The Hackett Group Announces Third Quarter 2020 Results

Rhea-AI Summary

The Hackett Group reported third quarter 2020 net revenue of $57.8 million, a 13% decline year-over-year, but a 10% sequential increase. GAAP diluted EPS for Q3 was $0.09, compared to $0.21 in the prior year. Pro forma diluted EPS decreased to $0.17 from $0.27. The board declared a quarterly dividend of 9.5 cents per share. The company ended Q3 with $43.2 million in cash and no debt, repurchasing 83 thousand shares at an average price of $12.57. Projected Q4 revenue is between $55.0 million and $58.0 million.

Positive

• 10% sequential revenue growth
• Cash balances of $43.2 million with no debt
• Quarterly dividend declared at 9.5 cents per share
• Share repurchased at $12.57, totaling $1.0 million

Negative

• 13% decrease in year-over-year revenue
• GAAP diluted EPS fell from $0.21 to $0.09
• Pro forma diluted EPS decreased from $0.27 to $0.17

MIAMI--(BUSINESS WIRE)--The Hackett Group, Inc. (NASDAQ: HCKT), a global intellectual property-based strategic consultancy and leading enterprise benchmarking and best practices digital transformation firm, today announced its financial results for the third quarter, which ended on September 25, 2020.

Third quarter 2020 net revenue (gross revenue less reimbursable expenses) was $57.8 million, down 13%, as compared to the same period in the prior year, but up 10% sequentially as demand improved throughout the quarter.

GAAP diluted earnings per share were $0.09 for the third quarter of 2020, as compared to GAAP diluted earnings per share of $0.21 in the same period in the prior year due to the economic disruption resulting from the COVID-19 pandemic.

Third quarter 2020 pro forma diluted earnings per share were $0.17, as compared to $0.27 in the same period in the prior year. Pro forma information is provided to enhance the understanding of the Company’s financial performance and is reconciled to the Company’s GAAP information in the accompanying tables.

At its most recent meeting, the Company’s Board of Directors declared a quarterly dividend of 9.5 cents per share for its shareholders of record on December 18, 2020, to be paid on January 9, 2021.

At the end of the third quarter of 2020, the Company’s cash balances were $43.2 million with no outstanding debt. During the quarter, the Company repurchased 83 thousand shares under its share repurchase program at an average price of $12.57 for a total of $1.0 million. As of the end of the third quarter of 2020, the Company’s remaining share repurchase program authorization was $4.7 million.

“Although our results continued to be impacted by the pandemic, our revenues grew 10 percent on a quarterly sequential basis, as client demand and engagement improved throughout the quarter,” stated Ted A. Fernandez, Chairman & CEO of The Hackett Group, Inc. “We expect this momentum to continue into the fourth quarter which should allow us to continue to improve our results in the near term and emerge financially and strategically stronger as and when the pandemic subsides.”

Although economic uncertainty from the COVID-19 pandemic continues to be high, the Company’s current estimates suggest that net revenue for the fourth quarter of 2020 will be in the range of $55.0 million to $58.0 million. The Company estimates pro forma diluted earnings per share for the fourth quarter of 2020 to be in the range of $0.20 and $0.22.

Other Highlights

2020 Disrupted Marketing Campaign – In second quarter and early third quarter, The Hackett Group executed its most extensive integrated marketing effort ever. At the core of the effort was the "2020 Disrupted" campaign, with research that focused on five essential digital transformation action areas: cash, cost, people, technology and supply chain. In early third quarter, the focus of the marketing offers focused on planning for the "next normal," as most companies quickly discovered that their forecasts and plans for the coming quarters were completely outdated and faced the challenge of developing multiple possible scenarios for what the recovery might look like for their company and industry.

Digital World-Class Research – The Hackett Group issued world-class research for finance, procurement, human resources, and information technology Each research piece contains more than 50 metrics detailing how executives are shattering outdated operating models to usher in innovative ways to deliver new levels of agile business services, including The Hackett Group’s new projections of how companies can achieve digital world-class performance levels, further enhancing efficiency, effectiveness, and customer experience.

2021 Key Issues Study Launch – The Hackett Group launched its 2021 CXO Agenda studies for finance, procurement, supply chain, human resources, information technology. The studies, which will result in research that will be issued in early 2021, will enable participants to gain insights into: key challenges and opportunities in 2021; how prepared a company’s function is to meet these unique challenges; what initiatives are on the 2021 transformation agenda, and how they compare to other organizations; projected changes in staffing levels and operating budgets by function; and broader business trends and strategic enterprise priorities.

Working Capital Update – The Hackett Group released a first-ever mid-year update to its annual Working Capital Survey. The results, which look at working capital performance at 849 of the largest non-financial U.S. companies, detailed the reduction in revenue and increase in both debt and cash-on-hand for companies, as well as the deterioration of working capital performance, including a 7% increase in Days Sales Outstanding, a 15% increase in Days Inventory Outstanding and a 10% increase in Days Payables Outstanding.

On Monday, November 2, 2020, senior management will discuss third quarter results in a conference call at 5:00 P.M. ET. The number for the conference call is (800) 593-0486, [Passcode: Third Quarter]. For International callers, please dial (517) 308-9371. Please dial in at least 5-10 minutes prior to start time. If you are unable to participate on the conference call, a rebroadcast will be available beginning at 8:00 P.M. ET on Monday, November 2, 2020 and will run through 5:00 P.M. ET on Monday, November 16, 2020. To access the rebroadcast, please dial (800) 925-1779. For International callers, please dial (402) 220-3079.

In addition, The Hackett Group will also be webcasting this conference call live through the StreetEvents.com service. To participate, simply visit http://www.thehackettgroup.com approximately 10 minutes prior to the start of the call and click on the conference call link provided. An online replay of the call will be available after 8:00 P.M. ET on Monday, November 2, 2020 and will run through 5:00 P.M. ET on Monday, November 16, 2020. To access the replay, visit www.thehackettgroup.com or http://www.streetevents.com.

About The Hackett Group

The Hackett Group (NASDAQ: HCKT) is an intellectual property-based strategic consultancy and leading enterprise benchmarking and best practices digital transformation firm to global companies, with offerings that include cloud ERP, EPM and analytics implementation. Services include business transformation, enterprise analytics and global business services. The Hackett Group also provides dedicated expertise in business strategy, operations, finance, human capital management, strategic sourcing, procurement and information technology, including its distinguished Oracle, SAP, Coupa and OneStream practices.

The Hackett Group has completed nearly 18,000 benchmarking studies with major corporations and government agencies, including 93% of the Dow Jones Industrials, 90% of the Fortune 100, 83% of the DAX 30 and 57% of the FTSE 100. These studies drive Hackett’s Digital Transformation Platform which includes the firm's benchmarking metrics, best practices repository and best practice configuration guides and process flows, which enable The Hackett Group’s clients and partners to achieve digital world-class performance.

More information on The Hackett Group is available at: www.thehackettgroup.com, info@thehackettgroup.com, or by calling (770) 225-3600.

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and involve known and unknown risks, uncertainties and other factors that may cause The Hackett Group's actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. Factors that impact such forward-looking statements include, among others, the impact of the coronavirus pandemic, including the duration and severity of the pandemic, the economic impact of the pandemic and the timing of an economic recovery, our ability to manage our business and capital resources through the pandemic, the ability of our products, services, or offerings mentioned in this release to deliver the desired effect, our ability to retain existing business, our ability to attract additional business, our ability to effectively market and sell our product offerings and other services, including those referenced above, the timing of projects and the potential for contract cancellations by our customers, especially given that our clients are also impacted by the coronavirus pandemic, changes in expectations regarding the business consulting and information technology industries, our ability to attract and retain skilled employees, possible changes in collections of accounts receivable due to the bankruptcy or financial difficulties of our customers, risks of competition, price and margin trends, foreign currency fluctuations, the impact of Brexit on our business, changes in general economic conditions and interest rates, our ability to mitigate the impact of the recent decline in our European operations, our ability to obtain debt financing through additional borrowings under our existing credit facility as well as other risks detailed in our Annual Report on Form 10-K for the most recent fiscal year and our Quarterly Report on Form 10-Q for the second fiscal quarter of fiscal 2020, each as filed with the Securities and Exchange Commission. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

The Hackett Group, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
		Quarter Ended						Nine Months Ended
		September 25,			September 27,			September 25,			September 27,
		2020			2019			2020			2019
Revenue:
Revenue before reimbursements ("net revenue")		$	57,769		$	66,755		$	175,587		$	197,101
Reimbursements			148			5,935			4,614			16,265
TOTAL REVENUE FROM CONTINUING OPERATIONS			57,917			72,690			180,201			213,366
Costs and expenses:
Cost of service:
Personnel costs before reimbursable expenses			37,791			41,026			117,558			120,780
Non-cash stock compensation expense			1,508			833			4,449			2,775
Acquisition-related compensation expense (benefit)			10			157			39			(131)
Acquisition-related non-cash stock compensation expense			243			322			755			690
Reimbursable expenses			148			5,935			4,614			16,265
TOTAL COST OF SERVICE			39,700			48,273			127,415			140,379
Selling, general and administrative costs			12,732			14,117			38,042			43,318
Non-cash stock compensation expense			711			776			1,830			2,268
Amortization of intangible assets			247			236			723			789
Acquisition-related contingent consideration liability			-			(108)			-			(1,133)
Restructuring costs			-			-			5,034		-
TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			13,690			15,021			45,629			45,242
TOTAL COSTS AND OPERATING EXPENSES			53,390			63,294			173,044			185,621
INCOME FROM OPERATIONS			4,527			9,396			7,157			27,745
Other expense:
Interest expense			(22)			(62)			(100)			(268)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES			4,505			9,334			7,057			27,477
Income tax expense			1,362			2,427			2,312			6,481
INCOME FROM CONTINUING OPERATIONS			3,143			6,907			4,745			20,996
(Loss) income from discontinued operations (2)			(157)			2			(165)			(4)
NET INCOME		$	2,986		$	6,909		$	4,580		$	20,992
Weighted average common shares outstanding:
Basic			30,053			29,876			29,986			29,794
Diluted			32,403			32,571			32,335			32,413
Basic net income per common share:
Income per common share from continuing operations		$	0.11		$	0.23		$	0.16		$	0.70
(Loss) income per common share from discontinued operations (2)			(0.01)			0.00			(0.01)			(0.00)
Net income per common share		$	0.10		$	0.23		$	0.15		$	0.70
Diluted net income per common share:
Income per common share from continuing operations		$	0.10		$	0.21		$	0.15		$	0.65
(Loss) income per common share from discontinued operations (2)			(0.01)			0.00			(0.01)			(0.00)
Net income per common share		$	0.09		$	0.21		$	0.14		$	0.65
PRO FORMA DATA (1):
Income from continuing operations before income taxes		$	4,505		$	9,334		$	7,057		$	27,477
Non-cash stock compensation expense			2,219			1,609			6,279			5,043
Acquisition-related compensation expense (benefit)			10			157			39			(131)
Acquisition-related non-cash stock compensation expense			243			322			755			690
Acquisition-related contingent consideration liability			-			(108)			-			(1,133)
Acquisition-related costs			-			32			-			32
Restructuring costs			-			-			5,034			-
Amortization of intangible assets			247			236			723			789
PRO FORMA INCOME BEFORE INCOME TAXES			7,224			11,582			19,887			32,767
Pro forma income tax expense			1,806			2,896			4,972			8,192
PRO FORMA NET INCOME		$	5,418		$	8,687		$	14,915		$	24,575
Pro forma basic net income per common share		$	0.18		$	0.29		$	0.50		$	0.82
Weighted average common shares outstanding			30,053			29,876			29,986			29,794
Pro forma diluted net income per common share		$	0.17		$	0.27		$	0.46		$	0.76
Weighted average common and common equivalent shares outstanding			32,403			32,571			32,335			32,413
(1) The Company provides pro forma earnings results (which exclude the amortization of intangible assets, non-cash stock compensation expense, acquisition-related one-time expense (benefit), and include a normalized tax rate, which is our long-term projected cash tax rate) as a complement to results provided in accordance with Generally Accepted Accounting Principles (GAAP). These non-GAAP results are provided to enhance the overall users' understanding of the Company's current financial performance and its prospects for the future. The Company believes the non-GAAP results provide useful information to both management and investors and by excluding certain expenses that it believes are not indicative of its core operating results. The non-GAAP measures are included to provide investors and management with an alternative method for assessing operating results in a manner that is focused on the performance of ongoing operations and to provide a more consistent basis for comparison between quarters. Further, these non-GAAP results are one of the primary indicators management uses for planning and forecasting in future periods. In addition, since the Company has historically reported non-GAAP results to the investment community, it believes the continued inclusion of non-GAAP results provides consistency in its financial reporting. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
(2) Discontinued operations relate to the discontinuance of the Company's European Working Capital group.

The Hackett Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
			September 25,			December 27,
			2020			2019
	ASSETS
	Current assets:
	Cash and cash equivalents		$	43,167		$	25,954
	Accounts receivable and contract assets, net			36,221			49,778
	Prepaid expenses and other current assets			3,350			2,895
	Total current assets			82,738			78,627
	Property and equipment, net			18,981			19,916
	Other assets			1,847			2,652
	Goodwill			84,288			84,578
	Operating lease right-of-use assets			8,273			7,962
	Total assets		$	196,127		$	193,735
	LIABILITIES AND SHAREHOLDERS' EQUITY
	Current liabilities:
	Accounts payable		$	5,045		$	8,494
	Accrued expenses and other liabilities			37,238			32,482
	Operating lease liabilities			2,678			2,707
	Liabilities related to discontinued operations (3)			157			-
	Total current liabilities			45,118			43,683
	Long-term deferred tax liability, net			6,767			7,183
	Operating lease liabilities			5,595			5,255
	Total liabilities			57,480			56,121
	Shareholders' equity			138,647			137,614
	Total liabilities and shareholders' equity		$	196,127		$	193,735
	(3) Discontinued operations relate to the discontinuance of the Company's European Working Capital group.

The Hackett Group, Inc.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
		Quarter Ended
		September 25,			September 27,			June 26,
		2020			2019			2020
Revenue Breakdown by Group:
(in thousands)
S&BT (4)		$	22,217		$	28,221		$	17,752
EEA (5)			29,710			30,134			30,445
International (6)			5,842			8,400			4,435
Net revenue from continuing operations (7)		$	57,769		$	66,755		$	52,632
Revenue Concentration:
(% of total revenue)
Top customer			6%			6%			6%
Top 5 customers			16%			19%			17%
Top 10 customers			26%			27%			27%
Key Metrics and Other Financial Data:
Total Company:
Consultant headcount			923			1,036			908
Total headcount			1,124			1,271			1,110
Days sales outstanding (DSO)			57			72			64
Cash provided by operating activities (in thousands)		$	10,088		$	8,506		$	14,547
Depreciation (in thousands)		$	916		$	884		$	883
Amortization (in thousands)		$	247		$	236		$	238
Remaining Plan authorization:
Shares purchased (in thousands)			75			-			-
Cost of shares repurchased (in thousands)		$	932		$	—		$	—
Average price per share of shares purchased		$	12.41		$	—		$	—
Remaining Plan authorization (in thousands)		$	4,713		$	3,878		$	5,645
Shares Purchased to Satisfy Employee Net Vesting Obligations:
Shares purchased (in thousands)			8			5			2
Cost of shares purchased (in thousands)		$	111		$	88		$	25
Average price per share of shares purchased		$	14.26		$	16.29		$	13.29
(4) Strategy and Business Transformation Group (S&BT) includes the results of our IP as-a-service offerings, which includes our North America Executive Advisory Programs, our Benchmarking Services and our Business Transformation Practices.
(5) ERP, EPM and Analytics Solutions (EEA) includes the results of our North America Oracle EEA, SAP Solutions Practices and One Stream.
(6) International Groups include the results of our S&BT and EEA Practices, primarily in Europe.
(7) Net revenue excludes reimbursable expenses which are primarily travel-related expenses passed through to a client with no associated margin.
(8) Certain reclassifications have been made to conform with current reporting requirements.