The Hackett Group, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended April 1, 2022; comparable quarter ended April 2, 2021. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless noted.
Business context
Hackett is an IP-based strategic advisory and technology consulting firm. It earns most revenue from professional services, with additional software and advisory-program revenue. Results are unaudited interim results and are not necessarily indicative of full-year performance.
Financial performance and liquidity
- Revenue: $75.7 million, up 19% from $63.5 million; revenue before reimbursements was $75.1 million, up from $63.4 million. Consulting revenue was $74.5 million and software license sales were $1.2 million.
- Business groups: Strategy and Business Transformation revenue was $30.0 million versus $25.8 million; ERP, EPM and Analytics Solutions was $38.0 million versus $32.2 million; International was $7.7 million versus $5.5 million.
- Profitability: Operating income rose to $13.4 million from $8.9 million; operating margin was approximately 17.7%, compared with 13.9%. Net income was $10.5 million versus $6.4 million. Diluted EPS was $0.33 versus $0.19. The effective tax rate was 22%, down from 28%.
- Costs: Personnel costs before reimbursements increased 15% to $47.3 million, mainly reflecting hiring, subcontractor use and higher incentive compensation. SG&A rose 7% to $14.4 million. As a share of revenue, personnel costs declined to 63% from 65%, and SG&A to 19% from 21%.
- Cash flow: Operating cash flow was $6.1 million versus $5.9 million. Capital expenditures were $1.0 million versus $0.5 million; financing cash outflow was $3.1 million versus $3.7 million. Cash increased by $2.0 million during the quarter to $47.8 million.
- Balance sheet and debt: Current assets were $103.6 million and current liabilities $48.0 million, for a current ratio of about 2.2. Total liabilities were $58.1 million. No amounts were drawn on the $45.0 million revolving credit facility; the company reported compliance with its covenants. The facility matures November 30, 2022.
- Capital returns: The company declared a $3.5 million quarterly dividend, paid in April, and repurchased about 31,000 shares under its repurchase plan for $0.6 million. A further 126,000 shares costing $2.4 million were bought back to satisfy employee tax-withholding obligations. $10.6 million remained authorized under the repurchase plan.
Changes versus the prior comparable quarter
- Revenue growth was broad-based; management attributed EEA growth largely to large Oracle engagements and growth in OneStream, while International benefited from U.S.-driven global engagements and Hackett Institute sales.
- Net income increased about 65%, while operating income increased about 51%; operating margin expanded approximately 3.8 percentage points.
- Operating cash flow was broadly stable despite higher earnings, principally because accrued liabilities declined with payment of 2021 incentive compensation.
- Foreign currency translation reduced comprehensive income by $1.1 million, compared with a $0.3 million gain in the prior-year quarter.
Outlook, risks and unusual items
- The filing provides no specific revenue, earnings or margin guidance. Management said cash on hand, operating cash flows and available credit should fund working capital and other requirements for at least the next 12 months and beyond.
- Management cited uncertainty from COVID-19 and broader economic conditions, including inflation, interest rates and the Russia-Ukraine conflict. Other stated risks include client demand and cancellations, customer collections, competition, hiring and retaining skilled employees, foreign exchange, and access to financing.
- Management does not expect travel reimbursements to return to pre-pandemic levels given hybrid operations. A single customer represented 7% of Q1 2022 revenue; no customer exceeded 5% in the prior-year quarter.
- The company had $0.7 million remaining in liabilities for restructuring charges recorded in 2020. 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.
- The revolving facility was undrawn but was due to mature in November 2022; the company expected its benchmark rate to transition from LIBOR upon renewal, with the replacement index not yet determined.
Important facts for investors to verify
- Whether revenue and margin growth persisted after Q1, and how much depended on large engagements and the customer contributing 7% of quarterly revenue.
- Whether the company renewed or replaced its revolving credit facility before its November 2022 maturity and on what terms.
- How collections, doubtful-account allowances and working-capital movements develop; the allowance for doubtful accounts rose to $3.9 million from $2.7 million at year-end.
- Whether dividend and repurchase commitments remain supported by cash generation, including the impact of employee-related share withholding purchases.
- Whether COVID-19, macroeconomic, geopolitical, foreign-exchange or talent-market developments materially affect client demand, delivery costs or results.