HACKETT GROUP, INC. — Q1 2023 Form 10-Q
Business context and reporting period. The Hackett Group provides strategic advisory and technology consulting, including Global Strategy & Business Transformation (S&BT), Oracle Solutions and SAP Solutions. This unaudited quarter ended March 31, 2023, compared with the quarter ended April 1, 2022. Unless noted otherwise, amounts are in U.S. dollars.
Financial performance and position
- Revenue: $71.2 million, down 5.9% from $75.7 million. Revenue before reimbursements was $69.8 million versus $75.1 million. Management said stronger post-pandemic demand in early 2022 and subsequently extended client decision-making amid higher interest rates affected comparisons.
- Segments: Global S&BT revenue was $42.3 million (down 0.7%); Oracle Solutions was $17.2 million (down 20.2%); SAP Solutions was $11.7 million (up 1.8%). Oracle’s decline was attributed to rebuilding its pipeline amid unfavorable macroeconomic conditions. Segment profit was $13.8 million, $3.0 million and $2.6 million, respectively.
- Profit and margins: Operating income was $11.3 million, down from $13.4 million; operating margin was approximately 15.8%, versus 17.7%. Net income was $8.2 million, down from $10.5 million; net margin was approximately 11.5%, versus 13.9%. Diluted EPS was $0.30, compared with $0.33.
- Costs: Personnel costs before reimbursable expenses fell 9% to $43.1 million, which management attributed mainly to lower incentive compensation, salaries and subcontractor use. SG&A rose 7% to $15.4 million, reflecting investment in program development and dedicated sales resources for IP-based offerings. SG&A was 22% of revenue versus 19%.
- Cash flow: Operating cash flow was negative $3.1 million, versus positive $6.1 million a year earlier. Management cited incentive-compensation and vendor payments, higher receivables and contract assets, partly offset by net income and increased contract liabilities. Investing cash outflow was $1.1 million, mainly for technology and platform development. Financing cash outflow was $9.2 million, including $4.2 million in share repurchases, $3.0 million in dividends and a $2.0 million net debt repayment.
- Liquidity and debt: Cash was $16.9 million at March 31, down from $30.3 million at December 30, 2022. Current assets were $72.0 million and current liabilities $46.3 million. Outstanding credit-facility borrowings were $58.0 million, with approximately $42.0 million of the $100 million facility available; the facility matures in November 2027. The company was in compliance with its covenants. Interest expense increased to $0.9 million from $28,000.
- Capital returns and equity: The company declared a $3.0 million quarterly dividend, paid in April, and repurchased 37,467 shares under its plan for $0.7 million. It also withheld 162,000 shares, valued at $3.5 million, to satisfy employee tax obligations. Approximately $14.0 million remained under the repurchase authorization.
Outlook, risks and other items
- No specific financial guidance or revenue forecast is provided. Management said cash on hand, facility availability and operating cash flows should be sufficient for working capital, capital expenditures, debt payments and lease obligations for at least the next 12 months and beyond.
- Management highlighted potential effects of inflation, high interest rates, economic uncertainty and geopolitical events on client confidence and demand. Other disclosed risks include project timing and cancellations, competition and pricing, attracting and retaining skilled employees, customer collection difficulties, foreign-exchange movements and access to financing.
- Revenue was affected by extended client decision-making; management said currency fluctuations did not significantly affect the year-over-year comparison. One customer represented 5% of Q1 2023 revenue, versus one customer at 7% in Q1 2022.
- The company reported ordinary-course legal proceedings and claims; management did not expect their disposition to materially adversely affect financial position, cash flows or results. It reported no material changes to the risk factors in its 2022 Form 10-K and said disclosure controls were effective.
Important facts for investors to verify
- Whether Oracle Solutions’ pipeline rebuild translates into renewed revenue growth, and whether broader client decision delays persist.
- Whether operating cash flow improves as receivables and accrued liabilities normalize after incentive-compensation and vendor payments.
- Variable-rate borrowing costs, remaining facility capacity and continued compliance with credit covenants.
- Returns from the increased investment in IP-based offerings and development projects, alongside the company’s dividend and repurchase activity.
- Whether macroeconomic, client-concentration, hiring and foreign-exchange risks materially affect subsequent-period results; this quarter’s results are not necessarily indicative of full-year performance.