The Hackett Group, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 27, 2019. This is an annual report, not a standalone fourth-quarter filing. Unless noted, financial amounts are in U.S. dollars; figures are rounded.
Business context
Hackett is an intellectual-property-based strategic consultancy focused on benchmarking, best-practice advisory, business transformation, and enterprise technology implementation, including Oracle and SAP solutions. Its strategy centers on monetizing proprietary benchmarking and best-practice content through digital platforms, subscriptions, and alliances. The company reported 1,143 associates at year-end.
Financial performance and liquidity
| Metric | FY2019 | FY2018 | Change or context |
|---|---|---|---|
| Revenue before reimbursements | $260.8 million | $264.5 million | Down 1% |
| Total revenue, including reimbursements | $282.5 million | $285.9 million | Down 1%; reimbursements are pass-through expenses |
| Operating income | $31.3 million | $33.6 million | Operating margin on revenue before reimbursements: 12%, versus 13% |
| Income from continuing operations | $23.3 million | $27.4 million | Diluted EPS from continuing operations: $0.72 versus $0.85 |
| Net income | $23.3 million | $23.9 million | Diluted EPS: $0.72 versus $0.74 |
| Cash from operating activities | $42.4 million | $32.4 million | Increased; working-capital movements contributed |
| Cash and cash equivalents | $26.0 million | $13.8 million | At fiscal year-end |
| Debt | $0 | $6.5 million | Revolver fully repaid in Q4 |
| Working capital | $34.9 million | $28.9 million | At fiscal year-end |
Management said available cash, borrowing capacity, and operating cash flow should fund working-capital and capital-expenditure needs for at least the next 12 months. Operating lease obligations totaled $8.8 million, including $2.4 million due within one year. The company paid $11.2 million in dividends and repurchased $5.3 million of shares under its buyback program during 2019; financing cash outflows also included $2.5 million of employee share-vesting tax withholding.
Material changes versus prior periods
- North American revenue before reimbursements increased 3%, while international revenue by engagement-team location fell 21%. Management attributed the international weakness, primarily in Europe, largely to Brexit-related uncertainty. International revenue was 14% of the total, compared with 18% in 2018.
- By service group, Strategy and Business Transformation revenue rose 3% to $104.5 million, and ERP, EPM and Analytics revenue rose 3% to $119.5 million. International service-group revenue fell to $36.8 million from $46.4 million.
- Personnel costs before reimbursements were 61% of revenue before reimbursements, up from 60%. SG&A excluding specified compensation, acquisition, and amortization items declined 1%.
- The effective tax rate rose to 25.0% from 16.9%, contributing to lower continuing-operations earnings. The 2018 rate reflected tax-reform and other tax benefits.
- Operating cash flow increased by about $10.0 million. Accounts receivable and unbilled revenue declined during 2019, compared with an increase in 2018.
Q4, outlook, risks, and unusual items
- Q4 results: Revenue before reimbursements was $63.7 million, versus $61.6 million in Q4 2018. Operating income was $3.6 million and net income was $2.3 million; diluted EPS was $0.07. Q4 2019 included $3.3 million of restructuring costs and a $1.2 million asset impairment, which management said together reduced diluted EPS by $0.12.
- Unusual items: The impairment related to the Hackett Institute Enterprise Analytics Program. Restructuring primarily reflected staff reductions in Europe and Australia amid weaker demand; $1.6 million remained accrued at year-end. FY2018 included a $6.3 million impairment of other investments and a discontinued-operations loss from the European REL Working Capital group.
- Outlook: The filing provides no numeric revenue or earnings guidance. Management said it would continue investing in Quantum Leap and the Hackett Digital Transformation Platform and pursue growth through cloud services, IP-as-a-Service, alliances, talent, offshore delivery, and selective acquisitions. The annual dividend was increased after year-end from $0.36 to $0.38 per share.
- Risks: The filing cites variable project timing and cancellations, client concentration, competition and pricing pressure, dependence on skilled staff, fixed-price project execution, foreign-exchange exposure, Brexit, cybersecurity and data-privacy obligations, and economic conditions. It specifically notes that the coronavirus outbreak had created uncertainty and could reduce client spending. The ten largest clients represented 22% of 2019 revenue, although no single client exceeded 5%.
- Ordinary-course legal proceedings were disclosed; management did not expect their resolution to materially affect financial position, cash flows, or results. The company reported effective disclosure controls and internal control over financial reporting, with unqualified auditor opinions.
Important facts for investors to verify
- Whether international demand stabilizes and the extent to which Brexit and broader economic conditions continue to affect client decisions and project starts.
- Whether North American and cloud-related growth can offset declines in legacy offerings and international operations.
- Progress in generating recurring, higher-margin revenue from Quantum Leap, the Digital Transformation Platform, advisory subscriptions, training, and strategic alliances.
- How normalized earnings compare with reported earnings after restructuring, impairment, contingent-consideration benefits, and changes in the effective tax rate.
- Cash-flow sustainability, working-capital collection, lease obligations, and the capacity to maintain dividends and buybacks while funding investment or acquisitions.
- Potential effects of the coronavirus outbreak and evolving privacy, cybersecurity, and foreign-exchange risks; the filing does not quantify their future financial impact.