Hackett Group, Inc. Q3 FY2025 Earnings Call

Welcome to The Hackett Group Third Quarter Earnings Conference Call. 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 third 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 4:09 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 Q&A 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 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 Third Quarter Earnings Call. As we normally do, I will open up 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 as well as guidance. We will then review our market and strategy-related comments, after which we will open it up for Q&A. This afternoon, we reported revenues before reimbursements of $72.2 million just below our quarterly guidance and adjusted earnings per share of $0.37, which was at the midpoint of our quarterly guidance, respectively. What is most promising about the quarter is the level of breakthrough innovation, which has resulted in the highly differentiated capabilities of our AI XPLR platform version 4. Specifically, the reactions from both clients and potential channel partners to our version 4 release, which we announced on September 8, have been extremely positive with one potential partner specifically referring to our version 4 capabilities as being game-changing. Correspondingly, we continue to work closely with several global channel partners and expect to announce alliances that could significantly expand our growth opportunity. Our ability to identify, design and build Gen-AI solutions based on client-specific processes and enterprise application automation footprints in accelerated time is powerful. It is allowing us to position our platform as an Enterprise AI Center of Excellence must-have capability, which accelerates and enhances any client's Gen-AI adoption effort. Our version 4 of AI XPLR capabilities is attracting new clients, and it is resulting in an increasing pipeline and new engagements in this increasingly important area. During the quarter, we launched our alliance with Celonis, a leading provider of process intelligence software that provides clients with critical operating insight. By teaming with Celonis we have now demonstrated that we are able to ingest their process intelligence insight into AI XPLR as well as ZBrain to help identify high ROI Agentic AI solutions with unmatched speed and detail. We are now finalizing a way for our clients to easily integrate the Celonis operating insight into AI XPLR that will allow us to promote a special ideation joint offering to all of our respective clients. The combination of AI plus PI or Process Intelligence will allow customers to quickly move from intention to action with measurable impact resulting in Agentic transformation initiatives. Our GSBT segment revenues were favorably impacted by the strong GenAI-related revenue growth, which was offset by the expected weakness in our OneStream practice and the expiration of an IPaaS contract. Our IPaaS partner offered to redefine the agreement around an AI XPLR go-to-market partnership, which we rejected. We believe the current channel partner relationships we are considering will generate significantly greater value than what we were offered. Excluding the OneStream practice and IPaaS contract, our GSBT segment was up over 4%. Our Oracle Solutions segment was down as expected, although activity continues to be solid. Extended client decision-making has continued to make the replacement of revenue from a large post-go-live engagement at the end of last year take longer than we planned. This adversely impacted the second quarter and the third quarter, which is our peak Oracle prior year Q3 comparison, and will continue to impact us into the fourth quarter. The result of this large client transition and our continued development of the AI accelerator, our GenAI-assisted technology implementation platform that allows us to deliver technology engagements more efficiently led to our decision to more aggressively reduce our head count to realize the expected GenAI productivity benefits and align with current requirements. Our SAP Solutions segment was up during the quarter as implementation revenues resulting from our increased software sales activity at the end of the quarter continued to ramp up. Although software sales in the quarter were lower than expected, we expect to make this back up with increased activity in the fourth quarter. Our new platform and implementation capabilities allow us to sell clients enterprise-wide from ideation to implementation in one fully integrated platform. It also provides a client with a single platform, which they can license to fully support their entire AI Center of Excellence initiatives. We continue to see Agentic transformation opportunities to emerge in many of our engagements as the need for GenAI capability and relevance continues to increase. These engagements also provide opportunities to certify strategically and more broadly. These capabilities should further expand through the new strategic alliances, which I said we expect to launch in the near future. That provides us with the increased opportunities to sell our unique capabilities in the upcoming year. On the executive advisory front, we continue to invest in our growing executive and vendor intelligence program. We launched the GenAI premium program. We have integrated our GenAI content into all of our executive programs and we also expanded our e-procurement intelligence capabilities with the acquisition of Spend Matters. On the balance sheet side, our ability to generate strong cash flow from operations has allowed us to maintain our dividend. And today, we are announcing a $40 million Dutch tender offer to acquire approximately 8% of the company's common stock. This tender offer should be strongly accretive and on a cash basis, the reduction of the dividend payment due to the buyback is expected to offset a meaningful portion of the net of tax interest expense that we expect to incur. 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.

Thank you, Ted. As I typically do, I'll cover the following topics during this portion of the call. I'll cover an overview of our third quarter results, along with an overview of related key operating statistics. An overview of our cash flow activities during the quarter, and I'll then conclude with a discussion on our financial outlook for the fourth quarter of 2025. For purpose of this call, I'll 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 GenAI consulting implementation and licensing revenues, benchmarking and business transformation offerings, executive advisory, market intelligence and IPaaS programs and our OneStream and e-procurement 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. Specifically, all references to adjusted financial measures will exclude reimbursable expenses, noncash stock-based compensation expense, all acquisition-related cash and noncash expenses, amortization of intangible assets and other nonrecurring items such as restructuring. 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 third quarter of 2025, our total revenues before reimbursements were $72.2 million, a decrease of 7% over the prior year. The third quarter reimbursable expense ratio on revenues before reimbursements was 1.3% as compared to 1.6% in the prior quarter and 2.3% when compared to the same period in the prior year. Total revenues before reimbursements from our Global S&BT segment were $42.4 million for the third quarter of 2025, a decrease of 2% when compared to the same period in the prior year. Strong revenue growth from our GenAI consulting and implementation offerings in this segment was more than offset by weakness in our OneStream implementation offerings and the nonrenewal of a meaningful IPaaS contract during the third quarter. Excluding this decrease, our global S&BT segment would have been up 4%. GenAI momentum is expected to continue in Q4 and accelerate in 2026. Total revenues before reimbursements from our Oracle Solutions segment were $16.4 million for the third quarter of 2025, a decrease of 25% when compared to the same period in the prior year. This was higher than expected due to continued protracted decision-making. Total revenues before reimbursements from our SAP Solutions segment were $13.4 million for the third quarter of 2025, an increase of 4% 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 in the last several quarters. Although software sales activity was lower than we expected in Q3, we expect this activity to be up meaningfully on a sequential basis in Q4. Approximately 23% of our total company revenues before reimbursements consist of recurring multiyear and subscription-based revenues, which include our executive advisory, application managed services and GenAI license contracts. We are seeing the rapid migration of IPaaS to AI XPLR and ZBrain related recurring revenue opportunities. Total company adjusted cost of sales totaled $41.4 million or 57.4% of revenues before reimbursements in the third quarter of 2025 as compared to $44.2 million or 56.8% of revenues before reimbursements in the prior year. Total company consultant headcount was 1,317 at the end of the third quarter as compared to total company consultant headcount of 1,382 in the previous quarter and 1,262 at the end of the third quarter of 2024. The third quarter reduction in headcount was due to actions taken to reduce staff to be commensurate with current demand and the expected productivity improvements from the leverage of our GenAI delivery platforms. Total company adjusted gross margin on revenues before reimbursements was 42.6% in the third quarter of 2025 as compared to 43.2% in the prior year. Adjusted SG&A was $16.5 million or 22.9% of revenues before reimbursements in the third quarter of 2025. This compared to $17 million or 21.8% of revenues before reimbursements in the prior year. Adjusted EBITDA was $15.3 million or 21.2% of revenues before reimbursements in the third quarter of 2025 as compared to $17.7 million or 22.7% of revenues before reimbursements in the prior year. GAAP net income for the third quarter of 2025 totaled $2.5 million or diluted earnings per share of $0.09 as compared to GAAP net income of $8.6 million or diluted earnings per share of $0.31 in the third quarter of the previous year. Third quarter 2025 GAAP net income includes noncash stock compensation expense from our stock price reward program of $4.8 million or $0.17 per diluted share and acquisition-related cash and noncash compensation benefit of $2.1 million or $0.05 per diluted share. In addition, GAAP net income also includes a $3.1 million or $0.08 per diluted share restructuring expense for severance-related costs to reduce staff to be commensurate with current transition demand and expected productivity improvements from the leverage of our GenAI delivery platforms. Acquisition-related cash and noncash stock compensation items related to purchase consideration for the LeewayHertz acquisition. This consideration paid to the seller contains service vesting requirements and as such, is reflected as compensation expense or benefit under GAAP rather than purchase consideration. Adjusted net income and diluted earnings per share for the third quarter of 2025 totaled $10.2 million or adjusted diluted net income per common share of $0.37, which is at the midpoint of our earnings guidance range and compares to the prior year adjusted diluted net income per share of $0.43. The company's cash balances were $13.9 million at the end of the third quarter as compared to $10.1 million at the end of the previous quarter. Net cash provided from operating activities in the quarter was $11.4 million, primarily driven by net income adjusted for noncash activity and a decrease in accounts receivable, partially offset by decreases in accrued expenses and contract liabilities. Our DSO or Day Sales Outstanding was 71 days at the end of the quarter as compared to 73 days in the previous quarter and 70 days in the prior year. During the quarter, we repurchased 1.1 million shares of the company's stock for an average of $20.70 per share at a total cost of approximately $22.9 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 $12.6 million. At its most recent meeting, subsequent to the quarter end, the company's Board of Directors authorized a $40 million increase in the company's share repurchase authorization, bringing the available balance to $52.6 million in order to accommodate the Dutch tender offer announced today. Additionally, the Board declared the fourth quarter dividend of $0.12 per share for its shareholders of record on December 23, 2025, to be paid on January 9, 2026. During the quarter, the company borrowed $21 million from its credit facility. The balance of the company's total debt outstanding at the end of the third quarter was $44 million. Before I move to guidance for the fourth quarter of 2025, I would like to remind everyone of the seasonality of our business. Specifically, the increased holiday and vacation time that is historically taken in the fourth quarter will decrease our available billing days by approximately 8% to 10% when compared to the third quarter. Considering this, the company estimates total revenue before reimbursements for the fourth quarter of 2025 to be in the range of $69.5 million to $71 million. We expect global S&BT to be down as continued growth from GenAI revenues will be more than offset by other segment revenue declines. We expect Oracle Solutions segment revenue before reimbursements to be down by 15% when compared to the prior year. We expect SAP Solutions segment revenues before reimbursements to be down when compared to the prior year because of lower software sales activity given exceptionally strong software-related sales in the prior year. We estimate adjusted diluted net income per common share in the fourth quarter of 2025 to be in the range of $0.38 to $0.40, which assumes a GAAP effective tax rate on adjusted earnings of 24.5%. We expect the adjusted gross margin as a percentage of revenues before reimbursements to be approximately 46% to 47%. We expect adjusted SG&A and interest expense for the fourth quarter to be approximately $18.7 million. We expect fourth quarter adjusted EBITDA as a percentage of revenues before reimbursements to be in the range of approximately 22% to 23%. Now let me provide some details regarding our tender offer that Ted mentioned. The company announced today that its plan to launch a tender offer to purchase up to $40 million in value of its common stock at a price not less than $18.30 nor more than $21 per share. We expect to launch the tender offer tomorrow, which would mean it would expire on December 4, 2025. We plan to conduct a tender offer through a procedure commonly called a modified Dutch auction. This procedure allows stockholders to select the price within the specified range set by the company at which stockholders are willing to sell their shares. Neither management nor our Board members will be participating in this Dutch auction. The company will select the single lowest purchase price within the range that will allow the company to purchase $40 million in value of shares at such price based on the number of shares tendered. All shares purchased in the tender offer will be purchased at the same price. The tender offer will only be made pursuant to the offer to purchase, the related letter of transmittal and the other tender offer materials, which the company will file tomorrow with the SEC. Any specific questions should be addressed directly with the dealer manager or the information agent for the tender offer. The contact information will be included in the press release we will issue tomorrow announcing the tender offer and in the tender offer materials being filed with the SEC tomorrow as well. We will utilize our existing credit facility for the purchase of the shares in the tender offer and the fees associated with this offer. Lastly, we expect cash flow from operations to be up strongly on a sequential 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. 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 demand for digital transformation remains strong in traditional areas, it continues to be impacted by the thoughtful decision-making as organizations assess competing priorities due to economic concerns as well as the consideration of emerging GenAI technologies. 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 innovations, which all organizations will have to consider. This shift is consistent with our aggressive pivot to GenAI-enabled transformation, which we believe creates a unique value creation opportunity for our organization. We believe Agentic Enterprise transformation is a generational opportunity, which will fundamentally change the way companies operate as well as the way consulting services are sold and delivered. Our GenAI platform capabilities in the recently released version 4 of AI XPLR leverage our proprietary solution language model, which, by the way, has a patent pending and Hackett process and performance IP, which significantly accelerates the speed in which we can identify and design Agentic AI solutions. Another critical distinction of our new version 4 is the way we can design the Agentic solutions while considering the client-specific enterprise application automation footprint. This allows the client to consider where existing automation supports GenAI enablement, allowing them to fully leverage the existing automation footprint where possible. This ability to evaluate and consider a client's current technology landscape to deploy Agentic solutions further differentiates our AI XPLR capabilities. We are clearly now at a point where AI XPLR will become a fully licensable platform, which provides several modular options to our clients. This is critical to our multiyear ARR growth vision. The LeewayHertz acquisition also included a sophisticated GenAI orchestration platform, ZBrain, which we agreed to contribute into a joint venture with the founder. The JV will bring together AI XPLR and ZBrain platforms and will focus on licensing the platforms and creating what we believe will be a first-of-a-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 growth of ARR or annual recurring licensing revenues. It would also allow the JV to have the opportunity to raise capital and achieve stand-alone valuations due to the GenAI software focus if that is deemed best. Another critical investment that we have made is to build our own GenAI-assisted knowledge-based solution called Hackett AI. Hackett AI 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. 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 clients every day. We are ingesting and indexing all of our proprietary IP, including benchmarking best practices, transformation and research IP to support the myriad of queries that are required to support our executive advisory and consulting clients and associates. We have also embarked on a new initiative called Accelerator, which intends to also address the efficiency and quality of the delivery of our technology implementation-related services. 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 will result in improved revenue growth margins. We see potential commercial value for these innovations beyond our internal use. Also in the works, Transformation XPLR, which will support all of our management consultants, and we are looking at special modules in data and governance, which we believe will also further support and differentiate the current AI XPLR capabilities. On the talent side, competition from experienced executives with high technology agility continues. Overall, turnovers continued at acceptable levels during the quarter, and we expect that trend to continue. 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, platforms and transformation expertise and can add scope, scale and capability, which accelerate our growth. It's important to say that those kinds of acquisitions are not easily available. As always, let me close by congratulating our associates on our innovation and performance and thanking them for their tireless efforts and always urge 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.

Our first question comes from George Sutton with Craig-Hallum.

Ted, you mentioned a plan to announce alliances that could significantly change your opportunities. I know you've been having discussions over the last couple of quarters. I believe the focus has been on system integrators and large software companies. Can you give us an idea of what is realistic for us to expect in terms of what you think you can achieve and when?

Excellent question, George. Our capability to achieve that has greatly improved with the release of version 4. I can't stress enough how significant this leap in capability has been, as seen by both potential clients and prospective channel partners. We began discussions with an enterprise software company toward the end of Q2, which then extended to other companies like Celonis, leading to their alliances. We also chose to walk away from an offer with a large systems integrator because we saw greater value in opportunities with others. Currently, we are in talks with two entities, and we anticipate a strong mutual interest in reaching a meaningful agreement. I want to mention that the enterprise application opportunity that arose late in Q2 was initially set aside while we completed the licensing process for version 3. We put in significant effort to ensure the targeted innovations for version 4 were achieved, and we launched that on September 8. We believe these capabilities are substantial and are being recognized by potential partners. Notably, before I joined this call, I received a request from one of the big four consulting firms asking if our platforms could be purchased or licensed. This shows that the capabilities we are demonstrating to clients are becoming more visible. The involvement of large partners in this process helps prove our platform's capabilities. Therefore, we are confident that we will attract one or two major alliance partners in the near future.

Got you. On the software side, you mentioned that you had signed some new business, and you should be able to make up some of the weakness in Q4. Can you just walk through that a little bit.

There is no doubt that the impact of version 4 and our ability to move clients more aggressively has accelerated since we introduced it on September 8. Client engagement and pipeline activity have both improved. We are seeing meaningful engagement with AI XPLR, which could take on significant responsibility for a client's AI Center of Excellence. All these factors are increasing our engagements and pipeline for Q4 around GenAI. We believe this trend will continue naturally. Additionally, we are looking for acceleration from one or two key channel partners that would greatly enhance our visibility and access to the largest GenAI opportunities. It's all of these factors combined.

Okay. Last question for me. Just on the Dutch auction, I'm just curious why a Dutch auction and why do a Dutch auction now?

Well, we had that question asked by some of our shareholders at the end of Q2, actually. And I didn't want to miss the opportunity to be able to acquire stock during what we knew was a more volatile Q3, given the guidance that we have provided, and understanding what that looked like. Now that we got through the end of the quarter, then I had the same question, do we continue to buy back our stock aggressively in the open market? And we thought the best way to start doing that was to tender for $40 million and provide the range that was articulated today so that we could be even more aggressive than we were in Q3. As you know, we've got a pristine balance sheet. We've rarely used it. We believe that the debt post this Dutch and the aggressive cash flow generation we normally didn't anticipate in Q4 will have us somewhere around 1x EBITDA by the time this whole process is over. And we know that's, that's virtually no leverage. So if we continue to believe our prospects are what they are, we will continue to be aggressive with our buybacks.

I would now like to introduce Jeff Martin with ROTH Capital Markets.

Ted, could you give us an update on where you are with licensing progress so far with both ZBrain and XPLR? I mean, obviously, XPLR version 4 being launched in September, likely not a ton of traction there yet, but maybe give us some perspective on those clients that were potentially looking at licensing version 3, propensity to license version 4 in the next 6 months or so?

As I mentioned earlier, we were prepared to release version 3 for licensing early in the third quarter. However, when we recognized the improvements in version 4, we halted our licensing efforts for version 3. While we have made significant progress, we have now completed version 4. We continue to make some enhancements and anticipate starting the licensing of XPLR in late Q4 or no later than the start of Q1. We believe many of the current opportunities we are working on will lead to AI XPLR licenses.

And on the ZBrain side.

On the ZBrain side, since the ZBrain side is differentiated to AI XPLR, yes, we would expect a portion, I don't know if it's half or 1/3 of the AI XPLR led licenses to incorporate ZBrain as well.

Okay. And then I was just curious if you could break down S&BT a little more. You did mention it grew 4%, excluding OneStream and the IPaaS contract termination. But could you help us get a sense of the trends within the pieces of S&BT?

The largest segment of our Strategy and Business Transformation Group is responsible for significant transformation initiatives, accounting for more than half of the GSBT. We also have our executive advisory business, which encompasses advisory programs and market intelligence programs. Additionally, our benchmarking services are included, along with the OneStream practice and related licensing, as well as all revenues associated with GenAI. This segment represented more than half of our revenues for the quarter and close to 66% of our operating profit. By the end of 2026, we anticipate that this business will drive over 75% of our total operating profits, particularly through GenAI transformation initiatives. These initiatives will involve not only GenAI but also addressing existing clients and their current business processes and enterprise applications during the rollout of Agenda workflows. We foresee a significant halo effect emerging from this area. Most executives in our Strategy and Business Transformation group will likely lead the GenAI initiatives, and as these initiatives mature, they will positively influence traditional transformation projects that require complete implementation. Currently, we are in the ideation and design phase of these GenAI engagements, and as they progress, they will enhance our GSBT revenue. We believe that in the future, GSBT will contribute a larger share of our overall profits, ideally accompanied by more recurring revenue, resulting in better gross margins and substantial value creation over the next couple of years.

One other question. With respect to decision making, are you seeing any jamming of the logs there, is it getting a little better? Is it getting a little worse, the same? Just kind of some directional trend would be helpful.

What I can say is that clients are clearly making commitments for 2026, but they are also being cautious with their spending in 2025 due to economic volatility and tariff distractions, which have made 2025 more challenging. Economic volatility, tariff distractions, and people pausing to assess the impact of GenAI on their IT initiatives are all influencing this. However, I do see clients positioning themselves for an Agentic enterprise in a transformed world, which involves both new and existing capabilities that will need to be updated. While we expected challenges to continue through the end of the year, I see clients focusing on protecting their 2025 earnings for obvious reasons. At the same time, there is an increasing level of interest in investing and expanding in both traditional digital transformation and those with significant GenAI elements. We anticipate that the meaningful GenAI component will grow throughout 2026.

Our next question comes from Vincent Colicchio with Barrington Research.

Ted, do you currently have the labor resources in GSBT to meet current AI demand? And do you have any concerns about that?

Not at all, especially with the productivity improvements of our Accelerator and Transformation XPLR products. What you need to understand is that the work we have traditionally done and will continue to do will increasingly be performed by platforms that provide greater value, making it more compelling and complete for clients in shorter time frames. Therefore, growth will be less reliant on increasing headcount and will hinge on sophisticated platforms that enable talented professionals to assist clients in identifying, designing, and implementing opportunities. So, I don’t think headcount will be a concern for the remainder of the year as we approach 2026. If it had been a concern, we wouldn’t have made the reduction reflected in our restructuring charge this quarter.

And circling back on version 4, just what is it that's game-changing versus the other alternatives in the market? Is it the speed? Or is it more than that?

No, it's much more than that. What we built in version 3 is still very compelling. We can walk into a client across 26 industries and say we have the ability to simulate and fully detail thousands of AI solution opportunities. We start with a strong simulation capability from version 3. What changed from version 3 to version 4 is our ability to inform the client's existing technology or automation footprint. We got much better at driving that automation information down to the process or subprocess level by capturing the client's automation footprint. This resulted in more powerful ideation capabilities, allowing us to fully consider the client's automation footprint before recommending something significant. This level of consideration did not exist in version 3. Additionally, this opened up our ability to gather more information about the data sources we would be dealing with, improving our recommendations by incorporating additional data sources into the clients' knowledge base. The highlight of version 4 is that we can detail enhancements and the future process influenced by Agentic workflow. We can now integrate agents and explain their roles in these changes with more detail than in version 3. Previously, this work was done with numerous professionals over a 4 to 6-week period, but our advanced Hackett solution language model now allows us to achieve what we call an 80% solution in less than an hour. This enables us to engage clients on validating the output, leading to more specific recommendations regarding complexity, required details, and delivered benefits, which improves our proof of concept. After showcasing these capabilities to potential partners in mid-September, their response was enthusiastic. We demonstrated how we could provide detailed recommendations based on specific client situations, showing that version 4 of XPLR is distinctly better, more detailed, and more accurate. This enables better estimations of effort and complexity, improving the ROI when aligning benefits to costs. We've already had one channel partner working on a significant client prospect ask us about specific processes they were targeting. They wanted to know when they would see the results, and we told them to call back in two days. We were able to deliver within that timeframe, and the feedback has been very positive. One partner even described our capabilities as game-changing, and we hope they really mean it and become a great partner for us soon.

Appreciate all the color.

I think it's important because the future of the firm relies on unique capabilities, which are enhanced by talented individuals. However, without the unique platform capabilities and the improvement of the solutioning language model, as well as integrating all of the Hackett intellectual property throughout the entire process and subprocess level, including benchmarks, replicating this is difficult. It's possible that I could wake up tomorrow and someone might present something significantly better. Currently, these sophisticated clients and channel partners are expressing that they have not encountered anything that delivers outcomes as effectively as what we are currently offering as part of our proof points.

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

Thank you, operator. Let me thank everyone for participating in our third quarter earnings call, and we look forward to updating you again when we report the fourth quarter and our total annual results. Thank you again.

Thank you for your participation. Participants, you may disconnect at this time.