.95 per share at a total cost of approximately $3.6 million. Our remaining stock repurchase authorization at the end of the fourth quarter was $27.5 million. At its most recent meeting, the company's Board of Directors authorized a 9% increase in its annual dividend from $0.44 to $0.48 per share to be paid quarterly and declared the first quarterly dividend of $0.12 per share for its shareholders of record on March 21, 2025, to be paid on April 4, 2025. Before I move to guidance for the first quarter of 2025, I'd like to remind everyone of the seasonality of our business relative to costs as we move sequentially from Q4 to Q1. Specifically, consistent with previous years, our first quarter guidance for 2025 will reflect the sequential increase in U.S. payroll-related taxes and sequential buildup of our vacation accruals. The company estimates that total revenues before reimbursements for the first quarter of 2025 to be in the range of $75 million to $76.5 million. We expect Global S&BT segment revenue before reimbursements to be up 5% to 10% when compared to the prior year, driven by strong Gen AI revenue growth, partially offset by declines in OneStream and our eProcurement practices. We expect both Oracle Solutions and SAP Solutions segment revenue before reimbursements to be down when compared to the prior year. On a combined basis, we expect them to be down 8% to 10%. We estimate adjusted diluted net income per common share in the first quarter of 2025 to be in the range of $0.39 to $0.41, which assumes a GAAP effective tax rate on adjusted earnings of 22%. We expect the adjusted gross margin as a percentage of revenues before reimbursements to be approximately 43% to 44%. We expect adjusted SG&A and interest expense for the first quarter to be approximately $18.8 million. We expect first quarter adjusted EBITDA as a percentage of revenues before reimbursements to be in the range of approximately 21% to 22%. Lastly, we expect cash balances in the first quarter, excluding the impact of share buyback activity, to be tempered primarily due to the payment of 2024 performance-related bonuses. At this point, I'll turn it back over to Ted to review our market outlook and strategic priorities for the coming months.

Thank you, Rob. As we look forward, let me share our thoughts on the near- and long-term demand environment and the growth opportunity it offers our organization. Although the 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 the consideration of emerging Gen AI technologies. In 2025, we expect IT budgets to increase with increasing attention and allocations to the rapidly emerging Gen AI solutions and the related opportunities and threats it brings to all industries. While in 2024, Gen AI budgets were primarily focused on developing awareness of AI, in 2025, you will see an increasing amount of IT budgets specifically allocated to Gen AI initiatives in high feasibility and high impact areas. We also expect to see increasing investments in data quality and value initiatives that are critical to any Gen AI strategy. The unlimited potential of AI will define an entirely new level of Gen AI-enabled world-class performance standards, driving all software and services providers to extend the value of their existing offerings with the introduction of AI agent extensions. We believe this will result in unprecedented innovations, which all organizations will have to consider. This shift is consistent with our aggressive pivot to Gen AI-enabled transformations, which we believe positions a generational value creation opportunity for our organization. Strategically, we continue to focus on recurring high margin IP-related services. But what is new is the accelerated focus and investments we are making in all of our Gen AI capabilities. The most significant investments have been in the development of our AI XPLR platform and in the training and development of our associates. Our strategic acquisition of LeewayHertz further expanded and accelerated all of our efforts. This will further accelerate as we fund the expansion of our joint venture. We are utilizing the AI XPLR platform as the vehicle to integrate the Gen AI capabilities and impact across all of our offerings. We also continue to hire and upgrade our skills in critical data and technology architecture resources to further support our efforts. These efforts are rapidly allowing us to become key architects, advisors, and consultants of our clients' Gen AI journey. We now believe that AI XPLR will be our primary strategic entry point to clients that we will use to position our traditionally strong benchmarking digital transformation and executive advisory offerings and the platforms that result in our latest digital transformation and cloud application consulting relationships. The halo or downstream revenue impact of these offerings has traditionally been around 40% over the last several years. We believe this will only be expanded by our AI XPLR offering and the enterprise-wide strategic access it provides. AI XPLR significantly enhances the value of our IP and fully aligns it with emerging Gen AI world-class performance standards. Another critical investment that we have made is to build our own Gen AI-assisted knowledge-based solution called Ask Hackett AI. We expect the integration of our valuable IP and content that leverages Gen AI to significantly enhance the delivery of our insights that we are asked to provide to our clients every day but much faster and with significantly more personalized insight. We are ingesting proprietary IP, including benchmarking best practices and research IP to support the myriads of queries that were required to support our executive advisory, consulting, and consulting demands. We have also embarked on a new initiative called Accelerator. It intends to address the efficiency and quality of the delivery of our technology implementation-related services. All these initiatives are harnessing the power of Gen AI to improve and accelerate the delivery of our solutions and services with the intent of differentiating our capabilities and resulting in improved revenue growth and margins. We also see the potential commercial value of these innovations beyond our internal use. On the talent side, competition for experienced executives with high technology agility continues. Overall, we saw turnover continue to moderate and remain low during the quarter. We expect that trend to continue. We also continue to explore strategic partnerships and acquisitions that will allow us to extend our Gen AI capabilities and sell our IP through new channels that will allow us to reach beyond our current Global 1000 focus in an efficient manner. We are continuing to add videos of our new and expanding platforms on the Investor Relations page of our website that investors can review to become more familiar with our new capabilities. Lastly, even though we believe we have the client base and the offerings to grow our business, we continue to look for acquisitions and alliances that strategically leverage our IP and add scope, scale, and capability, which can accelerate our growth. As always, let me close by congratulating our associates on our performance and by thanking them for their tireless efforts, and I always ask them to remain focused on our clients and our people, no matter what challenges we may encounter. Those conclude my comments. Let me turn it over to the operator who will move us into the Q&A section of our call.

The first question in the queue is from George Sutton with Craig-Hallum. Your line is open.

Thank you. Ted, it was nice to hear you call out some revenues and the influence that Gen AI had in the fourth quarter and will have in Q1. I wondered if you could give us a little more detail on the breadth of what you're working on? Give us a sense of what the pipeline might look like?

At a high level, both our client entry points and the content being utilized by our executive advisory and market intelligence clients are heavily focused on questions, comments, and interests related to Gen AI. This focus significantly contributes to our meeting counts and client engagements. We've made substantial efforts to lead in this area by launching AI XPLR at the start of last year. The work we did in 2024, combined with the acquisition of LeewayHertz, which brings excellent engineering skills and an advanced orchestration platform, positions us to be highly competitive. We believe we are at the forefront of these opportunities. Whether it’s through meeting counts, client discussions, or revenue growth on a sequential basis, our opportunities are broadening. If you reflect on just a year ago, we are now a markedly different organization with unique capabilities developed throughout 2024. I hope this gives some clarity to your question.

I thought about you immediately when I really understood what DeepSeek had done, which was dramatically reduce the power and cost of compute. It seemed essential to really accelerate the application side of AI, which I thought you would directly benefit from. Can you give us a sense of how that news might have affected things in your pipeline?

Well, the capability of these foundational large language models is key and central to this Gen AI revolution. And it powers the Gen AI solutions, which we identify, evaluate and are working with our clients. So one to see capabilities expand, supposedly the price points relative to those capabilities go down in my mind is very positive for the end user. It infers that you're going to get greater, you're going to get access to this knowledge base with all of this GPU power and now with growing capability on its ability to infer, reason and help you and assist you in many ways. For us, our capability, we have focused and believe we are experts at solutioning a Gen AI opportunity from ideation all the way through a fully deployed solution at scale. So I can tell you that the innovation we've had in developing our capability with every version of AI XPLR that we've released with the third one coming out this quarter. And now the addition, I can't tell you how capable of this LeewayHertz team, its founder is an incredibly talented individual and the ZBrain platform that they bring. But look, the capabilities are improving across all dimensions of Gen AI deployment. And the DeepSeek, I'll call it a wake-up call, I think is great news for end users and people that plan to adopt Gen AI capabilities throughout these next few years.

I have one more question. SAP usually tends to have unpredictable business patterns for you. It seems like there was a significant increase this past quarter. Can you share your expectations for this trend? Is this a new standard for the SAP business due to the investments you've made, or are these just one-time projects?

Look, we strongly benefited from the sale of software at the tail end of the year. It was the highest level we've ever achieved. In fact, unfortunately, I can't say that we can continue at that pace from Q4 to Q1, primarily because one is end of year activity and the other is first quarter. But our SAP demand, when we look throughout 2025, we're expecting it to be very strong. And that's before we see some of the SAP agentic capabilities that it's now starting to tout. So we hope it's a strong year for SAP and our SAP Group.

The next question in the queue is from Jeff Martin with ROTH Capital Partners. Your line is open.

Thanks. Good evening, Ted and Robert. How are you?

Hey, Jeff.

Good, Jeff.

I wanted to drill in a little bit more on your meetings in the past quarter or two specific to AI XPLR. Are you seeing those convert into implementation contracts? And what kind of visibility do you have on pipeline conversion over the next couple of quarters here?

We are noticing increased activity. More importantly, clients are planning initiatives for 2025, which changes our engagement dynamics. It's a mix of both factors. We are better prepared compared to a year ago, and clients now recognize the Gen AI opportunity and its implications for their industries. We expect to see increased momentum in our pipeline and hope that initial engagements lead to clients understanding how to utilize our Gen AI capabilities to develop, build, and deploy solutions, resulting in higher spending throughout the year. We anticipate a combination of well-funded clients and our improved readiness over the past 12 months. We believe that once we demonstrate value through specific use cases or solutions, clients will continue to invest more in this area. Overall, the outlook is very promising.

And then wanted to get your perspective on implementation projects, both in terms of scale and scope, what kind of duration are we looking at? What kind of average implementation projects are you doing today? And where could that go one to two years out from here?

If you think about the 2024 timeline, especially since we closed LeewayHertz at the end of September, it's important to consider our progress in capabilities today compared to earlier in the year and what we can achieve at the start of 2025. Both our capabilities and opportunities are now more clearly defined. Clients are better equipped to discuss their priorities. For instance, we offer a Fast Start program to help clients get acquainted with our platforms, leading to licensing agreements spanning up to three years. Most of these contracts and activities occurred towards the latter half of the year. I want to emphasize how this is impacting our growth, but I cannot compare budgeted clients who understand Gen AI with those who are still learning to evaluate their opportunities for 2024 without having meaningful budget allocations from last year. This distinction is important and will influence the number of clients we onboard and how those clients expand throughout the year.

And then last question for me is, you mentioned eProcurement and OneStream were headwinds to the fourth quarter. I was just curious if you could quantify that and then also give us a sense of what your outlook is for those two areas for the balance of this year?

There is no doubt that Generative AI opportunities can disrupt enterprise application companies. Recently, nearly every enterprise application provider has introduced some form of advanced AI, enhancing the value of their existing applications. This will indeed be disruptive. If we consider Salesforce, which was among the first to harness the power of foundational models, we can see the momentum they are gaining with both their new agent force and its impact on their traditional cloud application sales. This demonstrates the opportunity Salesforce is beginning to realize. However, six months ago, when Salesforce was developing its Einstein capability, they also faced disruption as they assessed what Generative AI meant for them. So, it's not surprising that there is some hesitation as companies evaluate their technology investments. The enterprise applications are responding quickly to this challenge. The competition for agentic workflows and delivering enterprise functionality through foundational models, whether via enterprise applications or independently developed solutions, is going to be exciting to follow. Clients will have significant opportunities for improvement and access to technologies that were unavailable 18 months ago, but this will come with some disruption. Therefore, it's not unexpected to see this transition as companies incorporate agentic capabilities into their current cloud applications.

And then are you able to quantify the headwind from eProcurement and OneStream in the fourth quarter?

Well, they were meaningful enough for us to mention. So for us to say that our GSBT Group up 4%, let's just say that without that disruption that GSBT Group would have been up meaningfully higher, just to give you some reference. But it was meaningful enough to affect the reported growth of the segment.

The next question in the queue is from Vincent Colicchio with Barrington Research. Your line is open.

Yeah. Good afternoon, Ted. What are your thoughts on the outlook for Oracle as we move beyond Q1?

Our Oracle activity remains, as I said, strong. On the EPM side, which we've strongly benefited from here over the last 24 months with them, probably stronger than on the ERP side. But look, we expect the enterprise application companies to participate in this extended AI capabilities delivered through agents. I think Salesforce has proven that. I expect Oracle, SAP, OneStream, all others to benefit in similar ways. They'll have to explain the additional value that comes from these new capabilities to clients. And look, it may impact some of the velocity in their pipeline for some and may not for others.

And do you need to ramp your Gen AI labor capabilities to meet your demand expectations for '25?

You saw that the headcount increased both year-on-year and quarter-on-quarter. Most of that increase was in our Gen AI groups.

And are you seeing any incremental interest in the joint venture? Any update there would be helpful.

I can report that we are starting to finalize licenses. We are working through the details of the final agreement. Both AI XPLR and ZBrain will be part of the joint venture. This will allow us to fully utilize XPLR and take advantage of some of ZBrain's infrastructure capabilities, which will be very beneficial to XPLR. We will provide clients with three options, including the choice of licensing these capabilities or engaging in a facilitated consulting engagement. We anticipate that the licensing activity will increase throughout the year.

Okay. That's it from me. Nice quarter, Ted.

Thank you, Vince.

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

Well, thank you, everyone, for participating in our fourth quarter earnings call. As you can see, 2025 is expected to be a very exciting year. So we look forward to updating you when we report the first quarter. We'll see you in a few months.

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