Hackett Group, Inc. — Q2 2023 Form 10-Q
Business context and period. Hackett is an IP-based strategic advisory and technology consulting firm, reporting three segments: Global Strategy & Business Transformation (Global S&BT), Oracle Solutions and SAP Solutions. This unaudited report covers the quarter and six months ended June 30, 2023, compared with periods ended July 1, 2022. Dollar figures below are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $77.1 | $75.9 | $148.3 | $151.6 |
| Operating income | $12.8 | $14.2 | $24.0 | $27.6 |
| Net income | $8.7 | $10.2 | $16.9 | $20.7 |
| Diluted EPS | $0.32 | $0.32 | $0.62 | $0.65 |
| Operating margin | 16.6% | 18.7% | 16.2% | 18.2% |
Revenue before reimbursements was $75.6 million for Q2 and $145.5 million for the six-month period. Reimbursements are pass-through expenses with no associated operating margin.
- Segments: Q2 revenue was $43.6 million for Global S&BT (down 2%), $20.8 million for Oracle (up 4%) and $12.7 million for SAP (up 11%). Six-month revenue was $86.0 million (down 1%), $37.9 million (down 9%) and $24.4 million (up 6%), respectively.
- Margins and expenses: Cost of service was $46.9 million in Q2 and $91.4 million for six months. SG&A rose 10% in Q2 to $17.4 million and 9% for six months to $32.9 million; management attributed the increase principally to added investment in sales resources and IP-based offerings. Net income margin was approximately 11.3% in Q2 and 11.4% for six months, versus 13.5% and 13.7% a year earlier.
- Cash flow: Six-month operating cash flow was $4.7 million, down from $24.3 million. Receivables and contract assets increased $9.8 million; cash generation was also affected by payments of prior-year incentive compensation, vendors and taxes. Capital expenditures were $2.1 million.
- Liquidity and debt: Cash was $15.8 million at June 30, down from $30.3 million at December 30, 2022. Current assets were $76.8 million and current liabilities $46.9 million. Outstanding credit-facility borrowings were $53.0 million, leaving approximately $47.0 million of capacity under the $100 million revolving facility, which matures November 7, 2027. The company reported compliance with its covenants.
- Capital returns: Financing cash outflow was $16.9 million, including $7.0 million net debt repayment, $6.0 million in dividends and $4.4 million in share repurchases/withholding-related activity. The annual dividend had been set at $0.44 per share; a third-quarter dividend was declared after quarter-end.
Changes, outlook and risks
Revenue increased modestly in Q2 but declined 2% for the first six months. Management said the prior-year six-month comparison benefited from post-pandemic pent-up demand; higher interest rates and slower growth extended client decision-making. Global S&BT also faced slower decisions on transformation engagements. Oracle’s six-month decline reflected coming off strong 2022 results and rebuilding its pipeline; SAP growth was attributed to higher cloud-license sales. Interest expense rose to $0.9 million for Q2 and $1.8 million for six months, compared with $28,000 and $56,000, respectively, as the company carried debt after its 2022 tender offer.
Management stated available cash, borrowing capacity and operating cash flows should be sufficient for working capital and other requirements for at least the next twelve months. The filing provides no numerical earnings or revenue guidance. Key risks cited include weaker economic conditions, inflation and high interest rates reducing client demand, project timing or cancellations, competition, retention of skilled staff, collection risks, foreign-exchange fluctuations and variable-rate debt exposure. Management said a 100-basis-point rate increase would not have had a material impact on the reported periods. Ordinary-course legal matters were not expected to have a material adverse effect; no material changes to previously disclosed risk factors were reported. Disclosure controls were assessed as effective, with no material change in internal control reported.
Important facts for investors to verify
- Whether the sharp year-over-year decline in operating cash flow reflects temporary working-capital timing or a sustained collection/conversion issue.
- Whether slower client decisions and the Oracle pipeline rebuild affect revenue and segment profitability in coming quarters.
- How the $53.0 million variable-rate debt balance, interest costs and covenant headroom evolve.
- Whether investment in Global S&BT offerings produces growth sufficient to offset its lower segment profit.
- The treatment of the reported $4.4 million financing outflow across repurchases and employee share withholding, and the remaining repurchase authorization (reported as approximately $13.9 million).