UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
The
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(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 |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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 |
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Non-Accelerated Filer |
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Smaller Reporting Company |
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Emerging Growth Company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of August 2, 2024, there were
TABLE OF CONTENTS
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Item 1. |
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Consolidated Balance Sheets as of June 28, 2024 (unaudited) and December 29, 2023 |
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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 5. |
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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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2
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Hackett Group, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
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June 28, |
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December 29, |
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2024 |
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2023 |
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ASSETS |
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Current assets: |
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Cash |
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$ |
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$ |
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Accounts receivable and contract assets, net of allowance of $ |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Other assets |
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Goodwill |
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Operating lease right-of-use assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other liabilities |
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Contract liabilities |
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Income tax payable |
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Operating lease liabilities |
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Total current liabilities |
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Non-current deferred tax liability, net |
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Long term debt, net |
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Operating lease liabilities |
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Total liabilities |
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Shareholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Treasury stock, at cost, |
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Retained earnings |
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Accumulated other comprehensive loss |
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Total shareholders' equity |
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Total liabilities and shareholders' equity |
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$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
3
The Hackett Group, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
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Quarter Ended |
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Six Months Ended |
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June 28, |
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June 30, |
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June 28, |
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June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenue: |
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Revenue before reimbursements |
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$ |
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$ |
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$ |
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Reimbursements |
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Total revenue |
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Costs and expenses: |
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Cost of service: |
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Personnel costs before reimbursable expenses (includes $ |
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Reimbursable expenses |
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Total cost of service |
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Selling, general and administrative costs (includes $ |
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Legal settlement and related costs |
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— |
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— |
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— |
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Total costs and operating expenses |
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Income from operations |
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Other expense, net: |
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Interest expense, net |
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Income before income taxes |
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Income tax expense |
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Net income |
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$ |
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Basic net income per common share: |
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Income per common share |
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$ |
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$ |
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$ |
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Weighted average common shares outstanding |
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Diluted net income per common share: |
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Income per common share |
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$ |
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$ |
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$ |
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Weighted average common and common equivalent shares outstanding |
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The accompanying notes are an integral part of the consolidated financial statements.
4
The Hackett Group, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
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Quarter Ended |
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Six Months Ended |
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June 28, |
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June 30, |
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June 28, |
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June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Foreign currency translation adjustment |
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Total comprehensive income |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
5
The Hackett Group, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Six Months Ended |
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June 28, |
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June 30, |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation expense |
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Amortization of debt issuance costs |
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Non-cash stock based compensation expense |
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Provision for doubtful accounts |
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Loss on foreign currency translation |
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Deferred income tax expense |
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Changes in assets and liabilities: |
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Increase in accounts receivable and contract assets |
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Increase in prepaid expenses and other assets |
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Decrease in accounts payable |
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Decrease in accrued expenses and other liabilities |
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Increase in contract liabilities |
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Increase (decrease) in income tax payable |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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Net cash used in investing activities |
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Cash flows from financing activities: |
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Debt issuance costs |
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— |
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Debt proceeds |
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— |
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Repayment of debt |
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( |
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Proceeds from ESPP |
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Taxes paid to satisfy employee withholding tax obligations |
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( |
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Dividends paid |
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( |
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Repurchase of common stock |
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( |
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Net cash used in financing activities |
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( |
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( |
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Effect of exchange rate on cash |
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( |
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Net decrease in cash |
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( |
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Cash at beginning of period |
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Cash at end of period |
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$ |
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$ |
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Supplemental disclosure of cash flow information: |
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Cash paid for income taxes |
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$ |
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$ |
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Cash paid for interest |
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$ |
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$ |
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Supplemental disclosure of non-cash flow financing activities: |
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Dividend declared during the quarter and paid the following quarter |
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$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
6
The Hackett Group, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
(unaudited)
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Accumulated |
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Additional |
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Other |
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Total |
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Common Stock |
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Paid in |
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Treasury Stock |
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Retained |
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Comprehensive |
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Shareholders' |
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Shares |
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Amount |
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Capital |
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Shares |
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Amount |
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Earnings |
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Loss |
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Equity |
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Balance at December 29, 2023 |
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$ |
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$ |
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( |
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$ |
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$ |
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$ |
( |
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$ |
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Issuance of common stock |
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— |
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( |
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— |
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— |
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— |
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— |
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( |
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Treasury stock purchased |
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— |
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— |
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— |
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( |
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( |
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— |
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— |
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( |
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Amortization of restricted stock |
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— |
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— |
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— |
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— |
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— |
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— |
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Dividends declared |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance at March 29, 2024 |
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$ |
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$ |
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( |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Issuance of common stock |
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— |
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— |
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— |
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— |
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— |
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Amortization of restricted stock |
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— |
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— |
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— |
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— |
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— |
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— |
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Dividends declared |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at June 28, 2024 |
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$ |
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$ |
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( |
) |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Accumulated |
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Additional |
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Other |
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Total |
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Common Stock |
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Paid in |
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Treasury Stock |
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Retained |
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Comprehensive |
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Shareholders' |
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Shares |
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Amount |
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Capital |
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Shares |
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Amount |
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Earnings |
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Loss |
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Equity |
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Balance at December 30, 2022 |
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$ |
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$ |
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( |
) |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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Issuance of common stock |
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— |
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( |
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— |
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— |
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— |
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— |
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( |
) |
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Treasury stock purchased |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Amortization of restricted stock |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Balance at March 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Issuance of common stock |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Treasury stock purchased |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Amortization of restricted stock |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Balance at June 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
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 the 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 29, 2023, included in the Annual Report on Form 10-K filed by the Company with the SEC on March 1, 2024. The consolidated results of operations for the quarter and six months ended June 28, 2024, 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 earn revenue and incur expenses, and for which separate financial information is available and is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company assesses its operating segments under the management approach in accordance with ASC 280, "Segment Reporting" (ASC 280), and has determined that it has three operating segments: Global S&BT, Oracle Solutions and SAP Solutions which are also its reportable segments. See Note 11 “Segment Information and Geographical Data” for detailed segment information.
Goodwill and Other Intangible Assets
For acquisitions accounted for as a business combination, goodwill represents the excess of the cost over the fair value of the net assets acquired. The Company has organized its operating and internal reporting structure to align with its primary market solutions. In accordance with ASC 280, management made the determination to present
|
|
|
|
|
Foreign |
|
|
|
|
|||||||
|
|
December 29, |
|
|
Additions/ |
|
|
Currency |
|
|
June 28, |
|
||||
|
|
2023 |
|
|
Adjustments |
|
|
Translation |
|
|
2024 |
|
||||
Global S&BT |
|
$ |
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
|
||
Oracle Solutions |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
SAP Solutions |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Goodwill |
|
$ |
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
|
||
8
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation and General Information (continued)
Revenue Recognition
The Company primarily generates its revenue from providing professional services to its clients. The Company also generates revenue from software sales, software maintenance and support 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 maintenance and support 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 sales, are satisfied at a point in time.
The Company generates revenue under four types of billing arrangements: fixed-fee; 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 a 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 or sixty-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 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 or sixty-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 or sixty-day terms, however client terms are subject to change.
The resale of on-premise software, cloud software and maintenance contracts are in the form of SAP America ("SAP") software or maintenance agreements provided by SAP. 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 sale for either on-premise software or cloud software or maintenance amount in the contract with the vendor. Revenue for the resale of software 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 or sixty-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 the 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 to
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 is recorded as contract assets and is included within accounts receivable and contract assets. Services not yet performed, however billed to the client and uncollected at period end, are recorded as contract assets and are 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 six months ended June 28, 2024, the Company recognized $
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 six months ended June 28, 2024 and June 30, 2023 (in thousands):
|
|
Quarter Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Global S&BT: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
North America Consulting |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
International Consulting |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Global S&BT |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Oracle Solutions: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consulting and software support and maintenance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total Oracle Solutions |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
SAP Solutions: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consulting and software support and maintenance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Software license sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total SAP Solutions |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total segment revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
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 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 the 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 is generally less than
10
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation and General Information (continued)
Practical Expedients
The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be less than one year.
Sales tax collected from customers and remitted to the applicable taxing authorities is accounted for on a net basis, with no impact on revenue.
Expense reimbursements that are billable to clients are included in total revenue and are substantially all billed as time-and-material billing arrangements. Therefore, the Company recognizes all reimbursable expenses as revenue as the related services are provided, using the right to invoice practical expedient. Reimbursable expenses are recognized as expenses in the period in which the expense is incurred. Any expense reimbursements that are billable to clients under fixed-fee billing arrangements are recognized in line with the proportionate performance approach.
Fair Value
The Company’s financial instruments consist of cash, accounts receivable and contract assets, accounts payable, accrued expenses and other liabilities, contract liabilities and long-term debt. As of June 28, 2024 and December 29, 2023, the carrying amount of each financial instrument approximated the instrument’s respective fair value due to either the short-term nature or the maturity of these instruments.
Recent Accounting Pronouncements
In December 2023, accounting guidance was issued that enhances the transparency of income tax disclosures related to rate reconciliation and income taxes. The enhancements in this update are effective for fiscal years beginning after December 15, 2023. The Company is currently evaluating the impact of adopting this guidance on its footnote disclosures.
In November 2023, accounting guidance was issued that requires additional disclosures of reportable segment information. The guidance requires that public entities disclose, on an annual and interim basis (1) significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, (2) an amount for other segment items by reportable segment and a description of its composition, (3) provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by Topic 280 in interim periods, (4) clarify that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit; at least one of the reported segment profit or loss measures should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity’s consolidated financial statements, (5) the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and in deciding how to allocate resources, and (6) if a public entity has a single reportable segment to provide all the disclosures required by the amendments in this update and all existing segment disclosures in Topic 280. The amendments in this update do not change how operating segments are identified or aggregated nor how the quantitative thresholds are applied to determine its reportable segments. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments in this update should be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company is currently evaluating the impact the adoption of this accounting standard update will have on its footnote disclosures.
11
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.
Diluted net income per common share is computed by dividing net income by the weighted average number of common shares outstanding, increased by the assumed conversion of other potentially dilutive securities during the period.
The following table reconciles basic and dilutive weighted average common shares:
|
|
Quarter Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unvested restricted stock units and common stock subject |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Approximately
3. Accounts Receivable and Contract Assets, Net
Accounts receivable and contract assets, net, consisted of the following (in thousands):
|
|
June 28, |
|
|
December 29, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Accounts receivable |
|
$ |
|
|
$ |
|
||
Contract assets (unbilled revenue) |
|
|
|
|
|
|
||
Allowance for doubtful accounts |
|
|
( |
) |
|
|
( |
) |
Accounts receivable and contract assets, net |
|
$ |
|
|
$ |
|
||
Accounts receivable is net of uncollected advanced billings. Contract assets represent revenue for services performed that have not been invoiced.
4. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
|
|
June 28, |
|
|
December 29, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Accrued compensation and benefits |
|
$ |
|
|
$ |
|
||
Accrued bonuses |
|
|
|
|
|
|
||
Accrued dividend payable |
|
|
|
|
|
|
||
Accrued sales, use, franchise and VAT tax |
|
|
|
|
|
|
||
Non-cash stock based compensation accrual |
|
|
|
|
|
|
||
Other accrued expenses |
|
|
|
|
|
|
||
Total accrued expenses and other liabilities |
|
$ |
|
|
$ |
|
||
12
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
5. Lease Commitments
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
The components of lease expense were as follows for the six months ended June 28, 2024 (in thousands):
Operating lease cost |
|
$ |
|
|
|
|
|
|
|
Total net lease costs |
|
$ |
|
|
The weighted average remaining lease term is
Future minimum lease commitments under non-cancellable operating leases as of June 28, 2024, were as follows (in thousands):
2024 (excluding the six months ended June 28, 2024) |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 and thereafter |
|
|
|
|
Total lease payments |
|
|
|
|
Less imputed interest |
|
|
( |
) |
Total |
|
$ |
|
6. Credit Facility
On November 7, 2022, the Company entered into a third amended and restated credit agreement (the “Credit Agreement”) with Bank of America, N.A., as administrative agent, and the lenders party thereto, pursuant to which the lenders agreed to amend and restate its existing credit agreement, in order to extend the maturity date of the revolving line of credit and provide the Company with an additional $
The obligations of Hackett under the Credit Facility are guaranteed by active existing and future material U.S. subsidiaries of Hackett (the “U.S. Subsidiaries”) and are secured by substantially all of the existing and future property and assets of Hackett and the U.S. Subsidiaries.
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"). The applicable margin percentage is based on the consolidated leverage ratio, as defined in the Credit Agreement. As of June 28, 2024, the applicable margin percentage was
The Company is subject to certain covenants, including total consolidated leverage, fixed cost coverage and liquidity requirements, each as set forth in the Credit Agreement, subject to certain exceptions. As of June 28, 2024, the Company was in compliance with all covenants.
13
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
6. Credit Facility (continued)
As of June 28, 2024, the Company had $
7. Stock Based Compensation
During the quarter and six months ended June 28, 2024, the Company issued
Forfeitures for all of the Company’s outstanding equity awards are recognized as incurred.
8. Shareholders’ Equity
Treasury Stock
On July 30, 2002, the Company announced that its Board of Directors approved the repurchase of the Company’s common stock through its share repurchase program. Since the inception of the repurchase plan, the Board of Directors has approved the repurchase of $
During the quarter ended June 28, 2024 and June 30, 2023, the Company did
There is no expiration of the Company's repurchase authorization. Under the repurchase plan, the Company may buy back shares of its outstanding stock either on the open market or through privately negotiated transactions, subject to market conditions and trading restrictions. The Company holds repurchased shares of its common stock as treasury stock and accounts for treasury stock under the cost method.
Shares purchased under the repurchase plan do not include shares withheld to satisfy withholding tax obligations. These withheld shares are never issued and in lieu of issuing the shares, taxes were paid on the employee’s behalf. During the quarter and six months ended June 28, 2024, the Company withheld and did not issue
Dividend Program
During the first half of 2024, the Company declared two quarterly dividends to its shareholders for an aggregate of $
14
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
9. Transactions with Related Parties
During the six months ended June 28, 2024, the Company bought back
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.
11. Segment Information and Geographical Data
The Company has organized its operating and internal reporting structure to align with its primary market solutions. In accordance with ASC 280, the Company determined it has
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 revenue generated by a segment, less operating expenses that are incurred directly by the segment. Unallocated costs include corporate costs related to the administrative functions that are performed in a centralized manner and that are not attributable to a particular segment, depreciation and amortization expense, interest expense, non-cash compensation expense and any non-recurring transactions. Segment information related to assets has been omitted as the chief operating decision maker does not receive discrete financial information regarding assets at the segment level.
15
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
11. Segment Information and Geographical Data (continued)
The tables below set forth information about the Company’s operating segments for the quarter and six months ended June 28, 2024 and June 30, 2023, along with the items necessary to reconcile the segment information to the totals reported in the accompanying consolidated financial statements (in thousands):
|
|
Quarter Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Global S&BT: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue* |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Segment profit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Oracle Solutions: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue* |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Segment profit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
SAP Solutions: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue* |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Segment profit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Company: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue* |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total segment profit |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Items not allocated to segment level: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate general and administrative expenses** |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-cash stock based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Legal settlement and related costs |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
Depreciation expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income before taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
*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, as well as any foreign currency gains and losses. Corporate general and administrative expenses exclude one-time, non-recurring expenses and benefits.
|
|
Quarter Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other (Australia, Canada, India and Uruguay) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
16
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
11. Segment Information and Geographical Data (continued)
Long-lived assets are attributable to the following geographic areas (in thousands):
|
|
June 28, |
|
|
December 29, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Long-lived assets: |
|
|
|
|
|
|
||
United States |
|
$ |
|
|
$ |
|
||
Europe |
|
|
|
|
|
|
||
Other (Australia, Canada, India and Uruguay) |
|
|
|
|
|
|
||
Total long-lived assets |
|
$ |
|
|
$ |
|
||
As of June 28, 2024 and December 29, 2023, foreign assets included $
17
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. All statements regarding our expected financial position and operating results, our business strategy, our financing plans and forecasted demographic and economic trends relating to our industry are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect,” or “intend” and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. We cannot promise you that our expectations reflected in such forward-looking statements will turn out to be correct. Factors that could impact such forward-looking statements include, among others, changes in worldwide and U.S. economic conditions that impact business confidence and the demand for our products and services, 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 and in the Middle East on our business and changes in general economic conditions, interest rates and our ability to obtain additional debt financing if needed. An additional description of our risk factors is described in Part I – Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 29, 2023. 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. 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.
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.
Hackett is a global IP-based executive advisory, strategic consulting and digital transformation firm. The Hackett Group provides dedicated expertise in Generative Artificial Intelligence ("Gen AI") strategy, operations, finance, human capital management, strategic sourcing, procurement, and information technology, including its highly recognized Oracle, SAP, OneStream and Coupa implementation offerings.
The firm recently launched its AI XPLR offering which helps define an organizations’ Gen AI enablement opportunities. Using AI XPLR, our artificial intelligence ("AI") assessment platform, our experienced professionals guide organizations to harness the power of Gen AI to digitally transform their operations and seek to achieve quantifiable, breakthrough results, allowing us to be key architects of our clients' Gen AI journey.
The Hackett Group has completed over 26,600 benchmarking and performance studies with major organizations. These studies are executed utilizing our Quantum Leap ("QL") platform which drives our Digital Transformation Platform ("DTP"). This includes the firm's benchmarking metrics, best practices repository, and best practice configuration and process flow accelerators, which enables our clients and partners to achieve digital world-class performance.
Our expertise is grounded in best practices insights from benchmarking the world’s leading businesses – including companies comprising 97% of the Dow Jones Industrial Average, 89% of the Fortune 100, 70% of the DAX 40 and 55% of the Financial Times Stock Exchange 100 Index, which are delivered through our Hackett Connect, QL and DTP platforms.
Impact of Macroeconomic Conditions on Our Business
The level of revenue we achieve is based on our ability to deliver market leading services and solutions and to deploy skilled teams of professionals quickly. Our results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence. Any deterioration in the current macroeconomic environment or economic downturn as a result of
18
weak or uncertain economic conditions due to inflation, high interest rates, national or geopolitical events or other factors impacting economic activity or business confidence could adversely affect our clients' financial condition or outlook which may reduce the clients' demand for our services.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, our results of operations (in thousands and unaudited):
|
|
Quarter Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 28, |
June 30, |
|
|
June 28, |
June 30, |
|
||||||||
|
|
2024 |
2023 |
|
|
2024 |
2023 |
|
||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue before reimbursements |
|
$ |
75,896 |
|
|
$ |
75,641 |
|
|
$ |
151,623 |
|
|
$ |
145,472 |
|
Reimbursements |
|
|
1,760 |
|
|
|
1,461 |
|
|
|
3,220 |
|
|
|
2,859 |
|
Total revenue |
|
|
77,656 |
|
|
|
77,102 |
|
|
|
154,843 |
|
|
|
148,331 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of service: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Personnel costs before reimbursable expenses (includes $1,640 and $3,033 and $1,643 and $3,169 of non-cash stock based compensation expense in the three and six months ended June 28, 2024 and June 30, 2023, respectively) |
|
|
45,395 |
|
|
|
45,426 |
|
|
|
91,166 |
|
|
|
88,569 |
|
Reimbursable expenses |
|
|
1,760 |
|
|
|
1,461 |
|
|
|
3,220 |
|
|
|
2,859 |
|
Total cost of service |
|
|
47,155 |
|
|
|
46,887 |
|
|
|
94,386 |
|
|
|
91,428 |
|
Selling, general and administrative costs (includes $1,210 and $2,416 and $1,129 and $2,050 of non-cash stock based compensation expense in the three and six months ended June 28, 2024 and June 30, 2023, respectively) |
|
|
17,985 |
|
|
|
17,425 |
|
|
|
36,314 |
|
|
|
32,861 |
|
Legal settlement and related costs |
|
|
— |
|
|
|
— |
|
|
|
102 |
|
|
|
— |
|
Total costs and operating expenses |
|
|
65,140 |
|
|
|
64,312 |
|
|
|
130,802 |
|
|
|
124,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income from operations |
|
|
12,516 |
|
|
|
12,790 |
|
|
|
24,041 |
|
|
|
24,042 |
|
Other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
(512 |
) |
|
|
(921 |
) |
|
|
(984 |
) |
|
|
(1,780 |
) |
Income before income taxes |
|
|
12,004 |
|
|
|
11,869 |
|
|
|
23,057 |
|
|
|
22,262 |
|
Income tax expense |
|
|
3,256 |
|
|
|
3,149 |
|
|
|
5,578 |
|
|
|
5,381 |
|
Net income |
|
$ |
8,748 |
|
|
$ |
8,720 |
|
|
$ |
17,479 |
|
|
$ |
16,881 |
|
Diluted net income per common share |
|
$ |
0.31 |
|
|
$ |
0.32 |
|
|
$ |
0.63 |
|
|
$ |
0.62 |
|
Revenue. We are a global Company with operations in our primary markets located in the United States and Western Europe. Our revenue is denominated in multiple currencies, primarily the U.S. Dollar, British Pound and Euro, and as a result is affected by currency exchange rate fluctuations. The impact of currency fluctuations did not have a significant impact on comparisons between the second quarter and first six months of 2024 and the same comparable periods of 2023. In this MD&A, we discuss revenue based on geographical location of engagement team personnel.
Our Company total revenue was $77.7 million and $154.8 million during the second quarter and first six months of 2024, respectively, as compared to $77.1 million and $148.3 million in the same periods in 2023, respectively. In the second quarter and first six months of 2024, one customer accounted for 13% and 11%, respectively, of our total revenue. In both the second quarter and first six months of 2023, one customer accounted for 5% of our total Company revenue.
Segment revenue. The Company has three reportable segments: Global Strategy & Business Transformation (Global S&BT), Oracle Solutions and SAP Solutions. Global S&BT includes S&BT Consulting, Benchmarking, Business Advisory Services, Intellectual Property as-a-Service (IPASS) and OneStream offerings. Oracle Solutions and SAP Solutions support the two fundamentally distinct ERP systems: Oracle and SAP.
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):
19
|
|
Quarter Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Global S&BT |
|
$ |
42,262 |
|
|
$ |
43,632 |
|
|
$ |
83,154 |
|
|
$ |
85,967 |
|
Oracle Solutions |
|
|
23,045 |
|
|
|
20,775 |
|
|
|
44,774 |
|
|
|
37,943 |
|
SAP Solutions |
|
|
12,349 |
|
|
|
12,695 |
|
|
|
26,915 |
|
|
|
24,421 |
|
Total revenue |
|
$ |
77,656 |
|
|
$ |
77,102 |
|
|
$ |
154,843 |
|
|
$ |
148,331 |
|
Global S&BT total revenue was $42.3 million and $83.2 million during the second quarter and first six months of 2024, respectively, as compared to $43.6 million and $86.0 million in the same periods of 2023, respectively. This segment has been impacted by extended client decision making in our business transformation engagements, particularly impacting our e-procurement offerings.
Oracle Solutions total revenue was $23.0 million and $44.8 million during the second quarter and first six months of 2024, respectively, as compared to $20.8 million and $37.9 million in the same periods of 2023, respectively. The segment has continued the momentum it has experienced since the second quarter of 2023, with significant growth over the last five quarters when compared to prior year periods.
SAP Solutions total revenue was $12.3 million and $26.9 million during the second quarter and first six months of 2024, respectively, as compared to $12.7 million and $24.4 million in the same periods of 2023, respectively. The increase in revenue during the first six months of 2024, as compared to the same period in 2023, was due to the very strong value-added reseller activity in the first half of 2024.
Reimbursements as a percentage of Company total revenue were 2% during both the second quarter and first six months of 2024 and 2023. Reimbursements are project travel-related expenses passed through to a client with no associated operating margin.
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 non-cash stock based compensation expense and 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 were $45.4 million and $91.2 million for the second quarter and first six months of 2024, respectively, as compared to $45.4 million and $88.6 million in the same periods of 2023, respectively. The higher costs in the first six months of 2024 were primarily a result of increased salaries and higher utilization of subcontractors. Personnel costs as a percentage of total Company total revenue were 58% and 59% during the second quarter and first six months of 2024 and 59% and 60% for the same periods in 2023, respectively.
Non-cash stock based compensation expense, included in personnel costs before reimbursable expenses was $1.6 million and $3.0 million during the second quarter and first six months of 2024, respectively, as compared to $1.6 million and $3.2 million in the same periods of 2023, respectively.
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 and various other overhead expenses.
SG&A costs increased 3%, to $18.0 million, and 11%, to $36.3 million, for the second quarter and first six months of 2024, respectively, as compared to $17.4 million and $32.9 million for the same periods in 2023, respectively. This increase in the costs during the second quarter and first six months of 2024 was primarily due to the incremental investments we are making in program development and additional dedicated sales resources for Benchmark, Executive Advisory Market Intelligence and our other IP as-a-service offerings. SG&A costs as a percentage of total Company revenue were 23% during both the second quarter and first six months of 2024, respectively, as compared to 23% and 22% during the same periods in 2023, respectively.
Non-cash stock based compensation expense, included in SG&A, was $1.2 million and $2.4 million during the second quarter and first six months of 2024, respectively, as compared to $1.1 million and $2.1 million for the same periods in 2023, respectively.
Segment Profit. Segment profit consists of the revenue generated by the segment, less the direct costs of revenue and selling, general and administrative expenses that are incurred directly by the segment. Items not allocated to the segment level include corporate costs related to the administrative functions that are performed in a centralized manner and that are not attributable to a particular segment. These administrative function costs include corporate general and administrative expenses, non-cash compensation, depreciation expense, interest expense and legal settlement and related costs.
Global S&BT segment profit was $12.7 million and $22.8 million during the second quarter and first six months of 2024, respectively, as compared to $13.1 million and $26.9 million for the same periods in 2023, respectively. This decrease was primarily
20
due to the incremental investments we are making in program development and additional dedicated sales resources for Benchmark, Executive Advisory Market Intelligence and our other IP as-a-service offerings.
Oracle Solutions segment profit was $5.4 million and $10.6 million during the second quarter and first six months of 2024, respectively, as compared to $5.9 million and $8.9 million for the same periods in 2023, respectively. The increase during the second quarter and first six months of 2024 was primarily due to higher revenue, partially offset by increased headcount and increased usage of subcontractors.
SAP Solutions segment profit was $3.3 million and $8.1 million during the second quarter and first six months of 2024, respectively, as compared to $3.0 million and $5.6 million for the same periods in 2023, respectively. The increase in segment profit in the first six months of 2024, as compared to the same period in 2023, was primarily due to the value-added reseller activity in the quarter.
Legal Settlement and Related Costs. In May 2023, Gartner, Inc. ("Gartner") filed a lawsuit seeking a preliminary injunction and damages against the Company and two ex-Gartner employees that were hired by us. On February 17, 2024, we, Gartner and the two ex-Gartner employees entered into a settlement agreement whereby we made a settlement payment of $985,000 to Gartner in exchange for a dismissal of the lawsuit and a release of all claims which is reflected in our Consolidated Statement of Operations for the year ended December 29, 2023. In addition, we incurred incremental legal costs related to the settlement which were recorded as expense in the period incurred.
Interest Expense, Net. Interest expense, net was $0.5 million and $1.0 million during the second quarter and first six months of 2024, respectively, as compared to $0.9 million and $1.8 million in the same periods in 2023, respectively. As of June 28, 2024, we had outstanding debt of $27.0 million, excluding debt issue costs. As of June 30, 2023, we had outstanding debt of $53.0 million, excluding debt issue costs.
Income Taxes. During the second quarter and first six months of 2024, we recorded $3.3 million and $5.6 million of income tax expense, respectively, related to certain federal, foreign and state taxes which reflected an effective tax rate of 27.1% and 24.2%, respectively. During the second quarter and first six months of 2023, we recorded $3.1 million and $5.4 million of income tax expense, respectively, related to certain federal, foreign and state taxes which reflected an effective tax rate of 26.5% and 24.2%, respectively.
Liquidity and Capital Resources
As of June 28, 2024 and December 29, 2023, we had $19.1 million and $21.0 million, respectively, classified as cash on the consolidated balance sheets. We currently believe that available funds (including the cash on hand and funds available for borrowing under our revolving line of credit the "Credit Facility") and cash flows generated by operations will be sufficient to fund our working capital requirements, including debt payments, lease obligations and capital expenditures for at least the next twelve months and beyond. We may decide to raise additional funds in order to fund expansion, to develop new or further enhance products and services, to respond to competitive pressures, or to acquire complementary businesses or technologies. There is no assurance that additional financing would be available when needed or desired. Our cash requirements have not changed materially from those disclosed in Item 7 included in Part II of our Annual Report on Form 10-K for the year ended December 29, 2023.
The following table summarizes our cash flow activity (in thousands):
|
|
Six Months Ended |
|
|||||
|
|
June 28, |
|
|
June 30, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Cash flows provided by operating activities |
|
$ |
16,511 |
|
|
$ |
4,650 |
|
Cash flows used in investing activities |
|
$ |
(1,832 |
) |
|
$ |
(2,125 |
) |
Cash flows used in financing activities |
|
$ |
(16,477 |
) |
|
$ |
(16,898 |
) |
Cash Flows from Operating Activities
Net cash provided by operating activities was $16.5 million during the first six months of 2024, as compared to $4.7 million during the same period in 2023. In 2024 and 2023, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items and an increase in contract liabilities, partially offset by increases in accounts receivable and contract assets, decreases in accrued liabilities and other accruals primarily due to payments of the prior year earned incentive compensation liabilities and payments to vendors.
21
Cash Flows from Investing Activities
Net cash used in investing activities was $1.8 million during the first six months of 2024, as compared to $2.1 million during the same period in 2023. During both periods, cash flows used in investing activities primarily related to investments for the continued development of our Hackett Connect Executive Advisory member platform, our Quantum Leap benchmark and Digital Transformation technologies.
Cash Flows from Financing Activities
Net cash used in financing activities was $16.5 million and $16.9 million during the first six months of 2024 and 2023, respectively. The usage of cash in 2024 primarily related to the repurchase of $5.0 million of the Company's common stock, dividend payments of $6.0 million and the repayment of borrowings of $6.0 million related to our Credit Facility. The usage of cash in 2023 primarily related to the net repayment of borrowings of $7.0 million related to our Credit Facility, dividend payments of $6.0 million and the repurchase of $4.4 million of the Company's common stock.
As of June 28, 2024, we had $27.0 million of outstanding borrowings under our Credit Facility, excluding deferred debt costs, leaving us with a capacity of approximately $73.0 million.
22
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As of June 28, 2024, 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 Credit Facility, which is subject to variable interest rates. Under our credit agreement, the interest rates per annum applicable to loans under the Credit Facility was, at our option, equal to a base 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 Credit Facility would not have had a material impact on our results of operations for the quarter and six months ended June 28, 2024.
Exchange Rate Sensitivity
We face exposure to adverse movements in foreign currency exchange rates as a portion of our revenue, expenses, assets and liabilities are denominated in currencies other than the U.S. Dollar, primarily the British Pound, the Euro and the Australian Dollar. These exposures may change over time as business practices evolve.
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 5. Other Information.
Rule 10b5-1 Trading Arrangements
During the three months ended June 28, 2024, no director or officer of the Company
23
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 29, 2023.
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 29, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
During the quarter ended June 28, 2024, the Company did not repurchase any outstanding stock. As of June 28, 2024, the Company had $12.9 million of authorization remaining under the repurchase plan.
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Total Number |
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Maximum Dollar |
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||||
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|
|
|
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|
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of Shares as Part |
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Value That May |
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||||
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of Publicly |
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Yet be Purchased |
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||||
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Total Number |
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Average Price |
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|
Announced |
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Under the |
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||||
Period |
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of Shares |
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Paid per Share |
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|
Program |
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Program |
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||||
Balance as of March 29, 2024 |
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|
|
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|
$ |
12,883,015 |
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|||
March 30, 2024 to April 26, 2024 |
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|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
12,883,015 |
|
April 27, 2024 to May 24, 2024 |
|
|
— |
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|
$ |
— |
|
|
|
— |
|
|
$ |
12,883,015 |
|
May 25, 2024 to June 28, 2024 |
|
|
— |
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|
$ |
— |
|
|
|
— |
|
|
$ |
12,883,015 |
|
|
|
|
— |
|
|
$ |
— |
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|
|
— |
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|
Shares repurchased during the quarter and six months ended June 28, 2024 under the repurchase plan do not include 6 thousand shares and 168 thousand shares for a cost of $0.1 million and $3.9 million, respectively, that the Company bought back to satisfy employee net vesting obligations.
24
Item 6. Exhibits
Exhibit No. |
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Exhibit Description |
3.1 |
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3.2 |
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3.3 |
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3.4 |
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3.5 |
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10.1 |
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10.2* |
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31.1* |
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Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2* |
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Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32* |
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101.INS** |
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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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101.SCH** |
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Inline XBRL Taxonomy Extension Schema with embedded Linkbases Document. |
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104** |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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* Filed herewith
** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.
25
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.
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The Hackett Group, Inc. |
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Date: August 7, 2024 |
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/s/ Robert A. Ramirez |
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Robert A. Ramirez |
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Executive Vice President, Finance and Chief Financial Officer |
26