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 September 29, 201730, 2022
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)
|
| 65-0750100 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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1001 Brickell Bay Drive, Suite 3000 Miami, Florida |
| 33131 |
(Address of principal executive offices) |
| (Zip Code) |
(305) (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 Yes☒ NO No☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). YES Yes☒ NO 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 |
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Non-Accelerated Filer |
| ☐ | Smaller Reporting Company |
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| 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 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 November 1, 2017,4, 2022, there were 28,656,33831,703,102 shares of common stock outstanding.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Hackett Group, Inc.
TABLE OF CONTENTS
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Item 1. |
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| 6 | |
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| 7 | |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 6. |
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27 |
PART I — FINANCIALFINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Hackett Group, Inc.
(in thousands, except share data)
(unaudited)
|
| September 29, |
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| December 30, |
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| September 30, |
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| December 31, |
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| 2017 |
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| 2016 |
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| 2022 |
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| 2021 |
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ASSETS |
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Current assets: |
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Cash |
| $ | 16,226 |
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| $ | 19,710 |
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| $ | 67,045 |
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| $ | 45,794 |
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Accounts receivable and unbilled revenue, net of allowance of $2,686 and $2,574 at September 29, 2017 and December 30, 2016, respectively |
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| 55,552 |
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| 47,399 |
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Accounts receivable and contract assets, net of allowance of $1,303 and $2,702 at September 30, 2022 and December 31, 2021, respectively |
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| 52,105 |
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| 50,616 |
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Prepaid expenses and other current assets |
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| 2,897 |
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| 1,704 |
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| 3,237 |
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| 5,766 |
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Total current assets |
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| 74,675 |
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| 68,813 |
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| 122,387 |
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| 102,176 |
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Property and equipment, net |
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| 17,854 |
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| 14,774 |
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| 18,676 |
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| 18,026 |
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Other assets |
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| 4,679 |
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| 3,336 |
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| 263 |
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| 620 |
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Goodwill, net |
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| 84,966 |
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| 72,376 |
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Goodwill |
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| 82,468 |
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| 85,070 |
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Operating lease right-of-use assets |
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| 863 |
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| 1,649 |
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Total assets |
| $ | 182,174 |
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| $ | 159,299 |
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| $ | 224,657 |
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| $ | 207,541 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
| $ | 8,597 |
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| $ | 9,089 |
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| $ | 4,686 |
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| $ | 7,677 |
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Accrued expenses and other liabilities |
|
| 35,971 |
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| 46,725 |
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| 33,898 |
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| 30,297 |
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Contract liabilities (deferred revenue) |
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| 12,415 |
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| 14,616 |
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Operating lease liabilities |
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| 942 |
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| 2,299 |
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Total current liabilities |
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| 44,568 |
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| 55,814 |
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| 51,941 |
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| 54,889 |
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Non-current accrued expenses and other liabilities |
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| 6,936 |
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|
| — |
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Long-term deferred tax liability, net |
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| 10,591 |
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| 10,216 |
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Long-term debt |
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| 22,000 |
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| 7,000 |
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Non-current deferred tax liability, net |
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| 7,684 |
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| 7,325 |
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Operating lease liabilities |
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| 961 |
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| 1,474 |
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Total liabilities |
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| 84,095 |
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| 73,030 |
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| 60,586 |
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| 63,688 |
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Commitments and contingencies |
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Shareholders’ equity: |
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Preferred stock, $.001 par value, 1,250,000 shares authorized; none issued and outstanding |
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| — |
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| — |
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Common stock, $.001 par value, 125,000,000 shares authorized; 55,600,776 and 54,785,193 shares issued at September 29, 2017 and December 30, 2016, respectively |
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| 57 |
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| 55 |
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Preferred stock, $0.001 par value, 1,250,000 shares authorized; none |
|
| — |
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| — |
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Common stock, $0.001 par value, 125,000,000 shares authorized; 60,073,601 and |
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| 60 |
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| 60 |
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Additional paid-in capital |
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| 284,628 |
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| 277,100 |
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| 306,488 |
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| 300,288 |
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Treasury stock, at cost, 26,945,776 and 26,197,981 shares September 29, 2017 and December 30, 2016, respectively |
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| (134,053 | ) |
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| (122,756 | ) | ||||||||
Accumulated deficit |
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| (43,301 | ) |
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| (56,581 | ) | ||||||||
Accumulated comprehensive loss |
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| (9,252 | ) |
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| (11,549 | ) | ||||||||
Treasury stock, at cost, 28,388,144 and 28,357,145 shares September 30, 2022 |
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| (157,929 | ) |
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| (157,294 | ) | ||||||||
Retained earnings |
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| 31,921 |
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| 11,272 |
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Accumulated other comprehensive loss |
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| (16,469 | ) |
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| (10,473 | ) | ||||||||
Total shareholders' equity |
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| 98,079 |
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| 86,269 |
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| 164,071 |
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| 143,853 |
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Total liabilities and shareholders' equity |
| $ | 182,174 |
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| $ | 159,299 |
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| $ | 224,657 |
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| $ | 207,541 |
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The accompanying notes are an integral part of the consolidated financial statements.
The Hackett Group, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
|
| Quarter Ended |
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| Nine Months Ended |
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| Quarter Ended |
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| Nine Months Ended |
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| September 29, |
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| September 30, |
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| September 29, |
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| September 30, |
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| September 30, |
| October 1, |
| September 30, |
| October 1, |
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| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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| 2022 |
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| 2021 |
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| 2022 |
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| 2021 |
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Revenue: |
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Revenue before reimbursements |
| $ | 65,947 |
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| 66,810 |
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| $ | 198,742 |
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| 196,961 |
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| $ | 70,995 |
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| $ | 71,400 |
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| $ | 220,871 |
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| $ | 207,807 |
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Reimbursements |
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| 5,515 |
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| 7,308 |
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| 17,719 |
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| 21,548 |
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| 1,038 |
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| 494 |
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| 2,754 |
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| 770 |
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Total revenue |
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| 71,462 |
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| 74,118 |
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| 216,461 |
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| 218,509 |
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| 72,033 |
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| 71,894 |
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| 223,625 |
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| 208,577 |
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Costs and expenses: |
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Cost of service: |
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Personnel costs before reimbursable expenses (includes $1,876 and $1,450 and $5,160 and $4,216 of stock compensation expense in the quarters and nine months ended September 29, 2017 and September 30, 2016, respectively) |
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| 42,302 |
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| 42,071 |
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| 127,108 |
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| 125,082 |
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Personnel costs before reimbursable expenses (includes $1,652 and $4,801 and $1,670 and $5,296 of non-cash stock based compensation expense in the three and nine months ended September 30, 2022 and October 1, 2021, respectively) |
|
| 42,870 |
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| 45,222 |
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| 134,904 |
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| 129,619 |
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Reimbursable expenses |
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| 5,515 |
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| 7,308 |
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| 17,719 |
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| 21,548 |
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| 1,038 |
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| 494 |
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| 2,754 |
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| 770 |
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Total cost of service |
|
| 47,817 |
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| 49,379 |
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| 144,827 |
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| 146,630 |
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| 43,908 |
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| 45,716 |
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| 137,658 |
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| 130,389 |
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Selling, general and administrative costs (includes $894 and $793 and $2,427 and $2,251 of stock compensation expense in the quarters and nine months ended September 29, 2017 and September 30, 2016, respectively) |
|
| 15,771 |
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| 15,732 |
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| 48,039 |
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| 46,994 |
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Restructuring costs |
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| — |
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| — |
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| 1,293 |
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| — |
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Selling, general and administrative costs (includes $859 and $3,027 and $901 and $2,515 of non-cash stock based compensation expense in the three and nine months ended September 30, 2022 and October 1, 2021, respectively) |
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| 14,616 |
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| 14,773 |
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| 44,993 |
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| 43,713 |
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Restructuring charge reversal |
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| (526 | ) |
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| — |
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| (651 | ) |
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| — |
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Total costs and operating expenses |
|
| 63,588 |
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| 65,111 |
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| 194,159 |
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| 193,624 |
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| 57,998 |
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| 60,489 |
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| 182,000 |
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| 174,102 |
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Income from operations |
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| 7,874 |
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| 9,007 |
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| 22,302 |
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| 24,885 |
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| 14,035 |
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| 11,405 |
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| 41,625 |
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| 34,475 |
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Other expense: |
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Interest expense |
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| (184 | ) |
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| (137 | ) |
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| (401 | ) |
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| (288 | ) | ||||||||||||||||
Other expense, net: |
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Interest expense, net |
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| (14 | ) |
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| (26 | ) |
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| (70 | ) |
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| (76 | ) | ||||||||||||||||
Income from operations before income taxes |
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| 7,690 |
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| 8,870 |
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| 21,901 |
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| 24,597 |
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| 14,021 |
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| 11,379 |
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| 41,555 |
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| 34,399 |
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Income tax expense |
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| 2,401 |
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| 3,382 |
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| 3,988 |
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| 9,281 |
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| 3,655 |
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| 3,248 |
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| 10,469 |
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| 9,368 |
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Income from continuing operations |
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| 10,366 |
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| 8,131 |
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| 31,086 |
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| 25,031 |
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Loss from discontinued operations |
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| — |
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| — |
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| — |
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| (7 | ) | ||||||||||||||||
Net income |
| $ | 5,289 |
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| $ | 5,488 |
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| $ | 17,913 |
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| $ | 15,316 |
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| $ | 10,366 |
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| $ | 8,131 |
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| $ | 31,086 |
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| $ | 25,024 |
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Basic net income per common share: |
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Income per common share from operations |
| $ | 0.18 |
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| $ | 0.19 |
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| $ | 0.62 |
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| $ | 0.52 |
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Weighted average common shares outstanding |
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| 28,765 |
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| 28,579 |
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| 28,891 |
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| 29,251 |
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Income per common share from continuing operations |
| $ | 0.33 |
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| $ | 0.27 |
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| $ | 0.98 |
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| $ | 0.83 |
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Loss per common share from discontinued operations |
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| - |
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| - |
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| - |
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| (0.00 | ) | ||||||||||||||||
Net income per common share |
| $ | 0.33 |
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| $ | 0.27 |
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| $ | 0.98 |
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| $ | 0.83 |
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Diluted net income per common share: |
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Income per common share from operations |
| $ | 0.17 |
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| $ | 0.17 |
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| $ | 0.56 |
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| $ | 0.47 |
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Weighted average common and common equivalent shares outstanding |
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| 31,958 |
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| 32,375 |
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| 32,254 |
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| 32,870 |
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Income per common share from continuing operations |
| $ | 0.32 |
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| $ | 0.25 |
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| $ | 0.97 |
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| $ | 0.76 |
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Loss per common share from discontinued operations |
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| - |
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| - |
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| - |
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| (0.00 | ) | ||||||||||||||||
Net income per common share |
| $ | 0.32 |
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| $ | 0.25 |
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| $ | 0.97 |
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| $ | 0.76 |
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Weighted average common shares outstanding: |
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Basic |
|
| 31,686 |
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| 29,814 |
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| 31,596 |
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| 30,038 |
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Diluted |
|
| 32,309 |
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| 32,876 |
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| 32,124 |
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|
| 32,871 |
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The accompanying notes are an integral part of the consolidated financial statements.
The Hackett Group, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
|
| Quarter Ended |
|
| Nine Months Ended |
|
| Quarter Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| September 29, |
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| September 30, |
|
| September 29, |
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| September 30, |
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| September 30, |
| October 1, |
| September 30, |
| October 1, |
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|
| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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| 2022 |
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| 2021 |
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| 2022 |
|
| 2021 |
| ||||||||
Net income |
| $ | 5,289 |
|
| $ | 5,488 |
|
| $ | 17,913 |
|
| $ | 15,316 |
|
| $ | 10,366 |
|
| $ | 8,131 |
|
| $ | 31,086 |
|
| $ | 25,024 |
|
Foreign currency translation adjustment |
|
| 829 |
|
|
| (484 | ) |
|
| 2,297 |
|
|
| (2,721 | ) |
|
| (1,966 | ) |
|
| (745 | ) |
|
| (5,996 | ) |
|
| (608 | ) |
Total comprehensive income |
| $ | 6,118 |
|
| $ | 5,004 |
|
| $ | 20,210 |
|
| $ | 12,595 |
|
| $ | 8,400 |
|
| $ | 7,386 |
|
| $ | 25,090 |
|
| $ | 24,416 |
|
The accompanying notes are an integral part of the consolidated financial statements.
The Hackett Group, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 29, |
|
| September 30, |
|
| September 30, |
| October 1, |
| |||||
|
| 2017 |
|
| 2016 |
|
| 2022 |
|
| 2021 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net income |
| $ | 17,913 |
|
| $ | 15,316 |
|
| $ | 31,086 |
|
| $ | 25,024 |
|
Plus loss from discontinued operations |
|
| — |
|
|
| 7 |
| ||||||||
Net income from continuing operations |
|
| 31,086 |
|
|
| 25,031 |
| ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Depreciation expense |
|
| 1,841 |
|
|
| 1,875 |
|
|
| 2,468 |
|
|
| 2,552 |
|
Amortization expense |
|
| 1,475 |
|
|
| 825 |
|
|
| 154 |
|
|
| 783 |
|
Amortization of debt issuance costs |
|
| 68 |
|
|
| 84 |
|
|
| 43 |
|
|
| 33 |
|
Non-cash stock compensation expense |
|
| 7,588 |
|
|
| 6,467 |
| ||||||||
Provision (reversal) for doubtful accounts |
|
| 142 |
|
|
| (11 | ) | ||||||||
Loss (gain) on foreign currency translation |
|
| 530 |
|
|
| (566 | ) | ||||||||
Release of valuation allowance |
|
| 1,815 |
|
|
| 2,590 |
| ||||||||
Non-cash stock based compensation expense |
|
| 7,828 |
|
|
| 7,811 |
| ||||||||
Provision for doubtful accounts |
|
| 295 |
|
|
| 168 |
| ||||||||
Gain on foreign currency translation |
|
| (1,383 | ) |
|
| (62 | ) | ||||||||
Deferred income tax expense |
|
| 360 |
|
|
| 300 |
| ||||||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Increase in accounts receivable and unbilled revenue |
|
| (4,935 | ) |
|
| (5,474 | ) | ||||||||
Increase in prepaid expenses and other assets |
|
| (1,172 | ) |
|
| (405 | ) | ||||||||
Increase in accounts receivable and contract assets |
|
| (1,446 | ) |
|
| (17,061 | ) | ||||||||
Decrease in prepaid expenses and other assets |
|
| 3,566 |
|
|
| 253 |
| ||||||||
Decrease in accounts payable |
|
| (902 | ) |
|
| (2,090 | ) |
|
| (2,992 | ) |
|
| (1,071 | ) |
Decrease in accrued expenses and other liabilities |
|
| (3,938 | ) |
|
| (10 | ) | ||||||||
(Decrease) increase in income tax payable |
|
| (1,474 | ) |
|
| 2,211 |
| ||||||||
(Decrease) increase in accrued expenses and other liabilities |
|
| (9,783 | ) |
|
| 1,572 |
| ||||||||
(Decrease) increase in contract liabilities |
|
| (2,201 | ) |
|
| 3,194 |
| ||||||||
Increase in income tax payable |
|
| 6,083 |
|
|
| 2,973 |
| ||||||||
Net cash provided by operating activities |
|
| 18,951 |
|
|
| 20,812 |
|
|
| 34,078 |
|
|
| 26,469 |
|
|
|
|
|
|
|
|
|
| ||||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Purchases of property and equipment |
|
| (4,919 | ) |
|
| (2,068 | ) |
|
| (3,163 | ) |
|
| (2,255 | ) |
Cash consideration paid for acquisitions |
|
| (9,268 | ) |
|
| — |
| ||||||||
Cash acquired in acquisitions |
|
| 261 |
|
|
| — |
| ||||||||
Net cash used in investing activities |
|
| (13,926 | ) |
|
| (2,068 | ) |
|
| (3,163 | ) |
|
| (2,255 | ) |
|
|
|
|
|
|
|
|
| ||||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Debt issuance costs |
|
| (10 | ) |
|
| — |
| ||||||||
Proceeds from ESPP |
|
| 562 |
|
|
| 519 |
|
|
| 407 |
|
|
| 391 |
|
Proceeds from borrowings |
|
| 26,000 |
|
|
| 30,000 |
| ||||||||
Repayment of borrowings |
|
| (11,000 | ) |
|
| (17,000 | ) | ||||||||
Debt issuance costs |
|
| — |
|
|
| (237 | ) | ||||||||
Proceeds from exercise of stock options |
|
| 120 |
|
|
| — |
| ||||||||
Dividends paid |
|
| (8,670 | ) |
|
| (7,163 | ) |
|
| (6,954 | ) |
|
| (6,481 | ) |
Exercise of stock options |
|
| 200 |
|
|
| — |
| ||||||||
Repurchase of common stock |
|
| (15,598 | ) |
|
| (33,976 | ) |
|
| (3,211 | ) |
|
| (14,614 | ) |
Net cash used in financing activities |
|
| (8,506 | ) |
|
| (27,857 | ) |
|
| (9,648 | ) |
|
| (20,704 | ) |
|
|
|
|
|
|
|
|
| ||||||||
Effect of exchange rate on cash |
|
| (3 | ) |
|
| (30 | ) |
|
| (16 | ) |
|
| (26 | ) |
|
|
|
|
|
|
|
|
| ||||||||
Net decrease in cash and cash equivalents |
|
| (3,484 | ) |
|
| (9,143 | ) | ||||||||
Net increase in cash and cash equivalents |
|
| 21,251 |
|
|
| 3,484 |
| ||||||||
Cash at beginning of period |
|
| 19,710 |
|
|
| 23,503 |
|
|
| 45,794 |
|
|
| 49,455 |
|
Cash at end of period |
| $ | 16,226 |
|
| $ | 14,360 |
|
| $ | 67,045 |
|
| $ | 52,939 |
|
|
|
|
|
|
|
|
|
| ||||||||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash paid for income taxes |
| $ | 3,696 |
|
| $ | 4,473 |
| ||||||||
Cash (refunded) paid for income taxes |
| $ | (34 | ) |
| $ | 6,371 |
| ||||||||
Cash paid for interest |
| $ | 292 |
|
| $ | 187 |
|
| $ | 43 |
|
| $ | 43 |
|
Supplemental disclosure of non-cash acquisition financing activities: |
|
|
|
|
|
|
|
| ||||||||
Shares issued to sellers of Jibe Consulting |
| $ | 3,600,000 |
|
| $ | — |
|
The accompanying notes are an integral part of the consolidated financial statements.
6
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 |
|
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 |
|
Issuance of common stock |
|
| 8 |
|
|
| — |
|
|
| (69 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (69 | ) |
Amortization of restricted stock |
|
| — |
|
|
| — |
|
|
| 2,393 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,393 |
|
Dividends declared |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,483 | ) |
|
| — |
|
|
| (3,483 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,366 |
|
|
| — |
|
|
| 10,366 |
|
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,966 | ) |
|
| (1,966 | ) |
Balance at September 30, 2022 |
|
| 60,073 |
|
| $ | 60 |
|
| $ | 306,488 |
|
|
| (28,389 | ) |
| $ | (157,929 | ) |
| $ | 31,921 |
|
| $ | (16,469 | ) |
| $ | 164,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
| 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 |
|
Issuance of common stock |
|
| 67 |
|
|
| — |
|
|
| (156 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (156 | ) |
Treasury stock purchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (113 | ) |
|
| (2,103 | ) |
|
| — |
|
|
| — |
|
|
| (2,103 | ) |
Amortization of restricted stock |
|
| — |
|
|
| — |
|
|
| 2,211 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,211 |
|
Dividends declared |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,192 | ) |
|
| — |
|
|
| (3,192 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,131 |
|
|
| — |
|
|
| 8,131 |
|
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (745 | ) |
|
| (745 | ) |
Balance at October 1, 2021 |
|
| 58,127 |
|
| $ | 58 |
|
| $ | 317,734 |
|
|
| (28,347 | ) |
| $ | (157,070 | ) |
| $ | (2,037 | ) |
| $ | (10,176 | ) |
| $ | 148,509 |
|
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 30, 2016,31, 2021, included in the Annual Report on Form 10-K filed by the Company with the SEC on March 10, 2017.4, 2022. The consolidated results of operations for the quarter and nine months ended September 29, 2017,30, 2022, 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. Effective in the third quarter of 2022, the Company re-assessed its operating segments under the management approach in accordance with ASC 280, Segment Reporting (ASC 280) and has determined that effective in the third quarter of 2022, it has three operating segments: Global S&BT, Oracle Solutions and SAP Solutions which are also its reportable segments. See Note 12 “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. Effective in the third quarter of fiscal year 2022, the Company reorganized its operating and internal reporting structure to better align with its primary market solutions. Due to the reorganization and 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.With the new reporting unit structure, the goodwill previously assigned to Hackett Technology Solutions and The Hackett Group has now been allocated based on the reporting unit's relative fair value. The carrying amount of goodwill by the new reporting units are as follows (in thousands):
|
|
|
|
| Foreign |
|
|
|
| |||||||
|
| December 31, |
|
| Additions/ |
|
| Currency |
|
| September 30, |
| ||||
|
| 2021 |
|
| Adjustments |
|
| Translation |
|
| 2022 |
| ||||
Global S&BT |
| $ | 58,378 |
|
| $ | - |
|
| $ | (2,602 | ) |
| $ | 55,776 |
|
Oracle Solutions |
|
| 16,699 |
|
|
| — |
|
|
| — |
|
|
| 16,699 |
|
SAP Solutions |
|
| 9,993 |
|
|
| — |
|
|
| — |
|
|
| 9,993 |
|
Goodwill |
| $ | 85,070 |
|
| $ | - |
|
| $ | (2,602 | ) |
| $ | 82,468 |
|
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.
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 nine months ended September 30, 2022, the Company recognized $2.0 million and $12.3 million, respectively,of revenue as a result of changes in the contract liability balance, as compared to $1.7 million and $7.7 million for the quarter and nine months ended October 1, 2021, respectively.
Based on the information 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 quarters and nine months ended September 30, 2022 and October 1, 2021 (in thousands):
|
| Quarter Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| October 1, |
|
| September 30, |
|
| October 1, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Global S&BT: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
North America Consulting |
| $ | 35,804 |
|
| $ | 31,482 |
|
| $ | 109,587 |
|
| $ | 90,032 |
|
International Consulting |
|
| 5,789 |
|
|
| 5,603 |
|
|
| 19,173 |
|
|
| 16,924 |
|
Total Global S&BT |
| $ | 41,593 |
|
| $ | 37,085 |
|
| $ | 128,760 |
|
| $ | 106,956 |
|
Oracle Solutions: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Consulting and software support and maintenance |
| $ | 17,682 |
|
| $ | 20,762 |
|
| $ | 59,165 |
|
| $ | 55,763 |
|
Total Oracle Solutions |
| $ | 17,682 |
|
| $ | 20,762 |
|
| $ | 59,165 |
|
| $ | 55,763 |
|
SAP Solutions: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Consulting and software support and maintenance |
| $ | 10,118 |
|
| $ | 12,291 |
|
| $ | 30,880 |
|
| $ | 37,015 |
|
Software license sales |
|
| 2,640 |
|
|
| 1,756 |
|
|
| 4,820 |
|
|
| 8,843 |
|
Total SAP Solutions |
| $ | 12,758 |
|
| $ | 14,047 |
|
| $ | 35,700 |
|
| $ | 45,858 |
|
Total segment revenue |
| $ | 72,033 |
|
| $ | 71,894 |
|
| $ | 223,625 |
|
| $ | 208,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total revenue from the Global S&BT segment, the Oracle Solutions segment and the SAP Solutions segment's consulting and 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.
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, and January 1, 2021, the Company had $1.6 million and $1.5million, respectively, of deferred commissions, of which $0.2 million and $0.9 million was amortized during the quarter and nine months ended September 30, 2022, respectively, and $0.2 million and $0.8 million for the same periods in 2021, respectively. No 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, and cash equivalents, accounts receivable and unbilled revenue,contract assets, accounts payable, accrued expenses and other liabilities and debt.contract liabilities. As of September 29, 201730, 2022 and December 30, 2016,31, 2021, 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.
Impact of Macroeconomic Conditions on the Business
Business Combinations
The Company applies the provisionslevel of ASC 805, Business Combinations, in the accounting for its acquisitions, which requires recognition of the assets acquired and the liabilities assumed at their acquisition date fair values, separately from goodwill. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the tangible and identifiable intangible assets acquired and liabilities assumed. Whilerevenue the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, that may be up to 12 months from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with a corresponding adjustment to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, the impact of any subsequent adjustmentsachieves is included in the consolidated statements of operations.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance on revenue recognition, which provides for a single, principles-based model for revenue recognition and replaces the existing revenue recognition guidance. The guidance is effective for annual and interim periods beginning on or after December 15, 2017 and will replace most existing revenue recognition guidance under U.S. GAAP when it becomes effective. It permits the use of either a retrospective or cumulative effect transition method and early adoption is permitted, however not before December 15, 2016.
7
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation and General Information (continued)
The Company has completed an initial assessment of the impact of the new guidancebased on its existing revenue recognition policiesability to deliver market leading services and planssolutions and to adopt the rule on December 30, 2017, using the cumulative effect methoddeploy skilled teams of adoption.professionals quickly. The guidance requires significantly expanded disclosures around the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, which the Company is currently compiling. While the Company has not fully completed its assessment of the impact of the standard, based on the analysis completed to date, the Company does not currently anticipate that the new rule will have a material impact on its consolidated financial statements.
In February 2016, the FASB issued guidance on leases which supersedes the current lease guidance. The core principle requires lessees to recognize the assets and liabilities that arise from nearly all leases on the balance sheet. Accounting applied by lessors will remain largely consistent with previous guidance. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is assessing the impact of this standard on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued guidance simplifying the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities and classification on the statements of cash flows. Under the new standard, all excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit on the statements of income. An excess income tax benefit arises when the tax deduction of a share-based award for income tax purposes exceeds the compensation cost recognized for financial reporting purposes and, a tax deficiency arises when the compensation cost exceeds the tax deduction. Under current GAAP, excess tax benefits are recognized as additional paid-in capital while tax deficiencies are recognized either as an offset to accumulated excess tax benefits, if any, or on the statements of income.
Management adopted the guidance effective December 31, 2016. As a result of the adoption of this guidance, management made an accounting policy election to recognize the effect of forfeitures in compensation cost when they occur, which had an immaterial impact onCompany’s results of operations are affected by economic conditions, including macroeconomic conditions and financial positionlevels of business confidence. In each of the four quarters of 2021, the Company’s revenue before reimbursements and no impact on cash flows at adoption. Indiluted earnings per share grew when compared to the firstfourth quarter of 2017, the Company recorded no income tax expense2020 reflecting a continuation of improved economic conditions since 2021. However, any reversal of these trends or a prolonged economic downturn as a result of the adoptionimpact of COVID-19 variants, or otherwise, weak or uncertain economic conditions or similar factors could adversely affect the new guidance relating toCompany's clients' financial condition which may further reduce the accounting onclients' demand for the vesting of share-based awards. Excluding the effect of the new guidance, the effective tax rate would have been 34% for certain federal, foreign and state taxes during the nine months ended September 29, 2017.Company's services.
In August 2016, the FASB issued guidance on the classification of certain cash receipts and cash payments. The guidance provides specific clarification on eight cash flow classification issues, including contingent consideration payments made after a business combination. The guidance is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted and the guidance requires a retrospective transition. We do not expect the guidance to have a material impact on our consolidated financial statements.
Reclassifications
Certain prior period amounts in the consolidated financial statements, and notes thereto, have been reclassified to conform to current period presentation.
8
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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.
DilutiveDiluted 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 |
|
| Nine Months Ended |
| ||||||||||||||||||||||||||
| Quarter Ended |
|
| Nine Months Ended |
|
| September 30, |
| October 1, |
| September 30, |
| October 1, |
| ||||||||||||||||||
|
| September 29, |
|
| September 30, |
|
| September 29, |
|
| September 30, |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
|
|
|
|
|
|
|
|
| |||||||||||
Basic weighted average common shares outstanding |
|
| 28,764,661 |
|
|
| 28,579,237 |
|
|
| 28,891,301 |
|
|
| 29,251,459 |
|
|
| 31,685,621 |
|
|
| 29,813,530 |
|
|
| 31,595,814 |
|
|
| 30,038,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unvested restricted stock units and common stock subject to vesting requirements issued to employees and non-employees |
|
| 928,103 |
|
|
| 1,472,927 |
|
|
| 1,008,159 |
|
|
| 1,327,491 |
|
|
| 622,893 |
|
|
| 625,680 |
|
|
| 519,964 |
|
|
| 460,058 |
|
Common stock issuable upon the exercise of stock options and SARs |
|
| 2,264,901 |
|
|
| 2,323,333 |
|
|
| 2,354,767 |
|
|
| 2,291,271 |
|
|
| — |
|
|
| 2,436,600 |
|
|
| 8,593 |
|
|
| 2,373,075 |
|
Dilutive weighted average common shares outstanding |
|
| 31,957,665 |
|
|
| 32,375,498 |
|
|
| 32,254,227 |
|
|
| 32,870,220 |
|
|
| 32,308,514 |
|
|
| 32,875,810 |
|
|
| 32,124,371 |
|
|
| 32,871,382 |
|
Approximately 0.9 million3 thousand shares and 0.8 million2 thousand sharesof common stock equivalents were excluded from the computations of diluted net income per common share for the quarter and nine months ended September 29, 2017,30, 2022, respectively, as compared to 0.8 million2 thousand shares for both the quarter and 0.9 million for the same periods in 2016,nine months ended October 1, 2021, as their inclusion would have had an anti-dilutive effect on diluted net income per common share.
3. Accounts Receivable and Unbilled Revenue,Contract Assets, Net
Accounts receivable and unbilled revenue,contract assets, net, consisted of the following (in thousands):
|
| September 29, |
|
| December 30, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2017 |
|
| 2016 |
|
| 2022 |
|
| 2021 |
| ||||
Accounts receivable |
| $ | 39,614 |
|
| $ | 39,335 |
|
| $ | 29,435 |
|
| $ | 30,732 |
|
Unbilled revenue |
|
| 18,624 |
|
|
| 10,638 |
| ||||||||
Contract assets (unbilled revenue) |
|
| 23,973 |
|
|
| 22,586 |
| ||||||||
Allowance for doubtful accounts |
|
| (2,686 | ) |
|
| (2,574 | ) |
|
| (1,303 | ) |
|
| (2,702 | ) |
Accounts receivable and unbilled revenue, net |
| $ | 55,552 |
|
| $ | 47,399 |
| ||||||||
Accounts receivable and contract assets, net |
| $ | 52,105 |
|
| $ | 50,616 |
|
Accounts receivable is net of uncollected advanced billings. UnbilledContract assets represents revenue includes recognized recoverable costs and accrued profits on contracts for which billings hadservices performed that have not been presented to clients.invoiced.
9
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
|
| September 29, |
|
| December 30, |
|
| September 30, |
| December 31, |
| |||||
|
| 2017 |
|
| 2016 |
|
| 2022 |
|
| 2021 |
| ||||
Accrued compensation and benefits |
| $ | 10,062 |
|
| $ | 4,412 |
|
| $ | 8,790 |
|
| $ | 7,730 |
|
Deferred employer's payroll taxes |
|
| - |
|
|
| 1,780 |
| ||||||||
Accrued bonuses |
|
| 3,318 |
|
|
| 13,038 |
|
|
| 10,159 |
|
|
| 13,753 |
|
Accrued dividend payable |
|
| — |
|
|
| 4,023 |
|
|
| 3,483 |
|
|
| - |
|
Deferred revenue |
|
| 11,959 |
|
|
| 10,975 |
| ||||||||
Restructuring liability |
|
| 125 |
|
|
| 740 |
| ||||||||
Accrued sales, use, franchise and VAT tax |
|
| 2,647 |
|
|
| 3,791 |
|
|
| 1,923 |
|
|
| 1,783 |
|
Non-cash stock compensation accrual |
|
| 2,507 |
|
|
| 4,225 |
| ||||||||
Income tax payable |
|
| 2,953 |
|
|
| 4,437 |
| ||||||||
Income taxes payable |
|
| 6,083 |
|
|
| - |
| ||||||||
Non-cash stock based compensation accrual |
|
| 937 |
|
|
| 1,357 |
| ||||||||
Other accrued expenses |
|
| 2,525 |
|
|
| 1,824 |
|
|
| 2,398 |
|
|
| 3,154 |
|
Total accrued expenses and other liabilities |
| $ | 35,971 |
|
| $ | 46,725 |
|
| $ | 33,898 |
|
| $ | 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.
12
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
5. Restructuring Costs
In the prior quarter ended June 30, 2017,During 2020, the Company recorded restructuring costs of $1.3$10.5 million, of which $5.7 million was primarily related to the transitionreduction of resources driven by our migration from on-premise software to cloud-based implementations, as well as the Jibe acquisition,staff in Europe and the rationalization of global resources as a result of the emergence of RPA (“Robotic Process Automation”) related engagements from the Aecus acquisition.Australia. As of September 29, 2017,30, 2022, the Company did not have anyhad $0.1 million of remaining commitments related to restructuring. 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 (reversal) |
|
| (22 | ) |
|
| 11 |
|
|
| (11 | ) |
Accrual balance at July 1, 2022 | $ |
| 22 |
| $ |
| 389 |
| $ |
| 411 |
|
Cash paid |
|
| — |
|
|
| 11 |
|
|
| 11 |
|
Expense (reversal) |
|
| — |
|
|
| (297 | ) |
|
| (297 | ) |
Accrual balance at September 30, 2022 | $ |
| 22 |
| $ |
| 103 |
| $ |
| 125 |
|
The restructuring charge reversal also includes an additional $0.2 million and $0.3 million in the third quarter of 2022 and first nine months of 2022 related to the early termination of operating lease liabilities.
6. Leases
6.
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 nine months ended September 30, 2022 (in thousands):
Operating lease cost |
| $ | 894 |
|
|
|
|
| |
Total net lease costs |
| $ | 894 |
|
The weighted average remaining lease term is 1.7 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 nine months ended September 30, 2022, the Company paid $0.6 million and $1.8 million, respectively, from operating cash flows for its operating leases.
Future minimum lease payments under non-cancellable operating leases as of September 30, 2022, were as follows (in thousands):
2022 (excluding the nine months ended September 30, 2022) |
| $ | 522 |
|
2023 |
|
| 897 |
|
2024 |
|
| 556 |
|
Thereafter |
|
| - |
|
Total lease payments |
|
| 1,975 |
|
Less imputed interest |
|
| (237 | ) |
Total |
| $ | 1,738 |
|
As of September 30, 2022, the Company does not have any additional operating leases that have not yet commenced.
13
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
7. Credit Facility
In February 2012, theThe Company entered intohad a credit agreement with Bank of America, N.A. (“Bank of America”), pursuant to which Bank of America agreed to lend the Companyprovided for borrowing up to $20.0$45.0 million pursuant to a revolving line of credit (the “Revolver”) and up to $47.0 million pursuant towhich had a term loan (the “Term Loan”). The Company has fully utilized and repaid its Term Loan.
On May 9, 2016, the Company amended and restated the credit agreement with Bank of America to:
Provide for up to an additional $25.0 million of borrowing under the Revolver for a total borrowing capacity of $45.0 million; and
Extend the maturity date onof November 30, 2022 (as amended the Revolver to May 9, 2021, five years from the date of this amendment of the Credit Agreement.
The obligations of Hackett under the Revolver are guaranteed by active existing and future material U.S. subsidiaries of Hackett (the “U.S. Subsidiaries”“Credit Agreement”), 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).
During the quarter and nine months ended September 29, 2017, the Company had net borrowings of $2.0 million and $15.0 million, respectively, under the Revolver and had a balance of $22.0 million outstanding as of September 29, 2017. The interest rates per annum applicable to borrowings under Revolver will be, at the Company’s option, equal to either a base rate or a LIBOR base rate, plus an applicable margin percentage. The applicable margin percentage is based on the consolidated leverage ratio, as defined in the
10
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
6. Credit Facility (continued)
Credit Agreement. As of September 29, 2017,30, 2022 and December 31, 2021, the Company did not have any outstanding balance under the revolving line of credit.As of September 30, 2022, the applicable margin percentage was 1.50%1.50% per annum based on the consolidated leverage ratio in the case of LIBOR rate advances, and 0.75%0.75% per annum, in the case of base rate advances. The interest rate of the commitment fees as of September 29, 2017,30, 2022, was 2.73%0.125%.
The Company iswas 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 September 29, 2017,30, 2022, the Company was in compliance with all covenants.
7.On November 7, 2022, the Company entered into a third amended and restated credit agreement (the “Amended Credit Agreement”) with Bank of America, N.A., as administrative agent, and the lenders party thereto, pursuant to which the lenders agreed to amend and restate the Credit Agreement, in order to extend the maturity date of the revolving line of credit and provide the Company with an additional $55 million in borrowing capacity, for an aggregate amount of up to $100 million from time to time pursuant to a revolving line of credit (the “Credit Facility”). As of November 7, 2022, there were no outstanding balances under the Credit Facility. The Credit Facility matures on November 7, 2027.
The obligations of the Company under the Amended Credit Agreement are guaranteed by existing and future material domestic subsidiaries of the Company (the “Guarantors”) and are secured by substantially all of the existing and future property and assets of the Company and the Guarantors.
The interest rates per annum applicable to loans under the Credit Facility will be, at the Company’s option, equal to either a base rate or a Bloomberg Short-Term Bank Yield Index (“BSBY”) rate, in each case, plus an applicable margin percentage. The applicable margin percentage is determined from time to time under the Amended Credit Agreement based on a consolidated leverage ratio, and ranges from 1.50% to 2.25% per annum in the case of BSBY rate advances, and 0.75% to 1.50% per annum in the case of base rate advances. The initial applicable margin percentage is 1.75% per annum in the case of BSBY rate advances, and 1.00% per annum in the case of base rate advances. A commitment fee is also payable on unused commitments of the Credit Facility, and varies between 0.125% and 0.50% per annum depending on a consolidated leverage ratio, with the initial level being 0.250% per annum.
The Amended Credit Agreement contains customary representations, warranties, indemnities and affirmative and negative covenants. The negative covenants include, among others, certain limitations on the ability to: incur liens and indebtedness; consummate mergers, consolidations or asset sales; make guarantees and investments; and pay dividends or distributions in respect of the Company’s shares. In addition, the Amended Credit Agreement contains financial covenants that require the Company to maintain, on a consolidated basis (i) a consolidated fixed charge coverage ratio of at least 1.50 to 1.00, and (ii) a consolidated leverage ratio of not more than 3.50 to 1.00, in each case as calculated in accordance with the Amended Credit Agreement.
The Amended Credit Agreement also includes customary events of default, including, among others, the failure to make payments under the Amended Credit Facility when due, bankruptcy, certain judgments, breaches of representations and warranties, breaches of covenants and the occurrence of certain events, including cross default to other indebtedness of the Company and its subsidiaries.
8. Stock Based Compensation
During the quarter and nine months ended September 29, 2017,30, 2022, the Company issued 672,59222,145 and734,464 restricted stock units at a weighted average grant-date fair value of $16.61$20.56and$19.44 per share.share, respectively. As of September 29, 2017,30, 2022, the Company had 1,553,2401,324,714 restricted stock units outstanding at a weighted average grant-date fair value of $12.81 $17.86per share. As of September 29, 2017, $11.2 30, 2022, $14.3million of total restricted stock unit compensation expense related to unvested awards had not been recognized and is expected to be recognized over a weighted average period of approximately 2.02.5 years.
During the nine months ended September 29, 2017, 182,279 shares of common stock subject to vesting requirements were issued. These shares were issued to settle the equity portion of the closing consideration to the sellers in the acquisition of Jibe Consulting in May 2017 and will vest over four years. See Note 12 “Acquisitions” for further details. As of September 29, 2017,30, 2022, the Company had 531,0242,945 shares of common stock subject to vesting requirements outstanding at a weighted average grant-date fair value of $12.85 $16.17per share. As of September 29, 2017, $4.8 million30, 2022, $15thousand 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 3.1 years.1.0 year.
11Forfeitures for all of the Company’s outstanding equity awards are recognized as incurred.
14
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Stock Appreciation Rights (“SARs”)
As of September 30, 2022, the Company did not have any outstanding SARs. In 2012, the Company’s Chief Executive Officer (“CEO”) and Chief Operating Officer (“COO”) agreed to give up 50% of their equity incentive compensation awards under the 1998 Stock Option and Incentive Plan for the years 2012 through 2015 in exchange for December 2021, 2.9 million SARs were exercised with an exercise price of $4.00, only to be earned upon the achievement of 50% growth in pro forma earnings$4.00 per share and 50% growth in pro forma EBITDA from a base year of 2011. The grants would have expired if neither target were achieved during a six-year term.share.
In the first quarter of 2015, the outstanding SARs awards for the achievement of 50% growth in pro forma earnings per share vested with the Audit Committee’s approval of the Company’s 2014 financial statements. In the first quarter of 2016, the outstanding SARs awards for the Company’s achievement of over 50% growth of pro forma EBITDA vested with the Audit Committee’s approval of the Company’s 2015 financial statements. As of September 29, 2017, no SARs had been exercised. By the end of 2015, all non-cash stock compensation expense relating to the outstanding SARs had been expensed.
Treasury Stock
Under the Company’s share repurchase plan, the Company may buy backrepurchase shares of its outstanding common stock either on the open market or through privately negotiated transactions subject to market conditions and trading restrictions. During the quarter, the Company did not repurchase any outstanding common stock. During the nine months ended September 29, 2017,30, 2022, the Company repurchased 18231 thousand of its common stock at an average price of $20.50 for a total cost of $0.6 million. As of September 30, 2022 the Company had a total authorization remaining of $10.6 million under its repurchase plan with atotal authorization of $167.2 million. Subsequent to September 30, 2022, the Company's Board of Directors approved an additional $120.0 million authorization which increased the repurchase plan remaining authorization to $130.6 million.
During the quarter and nine months ended October 1, 2021, the Company repurchased 113 thousand shares and 738 thousand shares of its common stock at an average price of $13.73$18.68 and $17.35 per share for a total cost of $2.5 million. During the nine months ended September 29, 2017, the Company repurchased 748 thousand shares of its common stock at an average price of $15.11 per share for a total cost of $11.3 million. During the quarter ended September 29, 2017, the Company’s Board of Directors approved an additional $5.0$2.1 million authorization under the repurchase plan increasing the total authorization to $137.2 million. As of September 29, 2017, the Company had $3.1and $12.8 million, available under its share repurchase plan authorization.respectively.
During the quarter ended September 30, 2016, the Company repurchased 30 thousand shares of its common stock at an average price of $14.84 per share for a total cost of $449 thousand. During the nine months ended September 30, 2016, the Company repurchased 2.1 million shares of its common stock at an average price of $14.60 per share for a total cost of $30.1 million.
The shares repurchased under the share repurchase plan during the quarter and nine months ended September 29, 2017,30, 2022, do not include 683 thousandshares and 262134 thousandshares, respectively, which the Company bought back to satisfy employee net vesting obligations for a cost of $1.0 million$69 thousand and $4.3$2.6 million, respectively. During the quarter and nine months ended September 30, 2016,October 1, 2021, the Company bought back 48 thousand shares and 288118 thousand shares, respectively, at a cost of $50$155 thousand and $3.9$1.8 million, respectively, to satisfy employee net vesting obligations.
On May 6, 2016, the Company’s Board of Directors approved the repurchase of 697 thousand shares of its common stock from the Company’s CEO, 732 thousand shares of its common stock from the Company’s COO, and 73 thousand shares of its common stock from the Company’s Chief Financial Officer (“CFO”) for a total of approximately 1.5 million shares at a purchase price of $14.77 per share. The transaction was approved by the Audit Committee of the Board of Directors which is comprised solely of independent directors and was effected as part of the Company’s share repurchase program. Following the transaction, Mr. Fernandez, Mr. Dungan and Mr. Ramirez remained the beneficial owners of 11.8%, 4.9% and 0.9% shares, respectively, of the outstanding common stock. Following the transaction, approximately $3.1 million remained available under the Company’s share repurchase program. One of the primary reasons for this transaction was to lower the Company’s weighted average shares outstanding which had increased by 11% from the first quarter of 2016 as a result of the vesting of the SARs and appreciation in share price. The repurchase reduced weighted average shares outstanding by approximately 4% and is $0.03 to $0.04 accretive on an annualized basis. Based on the most recent SEC filings, including shares of Company common stock beneficially owned and shares that could be acquired upon the exercise of the SARs, Mr. Fernandez continues to be the single largest beneficial shareholder of the Company.
In reviewing and approving the transaction, the independent directors of the Board considered, among other factors, the benefits to the Company’s stockholders of this transaction such as the fact that (i) the share repurchase transaction is expected to be accretive to earnings per share, and (ii) the transaction was a unique opportunity to repurchase a large block of shares in an orderly manner. The transaction was funded from borrowings under the Company’s Revolver which was amended on May 9, 2016 in order to provide an additional $25.0 million in borrowing capacity for an aggregate amount of up to $45.0 million from time to time.
12
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
8. Shareholders’ Equity (continued)
Dividend Program
In 2016,2021, the Company increased the annual dividend from $0.20$0.38 per share to $0.26$0.40 per share to be paid on a semi-annualquarterly basis and during the first quarter of 2022, the Company further increased the annual dividend to $0.44 per share. During the nine months of 2022, the Company declared three quarterly dividends to its shareholders for an aggregate of $3.5 million each quarter, which resultedwere paid in aggregate dividends of $4.0 million paid to shareholders of record on April 2022, July 11, 20162022 and December 22, 2016, respectively.October 2022. These dividends were paid from U.S. domestic sources and are accounted for as an increasea decrease to accumulated deficit. The dividend declared in December 2016 was paid in January 2017. During the quarter ended March 31, 2017, the Company increased its annual dividend to $0.30 per share to be paid on a semi-annual basis. The first semi-annual dividend for 2017 was paid on July 10, 2017, for a total of $4.6 million.retained earnings. Subsequent to quarter end,September 30, 2022, the Company declared its semi-annualfourth quarter dividend of $0.15 per share for shareholders of record as of December 22, 2017, which isin 2022 to be paid on in January 5, 2018.2023.
9.10. Transactions with Related Parties
During the nine months ended September 29, 2017,30, 2022, the Company bought back 5931 thousand shares of its common stock from members of its Board of Directors for $1.2$0.6 million, or $20.13$20.50 per share.
11. Litigation
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.
15
The Hackett Group, Inc.
11. GeographicNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
12. Segment Information and Geographical Data
Effective in the third quarter of fiscal year 2022, the Company has reorganized its operating and internal reporting structure to better align with its primary market solutions. Due to the reorganization and in accordance with ASC 280, management has made the determination to present 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.
Due to the change in reportable segments, the Company has presented the segment information for the three and nine months ended September 30, 2022, and October 1, 2021, respectively. 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 CODM 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 quarter and nine months ended September 30, 2022 and October 1, 2021, along with the items necessary to reconcile the segment information to the totals reported in the accompanying consolidated financial statements (in thousands):
|
| Quarter Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| October 1, |
|
| September 30, |
|
| October 1, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Global S&BT: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total revenue* |
| $ | 41,593 |
|
| $ | 37,085 |
|
| $ | 128,760 |
|
| $ | 106,956 |
|
Segment profit |
|
| 14,030 |
|
|
| 11,847 |
|
|
| 45,939 |
|
|
| 34,517 |
|
Oracle Solutions: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total revenue* |
| $ | 17,682 |
|
| $ | 20,762 |
|
| $ | 59,165 |
|
| $ | 55,763 |
|
Segment profit |
|
| 3,313 |
|
|
| 5,417 |
|
|
| 12,147 |
|
|
| 12,062 |
|
SAP Solutions: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total revenue* |
| $ | 12,758 |
|
| $ | 14,047 |
|
| $ | 35,700 |
|
| $ | 45,858 |
|
Segment profit |
|
| 3,847 |
|
|
| 3,716 |
|
|
| 9,238 |
|
|
| 15,571 |
|
Total Company: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total revenue* |
| $ | 72,033 |
|
| $ | 71,894 |
|
| $ | 223,625 |
|
| $ | 208,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total segment profit |
| $ | 21,190 |
|
| $ | 20,980 |
|
| $ | 67,324 |
|
| $ | 62,150 |
|
Items not allocated to segment level: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Corporate general and administrative expenses** |
|
| 4,332 |
|
|
| 5,916 |
|
|
| 15,899 |
|
|
| 16,528 |
|
Non-cash stock based compensation expense |
|
| 2,511 |
|
|
| 2,571 |
|
|
| 7,828 |
|
|
| 7,811 |
|
Depreciation and amortization |
|
| 838 |
|
|
| 1,088 |
|
|
| 2,623 |
|
|
| 3,336 |
|
Restructuring charge reversal |
|
| (526 | ) |
|
| - |
|
|
| (651 | ) |
|
| - |
|
Interest expense, net |
|
| 14 |
|
|
| 26 |
|
|
| 70 |
|
|
| 76 |
|
Income from continuing operations before taxes |
| $ | 14,021 |
|
| $ | 11,379 |
|
| $ | 41,555 |
|
| $ | 34,399 |
|
*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.
16
The Hackett Group, InformationInc.
Revenue,NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
12. Segment Information and Geographical Data (continued)
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 |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| October 1, |
|
| September 30, |
|
| October 1, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
United States |
| $ | 62,505 |
|
| $ | 62,270 |
|
| $ | 193,614 |
|
| $ | 181,488 |
|
Europe |
|
| 5,311 |
|
|
| 6,072 |
|
|
| 17,952 |
|
|
| 17,271 |
|
Other (Australia, Canada, India and Uruguay) |
|
| 4,217 |
|
|
| 3,552 |
|
|
| 12,059 |
|
|
| 9,818 |
|
Total revenue |
| $ | 72,033 |
|
| $ | 71,894 |
|
| $ | 223,625 |
|
| $ | 208,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended |
|
| Nine Months Ended |
| ||||||||||
| September 29, |
|
| September 30, |
|
| September 29, |
|
| September 30, |
| |||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
| $ | 60,148 |
|
| $ | 64,136 |
|
| $ | 174,015 |
|
| $ | 188,666 |
|
International (primarily European countries) |
|
| 11,314 |
|
|
| 9,982 |
|
|
| 42,446 |
|
|
| 29,843 |
|
Total revenue |
| $ | 71,462 |
|
| $ | 74,118 |
|
| $ | 216,461 |
|
| $ | 218,509 |
|
Long-lived assets are attributable to the following geographic areas (in thousands):
|
| September 29, |
|
| December 30, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2017 |
|
| 2016 |
|
| 2022 |
|
| 2021 |
| ||||
Long-lived assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
North America |
| $ | 90,218 |
|
| $ | 78,200 |
| ||||||||
International (primarily European countries) |
|
| 17,281 |
|
|
| 12,286 |
| ||||||||
United States |
| $ | 89,211 |
|
| $ | 89,199 |
| ||||||||
Europe |
|
| 12,620 |
|
|
| 15,584 |
| ||||||||
Other (Australia, Canada, India and Uruguay) |
|
| 439 |
|
|
| 582 |
| ||||||||
Total long-lived assets |
| $ | 107,499 |
|
| $ | 90,486 |
|
| $ | 102,270 |
|
| $ | 105,365 |
|
As of September 29, 201730, 2022 and December 30, 2016,31, 2021, foreign assets included $15.0 $12.4million and $11.9$15.1 million, respectively, of goodwill related to prior acquisitions.
13. Subsequent Event
In the following table, the Hackett Group service group encompasses Benchmarking, Business Transformation, Executive Advisory, Oracle Cloud Applications, EPM and EPM Application Maintenance and Support groups. The SAP Solutions service group encompasses SAP ERP Implementation and SAP Maintenance groups (in thousands):
|
| Quarter Ended |
|
| Nine Months Ended |
| ||||||||||
| September 29, |
|
| September 30, |
|
| September 29, |
|
| September 30, |
| |||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
The Hackett Group |
|
| 60,789 |
|
|
| 62,610 |
|
| $ | 183,510 |
|
| $ | 186,302 |
|
SAP Solutions |
|
| 10,673 |
|
|
| 11,508 |
|
|
| 32,951 |
|
|
| 32,207 |
|
Total revenue |
| $ | 71,462 |
|
| $ | 74,118 |
|
| $ | 216,461 |
|
| $ | 218,509 |
|
13
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Jibe Consulting, Inc.
Effective May 1, 2017,On November 8, 2022, the Company acquired certain assetsannounced that it plans to launch a tender offer to purchase up to $120.0 million in value of shares of its common stock at a price not greater than $20.50 nor less than $23.50 per Share, to the seller in cash, less any applicable withholding taxes and liabilitieswithout interest.
The Company will conduct the tender offer through a procedure commonly called a modified “Dutch auction.” This procedure will allow stockholders to select the price, within the specified price range, at which stockholders are willing to sell their shares. The tender offer will only be made pursuant to the offer to purchase, the related letter of Jibe Consulting, Inc. (“Jibe”), a U.S.- based Oracle E-Business Suite (“EBS”)transmittal and Oracle Cloud Business Application implementation firm. the other tender offer materials which the Company will file with the Securities and Exchange Commission.
The acquisition of Jibe enhancestender offer will be made pursuant to the Company’s Cloud Application capabilities and strongly complements its market leading EPM transformation and technology implementation group.
increased share repurchase authorization which was increased by $120.0 million subsequent to September 30, 2022. The sellers’ purchase consideration was $5.4 million in cash, not subjectCompany intends to vesting, and $3.6 million inpay for the shares of the Company’s common stock, subject to vesting. The equity that was issued has a four-year vesting term and will be recorded as compensation expense over the respective vesting period. In addition, the sellers have the opportunity to earn an additional $6.6 million in cash and $4.4 million in Company common stock based on the achievement of performance targets over the 18 months period following closing for a total of $11.0 million in contingent consideration; a portion of which will be allocated to key employees in both cash and Company stock. The cash related to the contingent consideration which is to be paid to the sellers is not subject to service vesting and has been accounted for as part of the purchase consideration. The cash related to the contingent consideration, which is to be paid to the key employees, is subject to service vesting and is being accounted for as compensation expense. This contingent liability has been recordedrepurchased in the consolidated balance sheet as non-current accrued expensestender offer with a combination of cash on hand and other liabilities. The equity related to the contingent consideration will be subject to service vesting and will be recorded as compensation expense over the respective vesting period. As of September 29, 2017, the Company had recorded $1.0 million of acquisition-related compensation expense and non-cash stock compensation related to the equity portion of the closing consideration and the equity portion of the contingent consideration. The initial cash consideration was funded from borrowingsborrowed under the Company’s Revolver.Credit Facility.
The purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The fair value of identifiable intangible assets acquired was based on estimates and assumptions made by management at the time of the acquisition. Management is currently working to complete the valuation of identified intangible assets, goodwill and related deferred income taxes. As additional information, as of the acquisition date, becomes available and as management completes its evaluation, the preliminary purchase price allocation may be revised during the remainder of the measurement period (which will not exceed 12 months from the acquisition date). Any such revisions or changes may be material as the fair values of the tangible and intangible assets acquired and liabilities assumed are finalized. The following table presents the preliminary purchase price allocation of the assets acquired and liabilities assumed, based on the fair values (in thousands):
|
| Purchase Price |
| |
| Allocation |
| ||
Total purchase consideration |
| $ | 11,293 |
|
Accounts receivable |
|
| 1,932 |
|
Other current assets |
|
| 59 |
|
Total current assets acquired |
|
| 1,991 |
|
Intangible assets |
|
| 931 |
|
Goodwill |
|
| 9,538 |
|
Total assets |
|
| 12,460 |
|
Other accrued expenses |
|
| 1,167 |
|
Total liabilities acquired |
|
| 1,167 |
|
Purchase consideration on acquisition |
| $ | 11,293 |
|
The recognized goodwill is primarily attributable to the benefits the Company expects to derive from enhanced market opportunities. The acquired intangible assets with definite lives are amortized over periods ranging from 2 to 5 years. The following table presents the preliminary intangible assets acquired from Jibe:
|
| Amount |
|
| Useful Life | |
Category |
| (in thousands) |
|
| (in years) | |
Customer Base |
| $ | 140 |
|
| 5 |
Customer Backlog |
|
| 325 |
|
| 2 |
Non-Compete |
|
| 466 |
|
| 5 |
|
| $ | 931 |
|
|
|
1417
The Hackett Group, Inc.
NOTES TO CONSOLIDATEDITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTSCONDITION AND RESULTS OF OPERATIONS.
(unaudited)
The acquisition was not material to the Company's results of operations, financial position, or cash flows and therefore, the pro forma impact of these acquisitions is not presented. Since the acquisition date through September 29, 2017, Jibe contributed $7.6 million of revenue before reimbursable expenses and contribution before depreciation, amortization, interest, corporate overhead allocation and taxes of $0.7 million. The acquisition related costs incurred in the second quarter of 2017 totaled $0.2 million and were all classified in selling, general and administrative costs in the Company’s consolidated statements of operations. All goodwill is expected to be deductible for tax purposes.
Aecus Limited
Effective April 6, 2017, the Company acquired 100% of the equity of the U.K.-based operations of Aecus Limited (“Aecus”), a European Outsourcing Advisory and Robotics Process Automation (“RPA”) consulting firm. This acquisition strongly complements the global strategy and business transformation offerings of the Hackett Group.
The sellers’ purchase consideration was £3.2 million in cash. In addition, the sellers have the opportunity to earn an additional £2.4 million in contingent consideration in cash based on the achievement of performance targets achieved over the next 12 months and key personnel have the opportunity to earn £0.3 million in cash and £0.3 million in the Company’s common stock. The contingent consideration for the selling shareholders and key personnel is subject to performance and service periods and will be accounted for as compensation expense and in non-current accrued expenses and other liabilities. As of September 29, 2017, the Company had recorded a total of $0.9 million of acquisition-related compensation expense and acquisition non-cash stock compensation expense for the cash and equity portion of the contingent consideration. The closing purchase consideration was funded with the Company’s available funds.
The purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The fair value of identifiable intangible assets acquired was based on estimates and assumptions made by management at the time of the acquisition. Management is currently working to complete the valuation of identified intangible assets, goodwill and related deferred income taxes. As additional information, as of the acquisition date, becomes available and as management completes its evaluation, the preliminary purchase price allocation may be revised during the remainder of the measurement period (which will not exceed 12 months from the acquisition date). Any such revisions or changes may be material as the fair values of the tangible and intangible assets acquired and liabilities assumed are finalized. The following table presents the preliminary purchase price allocation of the assets acquired and liabilities assumed, based on the fair values (in thousands):
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15
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The recognized goodwill is primarily attributable to the benefits the Company expects to derive from enhanced market opportunities. The acquired intangible assets with definite lives are amortized over periods ranging from 2 to 5 years. The following table presents the preliminary intangible assets acquired from Aecus:
|
| Amount |
|
| Useful Life | |
Category |
| (in thousands) |
|
| (in years) | |
Customer Base |
| £ | 455 |
|
| 5 |
Customer Backlog |
|
| 52 |
|
| 2 |
Non-Compete |
|
| 1,008 |
|
| 5 |
|
| £ | 1,515 |
|
|
|
The acquisition was not material to the Company's results of operations, financial position, or cash flows and therefore, the pro forma impact of these acquisitions is not presented. From acquisition date through the month ended September 29, 2017, Aecus has contributed $2.6 million of revenue before reimbursable expenses and contribution before depreciation, amortization, interest, corporate overhead allocation and taxes of $0.5 million. The acquisition related costs incurred during the first nine months of 2017 totaled $0.1 million and were all classified in selling, general and administrative costs in the Company’s consolidated statements of operations. The goodwill and intangibles resulting from this transaction are not expected to be deductible under UK tax regulations.
Chartered Institute of Management Accountants (Subsequent Event)
Subsequent to the quarter ended September 29, 2017, Hackett-REL, Ltd., a subsidiary of the Company located in the United Kingdom, acquired The Chartered Institute of Management Accountants' share of the Certified GBS Professionals program. This acquisition allows those studying under the program and their employers to benefit further from the Company’s sector specific expertise and focus on the growing global business services market. Purchase consideration was $2.0 million in cash and was funded with the Company’s available funds. Also in connection with this transaction, the Alliance and Program Development Agreement between the Company, Hackett-REL, Ltd and The Chartered Institute of Management Accountants was terminated.
As a result of the short period between the acquisition date and the date of the issuance of the Company’s third quarter consolidated financial statements, all of the information required to be disclosed by ASC 805 has not yet been completed.
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.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, 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 and our ability to mitigate or manage disruptions posed by 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 the geopolitical conflict involving Russia and Ukraine on our business and changes in general economic conditions, inflation, interest rates and our ability to obtain additional debt financing through additional borrowingsif 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 an amendment toItem 1A, “Risk Factors” of our existing credit facility.Annual Report on Form 10-K. An additional description of our risk factors is set forthdescribed in our Annual Report on Form 10-K for the year ended December 30, 2016.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
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 more than 13,000nearly 20,000 benchmark and performance studies over 2327 years at over 5,1007,000 of the world’s leading companies.
Impact of Macroeconomic Conditions on Our Business
The level of revenue we achieve is based on its 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 the following discussion, “The Hackett Group” encompasses our Benchmarking, Business Transformation, Executive Advisory, Enterprise Performance Management (“EPM”), EPM Application Maintenance and Support (“AMS”) and Oracle Cloud Applications groups. “SAP Solutions” encompasses our SAP ERP Implementation and SAP Maintenance groups.
NON-GAAP FINANCIAL INFORMATION
Adjusted non-GAAP information is provided to enhance the understandingeach of the financial performancefour quarters of 2021, our businessrevenue before reimbursements and diluted earnings per share grew when compared to prior periods and is reconciled tothe fourth quarter of 2020 reflecting a continuation of improved economic conditions since 2021. However, any reversal of these trends or a prolonged economic downturn as a result of the impact of COVID-19 variants, or otherwise, weak or uncertain economic conditions or similar factors could adversely affect our GAAP information inclients' financial condition which may further reduce the tables below. Inclients' demand for our quarterly earnings announcements, we refer to adjusted non-GAAP information as “pro-forma”, which is unaudited. We also present earnings before income taxes, interest, depreciation and amortization expense (EBITDA), and other one-time acquisition-related and restructuring charges (Adjusted EBITDA), both of which are non-GAAP measures. These measures are used by management to evaluate our financial performance.services.
References to adjusted non-GAAP results below specifically exclude non-cash stock compensation expense, intangible asset amortization expense, other one-time acquisition related income and expense, restructuring charges and assumes a normalized long-term cash tax rate.18
All non-GAAP information presented herein should be considered in addition to, and not as substitute for or superior to, any measure of performance, cash flows, or liquidity prepared in accordance with GAAP.
The following table sets forth, for the periods indicated, our results of operations and the percentage relationship to revenue before reimbursements of such results (in thousands and unaudited):
|
| Quarter Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||||||||
|
| September 29, |
|
| September 30, |
|
| September 29, |
|
| September 30, |
| ||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||||||||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue before reimbursements |
| $ | 65,947 |
|
|
| 100.0 | % |
| $ | 66,810 |
|
|
| 100.0 | % |
| $ | 198,742 |
|
|
| 100.0 | % |
| $ | 196,961 |
|
|
| 100.0 | % |
Reimbursements |
|
| 5,515 |
|
|
|
|
|
|
| 7,308 |
|
|
|
|
|
|
| 17,719 |
|
|
|
|
|
|
| 21,548 |
|
|
|
|
|
Total revenue |
|
| 71,462 |
|
|
|
|
|
|
| 74,118 |
|
|
|
|
|
|
| 216,461 |
|
|
|
|
|
|
| 218,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs before reimbursable expenses |
|
| 39,807 |
|
|
| 60.4 | % |
|
| 40,621 |
|
|
| 60.8 | % |
|
| 120,906 |
|
|
| 60.8 | % |
|
| 120,866 |
|
|
| 61.4 | % |
Acquisition-related compensation expense |
|
| 619 |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| 1,042 |
|
|
|
|
|
|
| — |
|
|
|
|
|
Non-cash stock compensation expense |
|
| 1,082 |
|
|
|
|
|
|
| 1,135 |
|
|
|
|
|
|
| 3,440 |
|
|
|
|
|
|
| 3,318 |
|
|
|
|
|
Acquisition-related non-cash stock compensation expense |
|
| 794 |
|
|
|
|
|
|
| 315 |
|
|
|
|
|
|
| 1,720 |
|
|
|
|
|
|
| 898 |
|
|
|
|
|
Reimbursable expenses |
|
| 5,515 |
|
|
|
|
|
|
| 7,308 |
|
|
|
|
|
|
| 17,719 |
|
|
|
|
|
|
| 21,548 |
|
|
|
|
|
Total cost of service |
|
| 47,817 |
|
|
|
|
|
|
| 49,379 |
|
|
|
|
|
|
| 144,827 |
|
|
|
|
|
|
| 146,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative costs |
|
| 14,209 |
|
|
| 21.5 | % |
|
| 14,664 |
|
|
| 21.9 | % |
|
| 43,759 |
|
|
| 22.0 | % |
|
| 43,918 |
|
|
| 22.3 | % |
Non-cash stock compensation expense |
|
| 894 |
|
|
|
|
|
|
| 793 |
|
|
|
|
|
|
| 2,427 |
|
|
|
|
|
|
| 2,251 |
|
|
|
|
|
Acquisition-related costs |
|
| 111 |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| 378 |
|
|
|
|
|
|
| — |
|
|
|
|
|
Amortization of intangible assets |
|
| 557 |
|
|
|
|
|
|
| 275 |
|
|
|
|
|
|
| 1,475 |
|
|
|
|
|
|
| 825 |
|
|
|
|
|
Restructuring costs |
|
| — |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| 1,293 |
|
|
|
|
|
|
| — |
|
|
|
|
|
Total selling, general, and administrative expenses |
|
| 15,771 |
|
|
|
|
|
|
| 15,732 |
|
|
|
|
|
|
| 49,332 |
|
|
|
|
|
|
| 46,994 |
|
|
|
|
|
Total costs and operating expenses |
|
| 63,588 |
|
|
|
|
|
|
| 65,111 |
|
|
|
|
|
|
| 194,159 |
|
|
|
|
|
|
| 193,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
| 7,874 |
|
|
| 11.9 | % |
|
| 9,007 |
|
|
| 13.5 | % |
|
| 22,302 |
|
|
| 11.2 | % |
|
| 24,885 |
|
|
| 12.6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (184 | ) |
|
|
|
|
|
| (137 | ) |
|
|
|
|
|
| (401 | ) |
|
|
|
|
|
| (288 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before income taxes |
|
| 7,690 |
|
|
| 11.7 | % |
|
| 8,870 |
|
|
| 13.3 | % |
|
| 21,901 |
|
|
| 11.0 | % |
|
| 24,597 |
|
|
| 12.5 | % |
Income tax expense |
|
| 2,401 |
|
|
| 3.6 | % |
|
| 3,382 |
|
|
| 5.1 | % |
|
| 3,988 |
|
|
| 2.0 | % |
|
| 9,281 |
|
|
| 4.7 | % |
Net income |
| $ | 5,289 |
|
|
| 8.0 | % |
| $ | 5,488 |
|
|
| 8.2 | % |
| $ | 17,913 |
|
|
| 9.0 | % |
| $ | 15,316 |
|
|
| 7.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share |
| $ | 0.17 |
|
|
|
|
|
| $ | 0.17 |
|
|
|
|
|
| $ | 0.56 |
|
|
|
|
|
| $ | 0.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted non-GAAP data (unaudited): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before income taxes |
| $ | 7,690 |
|
|
|
|
|
| $ | 8,870 |
|
|
|
|
|
| $ | 21,901 |
|
|
|
|
|
| $ | 24,597 |
|
|
|
|
|
Acquisition-related compensation expense |
|
| 619 |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| 1,042 |
|
|
|
|
|
|
| — |
|
|
|
|
|
Non-cash stock compensation expense |
|
| 1,976 |
|
|
|
|
|
|
| 1,928 |
|
|
|
|
|
|
| 5,867 |
|
|
|
|
|
|
| 5,569 |
|
|
|
|
|
Acquisition-related non-cash stock compensation expense |
|
| 794 |
|
|
|
|
|
|
| 315 |
|
|
|
|
|
|
| 1,720 |
|
|
|
|
|
|
| 898 |
|
|
|
|
|
Acquisition-related costs |
|
| 111 |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| 378 |
|
|
|
|
|
|
| — |
|
|
|
|
|
Restructuring costs |
|
| — |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| 1,293 |
|
|
|
|
|
|
| — |
|
|
|
|
|
Amortization of intangible assets |
|
| 557 |
|
|
|
|
|
|
| 275 |
|
|
|
|
|
|
| 1,475 |
|
|
|
|
|
|
| 825 |
|
|
|
|
|
Adjusted non-GAAP income before income taxes |
|
| 11,747 |
|
|
|
|
|
|
| 11,388 |
|
|
|
|
|
|
| 33,676 |
|
|
|
|
|
|
| 31,889 |
|
|
|
|
|
Adjusted non-GAAP income tax expense |
|
| 3,524 |
|
|
| 30.0 | % |
|
| 3,416 |
|
|
| 30.0 | % |
|
| 10,103 |
|
|
| 30.0 | % |
|
| 9,567 |
|
|
| 30.0 | % |
Adjusted non-GAAP net income |
| $ | 8,223 |
|
|
|
|
|
| $ | 7,972 |
|
|
|
|
|
| $ | 23,573 |
|
|
|
|
|
| $ | 22,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted non-GAAP diluted net income per share |
| $ | 0.26 |
|
|
|
|
|
| $ | 0.25 |
|
|
|
|
|
| $ | 0.73 |
|
|
|
|
|
| $ | 0.68 |
|
|
|
|
|
EBITDA: (non-GAAP) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before income taxes |
|
| 7,690 |
|
|
|
|
|
|
| 8,870 |
|
|
|
|
|
|
| 21,901 |
|
|
|
|
|
|
| 24,597 |
|
|
|
|
|
Interest expense |
|
| 184 |
|
|
|
|
|
|
| 137 |
|
|
|
|
|
|
| 401 |
|
|
|
|
|
|
| 288 |
|
|
|
|
|
Depreciation expense |
|
| 590 |
|
|
|
|
|
|
| 618 |
|
|
|
|
|
|
| 1,841 |
|
|
|
|
|
|
| 1,875 |
|
|
|
|
|
Amortization of intangible assets |
|
| 557 |
|
|
|
|
|
|
| 275 |
|
|
|
|
|
|
| 1,475 |
|
|
|
|
|
|
| 825 |
|
|
|
|
|
EBITDA (non-GAAP) |
| $ | 9,021 |
|
|
|
|
|
| $ | 9,900 |
|
|
|
|
|
| $ | 25,618 |
|
|
|
|
|
| $ | 27,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to adjusted non-GAAP EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
| 9,021 |
|
|
|
|
|
|
| 9,900 |
|
|
|
|
|
|
| 25,618 |
|
|
|
|
|
|
| 27,585 |
|
|
|
|
|
Acquisition-related compensation expense |
|
| 619 |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| 1,042 |
|
|
|
|
|
|
| — |
|
|
|
|
|
Non-cash stock compensation expense |
|
| 1,976 |
|
|
|
|
|
|
| 1,928 |
|
|
|
|
|
|
| 5,867 |
|
|
|
|
|
|
| 5,569 |
|
|
|
|
|
Acquisition-related non-cash stock compensation expense |
|
| 794 |
|
|
|
|
|
|
| 315 |
|
|
|
|
|
|
| 1,720 |
|
|
|
|
|
|
| 898 |
|
|
|
|
|
Acquisition-related costs |
|
| 111 |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| 378 |
|
|
|
|
|
|
| — |
|
|
|
|
|
Restructuring costs |
|
| — |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| 1,293 |
|
|
|
|
|
|
| — |
|
|
|
|
|
Adjusted non-GAAP EBITDA |
| $ | 12,521 |
|
|
|
|
|
| $ | 12,143 |
|
|
|
|
|
| $ | 35,918 |
|
|
|
|
|
| $ | 34,052 |
|
|
|
|
|
|
| Quarter Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, | October 1, |
|
| September 30, | October 1, |
| ||||||||
|
| 2022 | 2021 |
|
| 2022 | 2021 |
| ||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenue before reimbursements |
| $ | 70,995 |
|
| $ | 71,400 |
|
| $ | 220,871 |
|
| $ | 207,807 |
|
Reimbursements |
|
| 1,038 |
|
|
| 494 |
|
|
| 2,754 |
|
|
| 770 |
|
Total revenue |
|
| 72,033 |
|
|
| 71,894 |
|
|
| 223,625 |
|
|
| 208,577 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of service: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Personnel costs before reimbursable expenses (includes $1,652 and $4,801 and $1,670 and $5,296 of non-cash stock based compensation expense in the three and nine months ended September 30, 2022 and October 1, 2021, respectively) |
|
| 42,870 |
|
|
| 45,222 |
|
|
| 134,904 |
|
|
| 129,619 |
|
Reimbursable expenses |
|
| 1,038 |
|
|
| 494 |
|
|
| 2,754 |
|
|
| 770 |
|
Total cost of service |
|
| 43,908 |
|
|
| 45,716 |
|
|
| 137,658 |
|
|
| 130,389 |
|
Selling, general and administrative costs (includes $859 and $3,027 and $901 and $2,515 of non-cash stock based compensation expense in the three and nine months ended September 30, 2022 and October 1, 2021, respectively) |
|
| 14,616 |
|
|
| 14,773 |
|
|
| 44,993 |
|
|
| 43,713 |
|
Restructuring charge reversal |
|
| (526 | ) |
|
| — |
|
|
| (651 | ) |
|
| — |
|
Total costs and operating expenses |
|
| 57,998 |
|
|
| 60,489 |
|
|
| 182,000 |
|
|
| 174,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income from operations |
|
| 14,035 |
|
|
| 11,405 |
|
|
| 41,625 |
|
|
| 34,475 |
|
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
| (14 | ) |
|
| (26 | ) |
|
| (70 | ) |
|
| (76 | ) |
Income from continuing operations before income taxes |
|
| 14,021 |
|
|
| 11,379 |
|
|
| 41,555 |
|
|
| 34,399 |
|
Income tax expense |
|
| 3,655 |
|
|
| 3,248 |
|
|
| 10,469 |
|
|
| 9,368 |
|
Income from continuing operations |
|
| 10,366 |
|
|
| 8,131 |
|
|
| 31,086 |
|
|
| 25,031 |
|
Loss from discontinued operations |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7 | ) |
Net income |
| $ | 10,366 |
|
| $ | 8,131 |
|
| $ | 31,086 |
|
| $ | 25,024 |
|
Diluted net income per common share |
| $ | 0.32 |
|
| $ | 0.25 |
|
| $ | 0.97 |
|
| $ | 0.76 |
|
Overview. References to adjusted non-GAAP results specifically exclude non-cash stock compensation expense, intangible asset amortization expense, acquisition-related cash and stock compensation expenses, acquisition and restructuring related charges and assumes a normalized long-term cash tax rate of 30%.
During the second quarter of 2017, we completed the acquisitions of Jibe Consulting, Inc. and Aecus Limited. See Note 12, “Acquisitions” to our consolidated financial statements included in this Quarterly Report on Form 10-Q.
Revenue. We are a global company with operations in our primary markets located primarily in the United States and Western Europe. Our revenue is denominated in multiple currencies, primarily the U.S. Dollar, British Pound Euro and Australian DollarEuro, 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 third quarter and first nine months of 20172022 and the comparable periodperiods of 2016. Revenue is analyzed2021. In this MD&A, we discuss revenue based on geographical location of engagement team personnel.
Our Company total Company net revenue or revenue before reimbursements, decreased by 1%, to $65.9was $72.0 million in the third quarter of 2017,2022, as compared to $66.8$71.9 million in the third quartersame period of 2016. Our total Company net revenue2021 and increased 1%, to $198.7 million7% in the first nine months of 2017,2022 to $223.6 million, as compared to $197.0$208.6 million in the same period of 2021. In the third quarter and first nine months of 2022, one customer accounted for 7% of our total Company revenue. In the third quarter of 2021 and in the first nine months of 2021 no customer accounted for more than 5% of our total Company revenue.
Segment revenue. Effective in the third quarter of 2022, the Company reorganized its operating and internal reporting structure to better align with its primary market solutions. Due to the reorganization, management made the determination to present 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. Oracle Solutions and SAP Solutions support the two fundamentally distinct ERP systems: Oracle and SAP.
19
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 |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| October 1, |
|
| September 30, |
|
| October 1, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Global S&BT |
| $ | 41,593 |
|
| $ | 37,085 |
|
| $ | 128,760 |
|
| $ | 106,956 |
|
Oracle Solutions |
|
| 17,682 |
|
|
| 20,762 |
|
|
| 59,165 |
|
|
| 55,763 |
|
SAP Solutions |
|
| 12,758 |
|
|
| 14,047 |
|
|
| 35,700 |
|
|
| 45,858 |
|
Total revenue |
| $ | 72,033 |
|
| $ | 71,894 |
|
| $ | 223,625 |
|
| $ | 208,577 |
|
Global S&BT total revenue was $41.6 million and $128.8 million during the third quarter and first nine months of 2022, respectively, as compared to $37.1 million and $107.0 million in the same period of 2021, reflecting the continued year over year growth since the second quarter of 2020 and continuing demand for digital transformation investments.
Oracle Solutions total revenue was $17.7 million and $59.2 million during the third quarter and first nine months of 2022, respectively, as compared to $20.8 million and $55.8 million in the same periods of 2021. The decrease in revenue over the three months ended September 30, 2022, as compared to the same period in 2016. In2021, was primarily driven by the extended client decision making during the quarter as clients reconsidered their spending priorities.
SAP Solutions total revenue was $12.8 million and $35.7 million during the third quarter and first nine months of 2022, respectively, as compared to $14.0 million and $45.9 million in the same periods of 2021. SAP Solutions total revenue in the first nine months of 2021 included a $5.3 million software sales transaction. The decrease in revenue in 2022 as compared to 2021, excluding the software sale transaction, was primarily driven from a coming off strong 2021 results, as we were rebuilding our sales pipeline after the completion of large SAP related engagements late in 2021, partially offset by strong software transaction activity at the end of the third quarter of 2022.
Reimbursements as a percentage of Company total revenue were 1.4% and 1.2% during the third quarter and first nine months of 2022, respectively, as compared to 0.7% and 0.4%, 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, acquisition-related non-cash stock based compensation 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, decreased 5% to $42.9 million for the third quarter of 2022 and increased 4% to $134.9 million for the first nine months of 2022, as compared to $45.2 million and $129.6 million in the same periods of 2021, respectively. The lower costs in the three-month period of 2022 were primarily a result of lower incentive compensation accruals and lower utilization of subcontractors. The higher costs in the nine-month period of 2022 were primarily a result of hiring activities and increased utilization of subcontractors to support business growth. Personnel costs as a percentage of total Company revenue were 60% for both the third quarter and first nine months of 20172022, as compared to 63% and 2016, no one customer accounted62% for more than 5%the same periods of our total revenue.2021, respectively.
The Hackett Group net revenue decreased less than a percent, to $56.1Non-cash stock based compensation expense, included in personnel costs before reimbursable expenses was $1.6 million duringand $4.8 million for the third quarter and first nine months of 2017,2022, respectively, as compared to $56.3$1.7 million and $4.9 million for the same periods of 2021, respectively.
Acquisition related non-cash stock based compensation expense, included in personnel costs before reimbursable expenses, was $4 thousand and $12 thousand for the third quarter and first nine months of 2016. The Hackett Group net revenue2022, respectively, as compared to $19 thousand and $378 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 decreased 1%, to $14.6 million and increased less than a percent,3%, to $168.8$45.0 million, for the third quarter and first nine months of 2022, respectively, as compared to $14.8 million and $43.7 million for the same periods of 2021, respectively. This increase in the costs during the first nine months of 2017,2022 was primarily due to increased non client billable expenses and increased investments in sales and marketing and information technology. SG&A costs as compared to $168.0 million during the same period in 2016. Hackett domestica percentage of total Company revenue was down 7%were 20% during both the third quarter and first nine months of 2017, as revenue was adversely impacted as a result of the transition from on- premise to cloud application migration activity and slightly lower than anticipated activity in some of our other Hackett domestic practices. The decrease of the domestic Hackett revenue was offset by strong Hackett international growth of 36% and 39%, primarily in Europe, during the third quarter and first nine months of 2017, respectively,2022, as compared to the same periods in the prior year.
SAP Solutions net revenue decreased 6%, to $9.8 million, during the third quarter of 2017, as compared to $10.5 million in the third quarter of 2016. SAP Solutions net revenue increased 3%, to $30.0 million, during the first nine months of 2017, as compared $29.0 million during the same period of 2016.
Total Company international net revenue accounted for 19% of total Company net revenue during the third quarter and first nine months of 2017, as compared to 13% and 14% during the same periods in 2016, respectively.
Reimbursements as a percentage of total net revenue were 8% and 9% during the third quarter and first nine months of 2017, respectively, as compared to 11% during both of the same periods in 2016. This decrease primarily related to lower expense ratios resulting from the recent acquisitions and the increase in IP as a service which both historically drive lower levels of reimbursable expenses. Reimbursements are engagement travel related expenses which are billed to clients and have no impact on profitability.
Cost of Service. Cost of service primarily consists of salaries, benefits and incentive compensation for consultants and subcontractor fees; acquisition-related cash and stock compensation costs; non-cash stock compensation expense; and reimbursable expenses associated with projects.
Personnel costs decreased 2%, to $39.8 million, for the third quarter of 2017, from $40.6 million in the third quarter of 2016. The decrease in absolute dollar was primarily a result of lower incentive compensation accruals, partially offset by higher use of subcontractors during the quarter and higher fringe and payroll taxes. Personnel costs were $120.9 million, in both the first nine months of 2017 and 2016. Personnel costs before reimbursable expenses, a non-GAAP metric, as a percentage of revenue before reimbursements, were 60% and 61% for the third quarter and first nine months of 2017, respectively, as compared to 61%21% for both of the same periods in 2016.2021.
Acquisition related20
Non-cash stock based compensation costs of $0.6 expense, included in SG&A, was $0.9million and $1.0$3.0 million for the third quarter and first nine months of 2017,2022, respectively, relateas compared to the accrual$0.9 million and $2.5 million for the cash portionsame periods of 2021, respectively. The increase in the Aecus contingent considerationnine-month period is due to be paid to the selling shareholders and key personnel, and the cash portion of the Jibe contingent consideration that is to be paid to key employees, all of which are subject to service vesting and as a result is recorded ashigher incentive compensation expense. See Note 12, “Acquisitions” to our consolidated financial statementsexpense commensurate with Company performance.
Amortization expense, included in this Quarterly Report on Form 10-Q.
Non-cash stock compensation expenseSG&A, was $1.1 million$0 and $3.4$154thousand million in the third quarter and first nine months of 2017, respectively,2022, as compared to $1.1$0.3 million and $3.3$0.8 million during the same period in 2016.
Acquisition related non-cash stock compensation expense in 2017 primarily relates to our EPM AMS acquisition of Technolab in fiscal 2014 and the Jibe and Aecus acquisitions in 2017. See Note 12, “Acquisitions” to our consolidated financial statements included in this Quarterly Report on Form 10-Q.
Total company adjusted non-GAAP gross margin was 40% and 39% of net revenue in the third quarter and first nine months of 2017, respectively, and 39% for both of the same periods in 2016.
Selling, General and Administrative Costs (SG&A). SG&A excluding non-cash compensation2021, respectively. The amortization expense related to the amortization of the intangible asset acquired in our acquisitions and the buyout of our partner’s joint venture interest in the CGBS Training and Certification Programs in 2017. The intangible assets related to the acquisitions have been 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 acquisitionselling, 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 was $14.2include corporate general and administrative expenses, non-cash stock based compensation, depreciation and amortization expense, interest expense and the restructuring charges and reversals.
Global S&BT segment profit increased to $14.0 million and $43.8$45.9 million for the third quarter and first nine months of 2017,2022, respectively, as compared to $14.7$11.8 million and $43.9$34.5 million for the same periods in 2016,the previous year, respectively. SG&AThis increase was primarily a result of increased revenue as a percentage of revenue before reimbursements was 22%discussed above.
Oracle Solutions segment profit decreased to $3.3 million for both the third quarter andof 2022 from $5.4 million for the same period in the previous year. Oracle Solutions segment profit was $12.1 million for the first nine months of 20172022 and 2016.2021. The decrease in the three-month period was primarily due to lower revenue as discussed above.
Amortization expense was $0.6 million and $1.5SAP Solutions segment profit increased to $3.8 million in the third quarter and first nine months 2017, respectively,of 2022 as compared to $0.3 million and $0.8$3.7 million in the same periodsperiod in 2016. The amortization expense in 2017 relates2021 and decreased to the amortization of the intangible assets acquired in our 2014 EPM AMS acquisition of Technolab and our acquisitions of Jibe and Aecus$9.2 million in the second quarterfirst nine months of 2017. The intangible assets relate2022, as compared to the customer relationship, customer backlog and non-compete agreements. The Technolab intangible assets will continue to amortize through 2018 and the Jibe and Aecus intangible assets will continue to amortize until 2022.
Restructuring Costs. In the second quarter of 2017, we recorded restructuring costs primarily related to the transition of resources driven by our migration from on premise software to cloud-based implementations as well as the Jibe acquisition, and the rationalization of global resources as a result of the emergence of RPA related engagements from our Aecus acquisition. There were no restructuring costs related to employee severance costs recorded$15.6 million in the third quartersame period of 2017.2021. SAP Solutions segment profit in the first nine months of 2021 included a $5.3 million software sales transaction and benefitted from large global engagements which drove higher utilization of subcontractors.
Income Taxes. During the third quarter and first nine months of 2017,2022, we recorded $2.4$3.7 million and $4.0$10.5 million respectively, of income tax expense, respectively, related to for certain federal, foreign and state taxes which reflected an effective tax rate of 31%26% and 18%25%, respectively. During the first quarter of 2017, we recorded no income tax expense as a result of the adoption of a new pronouncement relating to the accounting on the vesting of share-based awards. Excluding the effect of the new pronouncement, the effective tax rate would have been 34% for certain federal, foreign and state taxes for the nine months ended September 29, 2017. In the third quarter and first nine months of 2016,2021, we recorded $3.2 million and $9.4 million of income tax expense of $3.4 millionrelated to certain federal, foreign and $9.3 million,state taxes which reflected an effective tax rate of 38% in both periods for certain federal, foreign29% and state taxes.27%, respectively.
Liquidity and Capital Resources
As of September 29, 201730, 2022 and December 30, 2016,31, 2021, we had $16.2$67.0 million and $19.7$45.8 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 capacity under the Revolver),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.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 however, that additional financing willwould 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.
The following table summarizes our cash flow activity (in thousands):
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 29, |
|
| September 30, |
|
| September 30, |
| October 1, |
| |||||
|
| 2017 |
|
| 2016 |
|
| 2022 |
|
| 2021 |
| ||||
Cash flows provided by operating activities |
| $ | 18,952 |
|
| $ | 20,812 |
|
| $ | 34,078 |
|
| $ | 26,469 |
|
Cash flows used in investing activities |
| $ | (13,926 | ) |
| $ | (2,068 | ) |
| $ | (3,163 | ) |
| $ | (2,255 | ) |
Cash flows used in financing activities |
| $ | (8,507 | ) |
| $ | (27,857 | ) |
| $ | (9,648 | ) |
| $ | (20,704 | ) |
Cash Flows from Operating Activities
Net cash provided by operating activities was $19.0$34.1 million during the first nine months of 2017,2022, as compared to $20.8$26.5 million during the same period in 2016.2021. In 2017 the net cash provided by operating activities was primarily due to net income adjusted for non-cash items, offset by a decrease in accrued expenses and other liabilities due to the payout of the 2016 incentive compensation and a decrease in income tax payable and an increase in accounts receivable and unbilled revenue. In 2016,2022, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items and an increase in income taxes payable,tax liabilities, partially offset by increasedthe decrease in accounts payable and accrued liabilities and other accruals primarily due to payments to vendors and the 2021 incentive compensation payments and lower contract liabilities. In 2021, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items and an increase in incentive compensation and income tax accruals, partially offset by an increase in accounts receivable and unbilled revenue, decreases in accounts payable related to the timing of vendor payments and decreases in accrued income taxes resulting from the 2016 income tax payment.contract assets.
Cash Flows from Investing Activities
Net cash used in investing activities was $13.9 million and $2.1$3.2 million during the first nine months of 2017 and 2016, respectively. Net cash used in investing activities2022, as compared to $2.3 million during the first nine months of 2017 primarily related to the cash paid for the Jibe and Aecus acquisitions. Additionally, during 2017,same period in 2021. During both periods, cash flows used in investing activities also includedprimarily related to investments relating tofor the development of the Hackett Academyour Executive Advisory Member Platform and our benchmark technology, as well as further investments in internal corporate systems. During 2016, investing activities related to capital expenditures on the continued development of our Quantum Leap benchmark technology. and Digital Transformation technologies. The investing activities in 2022 also included purchases of computer equipment.
Cash Flows from Financing Activities
Net cash used in financing activities was $8.5$9.6 million and $27.9$20.7 million during 2017the first nine months of 2022 and 2016,2021, respectively. The usage of cash in 2017 wasthe first nine months 2022 primarily related to the repurchase of $11.3$3.2 million of Companythe Company's common stock the costand dividend payments of share purchases to satisfy employee net vesting requirements of $4.3 million, the payment of the second 2016 semi-annual dividend, and first 2017 semi-annual dividend totaling $8.7$7.0 million. These uses of cash were partially offset by the net drawdown on the Revolver of $15.0 million (as defined below). The usage of cash in 2016 wasthe first nine months 2021 primarily related to the costrepurchase of $14.6 million of the repurchase of $30.1 million of CompanyCompany’s common stock and dividend payments of $6.5 million.
As of September 30, 2022, we did not have any outstanding borrowings under the Company’s share repurchase program, $3.9 million to satisfy employee net vesting-related tax requirements, and $7.2 million was utilized to payout dividends. These uses of cash were partially offset by the net borrowings of $13.0 million.
The Company is party to a credit agreement with Bank of America, N.A, dated as of May 9, 2016, (the “Credit Agreement”). The Credit Agreement provides for aour revolving line of credit (the “Revolver”“Credit Facility”), leaving us with a totalcapacity of approximately $45.0 million. On November 7, 2022, we amended and restated our credit agreement in order to extend the maturity date of the Credit Facility and provide the Company with an additional $55 million in borrowing capacity, for an aggregate amount of $45.0 million. As of September 29, 2017, we had a remaining capacity under our Revolver of $23.0up to $100 million. See Note 6,7, “Credit Facility,” to our consolidated financial statements included in this Quarterly Report on Form 10-Q for more information.
Recently Issued Accounting Standards
For a discussion of recently issued accounting standards, see Note 1, “Basis of Presentation and General Information,” to our consolidated financial statements included in this Quarterly Report on Form 10-Q and Note 1, “Basis of Presentation and General Information,” to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 30, 2016.22
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As of September 29, 2017,30, 2022, 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. TheUnder our prior credit agreement which was 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 would not have had a material impact on our results of operations for the quarter and nine months ended September 29, 2017.30, 2022. Following the amendment and restatement of our credit agreement in November 2022, the interest rate changed from LIBOR to a Bloomberg Short-Term Bank Yield Index.
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.
UnderItem 4. Controls and Procedures
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), as appropriate, to allow for timely decisions regarding required disclosure.
The Company, under the supervision and with the participation of ourthe Company’s management, including our Principalthe Chief Executive Officer and PrincipalChief Financial Officer, we conducted an evaluationevaluated the effectiveness of ourthe design and operation of the Company’s disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgatedof the end of the period covered by this report.
Based on the identification of the material weakness described below, the Company, under the Securities Exchange Actsupervision of 1934, as amended. Based on this evaluation, our Principalthe Company’s management, including the Chief Executive Officer and PrincipalChief Financial Officer, concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Quarterly Reportreport.
Material Weakness in Internal Control Over Financial Reporting
As described in the Explanatory Note in the Form 10K/A filed on Form 10-Q.November 8, 2022, we identified a material weakness in our internal control over financial reporting that existed as of December 31, 2021. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness is a result of our processes and related controls not operating effectively to understand the use of the information by the chief operating decision maker to allocate resources and the documentation of the evaluation of ASC 280. There were no material misstatements as a result of this material weakness; however, it could have resulted in omitted disclosures and the performance of the annual evaluation of goodwill impairment at other than the reporting unit level that could have resulted in a material misstatement to the annual or interim financial statements that would not have been prevented or detected on a timely basis. Due to the material weakness, we have concluded that our internal control over financial reporting was not effective as of September 30, 2022.
Management’s Plan to Remediate the Material Weakness
Management has implemented remediation steps to address the material weakness and to improve our internal control over financial reporting. Specifically, we have improved our review process including the documentation of the evaluation of segment reporting and ASC 280. In addition, the Company will engage outside consultants to review management’s accounting analysis when the Company has significant organizational structure or reporting structure changes that may impact the Company’s analysis under ASC 280.
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While the Company has implemented remediation steps, the material weakness cannot be considered fully remediated until the improved controls have been in place and operate for a sufficient period of time. However, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that, notwithstanding the identified material weakness in our internal control over financial reporting, the financial statements fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
Changes in Internal Control Over Financial MarketsReporting
There
Other than the remediation steps described above, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the period covered by this Quarterly Report on Form 10-Qthree months ended September 30, 2022 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, 2021 (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 30, 2016.31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
During the quarter ended September 29, 2017,30, 2022, the Company repurchased 182 thousand shares of itsdid not repurchase any common stock at an average price of $13.73 per share, for a total cost of $2.5 million, under the repurchase plan approved by the Company's Board of Directors. During the nine months ended September 30, 2022 the Company repurchased 31 thousand shares of its common stock under the repurchase plan. As of September 29, 2017,30, 2022, the Company had $3.1$10.6 million of authorization remaining under the repurchase plan.
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July 1, 2017 to July 28, 2017 |
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July 29, 2017 to August 25, 2017 |
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August 26, 2017 to September 29, 2017 |
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*During the third quarter of 2017, Subsequent to September 30, 2022, the Company’s Board of Directors approvedauthorized an additional $5.0$120.0 million increase to the repurchase plan. On November 8, 2022, the Company announced that it plans to launch a tender offer to purchase up to $120.0 million in value of shares of its common stock. The tender offer will be made pursuant to the increased share repurchase authorization.
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July 2, 2022 to July 29, 2022 |
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August 27, 2022 to September 30, 2022 |
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Shares repurchased during the quarter and nine months ended September 29, 201730, 2022 under the repurchase plan approved by the Company's Board of Directors do not include 683 thousand shares and 134 thousand shares, respectively, for a cost of $1.0$69 thousand and $2.6 million, respectively, that the Company bought back to satisfy employee net vesting obligations.
| Exhibit Description | |
3.1 |
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31.1* |
| Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2* |
| Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32* |
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| 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. |
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| Inline XBRL Taxonomy Extension Schema |
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| Inline XBRL Taxonomy Extension Presentation Linkbase |
104** | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
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** 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. | |
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Date: November 8, | /s/ Robert A. Ramirez | |
| Robert A. Ramirez | |
| Executive Vice President, Finance and Chief Financial Officer |
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