The Hackett Group (HCKT) Q3 2026 earnings review
Hackett consulting sales steady, but buybacks drive per-share profit growth
The Hackett Group, a business consulting and software implementation firm, stabilized its quarterly revenue, but its underlying dollar profit still shrank. Third-quarter sales before client reimbursements fell 4% from a year ago to $69 million, landing inside the company's plan as its main advisory and Oracle divisions edged up from the second quarter. Chairman and chief executive Ted Fernandez said internal AI platforms are lifting productivity, yet fourth-quarter revenue is planned to drop 8% from last year by our math.
| Revenue before reimbursements | $68.9M -4.5% from a year ago |
|---|---|
| Profit per share, excluding one-offs | $0.39 +5.4% from a year ago |
| Net income, excluding one-offs | $9.7M -4.2% from a year ago |
| Q4 revenue outlook | $68.0–70.0M middle of the range: -7.8% from a year ago |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because share buybacks rather than business expansion drove the long-awaited return to per-share profit growth. Profit per share excluding one-offs rose 5%, but total dollar profit on the same basis fell 4%, and gross margin missed the third-quarter call target by our math. On the positive side, cutting consultant headcount by 8% lifted revenue per consultant and stopped the sequential sales drop in core consulting.
The question now is whether the recent $30 million wave of AI platform contracts will build into top-line growth in 2027 or merely replace expiring traditional consulting work. If the platforms bring net new demand, consulting revenue will keep rising sequentially after the fourth-quarter holidays; if they only replace old work, sales will stay near $69 million while higher interest costs weigh on cash. The first-quarter 2027 outlook in February will settle it.
🐂 Bull Case
Core Consulting Segments Grow From Last Quarter
The Hackett Group, a business consulting and software implementation firm, closed over $30 million of project deals late last quarter using its new artificial intelligence (AI) software platforms. Those deals needed to revive its two largest divisions: Global Strategy and Business Transformation (Global S&BT, its main advisory and AI consulting practice) and Oracle Solutions, which installs Oracle enterprise software.
- Global S&BT revenue before client expense reimbursements: $36.6 million, up 2.9% from last quarter, down 13.6% from a year ago
- Oracle Solutions revenue before reimbursements: $15.9 million, up 3.9% from last quarter, down 2.7% from a year ago
- Combined revenue across both units: $52.5 million, up $1.6 million from last quarter
Both divisions grew from the second quarter, so the new contracts added enough work to offset older projects ending. That helped total revenue before reimbursements reach $68.9 million, breaking a streak of three misses in four quarters. Still, Global S&BT Remains well below last year's level.
What to watch: sequential revenue in Global S&BT during the first quarter of 2027, after winter holidays pass. Growth there would show that platform deals are expanding total demand rather than just filling holes.
Consultant Cuts Lift Revenue Per Worker
Chairman and chief executive Ted Fernandez said the company's internal AI tools, XT and AIX, are starting to "improve sales and delivery productivity" and will "drive increasing operating leverage and margin expansion". Management has cut consulting staff for four straight quarters to match its smaller revenue base and test whether fewer people can deliver the same work.
Consultant headcount stood at 1,210 in the third quarter, down 1 from June and down 8.1% from 1,317 a year ago. Because staff shrank faster than revenue, revenue before reimbursements per consultant rose 4.0% from a year ago to $57,000, by our math, even as the firm took another $1.4 million restructuring charge.
Higher output per worker did not lift gross margin from a year ago. By our math, personnel costs excluding stock compensation rose 3.4 percentage points to 55.1% of revenue before reimbursements, leaving gross margin excluding one-offs at 44.9%, below the 46% to 47% call target.
What to watch: gross margin excluding one-offs on the third-quarter conference call. A rebound toward 46% without a spike in software resales would show that staff cuts are finally lifting profitability.
Positives this quarter didn't test
Two standing drivers from earlier quarters had no new figures in the earnings release and depend on commentary from the conference call or quarterly filing.
- Partner channels: alliances with ServiceNow, Tata Consultancy Services and Genpact received no update in the release; any disclosed deal count on the call would test whether partners are bringing in clients.
- Project margin uplift: management previously claimed 5 percentage points higher margins on AI-enabled contracts; the release gives only company-wide costs.
🐻 Bear Case
Fourth-Quarter Plan Drops Below Last Year
Two quarters ago, management expressed confidence that fourth-quarter 2026 results could exceed the fourth quarter of 2025, even with fewer high-margin software resales in its SAP division. In the fourth quarter of 2025, Hackett generated $74.8 million in revenue before reimbursements and $0.40 in profit per share excluding one-offs.
The company now forecasts fourth-quarter revenue before reimbursements of $68.0 million to $70.0 million, with 6% to 8% fewer working days than the third quarter because of holidays. By our math, the middle of that range is down 7.8% from a year ago and $5.8 million below last year's fourth quarter.
The outlook for profit per share excluding one-offs is $0.39 to $0.41, matching last year's $0.40 at the middle of the range only because the share count is nearly 10% smaller. The lower revenue forecast shows that growing implementation work has not yet replaced last year's software resales.
What to watch: first-quarter 2027 revenue outlook when Hackett reports in February. A forecast above $67.8 million would mark the first year-over-year revenue growth in six quarters.
Buybacks Create Profit Per Share Growth
Hackett highlighted that third-quarter profit per share excluding one-offs rose to $0.39 from $0.37 a year ago, hitting the top of its $0.37 to $0.39 target range. Fernandez said expanding use of its AI platforms strengthens confidence in 2027 profitability. That per-share gain had served as the main milestone for an operational turnaround.
The reconciliation table shows that total profit excluding one-offs actually fell 4.2% from a year ago, to $9.7 million from $10.2 million. Profit before taxes on that basis dropped 8.5% to $10.4 million, while net interest expense nearly tripled to $1.2 million from $0.4 million a year ago.
Profit per share rose only because Hackett reduced its diluted share count by 9.6% over the past year, to 25.0 million shares from 27.6 million, through debt-funded buybacks. Lower share count is lifting per-share earnings while underlying dollar profit still shrinks.
What to watch: dollar net income excluding one-offs in the fourth quarter. To beat last year's $10.9 million on 25.0 million shares, Hackett would need to earn more than $0.43 per share.
Unpaid Bills Slow Cash Generation
Over the past year, Hackett borrowed on its credit line to buy back stock, lifting long-term debt from $43.8 million a year ago to $86.1 million this quarter. In the third quarter, the firm spent $2.5 million on share repurchases and $3.0 million on dividends, leaving $12.6 million in cash.
Cash provided by operating activities dropped to $1.8 million from $15.2 million in the second quarter and $11.4 million a year ago. After $3.2 million of capital spending, free cash flow was negative $1.3 million by our math, as days sales outstanding (the average time clients take to pay bills) rose to 64 days from 56.
Accounts receivable and contract assets reached $67.9 million, up 18.5% from a year ago even though revenue fell 4.5%. Hackett forecasts operating cash flow to rebound by $15 million to $20 million in the fourth quarter to "pay down debt or repurchase stock".
What to watch: long-term debt on the fourth-quarter balance sheet. A drop below $80 million would confirm that fourth-quarter collections went toward reducing the loan balance.
Risks this quarter didn't answer
Fernandez repeated his argument that "meaningful value and ROI from AI transformation requires more than technology", defending process consulting against clients buying AI tools directly from software vendors, while several standing concerns received no numerical update in the release.
- Software vendor displacement: whether clients are replacing labor-based consulting with automated tools remains open while Global S&BT is down 13.6% from a year ago.
- Joint-venture software licensing: recurring licensing revenue from AI XPLR, which helps clients design automated workflows, was not disclosed in the release.
- Multi-year software receivables: the quarterly filing will show how much of the $67.9 million receivables balance sits in long-term software contracts excluded from the 64-day collection metric.
💲 Other KPIs
SAP Solutions revenue before reimbursements grew 22.3% from a year ago to $16.4 million, but slipped 5.9% from $17.4 million in the second quarter. The drop from last quarter matches management's earlier indication of lower software resales, while ongoing cloud migration projects kept segment profit at $5.2 million, up 41.1% from a year ago.
Contract liabilities — cash clients have paid upfront for consulting and benchmarking services not yet delivered — stood at $11.7 million, down 5.1% from $12.3 million at the end of 2025 and down 1.8% from $11.9 million a year ago. The balance has shrunk since reaching $13.2 million in the first quarter.
The ten largest clients accounted for 24% of total revenue in the third quarter, up from 23% in the second quarter and down from 26% a year ago. The single largest client represented 4% of sales, compared with 3% last quarter and 5% in the prior year.
🔮 Guidance
Cut. The new plan calls for $69.0 million at the middle of the range, flat with the third quarter despite 6% to 8% fewer working days from holidays. By our math, that is down 7.8% from $74.8 million a year ago, walking back earlier commentary that the fourth quarter could beat last year'sSAP-heavy results.
Unchanged. At the middle of the range, the forecast of $0.40 per share rises 2.6% from the third quarter and matches the fourth quarter of 2025, assuming a 26.5% tax rate. The consulting group has met or beaten its quarterly per-share plan for eight straight quarters.
New. Management expects operating cash flow to rise by $15 million to $20 million from the third quarter's $1.8 million, putting fourth-quarter cash generation near $19.3 million at the middle of the range by our math. A planned $4 million to $5 million drop in receivables drives part of the rebound.
❓ Key Questions
Why did gross margin miss the 46%–47% target?
By our math, third-quarter gross margin excluding stock compensation was 44.9%, below the 46% to 47% call range. Investors need to know whether lower software resales or slower consultant utilization caused the shortfall.
How much of the $67.9M receivables is multi-year software?
Accounts receivable and contract assets rose 18.5% from a year ago while sales fell, and the 64-day collection metric excludes software resales. A breakdown of unbilled multi-year software balances will show when that cash arrives.
When will dollar profit excluding one-offs grow again?
Profit per share excluding one-offs rose 5.4% only because buybacks cut the share count by 9.6%, while dollar profit fell 4.2% to $9.7 million. Management has not said when dollar earnings will grow without share reductions.
Are the $30M platform deals expanding beyond replacements?
Global S&BT and Oracle grew $1.6 million combined from the second quarter, but the fourth-quarter revenue plan stays flat at $68 million to $70 million. What is the pipeline of new AI platform contracts for early 2027?