The Hackett Group Announces Fourth Quarter and Fiscal 2018 Results

Q4 2018 net revenue from continuing operations of $61.6 million, and
pro forma EPS of $0.26, both within guidance range


Q4 2018 GAAP EPS of $0.00 as compared to GAAP EPS of $0.29 in the same
period in the prior year. Q4 2018 GAAP EPS include the discontinued
operations for REL Working Capital group and the write-off of the
investment for the HPE software offering.


Fiscal 2018 net revenue from continuing operations of $264.5 million,
pro forma EPS of $1.06, and GAAP EPS of $0.74.


Company announces annual dividend increase of 6% from $0.34 to $0.36


MIAMI MIAMI–(BUSINESS WIRE)–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 fourth quarter, which
ended on December 28, 2018.


Q4 2018 net revenue (gross revenue less reimbursable expenses) from
continuing operations was $61.6 million, down 1% as compared to the same
period in the prior year. Q4 2018 gross revenue from continuing
operations was $66.5 million, down 1% from the same period in the prior
year. Fiscal year 2018 net revenue (gross revenue less reimbursable
expenses) from continuing operations was $264.5 million, up 4% from
prior year.


GAAP diluted losses per share were $0.00 for the fourth quarter of 2018,
compared to earnings of $0.29 in the fourth quarter of 2017. GAAP
diluted earnings per share were $0.74 for fiscal year 2018, compared to
earnings of $0.85 for the fiscal year 2017. During the fourth quarter of
2018, the Company recorded a $6.3 million write-off of its investments
in HPE software and Working Capital and recorded discontinued operations
of its REL working capital group, all of which negatively impacted
earnings per share by $0.23. During the fourth quarter of 2017, the
adoption of the new tax pronouncements and tax legislation favorably
impacted GAAP diluted earnings per share by $0.12.


Q4 2018 pro forma diluted earnings per share were $0.26, up 4% when
compared to $0.25 for the same period in the prior year. Fiscal 2018 pro
forma diluted earnings per share were $1.06, up 12% when compared to
$0.95 for the prior year. 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.


At the end of the fourth quarter of 2018, the Company’s cash balances
were $13.8 million. During the quarter, the Company repurchased 15
thousand shares under its stock repurchase program. As of the end of the
fourth quarter of 2018, the Company’s remaining stock repurchase program
authorization was $6.9 million.


“In Q4 we took several actions that reinforced our focus on our growing
digital transformation groups and strengthened our organization as we
head into 2019,” stated Ted A. Fernandez, Chairman and CEO of The
Hackett Group. “Although the decline in our on premise implementation
revenues unfavorably impacted our Q4 results and the start of 2019, as
we decrease our exposure to our legacy on premise revenue, we expect to
continue to get closer to realizing the revenue growth of our digital
transformation focus.”


Based on the current economic outlook, the Company estimates total net
revenue for the first quarter of 2019 to be in the range of $61.5
million and $63.0 million or gross revenue (inclusive of reimbursable
expenses) to be in the range of $66.5 million and $68.0 million. The
Company estimates pro forma diluted earnings per share for the first
quarter of 2019 to be in the range of $0.21 and $0.23.


Other Highlights


European Best Practices Conference – Nearly 200 business
executives from over 134 companies attended The Hackett Group’s 2018
European Best Practices Conference “Unlocking Digital Value” in London
from October 9th to October 11th. Speakers
included leaders in finance, procurement, HR, IT, global business
services and working capital from over a dozen of Europe’s largest and
most successful companies, including: Agrekko, AstraZeneca, Cisco, HP
Inc., IBM, Nokia, Robert Bosch GmbH, Rolls-Royce, Pearson Plc, Redwood
Software, SAP, Shell Smith & Nephew, Tungsten Network, Wipro and
Vodafone.


UiPath Alliance – The Hackett Group, Inc. announced that it has
been named a Recommended Partner by UiPath, the leading enterprise
Robotic Process Automation (RPA) software company. The partnership will
enable The Hackett Group to further expand its ability to offer UiPath
solutions to clients.


Oracle Excellence Award – Oracle awarded The Hackett Group with
its 2018 Oracle Excellence Award for Specialized Partner of the Year –
SaaS Innovation Solution of the Year. The award recognizes The Hackett
Group for its commitment to delivering innovative, specialized solutions
and services using Oracle Cloud software and hardware.


CASME Alliance – The Hackett Group, Inc. and CASME launched an
alliance that will provide procurement clients of both companies with
access to additional insights, research assets and networking
opportunities. Through the reciprocal alliance, members of The Hackett
Group’s Procurement Advisory Programs will benefit from access to
CASME’s extensive spend category-specific market intelligence and
indirect spending expertise, as well as selected Webcasts, RoundTables,
virtual events and other peer networking opportunities. CASME clients
will gain access to select research insights from The Hackett Group’s
procurement membership advisory teams. The Hackett Group will also host
Webcasts and provide seats at selected virtual events for CASME members.


On Tuesday, February 19, 2019 senior management will discuss fourth
quarter results in a conference call at 5:00 P.M. ET. The number for the
conference call is (800) 593-0486, [Passcode: Fourth 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, February 19, 2019 and
will run through 5:00 P.M. ET on Tuesday, March 5, 2019. To access the
rebroadcast, please dial (866) 458-4758. For International callers,
please dial (203) 369-1315. In addition, The Hackett Group will also be
webcasting this conference call live through the StreetEvents.com
service. To participate, simply visit
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, February 19, 2019 and will run
through 5:00 P.M. ET on Tuesday, March 5, 2019. To access the replay,
visit www.thehackettgroup.com
or


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 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 16,500 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 Hackett’s
Digital Transformation Platform 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.com, info@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 those 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

 




Twelve Months Ended






December 28,




December 29,




December 28,




December 29,






2018




2017




2018




2017


Revenue:


















Revenue before reimbursements (“net revenue”)




$


61,595




$


62,307




$


264,523




$


255,131


Reimbursements




 


4,940




 


4,622




 


21,364




 


21,468


Total revenue






66,535






66,929






285,887






276,599


















 


Costs and expenses:


















Cost of service:


















Personnel costs before reimbursable expenses






35,979






35,744






159,614






153,357


Non-cash stock compensation expense






900






1,015






3,815






4,409


Acquisition-related compensation expense (benefit)






14






540






(535)






1,582


Acquisition-related non-cash stock compensation expense






575






795






2,027






2,515


Reimbursable expenses




 


4,940




 


4,622




 


21,364




 


21,468


Total cost of service






42,408






42,716






186,285






183,331


















 


Selling, general and administrative costs






14,352






14,880






58,516






57,473


Non-cash stock compensation expense






743






903






3,238






3,330


Amortization of intangible assets






580






615






2,369






2,090


Acquisition-related costs






—






—






—






378


Acquisition-related contingent consideration liability






(614)






—






(4,364)






—


Impairment of assets (3)






6,269






—






6,269






—


Restructuring costs




 


—




 


—




 


—




 


1,293


Total selling, general, and administrative expenses






21,330






16,398






66,028






64,564






 




 




 




 


Total costs and operating expenses




 


63,738




 


59,114




 


252,313




 


247,895


















 


Income from operations






2,797






7,815






33,574






28,704


















 


Other expense:


















Interest expense




 


(123)




 


(183)




 


(638)




 


(584)


















 


Income from continuing operations before income taxes






2,674






7,632






32,936






28,120


Income tax expense (benefit)




 


(41)




 


(1,203)




 


5,577




 


2,564


Income from continuing operations






2,715






8,835






27,359






25,556


Gain (loss) from discontinued operations




 


(2,851)




 


606




 


(3,450)




 


1,798


Net income (loss)




$


(136)




$


9,441




$


23,909




$


27,354


















 


















 


Weighted average common shares outstanding:


















Basic






29,517






28,735






29,379






28,852


Diluted






32,677






32,022






32,330






32,196


















 


















 


Basic net income per common share:


















Income per common share from operations




$


0.09




$


0.31




$


0.93




$


0.89


Income (loss) per common share from discontinued operations (2)


 


(0.09)




 


0.02




 


(0.12)




 


0.06


Net income per common share




$


(0.00)




$


0.33




$


0.81




$


0.95


















 


















 


Diluted net income per common share:


















Income per common share from operations




$


0.08




$


0.27




$


0.85




$


0.79


Income (loss) per common share from discontinued operations


 


(0.08)




 


0.02




 


(0.11)




 


0.06


Net income per common share




$


(0.00)




$


0.29




$


0.74




$


0.85


















 


Pro forma data (1):


















Income from operations before income taxes




$


2,674




$


7,632




$


32,936




$


28,120


Non-cash stock compensation expense






1,643






1,918






7,053






7,739


Acquisition-related compensation expense (benefit)






14






540






(535)






1,582


Acquisition-related non-cash stock compensation expense






575






795






2,027






2,515


Acquisition-related costs






—






—






—






378


Acquisition-related contingent consideration liability






(614)






—






(4,364)






—


Impairment of assets (3)






6,269






—






6,269






—


Restructuring costs






—






—






—






1,293


Amortization of intangible assets




 


580




 


615




 


2,369




 


2,090


Pro forma income before income taxes






11,141






11,500






45,755






43,717


Pro forma income tax expense




 


2,785




 


3,450




 


11,439




 


13,115


Pro forma net income




$


8,356




$


8,050




$


34,316




$


30,602


















 


Pro forma basic net income per common share




$


0.28




$


0.28




$


1.17




$


1.06


Weighted average common shares outstanding






29,517






28,735






29,379






28,852


















 


Pro forma diluted net income per common share




$


0.26




$


0.25




$


1.06




$


0.95


Weighted average common and common equivalent shares outstanding




32,677






32,022






32,330






32,196


















 


















 


————————————————-


















(1) The Company provides pro forma earnings results (which exclude
the amortization of intangible assets, stock compensation expense,
acquisition-related one-time expense, cash and stock compensation
expense (benefit), restructuring and impairment charges 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.


 


(2) Discontinued operations relate to the discontinuance of the
Company’s REL Working Capital group.


 


(3) The charge for the impairment of assets relates to the
discontinuance of the Hackett Performance Exchange and the Working
Capital training course.


The Hackett Group, Inc.


 




 




CONDENSED CONSOLIDATED BALANCE SHEETS










(in thousands)










(unaudited)










 






December 28,




December 29,








2018




2017




ASSETS










Current assets:












Cash and cash equivalents




$


13,808




$


17,512




Accounts receivable and unbilled revenue, net






54,807






52,267




Prepaid expenses and other current assets






4,339






2,511




Assets related to discontinued operations (4)




 


137




 


2,995




Total current assets






73,091






75,285












 


Property and equipment, net






19,750






18,851


Other assets






3,704






6,021


Goodwill, net




 


84,207




 


85,074




Total assets




$


180,752




$


185,231












 




LIABILITIES AND SHAREHOLDERS’ EQUITY










Current liabilities:












Accounts payable




$


7,429




$


8,434




Accrued expenses and other liabilities






34,498






42,685




Liabilities related to discontinued operations (4)




 


2,300




 


329




Total current liabilities






44,227






51,448


Non-current accrued expenses and other liabilities






–






1,268


Long-term deferred tax liability, net






6,435






6,240


Long-term debt




 


6,500




 


19,000




Total liabilities






57,162






77,956












 


Shareholders’ equity




 


123,590




 


107,275




Total liabilities and shareholders’ equity




$


180,752




$


185,231












 












 


(4) The assets and liabilities related to discontinued operations
relate to the discontinuance of the Company’s European Working
Capital Group.


The Hackett Group, Inc.


 




 




 




SUPPLEMENTAL FINANCIAL DATA














(unaudited)


























 






Quarter Ended






December 28,




December 29,




September 28,






2018




2017




2018


Revenue Breakdown by Group:














(in thousands)














The Hackett Group (5)




$


52,906




$


52,435




$


60,225


SAP Solutions (6)




 


8,689




 


9,872




 


7,958


Net revenue (7)




$


61,595




$


62,307




$


68,183














 


Revenue Concentration:














(% of total revenue)














Top customer






4%






4%






7%


Top 5 customers






16%






13%






19%


Top 10 customers






24%






20%






26%














 


Key Metrics and Other Financial Data:


























 


Total Company:














Consultant headcount






1,003






1,011






1,046


Total headcount






1,246






1,243






1,290


Days sales outstanding (DSO)






75






72






70


Cash provided by operating activities (in thousands)




$


8,056




$


7,559




$


9,521


Pro forma return on equity (8)






30%






32%






32%


Depreciation (in thousands)




$


609




$


601




$


652


Amortization (in thousands)




$


580




$


615




$


585














 














 


Remaining Plan authorization:














Shares purchased (in thousands)






15






–






–


Cost of shares repurchased (in thousands)




$


240




$


—




$


—


Average price per share of shares purchased




$


16.01




$


—




$


—


Remaining Plan authorization (in thousands)




$


6,934




$


3,138




$


7,174














 


Shares Purchased to Satisfy Employee Net Vesting Obligations:














Shares purchased (in thousands)






14






6






8


Cost of shares purchased (in thousands)




$


274




$


89




$


118


Average price per share of shares purchased




$


19.74




$


15.37




$


15.77


 














(5) The Hackett Group encompasses the Benchmarking, Business
Transformation and Executive Advisory groups, and EPM Groups and
excludes AMS.


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


(7) Net revenue excludes reimbursable expenses which are primarily
travel-related expenses passed through to a client with no
associated margin.


(8) Twelve months of pro forma net income divided by average
shareholder’s equity


(9) Certain reclassifications have been made to conform with current
reporting requirements.


Contacts

Robert A. Ramirez, CFO, 305-375-8005 or rramirez@thehackettgroup.com