Business context and reporting period
The Hackett Group, Inc. filed this unaudited Form 10-Q for the quarter and six months ended July 3, 2015. The company provides strategic advisory, business transformation and technology consulting services. Its reporting groups are The Hackett Group and ERP Solutions. Amounts below are in millions except per-share data.
Financial performance
| Metric | Quarter ended July 3, 2015 | Prior-year quarter | Six months ended July 3, 2015 | Prior-year six months |
|---|---|---|---|---|
| Net revenue, before reimbursements | $59.4 | $55.0 | $114.3 | $104.4 |
| Total revenue | $66.4 | $61.1 | $127.4 | $116.0 |
| Operating income | $6.0 | $4.0 | $10.7 | $4.4 |
| Net income | $3.7 | $2.8 | $6.7 | $3.2 |
| GAAP diluted EPS | $0.12 | $0.09 | $0.22 | $0.11 |
| Adjusted non-GAAP diluted EPS | $0.19 | $0.16 | $0.35 | $0.24 |
- Quarterly total revenue rose 9% reported and 11% at constant currency; six-month revenue rose 10% reported and 13% at constant currency. Net revenue increased about 8% in the quarter and 9% for six months.
- GAAP operating margin, measured against net revenue, was 10.2% for the quarter versus 7.2%; for six months it was 9.3% versus 4.2%. Adjusted non-GAAP gross margin was 38.7% in both 2015 periods, compared with 39.0% for the prior-year quarter and 36.6% for the prior-year six months.
- Effective tax rates were 38% for the quarter and 36% for six months, versus 26% and 21% in the comparable 2014 periods. Management attributed the increase primarily to higher taxable income and prior-year restructuring costs.
- Six-month operating cash flow was $6.7, versus cash used of $4.7 a year earlier. Investing cash outflow was $1.6, mainly capital spending on benchmark technology; financing cash outflow was $3.2. Cash increased by $1.6 to $16.2.
- At July 3, cash was $16.2 and debt was $18.3, comprising $3.3 current and $14.9 long-term. The $20.0 revolving credit facility had no borrowings outstanding. Working capital was $21.9; the company reported $67.5 of total liabilities.
Changes, commentary and outlook
- The Hackett Group group’s revenue increased; ERP Solutions revenue declined 13% in the quarter and 4% for six months, mainly because the prior-year quarter included a significant software sale. Management said ERP Solutions revenue grew 13% and 8%, respectively, assuming normalized software sales.
- North American revenue was $55.3 for the quarter, up from $49.2; international revenue was $11.1, down from $11.8. Management cited stronger U.S. demand and foreign-exchange headwinds. Higher subcontractor costs and incentive compensation contributed to higher personnel costs; management also cited improved revenue leverage and resourcing actions.
- Quarterly adjusted non-GAAP net income was $5.8, compared with $4.7; six-month adjusted non-GAAP net income was $10.6, compared with $7.0. These company-defined non-GAAP measures exclude specified items and use a normalized tax rate; they are not substitutes for GAAP results.
- The company paid its first semi-annual dividend of $0.10 per share, totaling $3.1, after quarter-end. Six-month share repurchases under the plan were approximately $1.4; approximately $2.3 remained authorized. Separately, employee net-vesting share purchases cost $2.2 for the six months.
- No numerical earnings or revenue guidance is provided. Management expects cash on hand, operating cash flows and available revolving capacity to fund working capital and capital spending for at least 12 months, while noting that additional financing, if sought, may not be available when needed.
- Risks highlighted include client retention and new business, project timing and cancellations, competition and pricing, hiring and retaining skilled employees, collections and customer financial distress, foreign-exchange movements, economic conditions, acquisition integration and access to financing. The company reported no material change to previously disclosed risk factors. Ordinary-course legal matters were not expected by management to have a material adverse effect.
- There were no restructuring charges in 2015; the prior-year six-month comparison included $3.6 of restructuring costs and a $3.0 bargain-purchase gain related to the Technolab acquisition. Management said disclosure controls were effective and reported no material change in internal control over financial reporting.
Key facts investors should verify
- Whether revenue and margin growth persist, particularly after adjusting ERP Solutions comparisons for the prior-year software sale and considering currency effects.
- Whether the increase in receivables and unbilled revenue—up to $44.6 from $37.4 since January 2—converts into cash collections.
- Credit-facility terms, covenant compliance, variable-rate exposure and scheduled debt repayments; the facility is secured and subject to financial covenants.
- The cash and earnings effects of the dividend, repurchases and employee share-vesting purchases, including remaining repurchase authorization.
- The sustainability and comparability of adjusted non-GAAP results, including exclusions, tax assumptions and the prior-year acquisition and restructuring items.