The Hackett Group, Inc. — Q3 2012 Form 10-Q
Reporting period: Quarter and nine months ended September 28, 2012. Hackett provides strategic advisory, benchmarking, business transformation and technology consulting services, including ERP Solutions. Financial statements are unaudited.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Total revenue | $58.6 million | $57.9 million | $176.9 million | $169.6 million |
| Revenue before reimbursements | $52.3 million | $51.6 million | $158.1 million | $150.9 million |
| Operating income | $4.6 million | $4.5 million | $12.7 million | $12.5 million |
| Net income | $2.6 million | $4.3 million | $10.0 million | $12.1 million |
| Diluted EPS | $0.08 | $0.10 | $0.29 | $0.29 |
- Management reported total revenue growth of 1% for the quarter and 4% for the nine months; growth was 3% and 6%, respectively, in constant currency. Revenue before reimbursements grew about 1% and 5%, respectively.
- Operating income was 8.8% of revenue before reimbursements in Q3, versus 8.7% a year earlier; for the nine months, the comparable figures were 8.1% and 8.3%. Cost of service before reimbursements was 64% of revenue before reimbursements in both comparable periods. SG&A was 28% on that basis.
- Q3 net income declined despite modestly higher operating income, chiefly alongside income tax expense of $1.8 million versus $0.2 million a year earlier. Nine-month tax expense was $2.3 million versus $0.4 million. Management attributed the difference in part to prior-year tax benefits and valuation-allowance changes.
- Operating cash flow for the nine months was $11.1 million, versus $3.4 million; investing cash use was $2.4 million, versus $4.2 million. Financing used $27.3 million, mainly reflecting the tender offer and debt repayments. Cash and cash equivalents fell to $14.5 million from $32.9 million at year-end 2011.
- At September 28, 2012, debt totaled $28.0 million ($4.3 million current and $23.7 million long-term); the $20.0 million revolving facility had no balance drawn. After quarter-end, Hackett paid down another $3.0 million of term debt, leaving $25.0 million outstanding.
- Current assets were $58.5 million and current liabilities $34.8 million. Accounts receivable and unbilled revenue, net, were $36.5 million. Total assets were $149.8 million and shareholders’ equity $89.9 million.
Material changes and unusual items
- ERP Solutions revenue rose 20% in Q3, primarily with higher demand in the SAP group; The Hackett Group segment revenue fell 3% in reported dollars for the quarter but rose 5% for the nine months. International revenue was weaker in the quarter, partly reflecting currency effects.
- In March 2012, Hackett completed a tender offer for 11.0 million shares at $5 per share, for approximately $55 million before fees, funded with cash and credit-facility proceeds. No shares were repurchased under the separate repurchase plan during the reported quarter; $0.6 million remained authorized.
- A $0.3 million facilities restructuring accrual was reversed in Q3, producing a restructuring benefit; the company reported no remaining acquisition-integration restructuring commitments.
- For the nine months, Hackett recorded $4.1 million of non-cash stock compensation. It had 3.0 million restricted stock units outstanding and 3.9 million options outstanding at September 28; most options were performance-based.
Outlook, risks and controls
- Management said cash on hand, operating cash flow and the available $20 million revolver were expected to cover working-capital and capital-expenditure needs for at least 12 months. The filing provides no specific revenue or earnings guidance.
- The credit facility has variable interest rates and covenants, including leverage, fixed-cost coverage and liquidity requirements; it is secured by substantially all company assets, subject to exceptions. Management said a 100-basis-point rate increase would not have materially affected Q3 results.
- Disclosed risks include client retention and project timing or cancellations, competition and pricing, hiring and retaining skilled employees, collections, acquisition integration, currency movements, and economic and interest-rate changes. Management reported no material change to the prior Form 10-K risk factors.
- Management believed ordinary-course legal matters would not materially adversely affect financial position, cash flows or results. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported.
Key facts for investors to verify
- Whether revenue growth and demand, especially in ERP Solutions and international markets, continued after September 28.
- Cash generation, receivables and collections, and liquidity after the tender offer and subsequent $3 million term-debt repayment.
- Debt amortization, variable-rate exposure and compliance with credit-facility covenants.
- The sustainability of earnings given higher tax expense, stock-based compensation and the prior-year tax benefits.
- Performance-option vesting conditions, remaining share-repurchase authorization and any subsequent changes to the company’s outlook or risks.