HACKETT GROUP, INC. — FY 2015 Form 10-K
Business context and reporting period. Hackett is a consulting and technology services firm focused on benchmarking, business transformation, working-capital management, advisory programs, and enterprise software. Fiscal 2015 ended January 1, 2016; the company’s fiscal years generally comprise 52 weeks. The filing also provides fourth-quarter results.
Financial performance and liquidity
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Total revenue | $260.9 million | $236.7 million |
| Revenue before reimbursements | $234.6 million | $213.5 million |
| Operating income | $21.9 million | $12.6 million |
| Net income | $13.8 million | $9.7 million |
| Diluted GAAP EPS | $0.43 | $0.33 |
| Operating cash flow | $36.2 million | $18.8 million |
- Revenue grew 10% reported and 13% in constant currency. North American revenue rose more than 14%; international revenue fell 8% reported but increased 4% in constant currency.
- Operating margin was 9% of revenue before reimbursements, versus 6% in 2014. Adjusted non-GAAP gross margin improved to 40% from 38%; adjusted non-GAAP diluted EPS was $0.75 versus $0.56. These non-GAAP measures exclude specified compensation, amortization, acquisition, restructuring, and tax items.
- Fourth-quarter revenue was $60.3 million, operating income $6.3 million, net income $4.1 million, and diluted EPS $0.12. In Q4 2014, revenue was $54.6 million, operating income $4.2 million, net income $3.5 million, and diluted EPS $0.12. Q4 2015 included $1.3 million of noncash performance-based SAR compensation expense.
- Cash and cash equivalents were $23.5 million at year-end, up from $14.6 million; working capital was $17.4 million versus $15.4 million. The company reported no debt at year-end, having repaid $18.3 million of long-term debt. It had approximately $20 million available on its revolver at year-end, then borrowed $5 million after year-end.
- Investing cash outflow was $3.0 million, mainly capital spending. Financing cash outflow was $24.2 million, principally debt repayment, share repurchases, and dividends. Operating lease commitments totaled $8.5 million. No off-balance-sheet arrangements were reported.
Changes, outlook, and risks
- Management attributed growth and margin improvement chiefly to strong U.S. demand, expanded advisory and benchmarking “wedge” offerings, cross-selling, and improved delivery leverage. European demand remained weak and volatile; foreign exchange reduced adjusted non-GAAP EPS by approximately $0.04.
- Management expected U.S. conditions to remain healthy, with roughly 2% GDP growth, while remaining cautious about Western Europe and anticipating volatility; its stated regional growth estimate was approximately 1% GDP. No formal revenue or earnings guidance was provided.
- New or expanded partner initiatives included ADP Vantage HCM advisory offerings, a global business-services certification program with CIMA, and joint marketing of Hackett Performance Exchange with Oracle. Management expected these channels to develop, but their contribution was not quantified.
- Key risks include economic and project-demand volatility; clients’ ability to cancel engagements on 30 days’ notice; reliance on talent recruitment and retention; competition and pricing pressure; fixed-price project estimation and delivery risk; foreign-currency exposure without derivative hedges; and client concentration. The ten largest clients generated 24% of 2015 revenue, although no single client exceeded 5%.
- The annual dividend rose to $0.20 per share in 2015; after year-end, the board approved an increase to $0.26. The board also added $5 million to the repurchase authorization; subsequent repurchases and employee share withholding totaled material cash outlays.
- Management said ordinary-course legal matters were not expected to materially affect results. Goodwill was not impaired. The 2014 Technolab acquisition produced a $3.0 million bargain-purchase gain; related earn-out settlement occurred in 2015.
- BDO was dismissed in May 2015 after an accounting disagreement regarding the Technolab acquisition; BDO had identified a material weakness related to that accounting in the prior-year audit. Management and current auditor RSM concluded FY 2015 internal controls were effective, and RSM issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether U.S. demand and the growth in advisory and implementation work continued, and whether European demand and currency effects improved or worsened.
- Whether partner programs and recurring, IP-based services generated measurable revenue and margin gains.
- Whether operating cash flow remains strong as receivables and unbilled revenue grow, and how the post-year-end revolver borrowing affects liquidity and covenant headroom.
- The sustainability of adjusted earnings and margins, including the impact of stock-based compensation, SAR awards, tax rates, and the company’s non-GAAP adjustments.
- Progress on remediation of the prior-year Technolab accounting weakness and continued effectiveness of financial reporting controls.
- Capacity to fund dividends and repurchases alongside investment and acquisition plans, subject to credit-agreement restrictions.