Business Wire | Nov 2, 2020 04:06PM EST

The Hackett Group Announces Third Quarter 2020 Results

Nov. 02, 2020

MIAMI--(BUSINESS WIRE)--Nov. 02, 2020--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 third quarter, which ended on September 25, 2020.

Third quarter 2020 net revenue (gross revenue less reimbursable expenses) was $57.8 million, down 13%, as compared to the same period in the prior year, but up 10% sequentially as demand improved throughout the quarter.

GAAP diluted earnings per share were $0.09 for the third quarter of 2020, as compared to GAAP diluted earnings per share of $0.21 in the same period in the prior year due to the economic disruption resulting from the COVID-19 pandemic.

Third quarter 2020 pro forma diluted earnings per share were $0.17, as compared to $0.27 in the same period in 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 its most recent meeting, the Company's Board of Directors declared a quarterly dividend of 9.5 cents per share for its shareholders of record on December 18, 2020, to be paid on January 9, 2021.

At the end of the third quarter of 2020, the Company's cash balances were $43.2 million with no outstanding debt. During the quarter, the Company repurchased 83 thousand shares under its share repurchase program at an average price of $12.57 for a total of $1.0 million. As of the end of the third quarter of 2020, the Company's remaining share repurchase program authorization was $4.7 million.

"Although our results continued to be impacted by the pandemic, our revenues grew 10 percent on a quarterly sequential basis, as client demand and engagement improved throughout the quarter," stated Ted A. Fernandez, Chairman & CEO of The Hackett Group, Inc. "We expect this momentum to continue into the fourth quarter which should allow us to continue to improve our results in the near term and emerge financially and strategically stronger as and when the pandemic subsides."

Although economic uncertainty from the COVID-19 pandemic continues to be high, the Company's current estimates suggest that net revenue for the fourth quarter of 2020 will be in the range of $55.0 million to $58.0 million. The Company estimates pro forma diluted earnings per share for the fourth quarter of 2020 to be in the range of $0.20 and $0.22.

Other Highlights

2020 Disrupted Marketing Campaign - In second quarter and early third quarter, The Hackett Group executed its most extensive integrated marketing effort ever. At the core of the effort was the "2020 Disrupted" campaign, with research that focused on five essential digital transformation action areas: cash, cost, people, technology and supply chain. In early third quarter, the focus of the marketing offers focused on planning for the "next normal," as most companies quickly discovered that their forecasts and plans for the coming quarters were completely outdated and faced the challenge of developing multiple possible scenarios for what the recovery might look like for their company and industry.

Digital World-Class Research - The Hackett Group issued world-class research for finance, procurement, human resources, and information technology Each research piece contains more than 50 metrics detailing how executives are shattering outdated operating models to usher in innovative ways to deliver new levels of agile business services, including The Hackett Group's new projections of how companies can achieve digital world-class performance levels, further enhancing efficiency, effectiveness, and customer experience.

2021 Key Issues Study Launch - The Hackett Group launched its 2021 CXO Agenda studies for finance, procurement, supply chain, human resources, information technology. The studies, which will result in research that will be issued in early 2021, will enable participants to gain insights into: key challenges and opportunities in 2021; how prepared a company's function is to meet these unique challenges; what initiatives are on the 2021 transformation agenda, and how they compare to other organizations; projected changes in staffing levels and operating budgets by function; and broader business trends and strategic enterprise priorities.

Working Capital Update - The Hackett Group released a first-ever mid-year update to its annual Working Capital Survey. The results, which look at working capital performance at 849 of the largest non-financial U.S. companies, detailed the reduction in revenue and increase in both debt and cash-on-hand for companies, as well as the deterioration of working capital performance, including a 7% increase in Days Sales Outstanding, a 15% increase in Days Inventory Outstanding and a 10% increase in Days Payables Outstanding.

On Monday, November 2, 2020, senior management will discuss third quarter results in a conference call at 5:00 P.M. ET. The number for the conference call is (800) 593-0486, [Passcode: Third 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 Monday, November 2, 2020 and will run through 5:00 P.M. ET on Monday, November 16, 2020. To access the rebroadcast, please dial (800) 925-1779. For International callers, please dial (402) 220-3079.

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 Monday, November 2, 2020 and will run through 5:00 P.M. ET on Monday, November 16, 2020. 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, with offerings that include cloud ERP, EPM and analytics 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 distinguished Oracle, SAP, Coupa and OneStream practices.

The Hackett Group has completed nearly 18,000 benchmarking studies with major corporations and government agencies, including 93% of the Dow Jones Industrials, 90% of the Fortune 100, 83% of the DAX 30 and 57% 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 digital 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 impact of the coronavirus pandemic, including the duration and severity of the pandemic, the economic impact of the pandemic and the timing of an economic recovery, our ability to manage our business and capital resources through the pandemic, the ability of our products, services, or offerings mentioned in this release to deliver the desired effect, 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, especially given that our clients are also impacted by the coronavirus pandemic, 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, the impact of Brexit on our business, changes in general economic conditions and interest rates, our ability to mitigate the impact of the recent decline in our European operations, our ability to obtain debt financing through additional borrowings under our existing credit facility as well as other risks detailed in our Annual Report on Form 10-K for the most recent fiscal year and our Quarterly Report on Form 10-Q for the second fiscal quarter of fiscal 2020, each as 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 Nine Months Ended

September September September September 25, 27, 25, 27,

2020 2019 2020 2019

Revenue:Revenue before $ 57,769 $ 66,755 $ 175,587 $ 197,101reimbursements ("netrevenue")Reimbursements 148 5,935 4,614 16,265

TOTAL REVENUE FROM 57,917 72,690 180,201 213,366CONTINUING OPERATIONS Costs and expenses:Cost of service:Personnel costs before 37,791 41,026 117,558 120,780reimbursable expensesNon-cash stock 1,508 833 4,449 2,775compensation expenseAcquisition-related 10 157 39 (131)compensation expense(benefit)Acquisition-related 243 322 755 690non-cash stockcompensation expenseReimbursable expenses 148 5,935 4,614 16,265

TOTAL COST OF SERVICE 39,700 48,273 127,415 140,379

Selling, general and 12,732 14,117 38,042 43,318administrative costsNon-cash stock 711 776 1,830 2,268compensation expenseAmortization of 247 236 723 789intangible assetsAcquisition-related - (108) - (1,133)contingent considerationliabilityRestructuring costs - - 5,034 -

TOTAL SELLING, GENERAL 13,690 15,021 45,629 45,242AND ADMINISTRATIVEEXPENSES TOTAL COSTS AND 53,390 63,294 173,044 185,621OPERATING EXPENSES INCOME FROM OPERATIONS 4,527 9,396 7,157 27,745

Other expense:Interest expense (22) (62) (100) (268)

INCOME FROM CONTINUING 4,505 9,334 7,057 27,477OPERATIONS BEFORE INCOMETAXESIncome tax expense 1,362 2,427 2,312 6,481

INCOME FROM CONTINUING 3,143 6,907 4,745 20,996OPERATIONS(Loss) income from (157) 2 (165) (4)discontinued operations(2)NET INCOME $ 2,986 $ 6,909 $ 4,580 $ 20,992

Weighted average commonshares outstanding:Basic 30,053 29,876 29,986 29,794

Diluted 32,403 32,571 32,335 32,413

Basic net income percommon share:Income per common share $ 0.11 $ 0.23 $ 0.16 $ 0.70from continuingoperations(Loss) income per common (0.01) 0.00 (0.01) (0.00)share from discontinuedoperations (2)Net income per common $ 0.10 $ 0.23 $ 0.15 $ 0.70share Diluted net income percommon share:Income per common share $ 0.10 $ 0.21 $ 0.15 $ 0.65from continuingoperations(Loss) income per common (0.01) 0.00 (0.01) (0.00)share from discontinuedoperations (2)Net income per common $ 0.09 $ 0.21 $ 0.14 $ 0.65share PRO FORMA DATA (1):Income from continuing $ 4,505 $ 9,334 $ 7,057 $ 27,477operations before incometaxesNon-cash stock 2,219 1,609 6,279 5,043compensation expenseAcquisition-related 10 157 39 (131)compensation expense(benefit)Acquisition-related 243 322 755 690non-cash stockcompensation expenseAcquisition-related - (108) - (1,133)contingent considerationliabilityAcquisition-related - 32 - 32costsRestructuring costs - - 5,034 -

Amortization of 247 236 723 789intangible assetsPRO FORMA INCOME BEFORE 7,224 11,582 19,887 32,767INCOME TAXESPro forma income tax 1,806 2,896 4,972 8,192expensePRO FORMA NET INCOME $ 5,418 $ 8,687 $ 14,915 $ 24,575

Pro forma basic net $ 0.18 $ 0.29 $ 0.50 $ 0.82income per common shareWeighted average common 30,053 29,876 29,986 29,794shares outstanding Pro forma diluted net $ 0.17 $ 0.27 $ 0.46 $ 0.76income per common shareWeighted average common 32,403 32,571 32,335 32,413and common equivalentshares outstanding (1) The Company provides pro forma earnings results (which exclude theamortization of intangible assets, non-cash stock compensation expense,acquisition-related one-time expense (benefit), and include a normalized taxrate, which is our long-term projected cash tax rate) as a complement toresults 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 itsprospects for the future. The Company believes the non-GAAP results provideuseful information to both management and investors and by excluding certainexpenses that it believes are not indicative of its core operating results.The non-GAAP measures are included to provide investors and management withan alternative method for assessing operating results in a manner that isfocused on the performance of ongoing operations and to provide a moreconsistent basis for comparison between quarters. Further, these non-GAAPresults are one of the primary indicators management uses for planning andforecasting in future periods. In addition, since the Company hashistorically reported non-GAAP results to the investment community, itbelieves the continued inclusion of non-GAAP results provides consistency inits financial reporting. The presentation of this additional informationshould not be considered in isolation or as a substitute for results preparedin accordance with GAAP.(2) Discontinued operations relate to the discontinuance of theCompany's European Working Capital group.The Hackett Group, Inc.CONDENSED CONSOLIDATED BALANCE SHEETS(in thousands)(unaudited)September 25,December 27,2020

2019

ASSETSCurrent assets:Cash and cash equivalents$

43,167

$

25,954

Accounts receivable and contract assets, net36,221

49,778

Prepaid expenses and other current assets3,350

2,895

Total current assets82,738

78,627

Property and equipment, net18,981

19,916

Other assets1,847

2,652

Goodwill84,288

84,578

Operating lease right-of-use assets8,273

7,962

Total assets$

196,127

$

193,735

LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Accounts payable$

5,045

$

8,494

Accrued expenses and other liabilities37,238

32,482

Operating lease liabilities2,678

2,707

Liabilities related to discontinued operations (3)157

-

Total current liabilities45,118

43,683

Long-term deferred tax liability, net6,767

7,183

Operating lease liabilities5,595

5,255

Total liabilities57,480

56,121

Shareholders' equity138,647

137,614

Total liabilities and shareholders' equity$

196,127

$

193,735

(3) Discontinued operations relate to the discontinuance of the Company's European Working Capital group.The Hackett Group, Inc.CONDENSED CONSOLIDATED BALANCE SHEETS(in thousands)(unaudited) September December 25, 27, 2020 2019

ASSETS Current assets: Cash and cash equivalents $ 43,167 $ 25,954

Accounts receivable and contract assets, net 36,221 49,778

Prepaid expenses and other current assets 3,350 2,895

Total current assets 82,738 78,627

Property and equipment, net 18,981 19,916

Other assets 1,847 2,652

Goodwill 84,288 84,578

Operating lease right-of-use assets 8,273 7,962

Total assets $ 196,127 $ 193,735

LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,045 $ 8,494

Accrued expenses and other liabilities 37,238 32,482

Operating lease liabilities 2,678 2,707

Liabilities related to discontinued operations (3) 157 -

Total current liabilities 45,118 43,683

Long-term deferred tax liability, net 6,767 7,183

Operating lease liabilities 5,595 5,255

Total liabilities 57,480 56,121

Shareholders' equity 138,647 137,614

Total liabilities and shareholders' equity $ 196,127 $ 193,735

(3) Discontinued operations relate to the discontinuance of the Company's European Working Capital group.The Hackett Group, Inc.SUPPLEMENTAL FINANCIAL DATA(unaudited)Quarter EndedSeptember 25,

September 27,

June 26,

2020

2019

2020

Revenue Breakdown by Group:(in thousands)S&BT (4)$

22,217

$

28,221

$

17,752

EEA (5)29,710

30,134

30,445

International (6)5,842

8,400

4,435

Net revenue from continuing operations (7)$

57,769

$

66,755

$

52,632

Revenue Concentration:(% of total revenue)Top customer6%

6%

6%

Top 5 customers16%

19%

17%

Top 10 customers26%

27%

27%

Key Metrics and Other Financial Data:Total Company:Consultant headcount923

1,036

908

Total headcount1,124

1,271

1,110

Days sales outstanding (DSO)57

72

64

Cash provided by operating activities (in thousands)$

10,088

$

8,506

$

14,547

Depreciation (in thousands)$

916

$

884

$

883

Amortization (in thousands)$

247

$

236

$

238

Remaining Plan authorization:Shares purchased (in thousands)75

-

-

Cost of shares repurchased (in thousands)$

932

$

-

$

-

Average price per share of shares purchased$

12.41

$

-

$

-

Remaining Plan authorization (in thousands)$

4,713

$

3,878

$

5,645

Shares Purchased to Satisfy Employee Net Vesting Obligations:Shares purchased (in thousands)8

5

2

Cost of shares purchased (in thousands)$

111

$

88

$

25

Average price per share of shares purchased$

14.26

$

16.29

$

13.29

(4) Strategy and Business Transformation Group (S&BT) includes the results of our IP as-a-service offerings, which includes our North America Executive Advisory Programs, our Benchmarking Services and our Business Transformation Practices.(5) ERP, EPM and Analytics Solutions (EEA) includes the results of our North America Oracle EEA, SAP Solutions Practices and One Stream.(6) International Groups include the results of our S&BT and EEA Practices, primarily in Europe.(7) Net revenue excludes reimbursable expenses which are primarily travel-related expenses passed through to a client with no associated margin.(8) Certain reclassifications have been made to conform with current reporting requirements. View source version on businesswire.com: https://www.businesswire.com/news/home/20201102005974/en/

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