The Hackett Group Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 5, 2025

Key Takeaways

  • Positive Sentiment: Revenue before reimbursements of $77.6 million and adjusted EPS of $0.38 in Q2 beat or met guidance, driven by strong demand and operational execution.
  • Positive Sentiment: The GSBT segment grew 5% year-over-year (10% excluding OneStream) with higher-margin GenAI engagements boosting overall gross margins.
  • Negative Sentiment: The Oracle Solutions segment declined 7.5% in Q2 and is expected to drop over 20% in Q3, prompting a $1.5–2.0 million restructuring charge and headcount reductions.
  • Positive Sentiment: New strategic alliance with Salonis and a JV combining AI Explorer v4 and ZBrain aim to offer an end-to-end GenAI SaaS platform, expanding channel opportunities and recurring licensing revenue.
  • Neutral Sentiment: Q3 guidance forecasts revenues of $73.0–74.5 million, adjusted EPS of $0.36–0.38, and sequentially higher cash flow, supported by ongoing share repurchases and a $0.12 dividend.
AI Generated. May Contain Errors.
Earnings Conference Call
The Hackett Group Q2 2025
00:00 / 00:00

There are 6 speakers on the call.

Operator

Welcome to the Hackett Group 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.

Operator

Rob Ramirez, Chief Financial Officer. Mr. Ramirez, you may begin.

Speaker 1

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 04:15PM 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.

Speaker 1

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.

Speaker 1

At this point, I would like to turn it over to Ted.

Speaker 2

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 and A. This afternoon, we reported revenues before reimbursements of $77,600,000 and adjusted earnings per share of $0.38 which were above and at the midpoint end of our quarterly guidance respectively.

Speaker 2

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. We believe our GenAI platform capabilities will attract clients and strategic partners like the one we announced this afternoon with Salonis, which will accelerate our growth in this increasingly important area. Salonis is the leading provider of process intelligence software, which provides clients with critical operating insight. By teaming with Salonis, we will be able to invest their process intelligence insight into AI Explorer and Sebring 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 through our vast client bases, creating significant channel expansion opportunities for both companies.

Speaker 2

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 Jet AI enabled transformation initiatives. Our quarterly results were driven by the performance of our GSBT segment, which included the strong revenue growth from our Gen AI related engagements. Gen AI engagements also favorably impacted our gross margin as they demand a higher margin than our traditional consultant 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 GSBT revenues, which were up 5% in the quarter were partially offset by the weakness in our OneStream practice.

Speaker 2

Excluding the OneStream practice, our GSBT 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. 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 ag solutions and with SeaBrain orchestrate and build complex agentic workflows. Another critical distinction of our new version four is the way we are able to design the AgenTeq solutions while considering the client specific enterprise application ecosystem. This allows the client to clearly understand where existing automation ends and where JNI enablement extends and creates meaningful opportunities to improve enterprise performance.

Speaker 2

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. It also provides a client with a single platform which they can license to fully support their entire AI center or 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 JEDI capability and relevance continues to increase. These engagements also provide us the opportunity to serve clients strategically and broadly.

Speaker 2

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. 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.

Speaker 2

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 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 growing our IP based programs. We have integrated our GenAI content into our executive advisory programs.

Speaker 2

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.

Speaker 2

Rob?

Speaker 1

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 2025. For purposes of this call, I will comment separately regarding the revenues of our global SABT segment, our Oracle Solutions segment, our SAP Solutions segment and the total company.

Speaker 1

Our Global S and 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 iPass 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.

Speaker 1

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. For the 2025, our total revenues before reimbursements were $77,600,000 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 SMT segment were $43,600,000 for the second quarter of twenty twenty five, an increase of 5% when compared to the same period in the prior year.

Speaker 1

The strong revenue growth from our GenAI consulting and implementation offerings in this segment was partially offset by weakness in our OneStream implementation offerings during the second quarter. Excluding this decrease, our global SMBT segment would have been up 10%. Gen AI momentum across all of global SMBT is expected to continue to accelerate through the balance of the year. Total revenues before reimbursements from our Oracle Solutions segment was $20,500,000 for the 2025, a decrease of 7.5% when compared to the same period in the prior year. This decrease is primarily due to the post colab wind down of large engagement as we've discussed last quarter.

Speaker 1

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 $13,500,000 in the 2025, 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 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 multiyear 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 $44,400,000 or 57.2% of revenues before reimbursements in the 2025, as compared to $43,800,000 or 57.7% of revenues before reimbursements in the prior year.

Speaker 1

Total company consultant headcount was thirteen eighty two at the end of the second quarter as compared to total company consultant headcount of thirteen thirty two in the previous quarter and eleven forty five at the end of the 2024. Second quarter ending headcount was primarily driven by increased hiring from our genetic practices and the Leewayhurst acquisition. Total company adjusted gross margin and revenues before reimbursements was 42.8% in the 2025 as compared to 42.3% in the prior quarter. Adjusted SG and A was $18,200,000 or 23.4% of revenues before reimbursements in the 2025. This is compared to $16,800,000 or 22.1% of revenues before reimbursements in the prior year.

Speaker 1

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 $16,100,000 or 20.7% of revenues before reimbursements in the 2025, as compared to $16,300,000 or 21.5% of revenues before reimbursements the prior year. GAAP net income for the 2025 totaled $1,700,000 or diluted earnings per share of $06 as compared to GAAP net income of $8,700,000 or diluted earnings per share of $0.31 in the second quarter of the previous year. Second quarter twenty twenty five GAAP net income includes non cash stock compensation expense from our stock price award program of $5,100,000 and acquisition related cash and non cash compensation and related expenses of $2,500,000 which in total impacted our Q2 twenty twenty five GAAP results by approximately $0.25 Acquisition related cash and non cash stock compensation expense relates to purchase consideration for the Leewear Hertz 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.

Speaker 1

The acquisition of SpendMatters did not have an impact on our adjusted net income for the 2025. Adjusted net income and diluted earnings per share for the 2025 totaled 10,700,000.0 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 2025 results was negatively impacted by $01 due to unfavorable foreign exchange movements. The company's cash balances were $10,100,000 at the end of the 2025 as compared to $9,200,000 at the end of the previous quarter. Net cash provided from operating activities in the quarter was $5,600,000 primarily driven by the income adjusted for non cash activity and an increase in accrued expenses, primarily offset by the timing of income tax payments made during the quarter. Our DSO or days sales outstanding was seventy three days, both at the end of the second quarter as well as the previous quarter compared to sixty eight days from the prior year.

Speaker 1

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 24.5 per share at a total cost of approximately $4,400,000 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 $17,000,000 At its most recent meeting, subsequent to quarter end, the company's Board of Directors authorized a $13,000,000 increase in the company share repurchase authorization, bringing it to 30,000,000 Additionally, the board declared the third quarter dividend of $0.12 per share for its shareholders of record on 09/19/2025 to be paid on 10/03/2025. During the quarter, the company borrowed $5,000,000 from its credit facility. The balance of the company's debt total debt outstanding at the end of the second quarter was $23,000,000 I'll now be moving to guidance and outlook for the third quarter.

Speaker 1

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 some vacation in The US and Europe to unfavorably impact available days by approximately 2% on a sequential basis. The company estimates total revenues before reimbursements for the 2025 to be in the range of 73,000,000 to $74,500,000 We expect global S and BT and SAP Solutions segment revenue before reimbursements to be up when compared to the prior year. We expect 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 $1,500,000 to $2,000,000 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.

Speaker 1

We estimate adjusted diluted net income per share in the 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%. We expect the adjusted gross margin as a percentage of revenues before reimbursements to be approximately 43.5% to 44.5%. We expect adjusted SG and A and interest expense for the third quarter to be approximately 18,500,000 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 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.

Speaker 1

Thank you, Rob.

Speaker 2

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 thoughtful decision making as organizations assess competing priorities due to economic concerns and as well as the consideration of emerging technology. We continue to 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. In 2025, we have seen the increasing amount of IT budgets specifically allocated to Gen AI 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 a Genentech AI capability.

Speaker 2

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 Leeway Hertz, a highly recognized provider of GenAI solutions. This acquisition also included sophisticated GenAI orchestration platform, ZBrain,

Speaker 1

which we agreed to contribute into a

Speaker 2

joint venture with the founder of Leeway 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 Genie 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. In fact, our most meaningful innovation to date is a soon to be released version four, which brings significant enhancements that allow us to highly differentiate our offerings further.

Speaker 2

The most important of the enhancements in version four is the ability to fully design sophisticated AI solutions and agenda 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 Gen AI solutions and to rapidly custom design 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 in a fraction of the time that other providers are offering. Our unique combination of strategic access to clients along with the speed and solutioning provided by our platform is attracting large channel partners, could 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 Geniei capabilities across all of our offerings.

Speaker 2

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. A 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.

Speaker 2

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 AskHacket AI. AppHacket 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 insights that we are asked to provide to our clients every day.

Speaker 2

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 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. 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.

Speaker 2

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 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 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.

Speaker 2

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

Operator

Thank you. The phone lines are now open for And our first question is from George Sutton with Craig Hallum. Your line is now open.

Speaker 3

Thank you. Ted, I wondered if we could talk about Explorer three point zero and what interest you're seeing there, Leeway Hertz, ZBrain. When we look at those in combination, they're seemingly a perfect solution for the current AI first environment we're 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 opportunity?

Speaker 3

And are we seeing what you would have expected?

Speaker 2

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 are 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.

Speaker 2

So is it all taking longer? Yes. But are the prospects 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 that is emerging.

Speaker 2

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 Gen AI related revenues were up significantly in Q2.

Speaker 3

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.

Speaker 2

Well, we announced our first strategic alliance today, as I mentioned, Salonis 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 basis. 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 do 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.

Speaker 2

We turned down one SI partner because we wanted a better offer from the offer they had made to us to go to market together. But we have other options and we continue to evaluate their offer to us. 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.

Speaker 3

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?

Speaker 2

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 it will 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?

Speaker 2

And secondly, that these implementation teams, both the Oracle and OneStream implementation teams are benefiting from the rollout of a product we call 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 Gen AI, I'll call them headcount, potential headcount concerns with 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 comp.

Speaker 3

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

Speaker 2

Thank you, George.

Operator

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

Speaker 4

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

Speaker 2

Both Oracle and OneStream's comp peak are in the third quarter. So the relative comps, especially for Oracle goes down significantly from q three to q four. 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.

Speaker 4

And then I was hoping you would 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 Gen AI related engagement?

Speaker 2

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, 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 of both where we've had the engagement and where we're seeing the opportunity that exists in our current pipeline.

Speaker 4

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

Speaker 2

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 in 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 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 effective 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 and some combination of lower interest rates, a reduction of noise in 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.

Speaker 2

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.

Speaker 2

But for someone other than Palantir, no. So 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 announcement 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.

Speaker 2

So we're positioning both.

Speaker 4

Appreciate it. Thank you.

Operator

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

Speaker 5

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

Speaker 2

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 AI 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 platform value, which is the way that at least we will be serving our clients.

Speaker 5

And is your utilization rate I would assume that your employees are involved in a lot of training and upskilling. Wondering if your utilization rate has been impacted by that.

Speaker 2

No, I mean, we have some ramp at the Gen AI area. So that takes a little time as we hire and then bring them up and bring them up to speed with our platforms, both on the Explorer and on the ZBrain side. But no, I mean look where we saw 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 really make a more aggressive pivot to the Gen AI reliance that we're seeing on, I'm gonna say that over 50% of our new engagements include some element of Gen AI involvement. So it's not just Gen AI specific opportunities we're seeing, The GenAI team is being brought into traditional transformation and in some cases traditional technology implementation engagements.

Speaker 5

And then the last one for me. I'm curious 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.

Speaker 2

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 download our product. And this is pre 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.

Speaker 5

Okay. Thanks, Ted.

Speaker 2

Mhmm. Yep.

Operator

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

Speaker 2

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.

Operator

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

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