Business context and reporting period
The Hackett Group, Inc. (NASDAQ: HCKT) is a strategic consultancy and enterprise benchmarking and best-practices implementation firm, providing advisory, business transformation, and cloud enterprise application services. This Form 10-K reports the fiscal year ended January 1, 2021; comparisons are primarily with the fiscal year ended December 27, 2019. The filing is annual, not a standalone fourth-quarter report.
Financial performance and condition
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue before reimbursements | $234.8 million | $260.8 million |
| Total revenue, including reimbursements | $239.5 million | $282.5 million |
| Operating income / margin on revenue before reimbursements | $8.6 million / 3.7% | $31.3 million / 12.0% |
| Net income | $5.5 million | $23.3 million |
| Diluted EPS | $0.17 | $0.72 |
| Cash from operating activities | $44.1 million | $42.4 million |
| Cash and working capital at year-end | $49.5 million / $42.3 million | $26.0 million / $34.9 million |
| Debt outstanding at year-end | None | None |
Personnel costs before reimbursements were 66% of revenue before reimbursements, versus 61% in FY2019. The filing does not present a single gross-margin figure. Current assets were $84.8 million and current liabilities $42.6 million at year-end. The company had a $45 million revolving credit facility with no borrowings and reported compliance with its covenants. Operating lease commitments totaled $6.5 million.
Cash from operations benefited in part from a $16.9 million decrease in accounts receivable and contract assets and higher accrued liabilities. Investing activities used $1.9 million; financing activities used $18.7 million, including $14.9 million of dividends and $2.4 million of share repurchases under the authorization. Total cash used for repurchases, including shares withheld for employee taxes, was $4.5 million.
Material changes versus FY2019
- Revenue before reimbursements declined 10%. North American revenue decreased 6%, while international revenue decreased 36%.
- By reporting group, S&BT revenue fell 17% to $88.7 million; EEA revenue rose 5% to $122.6 million; and International revenue fell to $23.5 million from $36.8 million.
- Operating income fell to $8.6 million from $31.3 million, reflecting lower revenue and $10.5 million of restructuring and asset impairment charges, compared with $4.5 million in FY2019.
- Net income and diluted EPS decreased substantially. The effective tax rate on continuing operations increased to 33.7% from 25.0%, principally due to lower share-based compensation tax benefits and changes in profitability and restructuring impacts.
- Cash increased by $23.5 million, supported by operating cash generation and lower investment spending. Accounts receivable and contract assets declined to $32.8 million from $49.8 million.
Outlook, risks, and unusual items
Management said the pandemic adversely affected net revenue and diluted EPS for most of 2020 and expected negative effects to continue until economic conditions improved. It provided no quantified revenue or earnings guidance in the supplied filing text. The company transitioned to virtual service delivery, reduced its global workforce by approximately 10%, curtailed hiring, travel, and discretionary spending, and evaluated office needs. It recorded $6.6 million of workforce and related restructuring costs and approximately $3.9 million of lease, property, and equipment impairments and related real-estate costs; the reported total restructuring and impairment charge was $10.5 million.
Management stated that cash on hand, operating cash flow, and available borrowing capacity were expected to fund working capital and capital expenditure requirements for at least the next 12 months. The board raised the annual dividend to $0.40 per share after year-end, subject to board discretion and credit-agreement restrictions. The filing identifies risks including prolonged COVID-19 disruption, client project delays or cancellations, customer concentration and short cancellation notice, competition and pricing pressure, talent retention, fixed-price engagement estimation, cybersecurity and privacy, foreign exchange, Brexit, and LIBOR transition.
The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Fixed-fee revenue recognition was identified as a critical audit matter because it depends on estimates of work completed and costs to complete. Management reported no material adverse effect expected from ordinary-course legal proceedings.
Investor facts to verify
- Whether demand and margins recovered after the pandemic-driven FY2020 decline, particularly in S&BT and International, and whether EEA growth persisted.
- How much operating cash flow depended on collections and timing of accrued expenses, and whether lower receivables are sustainable.
- The recurring versus one-time components of the $10.5 million restructuring and impairment charge, and any additional costs or savings from office consolidation and workforce changes.
- Dividend affordability, credit-facility covenant headroom, and the effect of distributions and repurchases on liquidity.
- Fixed-fee project estimates, client cancellation exposure, and the company’s ability to retain key employees amid higher stock-based compensation.