Market Overview

The Hackett Group Announces Second Quarter 2018 Results

Share:
  • Q2 2018 net revenue of $69.6 million, up 3% when compared to prior
    year and in line with guidance
  • Q2 2018 pro forma diluted EPS of $0.27 per share, up 8% from prior year
  • Declared semi-annual dividend of $0.17 per share, up 13% from prior
    year

The Hackett Group, Inc. (NASDAQ:HCKT), a global intellectual
property-based strategic consultancy and leading
enterprise benchmarking and best practices digital transformation firm,
today announced its financial results for the second quarter, which
ended on June 29, 2018.

Q2 2018 net revenue (gross revenue less reimbursable expenses) was $69.6
million, up 3% from the same period in the prior year. Q2 2018 gross
revenue was $75.6 million, up 3% from the same period in the prior year.

Q2 2018 pro forma diluted earnings per share were $0.27, up 8% when
compared to $0.25 for the same period in 2017. Pro forma information is
provided to enhance the understanding of the Company's financial
performance and is reconciled to the Company's GAAP information in the
accompanying tables.

GAAP diluted earnings per share were $0.36 for the second quarter of
2018, as compared to $0.15 in the second quarter of 2017. During the
second quarter of 2018, the Company recorded a $4.6 million, or $0.14
per diluted share, benefit due to the remeasurement of an acquisition
earnout liability. During the second quarter of 2017, the Company
recorded acquisition related restructuring of approximately $0.04 per
diluted share.

At the end of the second quarter of 2018, the Company's cash balances
were $13.3 million. During the quarter, the Company utilized cash to pay
down outstanding debt of $5.5 million. During the second quarter of
2018, the Company did not repurchase shares under its stock repurchase
program. As of the end of the second quarter of 2018, the Company's
remaining stock repurchase program authorization was $7.2 million.

"We continued to report solid operating results due to strong digital
transformation, cloud and analytics demand, while continuing to
transition our Oracle business from on-premise to cloud
implementations," stated Ted A. Fernandez, Chairman and CEO of The
Hackett Group. "With Oracle Cloud revenue now exceeding our on-premise
revenue and with cloud growth outpacing the on-premise decline, we are
getting closer to seeing the revenue growth fully reflected in our
results."

Based on the current economic outlook, the Company estimates total net
revenue for the third quarter of 2018 to be in the range of $67.0
million and $69.0 million or gross revenue (inclusive of reimbursable
expenses) to be in the range of $73.0 million and $75.0 million. The
Company estimates pro forma diluted earnings per share for the third
quarter of 2018 to be in the range of $0.26 and $0.28. At the high end
of guidance, pro forma diluted earnings per share for the third quarter
of 2018 would increase 8%, when compared to the same period in the prior
year.

Other Highlights

Procurement Key Issues Research – The Hackett Group issued new
Key Issues Research showing that procurement organizations have
significantly shrunk the capability gap in digital transformation over
the past year, with two thirds now having a strategy in place and nearly
half having the resources and competencies needed to execute.
Procurement leaders expect to rely on digital transformation to help
them achieve an array of critical objectives in 2018, including
cost-cutting, improving agility, and improving their ability to serve as
a trusted advisor to the enterprise.

ADP Relationship Expansion - The Hackett Group and ADP announced
a further expansion to their strategic alliance that will offer large
companies (those with 1000+ employees) using ADP Enterprise HR®,
ADP Vantage HCM®, and ADP Workforce Now® access to
The Hackett Group's advisors, best practices, metrics, research, and
tools. These offerings are aimed at helping large organizations improve
human capital management (HCM) performance, the efficiency and
effectiveness of their HR operations and strategic impact to help drive
enterprise results.

Oracle Cloud Excellence Implementer Program - The Hackett Group,
a Cloud Premier and Platinum level member of Oracle PartnerNetwork
(OPN), announced it has joined the Oracle Cloud Excellence Implementer
(CEI) program and has achieved CEI status for six Oracle Cloud
applications in North America, including Oracle Enterprise Planning and
Budgeting Cloud, Oracle Financial Consolidation and Close Cloud, Oracle
Financials Cloud, Oracle Global Human Resources Cloud, Oracle Benefits
Cloud, and Oracle Talent Management Cloud.

2018 Digital Awards Launch – The Hackett Group began accepting
applications for its 2018 Digital Awards, which recognizes leaders in
RPA, intelligent data capture, cognitive automation, advanced analytics,
and other areas. Applications are being accepted until August 15 at this
link: http://go.poweredbyhackett.com/7bnm

On Tuesday, August 7, 2018 senior management will discuss second quarter
results in a conference call at 5:00 P.M. ET. The number for the
conference call is (800) 593-0486, [Passcode: Second Quarter]. For
International callers, please dial (517) 308-9371.

Please dial in at least 5-10 minutes prior to start time. If you are
unable to participate on the conference call, a rebroadcast will be
available beginning at 8:00 P.M. ET on Tuesday, August 7, 2018 and will
run through 5:00 P.M. ET on Tuesday, August 21, 2018. To access the
rebroadcast, please dial (866) 424-7877. For International callers,
please dial (203) 369-0866.

In addition, The Hackett Group will also be webcasting this conference
call live through the StreetEvents.com service. To participate, simply
visit http://www.thehackettgroup.com
approximately 10 minutes prior to the start of the call and click on the
conference call link provided. An online replay of the call will be
available after 8:00 P.M. ET on Tuesday, August 7, 2018 and will run
through 5:00 P.M. ET on Tuesday, August 21, 2018. To access the replay,
visit www.thehackettgroup.com
or http://www.streetevents.com.

About The Hackett Group

The
Hackett Group
 (NASDAQ:HCKT) is an intellectual property-based
strategic consultancy and leading enterprise benchmarking and best
practices digital transformation firm to global companies, offering
digital transformation including robotic process automation and
enterprise cloud application implementation. Services include business
transformation, enterprise analytics, working
capital management
 and global
business services
. The Hackett Group also provides dedicated
expertise in business strategy, operations, finance, human capital
management, strategic sourcing, procurement and information technology,
including its award-winning Oracle and SAP practices.

The Hackett Group has completed more than 15,200 benchmarking and
performance studies with major corporations and government agencies,
including 97% of the Dow Jones Industrials, 89% of the Fortune 100, 87%
of the DAX 30 and 59% of the FTSE 100. These studies drive its Best
Practice Intelligence Center which includes the firm's
benchmarking metrics, best practices repository and best practice
configuration guides and process flows, which enable

The Hackett Group's clients and partners to achieve world-class
performance.

More information on The Hackett Group is available at: www.thehackettgroup.cominfo@thehackettgroup.com,
or by calling (770) 225-3600.

This press release contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 and
involve known and unknown risks, uncertainties and other factors that
may cause The Hackett Group's actual results, performance or
achievements to be materially different from the results, performance or
achievements expressed or implied by the forward-looking statements.
Factors that impact such forward-looking statements include, among
others, the ability of our products, services, or offerings mentioned in
this release to deliver the desired effect, our ability to effectively
integrate acquisitions into our operations, our ability to retain
existing business, our ability to attract additional business, our
ability to effectively market and sell our product offerings and other
services, including these referenced above, the timing of projects and
the potential for contract cancellations by our customers, changes in
expectations regarding the business consulting and information
technology industries, our ability to attract and retain skilled
employees, possible changes in collections of accounts receivable due to
the bankruptcy or financial difficulties of our customers, risks of
competition, price and margin trends, foreign currency fluctuations,
changes in general economic conditions and interest rates, our ability
to obtain debt financing through additional borrowings under an
amendment to our existing credit facility as well as other risks
detailed in our Company's Annual Report on Form 10-K for the most recent
fiscal year filed with the Securities and Exchange Commission. We
undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or
otherwise, except as required by law.

     

The Hackett Group, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended Six Months Ended
June 29, June 30, June 29, June 30,
2018 2017 2018 2017
Revenue:
Revenue before reimbursements ("net revenue") $ 69,614 $ 67,726 $ 137,089 $ $ 132,795
Reimbursements   6,035     5,844     11,293     12,204  
Total revenue 75,649 73,570 148,382 144,999
 
Costs and expenses:
Cost of service:
Personnel costs before reimbursable expenses 42,993 40,947 84,614 81,099
Acquisition-related compensation (benefit) expense (204 ) 423 (789 ) 423
Non-cash stock compensation expense 1,002 1,226 2,045 2,358
Acquisition-related non-cash stock compensation (benefit) expense (79 ) 616 721 926
Reimbursable expenses   6,035     5,844     11,293     12,204  
Total cost of service 49,747 49,056 97,884 97,010
 
Selling, general and administrative costs 15,022 15,190 29,843 29,550
Non-cash stock compensation expense 804 874 1,646 1,533
Acquisition-related costs 161 267
Amortization of intangible assets 591 532 1,204 918
Acquisition-related contingent consideration liability (4,553 ) (4,553 )
Restructuring costs       1,293         1,293  
Total selling, general, and administrative expenses 11,864 18,050 28,140 33,561
       
Total costs and operating expenses   61,611     67,106     126,024     130,571  
 
Income from operations 14,038 6,464 22,358 14,428
 
Other expense:
Interest expense   (178 )   (127 )   (357 )   (217 )
 
Income from operations before income taxes 13,860 6,337 22,001 14,211
Income tax expense   2,339     1,587     3,113     1,587  
Net income $ 11,521   $ 4,750   $ 18,888   $ 12,624  
 
Basic net income per common share:
Income per common share from operations $ 0.39 $ 0.16 $ 0.65 $ 0.44
Weighted average common shares outstanding 29,430 29,041 29,260 28,955
 
Diluted net income per common share:
Income per common share from operations $ 0.36 $ 0.15 $ 0.59 $ 0.39
Weighted average common and common equivalent shares outstanding 32,235 32,513 32,025 32,403
 
Pro forma data (1):
Income from operations before income taxes $ 13,860 $ 6,337 $ 22,001 $ 14,211
Acquisition-related compensation (benefit) expense (204 ) 423 (789 ) 423
Non-cash stock compensation expense 1,806 2,100 3,691 3,891
Acquisition-related non-cash stock compensation (benefit) expense (79 ) 616 721 926
Acquisition-related costs 161 267
Acquisition-related contingent consideration liability (4,553 ) (4,553 )
Restructuring costs 1,293 1,293
Amortization of intangible assets   591     532     1,204     918  
Pro forma income before income taxes 11,421 11,462 22,275 21,929
Pro forma income tax expense   2,855     3,439     5,569     6,579  
Pro forma net income $ 8,566   $ 8,023   $ 16,706   $ 15,350  
 
Pro forma basic net income per common share $ 0.29 $ 0.28 $ 0.57 $ 0.53
Weighted average common shares outstanding 29,430 29,041 29,260 28,955
 
Pro forma diluted net income per common share $ 0.27 $ 0.25 $ 0.52 $ 0.47
Weighted average common and common equivalent shares outstanding 32,235 32,513 32,025 32,403
 

(1) The Company provides pro forma earnings results (which exclude
the amortization of intangible assets, stock compensation expense,
acquisition-related one time benefit, cash and stock compensation
expense (benefit), restructuring expenses and include a normalized
tax rate, which is our long term projected cash tax rate) as a
complement to results provided in accordance with Generally
Accepted Accounting Principles (GAAP). These non-GAAP results are
provided to enhance the overall users' understanding of the
Company's current financial performance and its prospects for the
future. The Company believes the non-GAAP results provide useful
information to both management and investors and by excluding
certain expenses that it believes are not indicative of its core
operating results. The non-GAAP measures are included to provide
investors and management with an alternative method for assessing
operating results in a manner that is focused on the performance
of ongoing operations and to provide a more consistent basis for
comparison between quarters. Further, these non-GAAP results are
one of the primary indicators management uses for planning and
forecasting in future periods. In addition, since the Company has
historically reported non-GAAP results to the investment
community, it believes the continued inclusion of non-GAAP results
provides consistency in its financial reporting. The presentation
of this additional information should not be considered in
isolation or as a substitute for results prepared in accordance
with GAAP.

   
The Hackett Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
June 29, December 29,
2018 2017
ASSETS
Current assets:
Cash and cash equivalents $ 13,270 $ 17,512
Accounts receivable and unbilled revenue, net 56,773 55,262
Prepaid expenses and other current assets   3,282   2,511

Total current assets

73,325 75,285
 
Property and equipment, net 22,846 18,851
Other assets 5,025 6,021
Goodwill, net   84,720   85,074
Total assets $ 185,916 $ 185,231
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,400 $ 8,434
Accrued expenses and other liabilities   34,072   43,014
Total current liabilities 42,472 51,448
Non-current accrued expenses and other liabilities 213 1,268
Long-term deferred tax liability, net 8,099 6,240
Long-term debt   13,500   19,000
Total liabilities 64,284 77,956
 
Shareholders' equity   121,632   107,275
Total liabilities and shareholders' equity $ 185,916 $ 185,231
 
     
The Hackett Group, Inc.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
 
Quarter Ended
June 29, June 30, March 30,
2018 2017 2018
Revenue Breakdown by Group:
(in thousands)
The Hackett Group (2) $ 61,287 $ 57,658 $ 58,898
SAP Solutions (3)   8,327     10,068     8,577  
Net revenue (4) $ 69,614   $ 67,726   $ 67,475  
 
Revenue Concentration:
(% of total revenue)
Top customer 6 % 4 % 3 %
Top 5 customers 18 % 15 % 12 %
Top 10 customers 25 % 25 % 19 %
 
Key Metrics and Other Financial Data:
 
Total Company:
Consultant headcount 1,043 1,002 1,016
Total headcount 1,291 1,236 1,257
Days sales outstanding (DSO) 68 61 65
Cash (used in) provided by operating activities (in thousands) $ (2,368 ) $ 4,111 $ 17,203
Pro forma return on equity (5) 31 % 38 % 31 %
Depreciation (in thousands) $ 624 $ 612 $ 580
Amortization (in thousands) $ 591 $ 532 $ 613
 
 
Remaining Plan authorization:
Shares purchased (in thousands) - 507 53
Cost of shares repurchased (in thousands) $

$ 7,617 $ 963
Average price per share of shares purchased $ $ 15.01 $ 18.33
Remaining Plan authorization (in thousands) $ 7,174 $ 630 $ 2,174
 
Shares Purchased to Satisfy Employee Net Vesting Obligations:
Shares purchased (in thousands) 11 21 175
Cost of shares purchased (in thousands) $ 182 $ 370 $ 3,004
Average price per share of shares purchased $ 16.22 $ 17.90 $ 17.15
 
 
(2) The Hackett Group encompasses the Benchmarking, Business
Transformation and Executive Advisory groups, and EPM Groups and
excludes AMS.

(3) SAP Solutions encompasses Best Practice Implementation of ERP
Software, the SAP group, approximately 50% of which are offshore
resources.

(4) Net revenue excludes reimbursable expenses which are primarily
travel-related expenses passed through to a client with no
associated margin.
(5) Twelve months of pro forma net income divided by average
shareholder's equity
(6) Certain reclassifications have been made to conform with current
reporting requirements.

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