The Hackett Group, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended July 1, 2022. Unless otherwise noted, amounts are in U.S. dollars; financial statement amounts below are in millions. Hackett provides advisory, benchmarking, business transformation, and technology consulting services.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $75.9 | $73.2 | $151.6 | $136.7 |
| Operating income | $14.2 | $14.2 | $27.6 | $23.1 |
| Net income | $10.2 | $10.5 | $20.7 | $16.9 |
| Diluted EPS | $0.32 | $0.32 | $0.65 | $0.51 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $24.3 | $19.7 |
- Q2 revenue rose about 4% year over year; first-half revenue increased about 11%. Revenue before reimbursements was $74.8 million in Q2 and $149.9 million for the first half.
- Q2 operating margin was approximately 18.7% versus 19.4%; first-half operating margin improved to approximately 18.2% from 16.9%. Q2 net income declined about 3%, while first-half net income grew about 23%.
- First-half cash from operations was $24.3 million. Investing used $2.3 million, mainly for Quantum Leap benchmark technology development and equipment; financing used $6.1 million, primarily dividends and share repurchases. Cash increased to $61.7 million from $45.8 million at year-end.
- At July 1, current assets were $114.2 million and current liabilities $51.6 million. The company reported no revolver borrowings and had access to a $45 million revolving facility. There was no other reported outstanding debt. Management said available cash, operating cash flows, and facility capacity should cover requirements for at least the next 12 months.
Changes and business drivers
- Strategy and Business Transformation revenue increased to $33.4 million in Q2 from $26.5 million and to $63.4 million for the first half from $52.3 million.
- ERP, EPM and Analytics Solutions revenue was $36.8 million in Q2 versus $40.7 million, and $74.7 million for the first half versus $72.9 million. Prior-year comparisons included a $5.3 million software sale; excluding it, management cited growth from Oracle engagements and OneStream implementations, partly offset by weaker SAP activity as the sales pipeline is rebuilt.
- International revenue decreased 4% in Q2 but increased 17% for the first half. Management attributed first-half growth primarily to U.S.-driven global engagements.
- Consulting revenue increased, while software license sales fell to $1.0 million in Q2 from $5.8 million, reflecting the prior-year large transaction. Personnel and SG&A costs rose with hiring, subcontractor use, incentive compensation, professional fees, and sales and marketing investment.
Outlook, risks and notable items
- No quantified revenue or earnings guidance was provided. Management noted that results for the interim periods are not necessarily indicative of full-year results.
- Key risks discussed include uncertain economic conditions and business confidence, COVID-19 disruptions, client demand and cancellations, attracting and retaining skilled staff, collections, competition and margin trends, inflation, interest rates, foreign exchange, and the Russia-Ukraine conflict.
- The revolving credit agreement matures November 30, 2022. Management noted that its benchmark would change from LIBOR upon renewal; the replacement index had not yet been determined. The company was in covenant compliance at July 1, 2022.
- Foreign currency translation reduced Q2 comprehensive income by $2.9 million and first-half comprehensive income by $4.0 million. Ordinary-course legal matters were not expected by management to have a material adverse effect. The filing reported no material changes to previously disclosed risk factors and effective disclosure controls.
- The company declared two quarterly dividends of approximately $3.5 million each during the first half and declared a third dividend after quarter-end. It repurchased no shares under its repurchase plan in Q2; first-half plan repurchases were 31,000 shares for $0.6 million. The remaining plan authorization was $10.6 million.
Important facts for investors to verify
- Whether the renewal of the $45 million credit facility was completed before its November 2022 maturity, and its replacement interest-rate benchmark and terms.
- Whether S&BT growth and Oracle/OneStream demand continued, and whether SAP pipeline rebuilding affected subsequent revenue.
- How margins and cash conversion develop as personnel, incentive compensation, and sales and marketing costs rise.
- The sustainability of dividends and repurchases relative to cash generation, and the effects of foreign exchange and macroeconomic conditions.