HACKETT GROUP, INC. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 29, 2024; comparative period ended March 31, 2023. Figures below are unaudited. Hackett provides advisory, consulting and digital transformation services, including Oracle and SAP solutions.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $77.2m | $71.2m | +8.4% |
| Income from operations | $11.5m | $11.3m | +2.4% |
| Net income | $8.7m | $8.2m | +7.0% |
| Diluted EPS | $0.32 | $0.30 | +6.7% |
| Operating cash flow | $2.8m | $(3.1)m | Improved |
- Operating margin was approximately 14.9% of revenue, compared with 15.8% a year earlier; net margin was approximately 11.3%, versus 11.5%.
- Personnel costs before reimbursements increased 6% to $45.8m; SG&A increased 19% to $18.3m. Management attributed the SG&A increase primarily to investment in programs and sales resources, along with higher incentive compensation.
- Revenue by segment: Global S&BT $40.9m, down 3.4%; Oracle Solutions $21.7m, up 26.6%; SAP Solutions $14.6m, up 24.2%. Segment profit was $10.1m, $5.3m and $4.9m, respectively.
Cash, debt and liquidity
- Cash was $13.0m at March 29, 2024, down from $21.0m at December 29, 2023. Operating cash flow was positive, but financing uses of $9.8m and capital expenditures of $0.9m contributed to the decline.
- Operating cash flow improved from the prior-year outflow, but was affected by a $5.9m increase in receivables and contract assets and a $7.2m decrease in accrued expenses and other liabilities, partly offset by higher contract liabilities.
- Debt outstanding was $31.0m before deferred debt costs ($30.7m net on the balance sheet), down from $33.0m at year-end. The variable-rate borrowing rate was 6.9%; approximately $69.0m of revolving capacity remained. The facility matures November 7, 2027, and Hackett reported compliance with its covenants.
- Management expects available cash, borrowing capacity and operating cash flows to cover working capital, debt service, leases and capital expenditures for at least the next 12 months and beyond. No specific earnings or revenue guidance was provided.
Material changes, outlook and risks
- Global S&BT revenue and segment profit declined. Management cited slower economic growth, longer client decision-making and volatility, particularly affecting e-procurement work; investments in programs and sales resources also reduced segment profit.
- Oracle growth continued a trend of double-digit year-over-year growth over the prior three quarters. SAP’s increase was attributed mainly to strong value-added reseller activity in the quarter.
- Hackett paid a $3.0m dividend during the quarter and declared a further $3.0m dividend payable in July. It repurchased 43,351 shares for $1.1m under its repurchase plan; an additional $3.8m of shares were withheld to satisfy employee tax obligations. $12.9m remained authorized for repurchases.
- The Gartner lawsuit was settled in February 2024, with a $985,000 settlement payment reflected in 2023 results; Q1 2024 included $102,000 of additional legal costs. Management believes ordinary-course legal matters will not materially adversely affect the company.
- Management identified economic and business-confidence conditions, client demand and project timing or cancellation, client retention and collections, competition and pricing, skilled-employee retention, foreign exchange, geopolitical events and variable interest rates as risks. It reported no material changes to the risk factors in its 2023 Form 10-K.
Important facts for investors to verify
- Whether Oracle and SAP growth continues and whether Global S&BT stabilizes amid slower client decisions.
- Cash conversion and working-capital trends, particularly receivables and unbilled contract assets, which increased to $58.0m from $52.1m at year-end.
- Debt repayment, variable-rate exposure, covenant compliance and remaining revolver availability.
- The sustainability of margins as Hackett invests in programs and sales capacity, and the level of customer concentration; one customer accounted for 9% of Q1 revenue, versus 5% a year earlier.
- Ongoing dividends and repurchases relative to cash generation and capital requirements.