HACKETT GROUP, INC. — Q1 2021 Form 10-Q
Reporting period: Quarter ended April 2, 2021. Comparative period ended March 27, 2020. Amounts below are in U.S. dollars; financial statement figures are unaudited.
Business context
Hackett provides strategy advisory, benchmarking, business transformation, ERP/EPM and analytics consulting, and related software and advisory services. Revenue is primarily from professional services. The company attributed continued business uncertainty to COVID-19, while noting improved demand compared with Q4 2020.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue before reimbursements | $63.4 million | $65.2 million |
| Total revenue, including reimbursements | $63.5 million | $69.5 million |
| Operating income / margin on revenue before reimbursements | $8.9 million / 14.0% | $7.7 million / 11.8% |
| Net income | $6.4 million | $5.5 million |
| Diluted earnings per share | $0.19 | $0.17 |
| Cash provided by operating activities | $5.9 million | $6.5 million |
| Capital expenditures | $0.5 million | $0.5 million |
| Cash and cash equivalents, period-end | $51.1 million | $23.3 million |
Operating cash flow less capital expenditures was approximately $5.4 million, versus $6.0 million in the prior-year quarter. The company had no borrowings under its $45 million revolving credit facility at April 2, 2021, and reported compliance with its covenants. Total liabilities were $56.2 million, including $5.5 million of operating lease liabilities; the revolver matures November 30, 2022. Management said cash, borrowing availability and operating cash flow should cover working capital and capital expenditure needs for at least twelve months.
Changes versus the prior-year quarter
- Revenue before reimbursements declined 3%, but operating income rose about 15% and net income rose about 15%; operating margin increased from 11.8% to 14.0%.
- Total revenue fell about 9%, largely reflecting reimbursements declining to $0.1 million from $4.3 million as travel-related client expenses dropped. Reimbursements have no associated margin.
- North American revenue before reimbursements was approximately $57.9 million, versus $57.7 million. International revenue by engagement-team location declined 26%, to $5.5 million from $7.5 million.
- Personnel costs before reimbursable expenses fell 4%, to $39.3 million; SG&A costs as presented in MD&A fell 11%, to $12.4 million. The company cited 2020 restructuring savings and lower travel and selling costs.
- Operating cash flow decreased from $6.5 million to $5.9 million. Accounts receivable and contract assets rose to $38.5 million from $32.8 million at January 1, 2021.
Outlook, risks and notable items
- No specific quantified revenue or earnings guidance was provided. Management expected COVID-19-related pressure on net revenue and diluted EPS to continue in 2021 until economic conditions fully recover; it cautioned that a prolonged downturn or renewed deterioration could further reduce client demand.
- Cost measures included a workforce reduction of approximately 10% in June 2020, limits on hiring, contractors, travel and discretionary spending, and remote work. Prior charges included $10.5 million of 2020 restructuring costs and a $3.9 million office and property impairment charge in Q4 2020. The remaining restructuring liability was $1.1 million at April 2, 2021.
- Q1 revenue before reimbursements was nearly flat in S&BT and EEA, while international revenue remained weaker. Management cited improving demand in S&BT, SAP S/4HANA, OneStream and Oracle ERP practices, but longer client decision-making in Europe.
- The company declared a quarterly dividend of approximately $3.3 million, paid in April 2021, and declared a second 2021 quarterly dividend for payment in July. It repurchased 136,000 shares under its plan for $2.1 million during the quarter and repurchased another 116,000 shares for $2.0 million after quarter-end. The board subsequently approved an additional $20 million repurchase authorization.
- Risks discussed include COVID-19 and broader economic conditions, project timing and cancellations, client collections, competition, employee retention, foreign exchange and financing access. Management said ordinary-course legal matters were not expected to have a material adverse effect; it reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether demand recovery, particularly in international markets, continued after the quarter and whether management’s expectation of ongoing 2021 pandemic effects changed.
- Whether higher receivables and contract assets converted into cash, and how operating cash flow and client collections developed.
- The sustainability of improved operating margins, including the effect of cost reductions, lower travel costs and stock-based compensation.
- Cash needs and capital returns, including the dividend, subsequent share repurchases and the new repurchase authorization.
- Credit-facility availability, covenant compliance, lease obligations and any material developments in legal or COVID-related contingencies.