UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July 1, 2022March 31, 2023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 333-48123
The Hackett Group, Inc.
(Exact name of registrant as specified in its charter)
Florida | 65-0750100 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
1001 Brickell Bay Drive, Suite 3000 Miami, Florida | 33131 | |
(Address of principal executive offices) | (Zip Code) |
(305) 375-8005
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $.001 per share | HCKT | NASDAQ Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | ☐ | Accelerated Filer | ☒ | ||
Non-Accelerated Filer | ☐ | Smaller Reporting Company | ☐ | ||
Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of AugustMay 5, 2022,2023, there were 31,682,97227,189,331 shares of common stock outstanding.
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Hackett Group, Inc.
TABLE OF CONTENTS
Page | ||
Item 1. | ||
3 | ||
4 | ||
5 | ||
6 | ||
7 | ||
8 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 3. |
| |
Item 4. |
| |
Item 1. |
| |
Item 1A. |
| |
Item 2. |
| |
Item 6. |
| |
|
2
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Hackett Group, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
|
| July 1, |
|
| December 31, |
|
| March 31, |
|
| December 30, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
| ||||||
Current assets: |
|
|
|
|
|
|
|
|
|
| ||||||
Cash |
| $ | 61,680 |
|
| $ | 45,794 |
|
| $ | 16,864 |
|
| $ | 30,255 |
|
Accounts receivable and contract assets, net of allowance of $1,469 and $2,702 at July 1, 2022 and December 31, 2021, respectively |
|
| 49,485 |
|
|
| 50,616 |
| ||||||||
Accounts receivable and contract assets, net of allowance of $930 and $856 at March 31, 2023 and December 30, 2022, respectively |
|
| 51,981 |
|
|
| 48,376 |
| ||||||||
Prepaid expenses and other current assets |
|
| 3,033 |
|
|
| 5,766 |
|
|
| 3,183 |
|
|
| 2,535 |
|
Total current assets |
|
| 114,198 |
|
|
| 102,176 |
|
|
| 72,028 |
|
|
| 81,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Property and equipment, net |
|
| 18,638 |
|
|
| 18,026 |
|
|
| 19,596 |
|
|
| 19,359 |
|
Other assets |
|
| 501 |
|
|
| 620 |
|
|
| 268 |
|
|
| 268 |
|
Goodwill |
|
| 83,512 |
|
|
| 85,070 |
|
|
| 83,840 |
|
|
| 83,502 |
|
Operating lease right-of-use assets |
|
| 1,040 |
|
|
| 1,649 |
|
|
| 1,931 |
|
|
| 698 |
|
Total assets |
| $ | 217,889 |
|
| $ | 207,541 |
|
| $ | 177,663 |
|
| $ | 184,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts payable |
| $ | 5,400 |
|
| $ | 7,677 |
|
| $ | 6,886 |
|
| $ | 8,741 |
|
Accrued expenses and other liabilities |
|
| 30,482 |
|
|
| 30,297 |
|
|
| 16,971 |
|
|
| 30,953 |
|
Contract liabilities (deferred revenue) |
|
| 14,250 |
|
|
| 14,616 |
| ||||||||
Contract liabilities |
|
| 15,584 |
|
|
| 13,278 |
| ||||||||
Income tax payable |
|
| 5,614 |
|
|
| 5,759 |
| ||||||||
Operating lease liabilities |
|
| 1,507 |
|
|
| 2,299 |
|
|
| 1,200 |
|
|
| 870 |
|
Total current liabilities |
|
| 51,639 |
|
|
| 54,889 |
|
|
| 46,255 |
|
|
| 59,601 |
|
Non-current deferred tax liability, net |
|
| 8,401 |
|
|
| 7,325 |
|
|
| 8,914 |
|
|
| 6,877 |
|
Long term debt, net |
|
| 57,658 |
|
|
| 59,653 |
| ||||||||
Operating lease liabilities |
|
| 1,019 |
|
|
| 1,474 |
|
|
| 1,395 |
|
|
| 584 |
|
Total liabilities |
|
| 61,059 |
|
|
| 63,688 |
|
|
| 114,222 |
|
|
| 126,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Shareholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Preferred stock, $0.001 par value, 1,250,000 shares authorized; NaN |
|
| — |
|
|
| — |
| ||||||||
Common stock, $0.001 par value, 125,000,000 shares authorized; 60,065,278 and |
|
| 60 |
|
|
| 60 |
| ||||||||
Preferred stock, $0.001 par value, 1,250,000 shares authorized; none |
|
| — |
|
|
| — |
| ||||||||
Common stock, $0.001 par value, 125,000,000 shares authorized; 60,490,616 and |
|
| 60 |
|
|
| 60 |
| ||||||||
Additional paid-in capital |
|
| 304,164 |
|
|
| 300,288 |
|
|
| 308,458 |
|
|
| 308,325 |
|
Treasury stock, at cost, 28,388,144 and 28,357,145 shares July 1, 2022 |
|
| (157,929 | ) |
|
| (157,294 | ) | ||||||||
Treasury stock, at cost, 33,314,926 and 33,277,459 shares March 31, 2023 and December 30, 2022, respectively |
|
| (274,577 | ) |
|
| (273,866 | ) | ||||||||
Retained earnings |
|
| 25,038 |
|
|
| 11,272 |
|
|
| 43,811 |
|
|
| 38,640 |
|
Accumulated other comprehensive loss |
|
| (14,503 | ) |
|
| (10,473 | ) |
|
| (14,311 | ) |
|
| (14,881 | ) |
Total shareholders' equity |
|
| 156,830 |
|
|
| 143,853 |
|
|
| 63,441 |
|
|
| 58,278 |
|
Total liabilities and shareholders' equity |
| $ | 217,889 |
|
| $ | 207,541 |
|
| $ | 177,663 |
|
| $ | 184,993 |
|
The accompanying notes are an integral part of the consolidated financial statements.
3
The Hackett Group, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
|
| Quarter Ended |
|
| Six Months Ended |
|
| Quarter Ended |
| |||||||||||||||
|
| July 1, |
| July 2, |
| July 1, |
| July 2, |
|
| March 31, |
| April 1, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Revenue before reimbursements |
| $ | 74,768 |
|
| $ | 72,997 |
|
| $ | 149,876 |
|
| $ | 136,407 |
|
| $ | 69,831 |
|
| $ | 75,108 |
|
Reimbursements |
|
| 1,160 |
|
|
| 200 |
|
|
| 1,716 |
|
|
| 276 |
|
|
| 1,398 |
|
|
| 556 |
|
Total revenue |
|
| 75,928 |
|
|
| 73,197 |
|
|
| 151,592 |
|
|
| 136,683 |
|
|
| 71,229 |
|
|
| 75,664 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cost of service: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Personnel costs before reimbursable expenses (includes $1,483 and $3,149 and $1,779 and $3,626 of stock compensation expense in the three and six months ended July 1, 2022 and July 2, 2021, respectively) |
|
| 44,701 |
|
|
| 43,227 |
|
|
| 92,034 |
|
|
| 84,397 |
| ||||||||
Personnel costs before reimbursable expenses (includes $1,526 and $1,666 of non-cash stock based compensation expense in the three months ended March 31, 2023 and April 1, 2022, respectively) |
|
| 43,143 |
|
|
| 47,333 |
| ||||||||||||||||
Reimbursable expenses |
|
| 1,160 |
|
|
| 200 |
|
|
| 1,716 |
|
|
| 276 |
|
|
| 1,398 |
|
|
| 556 |
|
Total cost of service |
|
| 45,861 |
|
|
| 43,427 |
|
|
| 93,750 |
|
|
| 84,673 |
|
|
| 44,541 |
|
|
| 47,889 |
|
Selling, general and administrative costs (includes $1,235 and $2,168 and $874 and $1,614 of stock compensation expense in the three and six months ended July 1, 2022 and July 2, 2021, respectively) |
|
| 15,886 |
|
|
| 15,553 |
|
|
| 30,252 |
|
|
| 28,940 |
| ||||||||
Selling, general and administrative costs (includes $921 and $933 of non-cash stock based compensation expense in the three months ended March 31, 2023 and April 1, 2022, respectively) |
|
| 15,436 |
|
|
| 14,366 |
| ||||||||||||||||
Total costs and operating expenses |
|
| 61,747 |
|
|
| 58,980 |
|
|
| 124,002 |
|
|
| 113,613 |
|
|
| 59,977 |
|
|
| 62,255 |
|
Income from operations |
|
| 14,181 |
|
|
| 14,217 |
|
|
| 27,590 |
|
|
| 23,070 |
|
|
| 11,252 |
|
|
| 13,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Interest expense |
|
| (28 | ) |
|
| (25 | ) |
|
| (56 | ) |
|
| (50 | ) | ||||||||
Other expense, net: |
|
|
|
|
|
| ||||||||||||||||||
Interest expense, net |
|
| (859 | ) |
|
| (28 | ) | ||||||||||||||||
Income from operations before income taxes |
|
| 14,153 |
|
|
| 14,192 |
|
|
| 27,534 |
|
|
| 23,020 |
|
|
| 10,393 |
|
|
| 13,381 |
|
Income tax expense |
|
| 3,938 |
|
|
| 3,660 |
|
|
| 6,814 |
|
|
| 6,120 |
|
|
| 2,232 |
|
|
| 2,876 |
|
Income from continuing operations |
|
| 10,215 |
|
|
| 10,532 |
|
|
| 20,720 |
|
|
| 16,900 |
| ||||||||
Loss from discontinued operations |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7 | ) | ||||||||
Net income |
| $ | 10,215 |
|
| $ | 10,532 |
|
| $ | 20,720 |
|
| $ | 16,893 |
|
| $ | 8,161 |
|
| $ | 10,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income per common share from continuing operations |
| $ | 0.32 |
|
| $ | 0.35 |
|
| $ | 0.66 |
|
| $ | 0.56 |
| ||||||||
Loss per common share from discontinued operations |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (0.00 | ) | ||||||||
Net income per common share |
| $ | 0.32 |
|
| $ | 0.35 |
|
| $ | 0.66 |
|
| $ | 0.56 |
| ||||||||
Income per common share from operations |
| $ | 0.30 |
|
| $ | 0.33 |
| ||||||||||||||||
Weighted average common shares outstanding |
|
| 27,026 |
|
|
| 31,449 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Diluted net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income per common share from continuing operations |
| $ | 0.32 |
|
| $ | 0.32 |
|
| $ | 0.65 |
|
| $ | 0.51 |
| ||||||||
Loss per common share from discontinued operations |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (0.00 | ) | ||||||||
Net income per common share |
| $ | 0.32 |
|
| $ | 0.32 |
|
| $ | 0.65 |
|
| $ | 0.51 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Basic |
|
| 31,652 |
|
|
| 30,094 |
|
|
| 31,551 |
|
|
| 30,151 |
| ||||||||
Diluted |
|
| 32,221 |
|
|
| 32,970 |
|
|
| 32,032 |
|
|
| 32,870 |
| ||||||||
Income per common share from operations |
| $ | 0.30 |
|
| $ | 0.33 |
| ||||||||||||||||
Weighted average common and common equivalent shares outstanding |
|
| 27,269 |
|
|
| 31,844 |
|
The accompanying notes are an integral part of the consolidated financial statements.
4
The Hackett Group, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
|
| Quarter Ended |
|
| Six Months Ended |
|
| Quarter Ended |
| |||||||||||||||
|
| July 1, |
| July 2, |
| July 1, |
| July 2, |
|
| March 31, |
| April 1, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||||
Net income |
| $ | 10,215 |
|
| $ | 10,532 |
|
| $ | 20,720 |
|
| $ | 16,893 |
|
| $ | 8,161 |
|
| $ | 10,505 |
|
Foreign currency translation adjustment |
|
| (2,896 | ) |
|
| (132 | ) |
|
| (4,030 | ) |
|
| 137 |
|
|
| 570 |
|
|
| (1,134 | ) |
Total comprehensive income |
| $ | 7,319 |
|
| $ | 10,400 |
|
| $ | 16,690 |
|
| $ | 17,030 |
|
| $ | 8,731 |
|
| $ | 9,371 |
|
The accompanying notes are an integral part of the consolidated financial statements.
5
The Hackett Group, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
| Six Months Ended |
|
| Quarter Ended |
| ||||||||||
|
| July 1, |
| July 2, |
|
| March 31, |
| April 1, |
| ||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 20,720 |
|
| $ | 16,893 |
|
| $ | 8,161 |
|
| $ | 10,505 |
|
Plus loss from discontinued operations |
|
| — |
|
|
| (7 | ) | ||||||||
Net income from continuing operations |
|
| 20,720 |
|
|
| 16,900 |
| ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
| ||||||||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
|
|
|
|
|
| ||||||||||
Depreciation expense |
|
| 1,630 |
|
|
| 1,723 |
|
|
| 830 |
|
|
| 802 |
|
Amortization expense |
|
| 154 |
|
|
| 524 |
|
|
| — |
|
|
| 144 |
|
Amortization of debt issuance costs |
|
| 28 |
|
|
| 22 |
|
|
| 18 |
|
|
| 14 |
|
Non-cash stock compensation expense |
|
| 5,317 |
|
|
| 5,240 |
| ||||||||
Non-cash stock based compensation expense |
|
| 2,447 |
|
|
| 2,599 |
| ||||||||
Provision for doubtful accounts |
|
| 204 |
|
|
| 38 |
|
|
| 16 |
|
|
| (23 | ) |
(Gain) loss on foreign currency translation |
|
| (968 | ) |
|
| 88 |
| ||||||||
Loss (gain) on foreign currency translation |
|
| 237 |
|
|
| (298 | ) | ||||||||
Deferred income tax expense |
|
| 1,064 |
|
|
| 690 |
|
|
| 1,961 |
|
|
| 1,643 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Decrease (increase) in accounts receivable and contract assets |
|
| 1,079 |
|
|
| (14,554 | ) | ||||||||
Decrease in prepaid expenses and other assets |
|
| 3,369 |
|
|
| 528 |
| ||||||||
Decrease in accounts payable |
|
| (2,277 | ) |
|
| (1,383 | ) | ||||||||
(Decrease) increase in accrued expenses and other liabilities |
|
| (7,613 | ) |
|
| 2,146 |
| ||||||||
(Decrease) increase in contract liabilities |
|
| (366 | ) |
|
| 5,119 |
| ||||||||
Increase in income tax payable |
|
| 1,948 |
|
|
| 2,577 |
| ||||||||
Net cash provided by operating activities |
|
| 24,289 |
|
|
| 19,651 |
| ||||||||
(Increase) decrease in accounts receivable and contract assets |
|
| (3,676 | ) |
|
| 177 |
| ||||||||
(Increase) decrease in prepaid expenses and other assets |
|
| (1,799 | ) |
|
| 640 |
| ||||||||
(Decrease) increase in accounts payable |
|
| (1,855 | ) |
|
| 363 |
| ||||||||
(Decrease) in accrued expenses and other liabilities |
|
| (11,563 | ) |
|
| (11,760 | ) | ||||||||
Increase in contract liabilities |
|
| 2,306 |
|
|
| 1,248 |
| ||||||||
Decrease in income tax payable |
|
| (146 | ) |
|
| — |
| ||||||||
Net cash (used in) provided by operating activities |
|
| (3,063 | ) |
|
| 6,054 |
| ||||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Purchases of property and equipment |
|
| (2,267 | ) |
|
| (1,417 | ) |
|
| (1,063 | ) |
|
| (993 | ) |
Net cash used in investing activities |
|
| (2,267 | ) |
|
| (1,417 | ) |
|
| (1,063 | ) |
|
| (993 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Debt issuance costs |
|
| (10 | ) |
|
| — |
|
|
| (13 | ) |
|
| (10 | ) |
Proceeds from ESPP |
|
| 407 |
|
|
| 391 |
| ||||||||
Proceeds from exercise of stock options |
|
| 120 |
|
|
| — |
| ||||||||
Proceeds from borrowings |
|
| 5,000 |
|
|
| — |
| ||||||||
Repayment of borrowings |
|
| (7,000 | ) |
|
| — |
| ||||||||
Dividends paid |
|
| (3,475 | ) |
|
| (3,253 | ) |
|
| (2,997 | ) |
|
| — |
|
Repurchase of common stock |
|
| (3,142 | ) |
|
| (12,357 | ) |
|
| (4,237 | ) |
|
| (3,066 | ) |
Net cash used in financing activities |
|
| (6,100 | ) |
|
| (15,219 | ) |
|
| (9,247 | ) |
|
| (3,076 | ) |
Effect of exchange rate on cash |
|
| (36 | ) |
|
| (17 | ) |
|
| (18 | ) |
|
| (27 | ) |
Net increase in cash and cash equivalents |
|
| 15,886 |
|
|
| 2,998 |
| ||||||||
Net (decrease) increase in cash and cash equivalents |
|
| (13,391 | ) |
|
| 1,958 |
| ||||||||
Cash at beginning of period |
|
| 45,794 |
|
|
| 49,455 |
|
|
| 30,255 |
|
|
| 45,794 |
|
Cash at end of period |
| $ | 61,680 |
|
| $ | 52,453 |
|
| $ | 16,864 |
|
| $ | 47,752 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash (refunded) paid for income taxes |
| $ | (34 | ) |
| $ | 2,710 |
| ||||||||
Cash paid for income taxes |
| $ | 330 |
|
| $ | 1 |
| ||||||||
Cash paid for interest |
| $ | 28 |
|
| $ | 14 |
|
| $ | 861 |
|
| $ | - |
|
Supplemental disclosure of non-cash flow investing and financing activities: |
|
|
|
|
|
| ||||||||||
Dividend declared during the quarter and paid the following quarter |
| $ | 2,990 |
|
| $ | 3,474 |
|
The accompanying notes are an integral part of the consolidated financial statements.
6
The Hackett Group, Inc.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| ||||||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
|
| Other |
|
| Total |
| ||||||||
|
| Common Stock |
|
| Paid in |
|
| Treasury Stock |
|
| Retained |
|
| Comprehensive |
|
| Shareholders' |
| ||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Shares |
|
| Amount |
|
| Earnings |
|
| Loss |
|
| Equity |
| ||||||||
Balance at December 31, 2021 |
|
| 59,631 |
|
| $ | 60 |
|
| $ | 300,288 |
|
|
| (28,358 | ) |
| $ | (157,294 | ) |
| $ | 11,272 |
|
| $ | (10,473 | ) |
| $ | 143,853 |
|
Issuance of common stock |
|
| 373 |
|
|
| — |
|
|
| (2,432 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,432 | ) |
Treasury stock purchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (31 | ) |
|
| (635 | ) |
|
| — |
|
|
| — |
|
|
| (635 | ) |
Amortization of restricted stock |
|
| — |
|
|
| — |
|
|
| 3,632 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,632 |
|
Dividends declared |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,474 | ) |
|
| — |
|
|
| (3,474 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,505 |
|
|
| — |
|
|
| 10,505 |
|
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,134 | ) |
|
| (1,134 | ) |
Balance at April 1, 2022 |
|
| 60,004 |
|
| $ | 60 |
|
| $ | 301,488 |
|
|
| (28,389 | ) |
| $ | (157,929 | ) |
| $ | 18,303 |
|
| $ | (11,607 | ) |
| $ | 150,315 |
|
Issuance of common stock |
|
| 61 |
|
|
| — |
|
|
| 452 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 452 |
|
Treasury stock purchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Amortization of restricted stock |
|
| — |
|
|
| — |
|
|
| 2,224 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,224 |
|
Dividends declared |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,480 | ) |
|
| — |
|
|
| (3,480 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,215 |
|
|
| — |
|
|
| 10,215 |
|
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,896 | ) |
|
| (2,896 | ) |
Balance at July 1, 2022 |
|
| 60,065 |
|
| $ | 60 |
|
| $ | 304,164 |
|
|
| (28,389 | ) |
| $ | (157,929 | ) |
| $ | 25,038 |
|
| $ | (14,503 | ) |
| $ | 156,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
|
| Other |
|
| Total |
| ||||||||
|
| Common Stock |
|
| Paid in |
|
| Treasury Stock |
|
| Accumulated |
|
| Comprehensive |
|
| Shareholders' |
| ||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Shares |
|
| Amount |
|
| Deficit |
|
| Loss |
|
| Equity |
| ||||||||
Balance at January 1, 2021 |
|
| 57,693 |
|
| $ | 58 |
|
| $ | 312,039 |
|
|
| (27,609 | ) |
| $ | (144,254 | ) |
| $ | (17,388 | ) |
| $ | (9,568 | ) |
| $ | 140,887 |
|
Issuance of common stock |
|
| 294 |
|
|
| — |
|
|
| (1,605 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,605 | ) |
Treasury stock purchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (136 | ) |
|
| (2,110 | ) |
|
| — |
|
|
| — |
|
|
| (2,110 | ) |
Amortization of restricted stock |
|
| — |
|
|
| — |
|
|
| 2,633 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,633 |
|
Dividends declared |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,254 | ) |
|
| — |
|
|
| (3,254 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,361 |
|
|
| — |
|
|
| 6,361 |
|
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 269 |
|
|
| 269 |
|
Balance at April 2, 2021 |
|
| 57,987 |
|
| $ | 58 |
|
| $ | 313,067 |
|
|
| (27,745 | ) |
| $ | (146,364 | ) |
| $ | (14,281 | ) |
| $ | (9,299 | ) |
| $ | 143,181 |
|
Issuance of common stock |
|
| 73 |
|
|
| — |
|
|
| 354 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 354 |
|
Treasury stock purchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (489 | ) |
|
| (8,603 | ) |
|
| — |
|
|
| — |
|
|
| (8,603 | ) |
Amortization of restricted stock |
|
| — |
|
|
| — |
|
|
| 2,258 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,258 |
|
Dividends declared |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,227 | ) |
|
| — |
|
|
| (3,227 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,532 |
|
|
| — |
|
|
| 10,532 |
|
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (132 | ) |
|
| (132 | ) |
Balance at July 2, 2021 |
|
| 58,060 |
|
| $ | 58 |
|
| $ | 315,679 |
|
|
| (28,234 | ) |
| $ | (154,967 | ) |
| $ | (6,976 | ) |
| $ | (9,431 | ) |
| $ | 144,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| ||||||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
|
| Other |
|
| Total |
| ||||||||
|
| Common Stock |
|
| Paid in |
|
| Treasury Stock |
|
| Retained |
|
| Comprehensive |
|
| Shareholders' |
| ||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Shares |
|
| Amount |
|
| Earnings |
|
| Loss |
|
| Equity |
| ||||||||
Balance at December 30, 2022 |
|
| 60,148 |
|
| $ | 60 |
|
| $ | 308,325 |
|
|
| (33,277 | ) |
| $ | (273,866 | ) |
| $ | 38,640 |
|
| $ | (14,881 | ) |
| $ | 58,278 |
|
Issuance of common stock |
|
| 343 |
|
|
| — |
|
|
| (3,529 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,529 | ) |
Treasury stock purchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (37 | ) |
|
| (711 | ) |
|
| — |
|
|
| — |
|
|
| (711 | ) |
Amortization of restricted stock |
|
| — |
|
|
| — |
|
|
| 3,662 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,662 |
|
Dividends declared |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,990 | ) |
|
| — |
|
|
| (2,990 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,161 |
|
|
| — |
|
|
| 8,161 |
|
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 570 |
|
|
| 570 |
|
Balance at March 31, 2023 |
|
| 60,491 |
|
| $ | 60 |
|
| $ | 308,458 |
|
|
| (33,314 | ) |
| $ | (274,577 | ) |
| $ | 43,811 |
|
| $ | (14,311 | ) |
| $ | 63,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| ||||||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
|
| Other |
|
| Total |
| ||||||||
|
| Common Stock |
|
| Paid in |
|
| Treasury Stock |
|
| Retained |
|
| Comprehensive |
|
| Shareholders' |
| ||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Shares |
|
| Amount |
|
| Earnings |
|
| Loss |
|
| Equity |
| ||||||||
Balance at December 31, 2021 |
|
| 59,631 |
|
| $ | 60 |
|
| $ | 300,288 |
|
|
| (28,358 | ) |
| $ | (157,294 | ) |
| $ | 11,272 |
|
| $ | (10,473 | ) |
| $ | 143,853 |
|
Issuance of common stock |
|
| 373 |
|
|
| — |
|
|
| (2,432 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,432 | ) |
Treasury stock purchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (31 | ) |
|
| (635 | ) |
|
| — |
|
|
| — |
|
|
| (635 | ) |
Amortization of restricted stock |
|
| — |
|
|
| — |
|
|
| 3,632 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,632 |
|
Dividends declared |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,474 | ) |
|
| — |
|
|
| (3,474 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,505 |
|
|
| — |
|
|
| 10,505 |
|
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,134 | ) |
|
| (1,134 | ) |
Balance at April 1, 2022 |
|
| 60,004 |
|
| $ | 60 |
|
| $ | 301,488 |
|
|
| (28,389 | ) |
| $ | (157,929 | ) |
| $ | 18,303 |
|
| $ | (11,607 | ) |
| $ | 150,315 |
|
The accompanying notes are an integral part of the consolidated financial statements.
7
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation and General Information
Basis of Presentation
The accompanying consolidated financial statements of The Hackett Group, Inc. (“Hackett” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the Company’s accounts and those of its wholly-owned subsidiaries which the Company is required to consolidate. All intercompany transactions and balances have been eliminated in consolidation.
In the opinion of management, the accompanying consolidated financial statements reflect all normal and recurring adjustments which are necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows as of the dates and for the periods presented. The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these statements do not include all the disclosures normally required by U.S. GAAP for annual financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2021,30, 2022, included in the Annual Report on Form 10-K filed by the Company with the SEC on March 4, 2022.3, 2023. The consolidated results of operations for the quarter and six months ended July 1, 2022,March 31, 2023, are not necessarily indicative of the results to be expected for any future period or for the full fiscal year.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Segment Reporting
Segments are defined as components of a company that engage in business activities from which they may earn revenues and incur expenses, and for which separate financial information is available and is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company assesses its operating segments under the management approach in accordance with ASC 280, Segment Reporting (ASC 280), and has determined that it has three operating segments: Global S&BT, Oracle Solutions and SAP Solutions which are also its reportable segments. See Note 11 “Segment Information and Geographic Data” for detailed segment information.
Goodwill and Other Intangible Assets
For acquisitions accounted for as a business combination, goodwill represents the excess of the cost over the fair value of the net assets acquired. The Company has organized its operating and internal reporting structure to better align with its primary market solutions. In accordance with ASC 280, management made the determination to present three operating segments, three reportable segments and three reporting units as follows: (1) Global S&BT, (2) Oracle Solutions, and (3) SAP Solutions. Global S&BT includes the results of the Company’s strategic business consulting practices; Oracle Solutions includes the results of the Company’s Oracle EPM/ERP and Digital AMS practices; SAP Solutions includes the Company’s SAP applications and related SAP service offerings. A reporting unit is an operating segment or one level below an operating segment to which goodwill is assigned. The goodwill has been allocated to the reporting unit based on the reporting unit's relative fair value. The carrying amount of goodwill by reporting unit is as follows (in thousands):
|
|
|
|
| Foreign |
|
|
|
| |||||||
|
| December 30, |
|
| Additions/ |
|
| Currency |
|
| March 31, |
| ||||
|
| 2022 |
|
| Adjustments |
|
| Translation |
|
| 2023 |
| ||||
Global S&BT |
| $ | 56,810 |
|
| $ | - |
|
| $ | 338 |
|
| $ | 57,148 |
|
Oracle Solutions |
|
| 16,699 |
|
|
| — |
|
|
| — |
|
|
| 16,699 |
|
SAP Solutions |
|
| 9,993 |
|
|
| — |
|
|
| — |
|
|
| 9,993 |
|
Goodwill |
| $ | 83,502 |
|
| $ | - |
|
| $ | 338 |
|
| $ | 83,840 |
|
8
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation and General Information (continued)
Revenue Recognition
The Company generates substantially all of its revenue from providing professional services to its clients. The Company also generates revenue from software licenses, software support and maintenance and subscriptions to its executive and best practices advisory programs. A single contract could include one or multiple performance obligations. For those contracts that have multiple performance obligations, the Company allocates the total transaction price to each performance obligation based on its relative standalone selling price. The Company determines the standalone selling price based on the respective selling price of the individual elements when sold separately.
Revenue is recognized when control of the goods and services provided are transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those goods and services using the following steps: 1) identify the contract, 2) identify the performance obligations, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue as or when the Company satisfies the performance obligations.
The Company typically satisfies its performance obligations for professional services over time as the related services are provided. The performance obligations related to software support, maintenance and subscriptions to its executive and best practice advisory programs are typically satisfied evenly over the course of the service period. Other performance obligations, such as software licenses, are satisfied at a point in time.
The Company generates revenue under four types of billing arrangements: fixed-fee (including software license revenue); time-and-materials; executive and best practice advisory services; and software sales and software maintenance and support.
In fixed-fee billing arrangements, which would also include contracts with capped fees, the Company agrees to a pre-established fee or fee cap in exchange for a predetermined set of professional services. The Company sets the fees based on its estimates of the costs and timing for completing the engagements. The Company generally recognizes revenue under fixed-fee or capped fee arrangements using a proportionate performance approach, which is based on work completed to-date as compared to estimates of the total services to be provided under the engagement. Estimates of total engagement revenue and cost of services are monitored regularly during the term of the engagement. If the Company’s estimates indicate a potential loss, such loss is recognized in the period in which the loss first becomes probable and reasonably estimable. The customer is invoiced based on the contractual agreement between the parties, typically bi-weekly, monthly or milestone driven, with net thirty-day terms, however client terms are subject to change.
8
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation and General Information (continued)
Time-and-material billing arrangements require the client to pay based on the number of hours worked by the Company’s consultants at agreed upon hourly rates. The Company recognizes revenue under time-and-material arrangements as the related services or goods are provided, using the right to invoice practical expedient which allows it to recognize revenue in the amount based on the number of hours worked and the agreed upon hourly rates. The customer is invoiced based on the contractual agreement between the parties, typically bi-weekly, monthly or milestone driven, with net thirty-day terms, however client terms are subject to change.
Advisory services contracts are typically in the form of a subscription agreement which allows the customer access to the Company’s executive and best practice advisory programs. There is typically a single performance obligation and the transaction price is the contractual amount of the subscription agreement. Revenue from advisory services contracts is recognized ratably over the life of the agreements. Customers are typically invoiced at the inception of the contract, with net thirty-day terms, however client terms are subject to change.
The resale of software and maintenance contracts are in the form of SAP America software license or maintenance agreements provided by SAP America. SAP is the principal and the Company is the agent in these transactions as the Company does not obtain title to the software and maintenance which is sold simultaneously. The transaction price is the Company’s agreed-upon percentage of the software license or maintenance amount in the contract with the vendor. Revenue for the resale of software licenses is recognized upon contract execution and customer’s receipt of the software. The Company also provides software maintenance on other ERP systems, primarily Oracle. Revenue from maintenance contracts is recognized ratably over the life of the agreements. The customer is typically invoiced at contract inception, with net thirty-day terms, however client terms are subject to change.
Revenue before reimbursements excludes reimbursable expenses charged to clients. Reimbursements, which include travel and out-of-pocket expenses, are included in revenue, and an equivalent amount of reimbursable expenses is included in cost of service.
Expense reimbursements that are billable to clients are included in total revenue and are substantially all billed as time-and-material billing arrangements. Therefore, the Company recognizes all reimbursable expenses as revenue as the related services are provided, using the right to invoice practical expedient. Reimbursable expenses are recognized as expenses in the period in which the expense is incurred. Any expense reimbursements that are billable to clients under fixed-fee billing arrangements are recognized in line with the proportionate performance approach.
9
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation and General Information (continued)
The payment terms and conditions in the Company’s customer contracts vary. The agreements entered into in connection with a project, whether time and materials-based or fixed-fee or capped-fee based, typically allow clients to terminate early due to breach or for convenience with 30 days’ notice. In the event of termination, the client is contractually required to pay for all time, materials and expenses incurred by the Company through the effective date of the termination. In addition, from time to time the Company enters into agreements with its clients that limit its right to enter into business relationships with specific competitors of that client for a specific time period. These provisions typically prohibit the Company from performing a defined range of services which it might otherwise be willing to perform for potential clients. These provisions are generally limited to six to twelve months and usually apply only to specific employees or the specific project team.
Differences between the timing of billings and the recognition of revenue are recognized as either contract assets or contract liabilities in the accompanying consolidated balance sheets. Revenue recognized for services performed but not yet billed to clients are recorded as contract assets. Revenue recognized, but for which are not yet entitled to bill because certain events, such as the completion of the measurement period, are recorded as contract assets and included within accounts receivable and contract assets. Client prepayments are classified as contract liabilities and recognized over future periods as earned in accordance with the applicable engagement agreement. See Note 3 for the accounts receivable and contract asset balances. During the quarter and sixthree months ended July 1, 2022,March 31, 2023, the Company recognized $3.47.7 million and $10.3 million, respectively, of revenue as a result of changes in the contract liability balance, as compared to $2.0 million and $6.06.9 million for the quarter and sixthree months ended July 2, 2021, respectively.April 1, 2022.
The following table reflectsBased on the Company’s disaggregationinformation that management reviews internally for evaluating operating segment performance and nature, amount, timing, and uncertainty of revenue and cash flows affected by economic factors, the Company disaggregates revenue as follows for the three months ended March 31, 2023 and April 1, 2022 (in thousands):
|
| Quarter Ended |
| |||||
|
| March 31, |
|
| April 1, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Global S&BT: |
|
|
|
|
|
| ||
North America Consulting |
| $ | 36,166 |
|
| $ | 35,084 |
|
International Consulting |
|
| 6,169 |
|
|
| 7,553 |
|
Total Global S&BT |
| $ | 42,335 |
|
| $ | 42,637 |
|
Oracle Solutions: |
|
|
|
|
|
| ||
Consulting and software support and maintenance |
| $ | 17,168 |
|
| $ | 21,512 |
|
Total Oracle Solutions |
| $ | 17,168 |
|
| $ | 21,512 |
|
SAP Solutions: |
|
|
|
|
|
| ||
Consulting and software support and maintenance |
| $ | 10,712 |
|
| $ | 10,349 |
|
Software license sales |
|
| 1,014 |
|
|
| 1,166 |
|
Total SAP Solutions |
| $ | 11,726 |
|
| $ | 11,515 |
|
Total segment revenue |
| $ | 71,229 |
|
| $ | 75,664 |
|
|
|
|
|
|
|
|
The total revenue forfrom the quartersGlobal S&BT segment, the Oracle Solutions segment and six months ended July 1, 2022the SAP Solutions segment's consulting and July 2, 2021:software support and maintenance services is all recognized over time. The software license sales total revenue included in the SAP Solutions segment is recognized at a point in time.
|
| Quarter Ended |
|
| Six Months Ended |
| ||||||||||
|
| July 1, |
|
| July 2, |
|
| July 1, |
|
| July 2, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Consulting |
| $ | 74,914 |
|
| $ | 67,411 |
|
| $ | 149,412 |
|
| $ | 129,597 |
|
Software license sales |
|
| 1,014 |
|
|
| 5,786 |
|
|
| 2,180 |
|
|
| 7,086 |
|
Total revenue |
| $ | 75,928 |
|
| $ | 73,197 |
|
| $ | 151,592 |
|
| $ | 136,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation and General Information (continued)
Capitalized Sales Commissions
Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized as project revenue is recognized. The Company determined the period of amortization by taking into consideration the customer contract period, which are generally less than 12 months. Commission expense is included in Selling, General and Administrative Costs in the accompanying consolidated statements of operations. As of December 31, 2021,30, 2022 and January 1,December 31, 2021, the Company had $1.61.5 million and $1.51.6 million, respectively, of deferred commissions, of which $0.4 million and $0.70.2 million was amortized during the quarter and sixthree months ended July 1, 2022, respectively,March 31, 2023 and $0.3 million and $0.50.4 million for the same periods in 2021, respectively.three months ended April 1, 2022. NaNNo impairment loss was recognized relating to the capitalization of deferred commission.
10
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation and General Information (continued)
Practical Expedients
The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be less than one year.
Sales tax collected from customers and remitted to the applicable taxing authorities is accounted for on a net basis, with no impact on revenue.
Expense reimbursements that are billable to clients are included in total revenue and are substantially all billed as time-and-material billing arrangements. Therefore, the Company recognizes all reimbursable expenses as revenue as the related services are provided, using the right to invoice practical expedient. Reimbursable expenses are recognized as expenses in the period in which the expense is incurred. Any expense reimbursements that are billable to clients under fixed-fee billing arrangements are recognized in line with the proportionate performance approach.
Fair Value
The Company’s financial instruments consist of cash, accounts receivable and contract assets, accounts payable, accrued expenses and other liabilities and contract liabilities. As of July 1, 2022March 31, 2023 and December 31, 2021,30, 2022, the carrying amount of each financial instrument approximated the instrument’s respective fair value due to the short-term nature and maturity of these instruments.
The Company uses significant other observable market data or assumptions (Level 2 inputs as defined in accounting guidance) that it believes market participants would use in pricing debt. The fair value of the debt approximated the carrying amount, using Level 2 inputs, due to the short-term variable interest rates based on market rates.
COVID-19 Pandemic Impact of Macroeconomic Conditions on the Business
The level of revenue the Company achieves is based on its ability to deliver market leading services and solutions and to deploy skilled teams of professionals quickly. The Company’s results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence. In each ofAny deterioration in the four quarters of 2021, the Company’s revenue before reimbursements and diluted earnings per share grew when compared to the fourth quarter of 2020 reflecting a continuation of improved economic conditions. However, any reversal of these trendscurrent macroeconomic environment or a prolonged economic downturn as a result of the impact of COVID-19 variants, or otherwise, weak or uncertain economic conditions due to inflation, high interest rates, national or similargeopolitical events or other factors impacting economic activity or business confidence could adversely affect the Company's clients' financial condition or outlook which may further reduce the clients' demand for the Company's services.
The Company continues to actively manage its business to respond to the impact of the COVID-19 pandemic. At the onset of the pandemic, the Company reduced employee headcount and restricted employee travel to only essential business needs. While headcount has increased and some select non-essential travel is being allowed, most of the Company’s employees continue to work remotely from home. The Company is generally following the requirements, recommendation and protocols published by the U.S. Centers for Disease Control and the World Health Organization, and state and local governments.
10
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation and General Information (continued)
As a response to the ongoing COVID-19 pandemic, in 2020 the Company implemented plans to manage its costs and preserve cash at the onset of the COVID-19 pandemic. At this time the Company significantly limited the addition of new employees and third party contracted services, eliminated all travel except where necessary to meet customer needs, and limited discretionary spending. At the end of June 2020, the Company reduced its global workforce by approximately 10% and recorded a $5.0 million restructuring charge. During the fourth quarter of 2020, as a result of and in consideration of the COVID-19 pandemic, and the changing nature of its use of office space for its workforce, the Company evaluated its existing office leases as part of the Company’s transformation initiatives related to real estate. This evaluation resulted in the complete and partial abandonment of certain leased office spaces and an asset impairment charge of $3.9 million for certain lease right-of-use assets and certain property, equipment and leasehold improvements. All client concessions and accounts receivable allowances have been appropriately reflected in our financial statements. To the extent that economic conditions do not continue to improve, and the business is again disrupted, the reinstatement of cost management actions will be considered. Future asset impairment charges, increases in allowance for doubtful accounts, or restructuring charges will be dependent on the severity and duration of the COVID-19 pandemic.
In light of the evolving health, social, economic and business environment, governmental regulations or mandates, and business disruptions that could occur, the potential impact that the COVID-19 pandemic could have on the Company’s financial condition and operating results remains highly uncertain.
2. Net Income per Common Share
Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. With regard to common stock subject to vesting requirements and restricted stock units issued to the Company’s employees and non-employee members of its Board of Directors, the calculation includes only the vested portion of such stock and units.
Diluted net income per common share is computed by dividing net income by the weighted average number of common shares outstanding, increased by the assumed conversion of other potentially dilutive securities during the period.
11
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
2. Net Income per Common Share (continued)
The following table reconciles basic and dilutive weighted average common shares:
|
| Quarter Ended |
|
| Six Months Ended |
|
| Quarter Ended |
| |||||||||||||||
|
| July 1, |
| July 2, |
| July 1, |
| July 2, |
|
| March 31, |
| April 1, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Basic weighted average common shares outstanding |
|
| 31,652,413 |
|
|
| 30,093,726 |
|
|
| 31,550,911 |
|
|
| 30,150,608 |
|
|
| 27,026,460 |
|
|
| 31,449,408 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Unvested restricted stock units and common stock subject |
|
| 566,969 |
|
|
| 490,685 |
|
|
| 468,500 |
|
|
| 377,447 |
|
|
| 242,157 |
|
|
| 370,033 |
|
Common stock issuable upon the exercise of stock options |
|
| 1,656 |
|
|
| 2,385,533 |
|
|
| 12,889 |
|
|
| 2,341,500 |
|
|
| — |
|
|
| 24,122 |
|
Dilutive weighted average common shares outstanding |
|
| 32,221,038 |
|
|
| 32,969,944 |
|
|
| 32,032,300 |
|
|
| 32,869,555 |
|
|
| 27,268,617 |
|
|
| 31,843,563 |
|
Approximately 3six thousand shares and 2thousand hundred shares of common stock equivalents were excluded from the computations of diluted net income per common share for both the quarter and sixthree months ended JulyMarch 31, 2023, and April 1, 2022, respectively, as compared to 2 thousand shares and 3 thousand shares for the quarter and six months ended July 2, 2021, respectively, as inclusion would have had an anti-dilutive effect on diluted net income per common share.
11
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
3. Accounts Receivable and Contract Assets, Net
Accounts receivable and contract assets, net, consisted of the following (in thousands):
|
| July 1, |
|
| December 31, |
|
| March 31, |
|
| December 30, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Accounts receivable |
| $ | 35,110 |
|
| $ | 30,732 |
|
| $ | 33,225 |
|
| $ | 28,913 |
|
Contract assets (unbilled revenue) |
|
| 15,844 |
|
|
| 22,586 |
| ||||||||
Contract assets |
|
| 19,686 |
|
|
| 20,319 |
| ||||||||
Allowance for doubtful accounts |
|
| (1,469 | ) |
|
| (2,702 | ) |
|
| (930 | ) |
|
| (856 | ) |
Accounts receivable and contract assets, net |
| $ | 49,485 |
|
| $ | 50,616 |
|
| $ | 51,981 |
|
| $ | 48,376 |
|
Accounts receivable is net of uncollected advanced billings. Contract assets represents revenue for services performed that have not been invoiced.
4. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
|
| July 1, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Accrued compensation and benefits |
| $ | 9,130 |
|
| $ | 7,730 |
|
Deferred employer's payroll taxes |
|
| 1,780 |
|
|
| 1,780 |
|
Accrued bonuses |
|
| 8,274 |
|
|
| 13,753 |
|
Accrued dividend payable |
|
| 3,480 |
|
|
| - |
|
Restructuring liability |
|
| 411 |
|
|
| 740 |
|
Accrued sales, use, franchise and VAT tax |
|
| 1,544 |
|
|
| 1,783 |
|
Income taxes payable |
|
| 1,948 |
|
|
| - |
|
Non-cash stock compensation accrual |
|
| 818 |
|
|
| 1,357 |
|
Other accrued expenses |
|
| 3,097 |
|
|
| 3,154 |
|
Total accrued expenses and other liabilities |
| $ | 30,482 |
|
| $ | 30,297 |
|
As a result of the tax deduction related to the exercise of the 2.9 million SARs in 2021, as of December 31, 2021, the Company had an income tax receivable of $3.4million in the prepaid expenses and other current assets on the consolidated balance sheet.
5. Restructuring Costs
During 2020, the Company recorded restructuring costs of $10.5 million, of which $5.7 million was primarily related to the reduction of staff in Europe and Australia. As of July 1, 2022, the Company had $0.4 millionof remaining commitments related to the restructuring charge.
The following table sets forth the activity in the restructuring expense accruals (in thousands):
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
| Exit, Closure and |
|
|
|
| |||
|
| Employee Related |
|
| Consolidation |
|
|
|
| |||
|
| Costs |
|
| of Facilities |
|
| Total |
| |||
Accrual balance at December 31, 2021 | $ |
| 70 |
| $ |
| 670 |
| $ |
| 740 |
|
Cash paid |
|
| — |
|
|
| (74 | ) |
|
| (74 | ) |
Accrual balance at April 1, 2022 | $ |
| 70 |
| $ |
| 596 |
| $ |
| 666 |
|
Cash paid |
|
| (26 | ) |
|
| (218 | ) |
|
| (244 | ) |
Expense |
|
| (22 | ) |
|
| 11 |
|
|
| (11 | ) |
Accrual balance at July 1, 2022 | $ |
| 22 |
| $ |
| 389 |
| $ |
| 411 |
|
|
| March 31, |
|
| December 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Accrued compensation and benefits |
| $ | 7,300 |
|
| $ | 9,320 |
|
Accrued bonuses |
|
| 1,390 |
|
|
| 12,171 |
|
Accrued dividend payable |
|
| 2,990 |
|
|
| 2,997 |
|
Restructuring liability |
|
| 175 |
|
|
| 106 |
|
Accrued sales, use, franchise and VAT tax |
|
| 2,462 |
|
|
| 2,572 |
|
Non-cash stock based compensation accrual |
|
| 27 |
|
|
| 1,241 |
|
Other accrued expenses |
|
| 2,627 |
|
|
| 2,546 |
|
Total accrued expenses and other liabilities |
| $ | 16,971 |
|
| $ | 30,953 |
|
12
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
6.5. Leases
The Company has operating leases for office space and, to a much lesser extent, operating leases for equipment. The Company’s office leases are between terms of 1 year and 4 years. Rents usually increase annually in accordance with defined rent steps or are based on current year consumer price index adjustments. Some of the lease agreements contain one or more of the following provisions: tenant allowances, rent holidays, lease premiums, and rent escalation clauses. There are typically no purchase options, residual value guarantees or restrictive covenants. When renewal options exist, the Company generally does not deem them to be reasonably certain to be exercised, and therefore the amounts are not recognized as part of the lease liability nor the right of use asset.
The components of lease expense were as follows for the sixthree months ended July 1, 2022March 31, 2023 (in thousands):
Operating lease cost |
| $ | 613 |
|
|
|
|
| |
Total net lease costs |
| $ | 613 |
|
Operating lease cost |
| $ | 286 |
|
|
|
|
| |
Total net lease costs |
| $ | 286 |
|
The weighted average remaining lease term is 23.0 years. The weighted average discount rate utilized is 4%. The discount rates applied to each lease, reflects the Company’s estimated incremental borrowing rate. This includes an assessment of the Company’s credit rating to determine the rate that the Company would have to pay to borrow, on a collateralized basis for a similar term, an amount equal to our lease payments in a similar economic environment. For the quarter and sixthree months ended July 1, 2022,March 31, 2023, the Company paid $0.7million and $1.30.3 million respectively, from operating cash flows for its operating leases.
Future minimum lease payments under non-cancellable operating leases as of July 1, 2022,March 31, 2023, were as follows (in thousands):
2022 (excluding the six months ended July 1, 2022) |
| $ | 1,055 |
| ||||
2023 |
|
| 986 |
| ||||
2023 (excluding the three months ended March 31, 2023) |
| $ | 1,033 |
| ||||
2024 |
|
| 567 |
|
|
| 977 |
|
2025 |
|
| 259 |
| ||||
2026 |
|
| 222 |
| ||||
Thereafter |
|
| - |
|
|
| 365 |
|
Total lease payments |
|
| 2,608 |
|
|
| 2,856 |
|
Less imputed interest |
|
| (112 | ) |
|
| (261 | ) |
Total |
| $ | 2,496 |
|
| $ | 2,595 |
|
As of July 1, 2022,March 31, 2023, the Company does not have any additional operating leases that have not yet commenced.
7.6. Credit Facility
TheOn November 7, 2022, the Company hasentered into a third amended and restated credit agreement (the “Credit Agreement”) with Bank of America, N.A., as administrative agent, and the lenders party thereto, pursuant to which providesthe lenders agreed to amend and restate its existing credit agreement, in order to extend the maturity date of the revolving line of credit and provide the Company with an additional $55.0 million in borrowing capacity, for borrowingan aggregate amount of up to $45.0100.0 million from time to time pursuant to a revolving line of credit (the “Revolver”“Credit Facility”) which has a maturity date of . The Credit Facility matures on November 30, 2022 (as amended the “Credit Agreement”).7, 2027.
The obligations of Hackett under the RevolverCredit Facility are guaranteed by active existing and future material U.S. subsidiaries of Hackett (the “U.S. Subsidiaries”), and are secured by substantially all of the existing and future property and assets of Hackett and the U.S. Subsidiaries, a 100% pledge of the capital stock of the U.S. Subsidiaries, and a 66% pledge of the capital stock of Hackett’s direct foreign subsidiaries (subject to certain exceptions).Subsidiaries.
As of July 1, 2022 and December 31,2021, the Company did 0t have any outstanding balance under the Revolver.The interest rates per annum applicable to borrowingsloans under Revolverthe Credit Facility will be, at the Company’s option, equal to either a base rate or a LIBOR baseBloomberg Short-Term Bank Yield Index ("BSBY") rate, plus an applicable margin percentage. The applicable margin percentage is based on the consolidated leverage ratio, as defined in the Credit Agreement. As of July 1, 2022,March 31, 2023, the applicable margin percentage was 1.50% per annum based onfor the consolidated leverage ratio, in the case of LIBORBSBY rate, advances, and 0.75% per annum, infor the case of base rate advances.rate. The interest rate of the commitment feesfee as of July 1, 2022,March 31, 2023 was 0.125%. Interest payments are made monthly.
The Company is subject to certain covenants, including total consolidated leverage, fixed cost coverage, adjusted fixed cost coverage and liquidity requirements, each as set forth in the Credit Agreement, subject to certain exceptions. As of July 1, 2022,March 31, 2023, the Company was in compliance with all covenants.
13
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
6. Credit Facility (continued)
The Company incurred $13 thousand and $10 thousand of incremental debt issuance costs during the three months ended March 31, 2023 and April 1, 2022, respectively, as a result of the Credit Agreement. As of March 31, 2023, the Company had $0.3 million of debt issuance costs remaining which will be amortized over the remaining life of the Credit Facility.
As of March 31, 2023, the Company had $58.0 million of outstanding debt, excluding $0.3 million of deferred debt costs, and as of December 30, 2022, the Company had $60.0 million of outstanding debt, excluding $0.3 million of deferred debt costs.
8.7. Stock Based Compensation
During the quarter and sixthree months ended July 1, 2022,March 31, 2023, the Company issued 29,538 and712,319581,557 restricted stock units at a weighted average grant-date fair value of $23.42and$19.4121.43 per share, respectively.share. As of July 1, 2022,March 31, 2023, the Company had 1,322,9951,282,745 restricted stock units outstanding at a weighted average grant-date fair value of $17.8019.67 per share. As of July 1, 2022,March 31, 2023, $16.420.4 million of total restricted stock unit non-cash compensation expense related to unvested awards had not been recognized and is expected to be recognized over a weighted average period of approximately 2.6 years.
As In addition, as of July 1, 2022,March 31, 2023, the Company had 2,9451,318 sharesof common stock subject to vesting requirements outstanding at a weighted average grant-date fair value of $16.17 per share. As of July 1, 2022, $19thousand of compensation expense related to common stock subject to vesting requirements had not been recognized and is expected to be recognized over a weighted average period of approximately 1.3 years.
Forfeitures for all of the Company’s outstanding equity awards are recognized as incurred.
9.8. Shareholders’ Equity
Stock Appreciation Rights (“SARs”)
Treasury Stock and Tender Offer
On July 30, 2002, the Company announced that its Board of Directors approved the repurchase of up to $5.0 million of the Company’s common stock through its share repurchase program. Since the inception of the repurchase plan, the Board of Directors has approved the repurchase of $287.2 million of the Company’s common stock, $120.0 million of which was approved in 2022. As of JulyMarch 31, 2023, the Company had affected cumulative purchases under the plan of $273.2 million, leaving $14.0 million available for future purchases.
In December 2022, the Company completed a tender offer through which 4.9 million shares of the Company's common stock were purchased for a total cost, inclusive of transaction related fees, of $115.9 million, or $23.71 per share, which represented 15% of the Company's issued and outstanding stock at the time. The Company used $60.0 million in borrowings from its Credit Facility and cash on hand to fund the tender offer.
During the three months ended March 31, 2023 and April 1, 2022, the Company didrepurchased 037t have any outstanding SARs. In December 2021, thousand and 2.931 thousand shares of its common stock, respectively, from members of its Board of Directors at an average price per share of $18.98 and $20.50, respectively, for a total cost of $0.7 million SARs were exercised with an exercise price ofand $0.6 $4.00 per share.million, respectively.
Treasury Stock
There is no expiration of the Company's repurchase authorization. Under the Company’s share repurchase plan, the Company may repurchasebuy back shares of its outstanding common stock from time to time either on the open market or through privately negotiated transactions, subject to market conditions and trading restrictions. During the quarter, theThe Company did 0t repurchase any outstanding common stock. During the six months ended July 1, 2022, the Companyholds repurchased31 thousand of its common stock at an average price of $20.50 for a total cost of $0.6million. As of July 1, 2022 the Company had a total authorization remaining of $10.6 million under its repurchase plan with atotal authorization of $167.2 million.
During the quarter and six months ended July 2, 2021, the Company repurchased 489 thousand shares and 626 thousand shares of its common stock at an average price of $17.58as treasury stock and $17.11 per shareaccounts for a totaltreasury stock under the cost of $8.6 million and $10.7 million, respectively.method.
The shares repurchased
Shares purchased under the share repurchase plan during the quarter and six months ended July 1, 2022, do not include shares withheld to satisfy withholding tax obligations. These withheld shares are never issued and in lieu of issuing the shares, taxes were paid on the employee’s behalf. During the three months ended March 31, 2023, 4162 thousandshares were withheld and 130 thousandshares, respectively, which the Company bought back to satisfy employee net vesting obligationsnot issued for a cost of $763.5 thousand and $2.5 million, respectively. Duringmillion. In the quarter and sixfirst three months ended July 2, 2021, the Company bought backApril 1, 2022, 2126 thousand shares were withheld and 110 thousand shares, respectively, atnot issued for a cost of $382.4 thousand and $1.6million. The shares withheld for taxes are included under issuance of common stock in the accompanying consolidated statements of shareholders’ equity. million, respectively, to satisfy employee net vesting obligations.
Dividend Program
In 2021,2022, the Company increased the annual dividend from $0.380.40 per share to $0.400.44 per share to be paid on a quarterly basis and during the first quarter of 2022, the Company further increased the annual dividend to $0.44 per share.basis. During the first half of 2022,three months ended March 31, 2023, the Company declared twothe first quarterly dividendsdividend to its shareholders for an aggregate of $3.53.0 million, each, which werewas paid in April 2022 and July 20222023. These dividends were paid from U.S. domestic sources and are accounted for as a decrease to retained earnings.Subsequent to July 1, 2022,March 31, 2023, the Company declared its third quarterlysecond quarter dividend in 20222023 to be paid in October 2022July 2023.
14
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
10.9. Transactions with Related Parties
During the sixthree months ended July 1, 2022,March 31, 2023, the Company bought back 3137 thousand shares of its common stock from members of its Board of Directors for $0.60.7 million, or $20.5018.98 per share.
11.10. Litigation
The Company is involved in legal proceedings, claims, and litigation arising in the ordinary course of business not specifically discussed herein. In the opinion of management, the final disposition of such matters will not have a material adverse effect on the Company’s financial position, cash flows or results of operations.
1411. Segment Information and Geographical Data
The Company has organized its operating and internal reporting structure to align with its primary market solutions. In accordance with ASC 280, the Company determined it has three operating segments and three reportable segments: (1) Global S&BT, (2) Oracle Solutions, and (3) SAP Solutions. Global S&BT includes the results of the Company’s strategic business consulting practices; Oracle Solutions includes the results of the Company’s Oracle EPM/ERP and Digital AMS practices; SAP Solutions includes the Company’s SAP applications and related SAP service offerings. The SAP Solutions reportable segment is the only segment that contains software license sales.
The measurement criteria for segment profit or loss are substantially the same for each reportable segment, excluding any unusual or infrequent items, if any. Segment profit consists of the revenues generated by a segment, less operating expenses that are incurred directly by the segment. Unallocated costs include corporate costs related to administrative functions that are performed in a centralized manner that are not attributable to a particular segment. Segment information related to assets has been omitted as the Chief Operating Decision Maker does not receive discrete financial information regarding assets at the segment level.
The tables below set forth information about the Company’s operating segments for the three months ended March 31, 2023, and April 1, 2022, along with the items necessary to reconcile the segment information to the totals reported in the accompanying consolidated financial statements (in thousands):
|
| Quarter Ended |
| |||||
|
| March 31, |
|
| April 1, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Global S&BT: |
|
|
|
|
|
| ||
Total revenue* |
| $ | 42,335 |
|
| $ | 42,637 |
|
Segment profit |
|
| 13,807 |
|
|
| 15,641 |
|
Oracle Solutions: |
|
|
|
|
|
| ||
Total revenue* |
| $ | 17,168 |
|
| $ | 21,512 |
|
Segment profit |
|
| 3,049 |
|
|
| 4,532 |
|
SAP Solutions: |
|
|
|
|
|
| ||
Total revenue* |
| $ | 11,726 |
|
| $ | 11,515 |
|
Segment profit |
|
| 2,634 |
|
|
| 2,414 |
|
Total Company: |
|
|
|
|
|
| ||
Total revenue* |
| $ | 71,229 |
|
| $ | 75,664 |
|
|
|
|
|
|
|
| ||
Total segment profit |
| $ | 19,490 |
|
| $ | 22,587 |
|
Items not allocated to segment level: |
|
|
|
|
|
| ||
Corporate general and administrative expenses** |
|
| 4,961 |
|
|
| 5,633 |
|
Non-cash stock based compensation expense |
|
| 2,447 |
|
|
| 2,599 |
|
Depreciation and amortization |
|
| 830 |
|
|
| 946 |
|
Interest expense, net |
|
| 859 |
|
|
| 28 |
|
Income from continuing operations before taxes |
| $ | 10,393 |
|
| $ | 13,381 |
|
*Total revenue includes reimbursable expenses, which are project travel-related expenses passed through to a client with no associated operating margin.
**Corporate general and administrative expenses primarily include costs related to business support functions including accounting and finance, human resources, legal, information technology and office administration. Corporate general and administrative expenses exclude one-time, non-recurring expenses and benefits.
15
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
12. Geographic11. Segment Information and Group InformationGeographical Data (continued)
Revenue before reimbursements,The tables below set forth information on the Company's geographical data. Total revenue, which is primarily based on the country of the contracting entity, was attributed to the following geographical areas (in thousands):
|
| Quarter Ended |
|
| Six Months Ended |
| ||||||||||
|
| July 1, |
|
| July 2, |
|
| July 1, |
|
| July 2, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
United States |
| $ | 66,717 |
|
| $ | 63,959 |
|
| $ | 131,110 |
|
| $ | 119,218 |
|
Europe |
|
| 5,103 |
|
|
| 5,641 |
|
|
| 12,640 |
|
|
| 11,199 |
|
Other (Australia, Canada, India and Uruguay) |
|
| 4,108 |
|
|
| 3,597 |
|
|
| 7,842 |
|
|
| 6,266 |
|
Total revenue |
| $ | 75,928 |
|
| $ | 73,197 |
|
| $ | 151,592 |
|
| $ | 136,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended |
| |||||
|
| March 31, |
|
| April 1, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
United States |
| $ | 61,351 |
|
| $ | 64,393 |
|
Europe |
|
| 6,060 |
|
|
| 7,537 |
|
Other (Australia, Canada, India and Uruguay) |
|
| 3,818 |
|
|
| 3,734 |
|
Total revenue |
| $ | 71,229 |
|
| $ | 75,664 |
|
|
|
|
|
|
|
|
Long-lived assets are attributable to the following geographic areas (in thousands):
|
| July 1, |
|
| December 31, |
|
| March 31, |
|
| December 30, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Long-lived assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
United States |
| $ | 89,175 |
|
| $ | 89,199 |
|
| $ | 91,175 |
|
| $ | 89,705 |
|
Europe |
|
| 13,935 |
|
|
| 15,584 |
|
|
| 14,009 |
|
|
| 13,640 |
|
Other (Australia, Canada, India and Uruguay) |
|
| 581 |
|
|
| 582 |
|
|
| 451 |
|
|
| 482 |
|
Total long-lived assets |
| $ | 103,691 |
|
| $ | 105,365 |
|
| $ | 105,635 |
|
| $ | 103,827 |
|
As of July 1, 2022March 31, 2023 and December 31, 2021,30, 2022, foreign assets included$13.514.5 million and $15.113.5 million, respectively, of goodwill related to prior acquisitions.
15
16
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.amended (the "Exchange Act"). We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. All statements regarding our expected financial position and operating results, our business strategy, our financing plans and forecasted demographic and economic trends relating to our industry are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect,” or “intend” and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. We cannot promise you that our expectations reflected in such forward-looking statements will turn out to be correct. Factors that could impact such forward-looking statements include, among others, the impact of the coronavirus (COVID-19) pandemic and our ability to mitigate or manage disruptions posed by COVID-19 pandemic, changes in worldwide and U.S. economic conditions that impact business confidence and the demand for our products and services, the impact of the coronavirus (COVID-19) pandemic, our ability to effectively integrate acquisitions into our operations, 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, the timing of projects and the potential for contract cancellation by our customers, 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 thenational or geopolitical conflict, such as the war involving Russia and Ukraine on our business and changes in general economic conditions, inflation, interest rates and our ability to obtain additional debt financing if needed. For a discussion of risks and actions taken in response to the COVID-19 pandemic, see “Our results of operations have been adversely affected and could in the future be materially adversely impacted by the coronavirus pandemic (COVID-19)” under Item 1A, “Risk Factors” of our Annual Report on Form 10-K. An additional description of our risk factors is described in Part I – Item 1A, “Risk Factors”. 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. Many of the risks, uncertainties and other factors identified in our Annual Report on Form 10-K for the year ended December 31, 2021 have been amplified by the COVID-19 pandemic.
OVERVIEW
The following Management's Discussion and Analysis ("MD&A") is intended to help the reader understand the results of operations and financial condition of Hackett. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to our consolidated financial statements included in this Quarterly Report on Form 10-Q.
The Hackett Group, Inc. (“Hackett” or the “Company”) is a leading IP-based strategic advisory and technology consulting firm that enables companies to achieve world-class business performance. By leveraging the comprehensive Hackett database, the world’s leading repository of enterprise business process performance metrics and best practice intellectual capital, our business and technology solutions help clients improve performance and maximize returns on technology investments. Only Hackett empirically defines world-class performance in sales, general and administrative and certain supply chain activities with analysis gained through nearly 20,000over 25,000 benchmark and performance studies over 2729 years at over 7,0008,800 of the world’s leading companies.
In the following discussion, Strategy and Business Transformation Group includes the results of our North America IP as-a-service offerings, which include our Executive Advisory Programs and Benchmarking Services, and our Business Transformation Practices (S&BT). ERP, EPM and Analytics Solutions includes the results of our North America Oracle EEA and SAP Solutions Practices (EEA). International includes results of our S&BT and EEA Practices primarily in Europe.
COVID-19 Pandemic Impact of Macroeconomic Conditions on Our Business
The level of revenue we achieve is based on our ability to deliver market leading services and solutions and to deploy skilled teams of professionals quickly. Our results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence. In each ofAny deterioration in the four quarters of 2021, our revenue before reimbursements and diluted earnings per share grew when compared to the fourth quarter of 2020 reflecting a continuation of improved economic conditions. However, any reversal of these trendscurrent macroeconomic environment or a prolonged economic downturn as a result of the impact of COVID-19 variants, or otherwise, weak or uncertain economic conditions due to inflation, high interest rates, national or similargeopolitical events or other factors impacting economic activity or business confidence could adversely affect our clients' financial condition or outlook which may further reduce ourthe clients' demand for our services.
1617
We are actively managing our business to respond to the impact of the COVID-19 pandemic. We are generally following the requirements and protocols published by the U.S. Centers for Disease Control and the World Health Organization, and state and local governments.
In light of the evolving health, social, economic and business environment, governmental regulations or mandates, and business disruptions that could occur, the potential impact that the COVID-19 pandemic could have on our financial condition and operating results remains highly uncertain.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, our results of operations(inoperations (in thousands and unaudited):
|
| Quarter Ended |
|
| Six Months Ended |
|
| Quarter Ended |
| |||||||||||||||
|
| July 1, | July 2, |
| July 1, | July 2, |
|
| March 31, | April 1, |
| |||||||||||||
|
| 2022 | 2021 |
|
| 2022 | 2021 |
|
| 2023 | 2022 |
| ||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Revenue before reimbursements |
| $ | 74,768 |
|
| $ | 72,997 |
|
| $ | 149,876 |
|
| $ | 136,407 |
|
| $ | 69,831 |
|
| $ | 75,108 |
|
Reimbursements |
|
| 1,160 |
|
|
| 200 |
|
|
| 1,716 |
|
|
| 276 |
|
|
| 1,398 |
|
|
| 556 |
|
Total revenue |
|
| 75,928 |
|
|
| 73,197 |
|
|
| 151,592 |
|
|
| 136,683 |
|
|
| 71,229 |
|
|
| 75,664 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Cost of service: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Personnel costs before reimbursable expenses (includes $1,483 and $3,149 and $1,779 and $3,626 of stock compensation expense in the three and six months ended July 1, 2022 and July 2, 2021, respectively) |
|
| 44,701 |
|
|
| 43,227 |
|
|
| 92,034 |
|
|
| 84,397 |
| ||||||||
Personnel costs before reimbursable expenses (includes $1,526 and $1,666 of non-cash stock based compensation expense in the three months ended March 31, 2023 and April 1, 2022, respectively) |
|
| 43,143 |
|
|
| 47,333 |
| ||||||||||||||||
Reimbursable expenses |
|
| 1,160 |
|
|
| 200 |
|
|
| 1,716 |
|
|
| 276 |
|
|
| 1,398 |
|
|
| 556 |
|
Total cost of service |
|
| 45,861 |
|
|
| 43,427 |
|
|
| 93,750 |
|
|
| 84,673 |
|
|
| 44,541 |
|
|
| 47,889 |
|
Selling, general and administrative costs (includes $1,235 and $2,168 and $874 and $1,614 of stock compensation expense in the three and six months ended July 1, 2022 and July 2, 2021, respectively) |
|
| 15,886 |
|
|
| 15,553 |
|
|
| 30,252 |
|
|
| 28,940 |
| ||||||||
Selling, general and administrative costs (includes $921 and $933 of non-cash stock based compensation expense in the three months ended March 31, 2023 and April 1, 2022, respectively) |
|
| 15,436 |
|
|
| 14,366 |
| ||||||||||||||||
Total costs and operating expenses |
|
| 61,747 |
|
|
| 58,980 |
|
|
| 124,002 |
|
|
| 113,613 |
|
|
| 59,977 |
|
|
| 62,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Income from operations |
|
| 14,181 |
|
|
| 14,217 |
|
|
| 27,590 |
|
|
| 23,070 |
|
|
| 11,252 |
|
|
| 13,409 |
|
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Interest expense |
|
| (28 | ) |
|
| (25 | ) |
|
| (56 | ) |
|
| (50 | ) |
|
| (859 | ) |
|
| (28 | ) |
Income from continuing operations before income taxes |
|
| 14,153 |
|
|
| 14,192 |
|
|
| 27,534 |
|
|
| 23,020 |
|
|
| 10,393 |
|
|
| 13,381 |
|
Income tax expense |
|
| 3,938 |
|
|
| 3,660 |
|
|
| 6,814 |
|
|
| 6,120 |
|
|
| 2,232 |
|
|
| 2,876 |
|
Income from continuing operations |
|
| 10,215 |
|
|
| 10,532 |
|
|
| 20,720 |
|
|
| 16,900 |
| ||||||||
Loss from discontinued operations |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7 | ) | ||||||||
Net income |
| $ | 10,215 |
|
| $ | 10,532 |
|
| $ | 20,720 |
|
| $ | 16,893 |
|
| $ | 8,161 |
|
| $ | 10,505 |
|
Diluted net income per common share |
| $ | 0.32 |
|
| $ | 0.32 |
|
| $ | 0.65 |
|
| $ | 0.51 |
|
| $ | 0.30 |
|
| $ | 0.33 |
|
Revenue. We are a global company with operations in our primary markets located in the United States and Western Europe. Our revenue is denominated in multiple currencies, primarily the U.S. Dollar, British Pound and Euro, and as a result is affected by currency exchange rate fluctuations. The impact of currency fluctuations did not have a significant impact on comparisons between the second quarter and first sixthree months of 2022ended March 31, 2023 and the comparable periods of 2021.three months ended April 1, 2022. In this MD&A, we discuss revenue based on geographical location of engagement team personnel.
The following table sets forth revenue by group for the periods indicated (in thousands):
|
| Quarter Ended |
|
| Six Months Ended |
| ||||||||||
|
| July 1, |
|
| July 2, |
|
| July 1, |
|
| July 2, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
S&BT |
| $ | 33,390 |
|
| $ | 26,496 |
|
| $ | 63,370 |
|
| $ | 52,255 |
|
EEA |
|
| 36,774 |
|
|
| 40,673 |
|
|
| 74,739 |
|
|
| 72,865 |
|
International |
|
| 5,764 |
|
|
| 6,028 |
|
|
| 13,483 |
|
|
| 11,563 |
|
Total revenue |
| $ | 75,928 |
|
| $ | 73,197 |
|
| $ | 151,592 |
|
| $ | 136,683 |
|
17
Our Company total revenue increased 4%,was $71.2 million during the first three months of 2023, as compared to $75.9 million, and 11%, to $151.6$75.7 million in the second quarter andsame period in 2022. During the first six months of 2022, as comparedwe experienced stronger than expected post-Covid pent-up demand that drove strong results. By the middle of 2022, the impact of the increase in interest rates started to $73.2 million,disrupt economic growth and $136.7 million,resulted in the same periods of 2021, respectively.extended client decision making. In the second quarter and first sixthree months of 2023 and 2022, one customer accounted for 5% and one customer accounted for 7% of our total revenue. In the second quarter of 2021 one customer accounted for 7% of our totalCompany revenue, and in the first six months of 2021 no customer accounted for more than 5% of our total revenue.respectively.
Segment revenue. The Company has organized its operating and internal reporting structure to align with its primary market solutions and has made the determination that it has three reportable segments: Global Strategy & Business Transformation (Global S&BT), Oracle Solutions and SAP Solutions. Global S&BT includes S&BT Consulting, Benchmarking, Business Advisory Services, Intellectual Property as-a-Service (IPASS) and OneStream offerings. Oracle Solutions and SAP Solutions support the two fundamentally distinct ERP systems: Oracle and SAP.
18
The following table sets forth total revenue by operating segment, which includes reimbursable expenses related to project travel-related expenses passed through to a client with no associated operating margin (in thousands):
|
| Quarter Ended |
| |||||
|
| March 31, |
|
| April 1, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Global S&BT |
| $ | 42,335 |
|
| $ | 42,637 |
|
Oracle Solutions |
|
| 17,168 |
|
|
| 21,512 |
|
SAP Solutions |
|
| 11,726 |
|
|
| 11,515 |
|
Total revenue |
| $ | 71,229 |
|
| $ | 75,664 |
|
Global S&BT total revenue was $33.4$42.3 million and $63.4$42.6 million during the second quarter and first sixthree months of 2023 and 2022, respectively, as compared to $26.5 million and $52.3 million in the same period of 2021, reflecting the continued sequential growth since the second quarter of 2020.respectively.
EEAOracle Solutions total revenue was $36.8$17.2 million and $74.7$21.5 million during the second quarter and first sixthree months of 2022, respectively, as compared to $40.7 million2023 and $72.9 million in the same periods of 2021. EEA total revenue in the second quarter and first six months of 2021 included a a $5.3 million software sales transaction. EEA total revenue, excluding the software transaction, was $35.4 million and $67.6 million in the second quarter and first six months of 2021,2022, respectively. The increasedecrease in revenue in 2022 as compared to 2021, excludingover the software sale transaction, was primarily driven by large ERP and EPM Oracle engagements and continuing growth of our OneStream implementation offerings; partially offset by a decline in our SAP offerings as we are rebuilding our sales pipeline after the completion of large SAP related engagements.
Hackett international total revenue decreased 4% in the second quarter of 2022 and increased 17% during the first sixthree months of 2022, respectively,ended March 31, 2023, as compared to the same periodsperiod in 2021. The increase in total revenue2022, was primarily due to U.S. driven global engagements. The Company’s internationalthe segment coming off of solid 2022 results and rebuilding the pipeline in light of unfavorable macroeconomic conditions as we entered 2023.
SAP Solutions total revenue accounted for 8%was $11.7 million and 9% of Company total revenue$11.5 million during the second quarter and first sixthree months of 2023 and 2022, respectively, and 8% for both of the comparable periods in 2021.respectively.
Reimbursements as a percentage of Company total revenue were 1.5%2.0% and 1.1%0.7% during the second quarter and first sixthree months of 2023 and 2022, respectively, as compared to 0.3% and 0.2%, in the same periods in 2021.respectively. Reimbursements are project travel-related expenses passed through to a client with no associated operating margin. We have experienced increased client-related travel since the transition to a remote delivery model, however we do not expect reimbursements to return to pre-pandemic levels.
Cost of Service. Cost of service consists of personnel costs before reimbursable expenses, which includes salaries, benefits and incentive compensation for consultants and subcontractor fees, acquisition-related cash, andacquisition-related non-cash stock based compensation costs,expense, non-cash stock based compensation expense, and reimbursable expenses which are travel and other expenses passed through to a client and are associated with projects.
Personnel costs before reimbursable expenses, increased 3% to $44.7 million anddecreased 9% to $92.0$43.1 million for the second quarter and first sixthree months of 2022 respectively,2023, as compared to $43.2 million and $84.4$47.3 million in the same periodsperiod of 2021.2022. The higherlower costs in the six-monththree-month period of 20222023 were primarily a result of hiring activities and increased utilization of subcontractors to support revenue growth, as well as increases inlower incentive compensation accruals commensurate with Company performance.performance, lower salaries and lower utilization of subcontractors. Personnel costs as a percentage of total Company revenue were 59%61% and 61% for63% during the second quarter and first sixthree months of 2022, respectively, as compared to 59%2023 and 62% for the same periods of 2021,2022, respectively.
Non-cash stock based compensation expense, included in personnel costs before reimbursable expenses was $1.5 million and $3.1$1.7 million forduring the second quarter and first sixthree months of 2023 and 2022, respectively, as compared to $1.8 million and $3.6 million for the same periods of 2021, respectively.
Acquisition related non-cash stock compensation expense, included in personnel costs before reimbursable expenses, was $4 thousand and $8 thousand for the second quarter and first six months of 2022, respectively, as compared to $111 thousand and $359 thousand for the same periods of 2021, respectively, primarily related to equity issued in relation to acquisitions.
Selling, General and Administrative Costs (“SG&A”). SG&A primarily consists of salaries, benefits and incentive compensation for the selling, marketing, administrative and executive employees, non-cash stock based compensation expense, amortization of intangible assets, acquisition related costs and various other overhead expenses.
SG&A costs increased 2%7%, to $15.9$15.4 million, and 5%, to $30.3 million, forduring the second quarter and first sixthree months of 2022, respectively,2023, as compared to $15.6 million and $28.9 million for$14.4 during the same periodsfirst three months of 2021, respectively.2022. This increase in the costs during the first sixthree months of 20222023 was primarily due to the increased investments in program development and dedicated sales resources for our IP-based offerings in our Global S&BT segment, partially offset by lower incentive compensation accruals commensurate with Company performance, increased professional fees and increased investments in sales and marketing.performance. SG&A costs as a percentage of total Company revenue were 21% and 20%22% during the second quarter and first sixthree months of 2022,2023, as compared to 21% for both of19% during the same periodsperiod in 2021.2022.
Non-cash stock based compensation expense, included in SG&A, was $1.2 $0.9million and $2.2 million forduring both the second quarter and first sixthree months of 2022, respectively, as compared to $0.9 million2023 and $1.6 million for the same periods of 2021, respectively. The increase is due to higher incentive compensation expense commensurate with Company performance.2022.
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Amortization expense, included in SG&A, was $10 $144thousand and $154 thousand million in the second quarter and first sixthree months of 2022, respectively, as compared to $0.3 million and $0.5 million2022. There was no amortization expense in the same periods in 2021, respectively.first three months of 2023. The amortization expense in 2022 related to the amortization of the intangible assetassets acquired in our acquisitions and the buyout of our partner’s joint venture interest in the CGBS Training and Certification Programs in 2017. As of July 1, 2022, theThe intangible assets related to the acquisitions were fully amortized as of the second quarter of 2022.
Segment Profit. Segment profit consists of the revenue generated by the segment, less the direct costs of revenue and selling, general and administrative expenses that are incurred directly by the segment. Items not allocated to the segment level include corporate costs related to administrative functions that are performed in a centralized manner that are not attributable to a particular segment. These administrative function costs include corporate general and administrative expenses, non-cash stock based compensation, depreciation and amortization expense, interest expense and any restructuring charges and reversals.
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Global S&BT segment profit was $13.8 million during the first three months of 2023, as compared to $15.6 million for the same period in 2022. This decrease was primarily due to the incremental investments we are making in program development and additional dedicated sales resources for Benchmark, Executive Advisory Market Intelligence and our other IP as-a-service offerings.
Oracle Solutions segment profit was $3.0 million during the first three months of 2023, as compared to $4.5 million for the same period in 2022, primarily due the decrease in year over year revenue. The segment was coming off of solid 2022 results and rebuilding its pipeline in light of unfavorable macroeconomic conditions as we entered 2023.
SAP Solutions segment profit was $2.6 million during the first three months of 2023, as compared to $2.4 million in the same period in 2022.
Interest Expense. Interest expense was $0.9 million and $28 thousand during the first three months of 2023 and 2022, respectively. In the fourth quarter of 2022, we drew down on our Credit Facility $60.0 million to fund the tender offer transaction. As of March 31, 2023, we had an outstanding balance of $58.0 million. As of April 1, 2022, we did not have been fully amortized.a balance outstanding.
Income Taxes. During the second quarter and first sixthree months of 2022,2023, we recorded $3.9 million and $6.8 million of income tax expense, respectively, related to certain federal, foreign and state taxes which reflected an effective tax rate of 28% and 25%, respectively. In the second quarter and first six months of 2021, we recorded $3.7 million and $6.1$2.2 million of income tax expense related to certain federal, foreign and state taxes which reflected an effective tax rate of 26%21.5%. During the first three months of 2022, we recorded $2.9 million of income tax expense related to certain federal, foreign and 27%, respectively.state taxes which reflected an effective tax rate of 21.5%.
Liquidity and Capital Resources
As of July 1, 2022,March 31, 2023 and December 31, 2021,30, 2022, we had $61.7$16.9 million and $45.8$30.3 million, respectively, classified in cash on the consolidated balance sheets. We currently believe that available funds (including the cash on hand and funds available for borrowing under our credit facility) and cash flows generated by operations will be sufficient to fund our working capital and capital expenditure requirements, including working capital, debt payments, lease obligations and capital expenditures for at least the next twelve months and beyond. We may decide to raise additional funds in order to fund expansion, to develop new or further enhance products and services, to respond to competitive pressures, or to acquire complementary businesses or technologies. There is no assurance that additional financing would be available when needed or desired. Our cash requirements have not changed materially from those disclosed in Item 7 included in Part II of our Annual Report on Form 10-K for the year ended December 31, 2021.30, 2022.
The following table summarizes our cash flow activity (in thousands):
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| 2022 |
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| 2021 |
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| 2023 |
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| 2022 |
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Cash flows provided by operating activities |
| $ | 24,289 |
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| $ | 19,651 |
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Cash flows (used in) provided by operating activities |
| $ | (3,063 | ) |
| $ | 6,054 |
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Cash flows used in investing activities |
| $ | (2,267 | ) |
| $ | (1,417 | ) |
| $ | (1,063 | ) |
| $ | (993 | ) |
Cash flows used in financing activities |
| $ | (6,100 | ) |
| $ | (15,219 | ) |
| $ | (9,247 | ) |
| $ | (3,076 | ) |
Cash Flows from Operating Activities
Net cash used in operating activities was $3.1 million during the first three months of 2023, as compared cash provided by operating activities was $24.3 million during the first six months of 2022, as compared to $19.7$6.1 million during the same period in 2021.2022. In 2023, the net cash used in operating activities was primarily due to the decrease in accrued liabilities and other accruals primarily due to payments of the 2022 incentive compensation and payments to vendors and the increase in accounts receivable and contract assets, partially offset by net income adjusted for non-cash items and an increase in contract liabilities. In 2022, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items, partially offset by the decrease in accounts payable and accrued liabilities and other accruals primarily due to the payoutpayments of vendor payments and the 2021 incentive compensation payments. In 2021, the net cash provided by operating activities was primarily dueand payments to net income adjusted for non-cash items and an increase in accounts payable, incentive compensation and income tax accruals, partially offset by an increase in accounts receivable and contract assets.vendors.
Cash Flows from Investing Activities
Net cash used in investing activities was $2.3$1.1 million during the first sixthree months of 2022,2023, as compared to $1.4$1.0 million during the same period in 2021.2022. During both periods, cash flows used in investing activities primarily related to investments for the development of our Executive Advisory Member Platform and continued development of our Quantum Leap benchmark and Digital Transformation technologies. The investing activities in 2022 also included purchases of computer equipment.
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Cash Flows from Financing Activities
Net cash used in financing activities was $6.1$9.2 million and $15.2$3.1 million during the first sixthree months of 20222023 and 2021,2022, respectively. The usage of cash in 2023 primarily related to the first six monthsrepurchase of $4.2 million of the Company's common stock, dividend payments of $3.0 million and the net paydown of $2.0 million related to our revolving line of credit ("Credit Facility"). The usage of cash in 2022 primarily related to the repurchase of $3.1 million of the Company's common stock and dividend payments of $3.5 million. The usage of cash in the first six months 2021 primarily related to the repurchase of $12.4 million of the Company’s common stock and dividend payments of $3.3 million.stock.
As of July 1,On November 7, 2022, we did not have any outstanding borrowings underamended and restated our revolving linecredit agreement in order to extend the maturity date of credit (the “Revolver”), leaving usthe Credit Facility and provide the Company with aan additional $55 million in borrowing capacity, for an aggregate amount of approximately $45.0up to $100 million. See Note 7,6, “Credit Facility,” to our consolidated financial statements included in this Quarterly Report on Form 10-Q for more information. As of March 31, 2023, we had $58.0 million of outstanding borrowings under our Credit Facility, excluding deferred debt costs, leaving us with a capacity of approximately $42.0 million.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As of July 1, 2022,March 31, 2023, our exposure to market risk related primarily to changes in interest rates and foreign currency exchange rate risks.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to the Revolver,Credit Facility, which is subject to variable interest rates. Under our currentprior credit agreement which expireswas amended and restated in November 2022, the interest rates per annum applicable to loans under the Revolver will be,Credit Facility was, at our option, equal to either a base rate or a LIBOR rate for one-, two-, three- or nine-month interest periods chosen by us in each case, plus an applicable margin percentage. A 100-basis point increase in our interest rate under our RevolverCredit Facility (Bloomberg Short-Term Bank Yield Index) would not have had a material impact on our results of operations for the quarter and six months ended July 1, 2022. Upon renewal of our credit agreement in November 2022, the interest rate will change from LIBOR to a different benchmark index, which is yet to be determined.March 31, 2023.
Exchange Rate Sensitivity
We face exposure to adverse movements in foreign currency exchange rates as a portion of our revenue, expenses, assets and liabilities are denominated in currencies other than the U.S. Dollar, primarily the British Pound, the Euro and the Australian Dollar. These exposures may change over time as business practices evolve.
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control Over Financial ControlsReporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is involved in legal proceedings, claims, and litigation arising in the ordinary course of business not specifically discussed herein. In the opinion of management, the final disposition of such matters will not have a material adverse effect on the Company’s financial position, cash flows or results of operations.
Item 1A. Risk Factors.
For a discussion of our potential risks and uncertainties, see the risk factor below and the information under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 202130, 2022 (the “Annual Report”).
There have been no material changes to any of the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.30, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
During the quarter ended July 1, 2022, the Company did not repurchase any common stock under the repurchase plan during the quarter ended July 1, 2022, and during the six months ended July 1, 2022March 31, 2023 the Company repurchased 3137 thousand shares of its common stock under the repurchase plan approved by the Company's Board of Directors.plan. As of July 1, 2022,March 31, 2023, the Company had $10.6$14.0 million of authorization remaining under the repurchase plan.
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Balance as of April 1, 2022 |
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April 2, 2022 to April 29, 2022 |
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| $ | 10,608,767 |
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April 30, 2022 to May 27, 2022 |
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| $ | 10,608,767 |
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May 28, 2022 to July 1, 2022 |
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| $ | 10,608,767 |
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Balance as of December 30, 2022 |
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December 31, 2022 to January 27, 2023 |
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| $ | 14,672,248 |
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January 28, 2023 to February 24, 2023 |
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| 37,467 |
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| $ | 18.98 |
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| 37,467 |
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| $ | 13,961,293 |
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February 25, 2023 to March 31, 2023 |
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| $ | 13,961,293 |
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| 37,467 |
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| $ | 18.98 |
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| 37,467 |
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Shares repurchased during the quarter and sixthree months ended July 1, 2022March 31, 2023 under the repurchase plan approved by the Company's Board of Directors do not include 4162 thousand shares and 130 thousand shares, respectively, for a cost of $76 thousand and $2.5$3.5 million respectively, that the Company bought back to satisfy employee net vesting obligations.
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Item 6. Exhibits
Exhibit No. | Exhibit Description | |
3.1 | ||
3.2 | ||
3.3 | ||
3.4 | ||
3.5 | ||
31.1* | Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2* | Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32* | ||
101.INS** | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document. | |
101.SCH** | Inline XBRL Taxonomy Extension Schema | |
101.CAL** | Inline XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF** | Inline XBRL Taxonomy Extension Definition Linkbase | |
101.LAB** | Inline XBRL Taxonomy Extension Label Linkbase | |
101.PRE** | Inline XBRL Taxonomy Extension Presentation Linkbase | |
104** | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
* Filed herewith
** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
The Hackett Group, Inc. | ||
Date: | /s/ Robert A. Ramirez | |
Robert A. Ramirez | ||
Executive Vice President, Finance and Chief Financial Officer |
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