UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended OctoberJuly 1, 20212022

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

Commission File Number 333-48123

 

The Hackett Group, Inc.

(Exact name of registrant as specified in its charter)

 

 

Florida

 

65-0750100

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1001 Brickell Bay Drive, Suite 3000

Miami, Florida

 

33131

(Address of principal executive offices)

 

(Zip Code)

 

(305) (305) 375-8005

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.001 per share

HCKT

NASDAQ Stock Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. YesNo

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YesNo

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

 

Accelerated Filer

 

 

 

 

 

 

 

Non-Accelerated Filer

 

Smaller Reporting Company

 

 

 

 

 

 

 

 

 

 

Emerging Growth Company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of NovemberAugust 5, 2021,2022, there were 29,792,17131,682,972 shares of common stock outstanding.

 

 

 


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The Hackett Group, Inc.

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

Page

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets as of OctoberJuly 1, 20212022 (unaudited) and January 1,December 31, 2021

3

 

 

 

 

Consolidated Statements of Operations for the Three and NineSix Months Ended OctoberJuly 1, 20212022 and September 25, 2020July 2, 2021 (unaudited)

4

 

 

 

 

Consolidated Statements of Comprehensive Income for the Three and NineSix Months Ended OctoberJuly 1, 20212022 and September 25, 2020July 2, 2021 (unaudited)

5

 

 

 

 

Consolidated Statements of Cash Flows for the NineSix Months Ended OctoberJuly 1, 20212022 and September 25, 2020July 2, 2021 (unaudited)

6

 

 

 

 

Consolidated Statements of Equity for the Three and NineSix Months Ended OctoberJuly 1, 20212022, and September 25, 2020July 2, 2021 (unaudited)

7

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

2120

 

 

 

Item 4.

Controls and Procedures

2120

 

 

PART II - OTHER INFORMATION

22

 

 

 

Item 1.

Legal Proceedings

2221

 

 

 

Item 1A.

Risk Factors

2221

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

2221

 

 

 

Item 6.

Exhibits

2322

 

 

SIGNATURES

2423

 

2



 

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ITEM 1.

FINANCIAL STATEMENTS

The Hackett Group, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

 

 

October 1,

 

 

January 1,

 

 

July 1,

 

 

December 31,

 

 

2021

 

 

2021

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

52,939

 

 

$

49,455

 

 

$

61,680

 

 

$

45,794

 

Accounts receivable and contract assets, net of allowance of $1,930 and $605 at October 1, 2021 and January 1, 2021, respectively

 

 

49,609

 

 

 

32,778

 

Accounts receivable and contract assets, net of allowance of $1,469 and $2,702 at July 1, 2022 and December 31, 2021, respectively

 

 

49,485

 

 

 

50,616

 

Prepaid expenses and other current assets

 

 

3,168

 

 

 

2,599

 

 

 

3,033

 

 

 

5,766

 

Total current assets

 

 

105,716

 

 

 

84,832

 

 

 

114,198

 

 

 

102,176

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

17,853

 

 

 

18,158

 

 

 

18,638

 

 

 

18,026

 

Other assets

 

 

840

 

 

 

1,680

 

 

 

501

 

 

 

620

 

Goodwill

 

 

85,089

 

 

 

85,297

 

 

 

83,512

 

 

 

85,070

 

Operating lease right-of-use assets

 

 

1,862

 

 

 

2,578

 

 

 

1,040

 

 

 

1,649

 

Total assets

 

$

211,360

 

 

$

192,545

 

 

$

217,889

 

 

$

207,541

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,027

 

 

$

6,098

 

 

$

5,400

 

 

$

7,677

 

Accrued expenses and other liabilities

 

 

35,615

 

 

 

25,084

 

 

 

30,482

 

 

 

30,297

 

Contract liabilities (deferred revenue)

 

 

11,959

 

 

 

8,765

 

 

 

14,250

 

 

 

14,616

 

Operating lease liabilities

 

 

2,338

 

 

 

2,620

 

 

 

1,507

 

 

 

2,299

 

Total current liabilities

 

 

54,939

 

 

 

42,567

 

 

 

51,639

 

 

 

54,889

 

Non-current deferred tax liability, net

 

 

5,950

 

 

 

5,588

 

 

 

8,401

 

 

 

7,325

 

Operating lease liabilities

 

 

1,962

 

 

 

3,503

 

 

 

1,019

 

 

 

1,474

 

Total liabilities

 

 

62,851

 

 

 

51,658

 

 

 

61,059

 

 

 

63,688

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 1,250,000 shares authorized; NaN

issued and outstanding

 

 

 

 

 

 

Common stock, $0.001 par value, 125,000,000 shares authorized;

58,127,763 and 57,600,158 shares issued at October 1, 2021 and

January 1, 2021, respectively

 

 

58

 

 

 

58

 

Preferred stock, $0.001 par value, 1,250,000 shares authorized; NaN
issued and outstanding

 

 

 

 

 

 

Common stock, $0.001 par value, 125,000,000 shares authorized; 60,065,278 and
59,631,003 shares issued at July 1, 2022 and December 31, 2021, respectively

 

 

60

 

 

 

60

 

Additional paid-in capital

 

 

317,734

 

 

 

312,039

 

 

 

304,164

 

 

 

300,288

 

Treasury stock, at cost, 28,346,796 and 27,609,752 shares October 1,

2021 and January 1, 2021, respectively

 

 

(157,070

)

 

 

(144,254

)

Accumulated deficit

 

 

(2,037

)

 

 

(17,388

)

Treasury stock, at cost, 28,388,144 and 28,357,145 shares July 1, 2022
and December 31, 2021, respectively

 

 

(157,929

)

 

 

(157,294

)

Retained earnings

 

 

25,038

 

 

 

11,272

 

Accumulated other comprehensive loss

 

 

(10,176

)

 

 

(9,568

)

 

 

(14,503

)

 

 

(10,473

)

Total shareholders' equity

 

 

148,509

 

 

 

140,887

 

 

 

156,830

 

 

 

143,853

 

Total liabilities and shareholders' equity

 

$

211,360

 

 

$

192,545

 

 

$

217,889

 

 

$

207,541

 

The accompanying notes are an integral part of the consolidated financial statements.


3


The Hackett Group, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

Quarter Ended

 

 

Nine Months Ended

 

 

Quarter Ended

 

 

Six Months Ended

 

 

October 1,

 

 

September 25,

 

 

October 1,

 

 

September 25,

 

 

July 1,

 

July 2,

 

July 1,

 

July 2,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue before reimbursements

 

$

71,400

 

 

$

57,769

 

 

$

207,807

 

 

 

175,587

 

 

$

74,768

 

 

$

72,997

 

 

$

149,876

 

 

$

136,407

 

Reimbursements

 

 

494

 

 

 

148

 

 

 

770

 

 

 

4,614

 

 

 

1,160

 

 

 

200

 

 

 

1,716

 

 

 

276

 

Total revenue

 

 

71,894

 

 

 

57,917

 

 

 

208,577

 

 

 

180,201

 

 

 

75,928

 

 

 

73,197

 

 

 

151,592

 

 

 

136,683

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of service:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personnel costs before reimbursable expenses

 

 

43,552

 

 

 

37,801

 

 

 

124,323

 

 

 

117,597

 

Stock compensation expense

 

 

1,670

 

 

 

1,751

 

 

 

5,296

 

 

 

5,204

 

Personnel costs before reimbursable expenses (includes $1,483 and $3,149 and $1,779 and $3,626 of stock compensation expense in the three and six months ended July 1, 2022 and July 2, 2021, respectively)

 

 

44,701

 

 

 

43,227

 

 

 

92,034

 

 

 

84,397

 

Reimbursable expenses

 

 

494

 

 

 

148

 

 

 

770

 

 

 

4,614

 

 

 

1,160

 

 

 

200

 

 

 

1,716

 

 

 

276

 

Total cost of service

 

 

45,716

 

 

 

39,700

 

 

 

130,389

 

 

 

127,415

 

 

 

45,861

 

 

 

43,427

 

 

 

93,750

 

 

 

84,673

 

Selling, general and administrative costs

 

 

13,872

 

 

 

12,979

 

 

 

41,198

 

 

 

38,765

 

Stock compensation expense

 

 

901

 

 

 

711

 

 

 

2,515

 

 

 

1,830

 

Restructuring costs

 

 

 

 

 

 

 

 

 

 

 

5,034

 

Selling, general and administrative costs (includes $1,235 and $2,168 and $874 and $1,614 of stock compensation expense in the three and six months ended July 1, 2022 and July 2, 2021, respectively)

 

 

15,886

 

 

 

15,553

 

 

 

30,252

 

 

 

28,940

 

Total costs and operating expenses

 

 

60,489

 

 

 

53,390

 

 

 

174,102

 

 

 

173,044

 

 

 

61,747

 

 

 

58,980

 

 

 

124,002

 

 

 

113,613

 

Income from operations

 

 

11,405

 

 

 

4,527

 

 

 

34,475

 

 

 

7,157

 

 

 

14,181

 

 

 

14,217

 

 

 

27,590

 

 

 

23,070

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(26

)

 

 

(22

)

 

 

(76

)

 

 

(100

)

 

 

(28

)

 

 

(25

)

 

 

(56

)

 

 

(50

)

Income from operations before income taxes

 

 

11,379

 

 

 

4,505

 

 

 

34,399

 

 

 

7,057

 

 

 

14,153

 

 

 

14,192

 

 

 

27,534

 

 

 

23,020

 

Income tax expense

 

 

3,248

 

 

 

1,362

 

 

 

9,368

 

 

 

2,312

 

 

 

3,938

 

 

 

3,660

 

 

 

6,814

 

 

 

6,120

 

Income from continuing operations

 

 

8,131

 

 

 

3,143

 

 

 

25,031

 

 

 

4,745

 

 

 

10,215

 

 

 

10,532

 

 

 

20,720

 

 

 

16,900

 

Loss from discontinued operations

 

 

 

 

 

(157

)

 

 

(7

)

 

 

(165

)

 

 

 

 

 

 

 

 

 

 

 

(7

)

Net income

 

$

8,131

 

 

$

2,986

 

 

$

25,024

 

 

$

4,580

 

 

$

10,215

 

 

$

10,532

 

 

$

20,720

 

 

$

16,893

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income per common share from continuing operations

 

$

0.27

 

 

$

0.11

 

 

$

0.83

 

 

$

0.16

 

 

$

0.32

 

 

$

0.35

 

 

$

0.66

 

 

$

0.56

 

Loss per common share from discontinued operations

 

(0.00)

 

 

 

(0.01

)

 

 

(0.00

)

 

 

(0.01

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(0.00

)

Net income per common share

 

$

0.27

 

 

$

0.10

 

 

$

0.83

 

 

$

0.15

 

 

$

0.32

 

 

$

0.35

 

 

$

0.66

 

 

$

0.56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income per common share from continuing operations

 

$

0.25

 

 

$

0.10

 

 

$

0.76

 

 

$

0.15

 

 

$

0.32

 

 

$

0.32

 

 

$

0.65

 

 

$

0.51

 

Loss per common share from discontinued operations

 

(0.00)

 

 

 

(0.01

)

 

 

(0.00

)

 

 

(0.01

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(0.00

)

Net income per common share

 

$

0.25

 

 

$

0.09

 

 

$

0.76

 

 

$

0.14

 

 

$

0.32

 

 

$

0.32

 

 

$

0.65

 

 

$

0.51

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

29,814

 

 

 

30,053

 

 

 

30,038

 

 

 

29,986

 

 

 

31,652

 

 

 

30,094

 

 

 

31,551

 

 

 

30,151

 

Diluted

 

 

32,876

 

 

 

32,403

 

 

 

32,871

 

 

 

32,335

 

 

 

32,221

 

 

 

32,970

 

 

 

32,032

 

 

 

32,870

 

The accompanying notes are an integral part of the consolidated financial statements.


4


The Hackett Group, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

Quarter Ended

 

 

Nine Months Ended

 

 

Quarter Ended

 

 

Six Months Ended

 

 

October 1,

 

 

September 25,

 

 

October 1,

 

 

September 25,

 

 

July 1,

 

July 2,

 

July 1,

 

July 2,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income

 

$

8,131

 

 

$

2,986

 

 

$

25,024

 

 

$

4,580

 

 

$

10,215

 

 

$

10,532

 

 

$

20,720

 

 

$

16,893

 

Foreign currency translation adjustment

 

 

(745

)

 

 

907

 

 

 

(608

)

 

 

(879

)

 

 

(2,896

)

 

 

(132

)

 

 

(4,030

)

 

 

137

 

Total comprehensive income

 

$

7,386

 

 

$

3,893

 

 

$

24,416

 

 

$

3,701

 

 

$

7,319

 

 

$

10,400

 

 

$

16,690

 

 

$

17,030

 

 

The accompanying notes are an integral part of the consolidated financial statements.


5


The Hackett Group, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

Nine Months Ended

 

 

Six Months Ended

 

 

October 1,

 

 

September 25,

 

 

July 1,

 

July 2,

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

25,024

 

 

$

4,580

 

 

$

20,720

 

 

$

16,893

 

Plus net loss from discontinued operations

 

 

7

 

 

 

165

 

Plus loss from discontinued operations

 

 

 

 

 

(7

)

Net income from continuing operations

 

 

25,031

 

 

 

4,745

 

 

 

20,720

 

 

 

16,900

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense

 

 

2,552

 

 

 

2,600

 

 

 

1,630

 

 

 

1,723

 

Amortization expense

 

 

783

 

 

 

723

 

 

 

154

 

 

 

524

 

Amortization of debt issuance costs

 

 

33

 

 

 

58

 

 

 

28

 

 

 

22

 

Non-cash stock compensation expense

 

 

7,811

 

 

 

7,034

 

 

 

5,317

 

 

 

5,240

 

Provision for doubtful accounts

 

 

168

 

 

 

413

 

 

 

204

 

 

 

38

 

Gain on foreign currency translation

 

 

(62

)

 

 

(165

)

Deferred income tax expense (benefit)

 

 

300

 

 

 

(417

)

(Gain) loss on foreign currency translation

 

 

(968

)

 

 

88

 

Deferred income tax expense

 

 

1,064

 

 

 

690

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Increase) decrease in accounts receivable and contract assets

 

 

(17,061

)

 

 

13,248

 

Decrease (increase) in prepaid expenses and other assets

 

 

253

 

 

 

(328

)

Decrease (increase) in accounts receivable and contract assets

 

 

1,079

 

 

 

(14,554

)

Decrease in prepaid expenses and other assets

 

 

3,369

 

 

 

528

 

Decrease in accounts payable

 

 

(1,071

)

 

 

(3,449

)

 

 

(2,277

)

 

 

(1,383

)

Increase in accrued expenses and other liabilities and operating lease liabilities

 

 

1,572

 

 

 

6,257

 

Increase in contract liabilities (deferred revenue)

 

 

3,194

 

 

 

409

 

(Decrease) increase in accrued expenses and other liabilities

 

 

(7,613

)

 

 

2,146

 

(Decrease) increase in contract liabilities

 

 

(366

)

 

 

5,119

 

Increase in income tax payable

 

 

2,973

 

 

 

193

 

 

 

1,948

 

 

 

2,577

 

Net cash provided by operating activities

 

 

26,469

 

 

 

31,156

 

 

 

24,289

 

 

 

19,651

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,255

)

 

 

(1,498

)

 

 

(2,267

)

 

 

(1,417

)

Net cash used in investing activities

 

 

(2,255

)

 

 

(1,498

)

 

 

(2,267

)

 

 

(1,417

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt issuance costs

 

 

(10

)

 

 

 

Proceeds from ESPP

 

 

391

 

 

 

374

 

 

 

407

 

 

 

391

 

Debt issuance costs

 

 

 

 

 

 

(21

)

Proceeds from exercise of stock options

 

 

120

 

 

 

 

Dividends paid

 

 

(6,481

)

 

 

(8,854

)

 

 

(3,475

)

 

 

(3,253

)

Repurchase of common stock

 

 

(14,614

)

 

 

(4,025

)

 

 

(3,142

)

 

 

(12,357

)

Net cash used in financing activities

 

 

(20,704

)

 

 

(12,526

)

 

 

(6,100

)

 

 

(15,219

)

Effect of exchange rate on cash

 

 

(26

)

 

 

81

 

 

 

(36

)

 

 

(17

)

Net increase in cash and cash equivalents

 

 

3,484

 

 

 

17,213

 

 

 

15,886

 

 

 

2,998

 

Cash at beginning of period

 

 

49,455

 

 

 

25,954

 

 

 

45,794

 

 

 

49,455

 

Cash at end of period

 

$

52,939

 

 

$

43,167

 

 

$

61,680

 

 

$

52,453

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

6,371

 

 

$

2,385

 

Cash (refunded) paid for income taxes

 

$

(34

)

 

$

2,710

 

Cash paid for interest

 

$

43

 

 

$

43

 

 

$

28

 

 

$

14

 

 

The accompanying notes are an integral part of the consolidated financial statements.


6


The Hackett Group, Inc.

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

Other

 

Total

 

 

Common Stock

 

 

Paid in

 

Treasury Stock

 

 

Retained

 

Comprehensive

 

Shareholders'

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

Loss

 

 

Equity

 

Balance at December 31, 2021

 

 

59,631

 

 

$

60

 

 

$

300,288

 

 

 

(28,358

)

 

$

(157,294

)

 

$

11,272

 

 

$

(10,473

)

 

$

143,853

 

Issuance of common stock

 

 

373

 

 

 

 

 

 

(2,432

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,432

)

Treasury stock purchased

 

 

 

 

 

 

 

 

 

 

 

(31

)

 

 

(635

)

 

 

 

 

 

 

 

 

(635

)

Amortization of restricted stock
units and common stock subject to
vesting requirements

 

 

 

 

 

 

 

 

3,632

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,632

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,474

)

 

 

 

 

 

(3,474

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,505

 

 

 

 

 

 

10,505

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,134

)

 

 

(1,134

)

Balance at April 1, 2022

 

 

60,004

 

 

$

60

 

 

$

301,488

 

 

 

(28,389

)

 

$

(157,929

)

 

$

18,303

 

 

$

(11,607

)

 

$

150,315

 

Issuance of common stock

 

 

61

 

 

 

 

 

 

452

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

452

 

Treasury stock purchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of restricted stock
units and common stock subject to
vesting requirements

 

 

 

 

 

 

 

 

2,224

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,224

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,480

)

 

 

 

 

 

(3,480

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,215

 

 

 

 

 

 

10,215

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,896

)

 

 

(2,896

)

Balance at July 1, 2022

 

 

60,065

 

 

$

60

 

 

$

304,164

 

 

 

(28,389

)

 

$

(157,929

)

 

$

25,038

 

 

$

(14,503

)

 

$

156,830

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

Other

 

Total

 

 

Common Stock

 

 

Paid in

 

 

Treasury Stock

 

 

Accumulated

 

 

Comprehensive

 

 

Shareholders'

 

 

Common Stock

 

 

Paid in

 

Treasury Stock

 

 

Accumulated

 

Comprehensive

 

Shareholders'

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

Loss

 

 

Equity

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance at January 1, 2021

 

 

57,693

 

 

$

58

 

 

$

312,039

 

 

 

(27,609

)

 

$

(144,254

)

 

$

(17,388

)

 

$

(9,568

)

 

$

140,887

 

 

 

57,693

 

 

$

58

 

 

$

312,039

 

 

 

(27,609

)

 

$

(144,254

)

 

$

(17,388

)

 

$

(9,568

)

 

$

140,887

 

Issuance of common stock

 

 

294

 

 

 

 

 

 

(1,605

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,605

)

 

 

294

 

 

 

 

 

 

(1,605

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,605

)

Treasury stock purchased

 

 

 

 

 

 

 

 

 

 

 

(136

)

 

 

(2,110

)

 

 

 

 

 

 

 

 

(2,110

)

 

 

 

 

 

 

 

 

 

 

 

(136

)

 

 

(2,110

)

 

 

 

 

 

 

 

 

(2,110

)

Amortization of restricted stock units and

common stock subject to vesting requirements

 

 

 

 

 

 

 

 

2,633

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,633

 

 

 

 

 

 

 

 

 

2,633

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,633

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,254

)

 

 

 

 

 

(3,254

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,254

)

 

 

 

 

 

(3,254

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,361

 

 

 

 

 

 

6,361

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,361

 

 

 

 

 

 

6,361

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

269

 

 

 

269

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

269

 

 

 

269

 

Balance at April 2, 2021

 

 

57,987

 

 

$

58

 

 

$

313,067

 

 

 

(27,745

)

 

$

(146,364

)

 

$

(14,281

)

 

$

(9,299

)

 

$

143,181

 

 

 

57,987

 

 

$

58

 

 

$

313,067

 

 

 

(27,745

)

 

$

(146,364

)

 

$

(14,281

)

 

$

(9,299

)

 

$

143,181

 

Issuance of common stock

 

 

73

 

 

 

 

 

 

354

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

354

 

 

 

73

 

 

 

 

 

 

354

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

354

 

Treasury stock purchased

 

 

 

 

 

 

 

 

 

 

 

(489

)

 

 

(8,603

)

 

 

 

 

 

 

 

 

(8,603

)

 

 

 

 

 

 

 

 

 

 

 

(489

)

 

 

(8,603

)

 

 

 

 

 

 

 

 

(8,603

)

Amortization of restricted stock units and

common stock subject to vesting requirements

 

 

 

 

 

 

 

 

2,258

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,258

 

 

 

 

 

 

 

 

 

2,258

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,258

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,227

)

 

 

 

 

 

(3,227

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,227

)

 

 

 

 

 

(3,227

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,532

 

 

 

 

 

 

10,532

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,532

 

 

 

 

 

 

10,532

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(132

)

 

 

(132

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(132

)

 

 

(132

)

Balance at July 2, 2021

 

 

58,060

 

 

$

58

 

 

$

315,679

 

 

 

(28,234

)

 

$

(154,967

)

 

$

(6,976

)

 

$

(9,431

)

 

$

144,363

 

 

 

58,060

 

 

$

58

 

 

$

315,679

 

 

 

(28,234

)

 

$

(154,967

)

 

$

(6,976

)

 

$

(9,431

)

 

$

144,363

 

Issuance of common stock

 

 

67

 

 

 

 

 

 

(156

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(156

)

Treasury stock purchased

 

 

 

 

 

 

 

 

 

 

 

(113

)

 

 

(2,103

)

 

 

 

 

 

 

 

 

(2,103

)

Amortization of restricted stock units and

common stock subject to vesting requirements

 

 

 

 

 

 

 

 

2,211

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,211

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,192

)

 

 

 

 

 

(3,192

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,131

 

 

 

 

 

 

8,131

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(745

)

 

 

(745

)

Balance at October 1, 2021

 

 

58,127

 

 

$

58

 

 

$

317,734

 

 

 

(28,347

)

 

$

(157,070

)

 

$

(2,037

)

 

$

(10,176

)

 

$

148,509

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

Common Stock

 

 

Paid in

 

 

Treasury Stock

 

 

Accumulated

 

 

Comprehensive

 

 

Shareholders'

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance at December 27, 2019

 

 

57,181

 

 

$

58

 

 

$

303,707

 

 

 

(27,425

)

 

$

(141,887

)

 

$

(13,714

)

 

$

(10,550

)

 

$

137,614

 

Issuance of common stock

 

 

291

 

 

 

 

 

 

(1,962

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,962

)

Treasury stock purchased

 

 

 

 

 

 

 

 

 

 

 

(73

)

 

 

(1,006

)

 

 

 

 

 

 

 

 

(1,006

)

Amortization of restricted stock units and

common stock subject to vesting requirements

 

 

 

 

 

 

 

 

2,469

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,469

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

(13

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,527

 

 

 

 

 

 

5,527

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,830

)

 

 

(1,830

)

Balance at March 27, 2020

 

 

57,472

 

 

$

58

 

 

$

304,214

 

 

 

(27,498

)

 

$

(142,893

)

 

$

(8,200

)

 

$

(12,380

)

 

$

140,799

 

Issuance of common stock

 

 

75

 

 

 

 

 

 

359

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

359

 

Amortization of restricted stock units and

common stock subject to vesting requirements

 

 

 

 

 

 

 

 

2,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,362

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,050

)

 

 

 

 

 

(3,050

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,933

)

 

 

 

 

 

(3,933

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44

 

 

 

44

 

Balance at June 26, 2020

 

 

57,547

 

 

$

58

 

 

$

306,935

 

 

 

(27,498

)

 

$

(142,893

)

 

$

(15,183

)

 

$

(12,336

)

 

$

136,581

 

Issuance of common stock

 

 

13

 

 

 

 

 

 

(109

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(109

)

Treasury stock purchased

 

 

 

 

 

 

 

 

 

 

 

(75

)

 

 

(932

)

 

 

 

 

 

 

 

 

(932

)

Amortization of restricted stock units and

common stock subject to vesting requirements

 

 

 

 

 

 

 

 

2,238

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,238

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,024

)

 

 

 

 

 

(3,024

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,986

 

 

 

 

 

 

2,986

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

907

 

 

 

907

 

Balance at September 25, 2020

 

 

57,560

 

 

$

58

 

 

$

309,064

 

 

 

(27,573

)

 

$

(143,825

)

 

$

(15,221

)

 

$

(11,429

)

 

$

138,647

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

7



The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation and General Information

Basis of Presentation

The accompanying consolidated financial statements of The Hackett Group, Inc. (“Hackett” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the Company’s accounts and those of its wholly-owned subsidiaries which the Company is required to consolidate. All intercompany transactions and balances have been eliminated in consolidation.

In the opinion of management, the accompanying consolidated financial statements reflect all normal and recurring adjustments which are necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows as of the dates and for the periods presented. The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these statements do not include all the disclosures normally required by U.S. GAAP for annual financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended January 1,December 31, 2021, included in the Annual Report on Form 10-K filed by the Company with the SEC on March 12, 2021.4, 2022. The consolidated results of operations for the quarter and ninesix months ended OctoberJuly 1, 2021,2022, are not necessarily indicative of the results to be expected for any future period or for the full fiscal year.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

The Company’sCompany generates substantially all of its revenue is substantially generated from providing professional services to its clients. The Company also generates revenue from software sales,licenses, software support and maintenance and subscriptions to its executive and best practices advisory programs. A single contract could include one or multiple performance obligations. For those contracts that have multiple performance obligations, the Company allocates the total transaction price to each performance obligation based on its relative standalone selling price. The Company determines the standalone selling price based on the respective selling price of the individual elements when they are sold separately.

Revenue is recognized when control of the goods and services provided are transferred to the Company’s customers, in an amount that reflects the consideration the Companyit expects to be entitled to in exchange for those goods and services using the following steps: 1) identify the contract, 2) identify the performance obligations, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue as or when we satisfythe Company satisfies the performance obligations.

The Company typically satisfies its performance obligations for professional services over time as the related services are provided. The performance obligations related to software support, maintenance and subscriptions to ourits executive and best practice advisory programs are typically satisfied evenly over the course of the service period. Other performance obligations, such as software licenses, are satisfied at a point in time.

The Company generates its revenue under four types of billing arrangements: fixed-fee;fixed-fee (including software license revenue); time-and-materials; executive and best practice advisory services; and software sales and software maintenance and support.

In fixed-fee billing arrangements, which would also include contracts with capped fees, the Company agrees to a pre-established fee or fee cap in exchange for a predetermined set of professional services. The Company sets the fees based on its estimates of the costs and timing for completing the engagements. The Company generally recognizes revenue under fixed-fee or capped fee arrangements using a proportionate performance approach, which is based on work completed to-date as compared to estimates of the total services to be provided under the engagement. Estimates of total engagement revenue and cost of services are monitored regularly during the term of the engagement. If the Company’s estimates indicate a potential loss, such loss is recognized in the period in which the loss first becomes probable and reasonably estimable. The customer is invoiced based on the contractual agreement between the parties, typically bi-weekly, monthly or milestone driven, with net thirty-day terms.terms, however client terms are subject to change.

8


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation and General Information (continued)

Time-and-material billing arrangements require the client to pay based on the number of hours worked by the Company’s consultants at agreed upon hourly rates. The Company recognizes revenue under time-and-material arrangements as the related services or goods are provided, using the right to invoice practical expedient which allows usit to recognize revenue in the amount based on the number of hours worked and the agreed upon hourly rates. The customer is invoiced based on the contractual agreement between the parties, typically bi-weekly, monthly or milestone driven, with net thirty-day terms.

8


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

terms, however client terms are subject to change.

1. Basis of Presentation and General Information (continued)

Advisory services contracts are typically in the form of a subscription agreement which allows the customer access to the Company’s executive and best practice advisory programs. There is typically a single performance obligation and the transaction price is the contractual amount of the subscription agreement. Revenue from advisory serviceservices contracts is recognized ratably over the life of the agreements. Customers are typically invoiced at the inception of the contract, with net thirty-day terms.terms, however client terms are subject to change.

The resale of software and maintenance contracts are in the form of SAP America software license or maintenance agreements provided by SAP America. SAP is the principal and the Company is the agent in these transactions as the Company does not obtain title to the software and the maintenance which is sold simultaneously. The transaction price is the Company’s agreed-upon percentage of the software license or maintenance amount in the contract with SAP America.the vendor. Revenue for the resale of software licenses is recognized upon contract execution and customer’s receipt of the software. Revenue from maintenance contracts is recognized ratably over the life of the agreements. The customer is typically invoiced at contract inception, with net thirty-day terms.terms, however client terms are subject to change.

Revenue before reimbursements excludes reimbursable expenses charged to clients. Reimbursements, which include travel and out-of-pocket expenses, are included in revenue, and an equivalent amount of reimbursable expenses is included in cost of service.

Expense reimbursements that are billable to clients are included in total revenue and are substantially all billed as time-and-material billing arrangements. Therefore, the Company recognizes all reimbursable expenses as revenue as the related services are provided, using the right to invoice practical expedient. Reimbursable expenses are recognized as expenses in the period in which the expense is incurred. Any expense reimbursements that are billable to clients under fixed-fee billing arrangements are recognized in line with the proportionate performance approach.

The payment terms and conditions in the Company’s customer contracts vary. The agreements entered into in connection with a project, whether time-and-materials,time and materials-based or fixed-fee or capped-fee based, typically allow clients to terminate early due to breach or for convenience with a 30 days’ notice. In the event of termination, the client is contractually required to pay for all time, materials and expenses incurred by the Company through the effective date of the termination. In addition, from time to time the Company enters into agreements with its clients that limit its right to enter into business relationships with specific competitors of that client for a specific time period. These provisions typically prohibit the Company from performing a defined range of services which it might otherwise be willing to perform for potential clients. These provisions are generally limited to six to twelve months and usually apply only to specific employees or the specific project team.

Sales tax collected from customers and remitted to the applicable taxing authorities is accounted for on a net basis, with no impact to revenue.

Differences between the timing of billings and the recognition of revenue are recognized as either contract assets (unbilled revenue) or contract liabilities (deferred revenue) in the accompanying consolidated balance sheets. Revenue recognized for services performed but not yet billed to clients orare recorded as contract assets. Revenue recognized, but for which are not yet entitled to bill because certain events, such as the completion of the measurement period, are recorded as contract assets and included within accounts receivable and contract assets. Client prepayments are classified as contract liabilities and recognized over future periods as earned in accordance with the applicable engagement agreement. See Note 3 for the accounts receivable and contract asset balances. During the quarter and ninesix months ended OctoberJuly 1, 2021,2022, the Company recognized $1.7$3.4 million and $7.7$10.3 million, respectively,of revenue as a result of changes in the contract liability balance, as compared to $6.0$2.0 million and $15.8$6.0 million for the quarter and ninesix months ended September 25, 2020,July 2, 2021, respectively.

The following table reflects the Company’s disaggregation of total revenue including reimbursable expenses for the quarters and ninesix months ended OctoberJuly 1, 20212022 and September 25, 2020:July 2, 2021:

 

 

Quarter Ended

 

 

Nine Months Ended

 

 

Quarter Ended

 

 

Six Months Ended

 

 

October 1,

 

 

September 25,

 

 

October 1,

 

 

September 25,

 

 

July 1,

 

July 2,

 

 

July 1,

 

July 2,

 

 

2021

 

 

2020

 

 

2021

 

 

2017

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Consulting

 

$

69,650

 

 

$

56,865

 

 

$

198,970

 

 

$

171,140

 

 

$

74,914

 

 

$

67,411

 

 

$

149,412

 

 

$

129,597

 

Software license sales

 

 

1,750

 

 

 

904

 

 

 

8,837

 

 

 

4,447

 

 

 

1,014

 

 

 

5,786

 

 

 

2,180

 

 

 

7,086

 

Revenue before reimbursements from continuing operations

 

$

71,400

 

 

$

57,769

 

 

$

207,807

 

 

$

175,587

 

Total revenue

 

$

75,928

 

 

$

73,197

 

 

$

151,592

 

 

$

136,683

 

 

 

 

 

 

 

 

 

 

9


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation and General Information (continued)

Capitalized Sales Commissions

Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized as project revenue is recognized. WeThe Company determined the period of amortization by taking into consideration the customer contract period, which are generally less than 12 months. Commission expense is included in Selling, General and Administrative Costs in the accompanying consolidated statements of operations. As of December 31, 2021, and January 1, 2021, and December 27, 2019, the Company had $1.5$1.6 million and $1.6 $1.5million, respectively, of deferred commissions, of which $0.2$0.4 million and $0.8$0.7 million was amortized during the quarter and ninesix months ended OctoberJuly 1, 2021,2022, respectively, and $0.3$0.3 million and $1.2$0.5 million for the same periods in 2020,2021, respectively. NaN impairment loss was recognized relating to the capitalizationcapitalization of deferred commission.

9


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation and General Information (continued)

Practical Expedients

The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be less than one year.

Sales tax collected from customers and remitted to the applicable taxing authorities is accounted for on a net basis, with no impact on revenue.

Expense reimbursements that are billable to clients are included in total revenue and are substantially all billed as time-and-material billing arrangements. Therefore, the Company recognizes all reimbursable expenses as revenue as the related services are provided, using the right to invoice practical expedient. Reimbursable expenses are recognized as expenses in the period in which the expense is incurred. Any expense reimbursements that are billable to clients under fixed-fee billing arrangements are recognized in line with the proportionate performance approach.

Fair Value

The Company’s financial instruments consist of cash, accounts receivable and contract assets, accounts payable, accrued expenses and other liabilities and contract liabilities. As of OctoberJuly 1, 20212022 and January 1,December 31, 2021, the carrying amount of each financial instrument approximated the instrument’s respective fair value due to the short-term nature and maturity of these instruments.

The Company uses significant other observable market data or assumptions (Level 2 inputs as defined in accounting guidance) that it believes market participants would use in pricing debt. The fair value of the debt approximated the carrying amount, using Level 2 inputs, due to the short-term variable interest rates based on market rates.

 

COVID-19 Pandemic Impact on the Business

 

The level of revenue the Company achieves is based on the Company’sits ability to deliver market leading services and solutions and to deploy skilled teams of professionals quickly. The Company’s results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence. Despite the disruption beginning in March 2020, the COVID-19 pandemic did not have a significant impact on the Company’s consolidated results of operations during the first quarter of 2020. However, net revenue and diluted earnings per share were negatively impacted for the remainder of 2020, due to adverse economic conditions as a resultIn each of the COVID-19 pandemic. In the first threefour quarters of 2021, the Company’s net revenue before reimbursements and diluted earnings per share grew when compared to the fourth quarter of 2020 reflecting a continuation of improved economic conditions. However, any reversal of these trends or a prolonged economic downturn as a result of the impact of COVID-19 variants, or otherwise, weak or uncertain economic conditions or similar factors could adversely affect the Company’s clients’Company's clients' financial condition which may further reduce the clients’clients' demand for the Company’sCompany's services.

 

The Company continues to actively manage its business to respond to the impact of the COVID-19 pandemic. At the onset of the pandemic, the Company reduced employee headcount and restricted employee travel to only essential business needs. While headcount has increased and some select non-essential travel is being allowed, most of the Company’s employees continue to work remotely from home. The Company is generally following the requirements, recommendationsrecommendation and protocols published by the U.S. Centers for Disease Control and the World Health Organization, and state and local governments.

 

10


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation and General Information (continued)

As a response to the ongoing COVID-19 pandemic, in 2020 the Company implemented plans to manage its costs and preserve cash at the onset of the COVID-19 pandemic. TheAt this time the Company significantly limited the addition of new employees and third party contracted services, eliminated all travel except where necessary to meet customer needs, and limited discretionary spending. At the end of June 2020, the Company reduced its global workforce by approximately 10%10% and recorded a $5.0$5.0 million restructuring charge. During the fourth quarter of 2020, as a result of and in consideration of the COVID-19 pandemic, and the changing nature of its use of office space for its workforce, the Company evaluated its existing office leases as part of the Company’s transformation initiatives related to real estate. This evaluation resulted in the complete and partial abandonment of certain leased office spaces and an asset impairment charge of $3.9$3.9 million for certain lease right-of-use assets and certain property, equipment and leasehold improvements. All client concessions and accounts receivable allowances have been appropriately reflected in our financial statements. To the extent that economic conditions do not continue to improve, and ourthe business is again disrupted, the reinstatement of cost management actions will be considered. Future asset impairment charges, increases in allowance for doubtful accounts, or restructuring charges will be dependent on the severity and duration of the COVID-19 pandemic.

 

In light of the evolving health, social, economic and business environment, governmental regulations or mandates, and business disruptions that could occur, the potential impact that the COVID-19 pandemic could have on the Company’s financial condition and operating results in the future remainremains highly uncertain.

10


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation and General Information (continued)

Adoption of Recent Accounting Standards

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2019-12, which enhances and simplifies various aspects of income tax accounting guidance. Among other things, the amendment removes the year-to-date loss limitation in interim period tax accounting and requires entities to reflect the effect of an enacted change in tax laws in the interim period that includes the enactment date of the new legislation. The standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The adoption did not have a material impact on the Company’s consolidated financial statements.

Reclassifications

Certain prior period amounts in the consolidated financial statements, and notes thereto, have been reclassified to conform to current period presentation.

2. Net Income per Common Share

Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. With regard to common stock subject to vesting requirements and restricted stock units issued to the Company’s employees and non-employee members of its Board of Directors, the calculation includes only the vested portion of such stock and units.

Diluted net income per common share is computed by dividing net income by the weighted average number of common shares outstanding, increased by the assumed conversion of other potentially dilutive securities during the period.

The following table reconciles basic and dilutive weighted average common shares:

 

 

Quarter Ended

 

 

Six Months Ended

 

 

Quarter Ended

 

 

Nine Months Ended

 

 

July 1,

 

July 2,

 

July 1,

 

July 2,

 

 

October 1,

 

 

September 25,

 

 

October 1,

 

 

September 25,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

29,813,530

 

 

 

30,053,457

 

 

 

30,038,249

 

 

 

29,985,879

 

 

 

31,652,413

 

 

 

30,093,726

 

 

 

31,550,911

 

 

 

30,150,608

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unvested restricted stock units and common stock subject

to vesting requirements issued to employees and

non-employees

 

 

625,680

 

 

 

204,747

 

 

 

460,058

 

 

 

142,223

 

 

 

566,969

 

 

 

490,685

 

 

 

468,500

 

 

 

377,447

 

Common stock issuable upon the exercise of stock options

and SARs

 

 

2,436,600

 

 

 

2,145,238

 

 

 

2,373,075

 

 

 

2,206,450

 

 

 

1,656

 

 

 

2,385,533

 

 

 

12,889

 

 

 

2,341,500

 

Dilutive weighted average common shares outstanding

 

 

32,875,810

 

 

 

32,403,442

 

 

 

32,871,382

 

 

 

32,334,552

 

 

 

32,221,038

 

 

 

32,969,944

 

 

 

32,032,300

 

 

 

32,869,555

 

Approximately 23 thousand shares and 2thousand sharesof common stock equivalents were excluded from the computations of diluted net income per common share for both the quarter and ninesix months ended OctoberJuly 1, 2021,2022, respectively, as compared to 92 thousand shares and 143 thousand shares for the quarter and ninesix months ended September 25, 2020,July 2, 2021, respectively, as inclusion would have had an anti-dilutive effect on diluted net income per common share.

11


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

3. Accounts Receivable and Contract Assets, Net

Accounts receivable and contract assets, net, consisted of the following (in thousands):

 

 

October 1,

 

 

January 1,

 

 

July 1,

 

 

December 31,

 

 

2021

 

 

2021

 

 

2022

 

 

2021

 

Accounts receivable

 

$

30,755

 

 

$

23,898

 

 

$

35,110

 

 

$

30,732

 

Contract assets (unbilled revenue)

 

 

20,784

 

 

 

9,485

 

 

 

15,844

 

 

 

22,586

 

Allowance for doubtful accounts

 

 

(1,930

)

 

 

(605

)

 

 

(1,469

)

 

 

(2,702

)

Accounts receivable and contract assets, net

 

$

49,609

 

 

$

32,778

 

 

$

49,485

 

 

$

50,616

 

Accounts receivable is net of uncollected advanced billings. Contract assets represents revenue for services performed that have not yet been invoiced.

11


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

4. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following (in thousands):

 

 

October 1,

 

 

January 1,

 

 

July 1,

 

December 31,

 

 

2021

 

 

2021

 

 

2022

 

 

2021

 

Accrued compensation and benefits

 

$

7,794

 

 

$

6,696

 

 

$

9,130

 

 

$

7,730

 

Deferred employer's payroll taxes

 

 

1,781

 

 

 

3,560

 

 

 

1,780

 

 

 

1,780

 

Accrued bonuses

 

 

11,369

 

 

 

4,767

 

 

 

8,274

 

 

 

13,753

 

Accrued dividend payable

 

 

3,206

 

 

 

-

 

 

 

3,480

 

 

 

-

 

Restructuring liability

 

 

825

 

 

 

2,292

 

 

 

411

 

 

 

740

 

Accrued sales, use, franchise and VAT tax

 

 

1,398

 

 

 

2,550

 

 

 

1,544

 

 

 

1,783

 

Income taxes payable

 

 

1,948

 

 

 

-

 

Non-cash stock compensation accrual

 

 

1,005

 

 

 

295

 

 

 

818

 

 

 

1,357

 

Income tax payable

 

 

5,218

 

 

 

2,308

 

Other accrued expenses

 

 

3,019

 

 

 

2,616

 

 

 

3,097

 

 

 

3,154

 

Total accrued expenses and other liabilities

 

$

35,615

 

 

$

25,084

 

 

$

30,482

 

 

$

30,297

 

 

As a result of the tax deduction related to the exercise of the 2.9 million SARs in 2021, as of December 31, 2021, the Company had an income tax receivable of $3.4million in the prepaid expenses and other current assets on the consolidated balance sheet.

5. Restructuring Costs

During 2020, the Company recorded restructuring costs of $10.5$10.5 million, of which $5.7$5.7 million was primarily related to the reduction of staff in Europe and Australia. As of OctoberJuly 1, 2021,2022, the Company had $825 thousand$0.4 million of remaining commitments related to the restructuring charge.

 

The following table sets forth the activity in the restructuring expense accruals (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee Related Costs

 

 

Exit, Closure and Consolidation of Facilities

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrual balance at January 1, 2021

$

 

1,083

 

$

 

1,209

 

$

 

2,292

 

Cash paid

 

 

(901

)

 

 

(276

)

 

 

(1,177

)

Accrual balance at April 2, 2021

$

 

182

 

$

 

933

 

$

 

1,115

 

Cash paid

 

 

(86

)

 

 

(79

)

 

 

(165

)

Accrual balance at July 2, 2021

$

 

96

 

$

 

854

 

$

 

950

 

Cash paid

 

 

 

 

 

(125

)

 

 

(125

)

Accrual balance at October 1, 2021

$

 

96

 

$

 

729

 

$

 

825

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exit, Closure and

 

 

 

 

 

 

Employee Related

 

 

Consolidation

 

 

 

 

 

 

Costs

 

 

of Facilities

 

 

Total

 

Accrual balance at December 31, 2021

$

 

70

 

$

 

670

 

$

 

740

 

Cash paid

 

 

 

 

 

(74

)

 

 

(74

)

Accrual balance at April 1, 2022

$

 

70

 

$

 

596

 

$

 

666

 

Cash paid

 

 

(26

)

 

 

(218

)

 

 

(244

)

Expense

 

 

(22

)

 

 

11

 

 

 

(11

)

Accrual balance at July 1, 2022

$

 

22

 

$

 

389

 

$

 

411

 

 

12


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

6. Leases

 

The Company has operating leases for office space and, to a much lesser extent, operating leases for equipment. The Company’s office leases are between terms of 1 year and 4 years. Rents usually increase annually in accordance with defined rent steps or are based on current year consumer price index adjustments. Some of the lease agreements contain one or more of the following provisions: tenant allowances, rent holidays, lease premiums, and rent escalation clauses. There are typically no purchase options, residual value guarantees or restrictive covenants. When renewal options exist, the Company generally does not deem them to be reasonably certain to be exercised, and therefore the amounts are not recognized as part of the lease liability nor the right of use asset.

 

The components of lease expense were as follows for the ninesix months ended OctoberJuly 1, 20212022 (in thousands):

 

Operating lease cost

 

$

787

 

 

$

613

 

 

 

 

 

 

 

 

Total net lease costs

 

$

787

 

 

$

613

 

 

The weighted average remaining lease term is 2.22 years. The weighted average discount rate utilized is 4%4%. The discount rates applied to each lease, reflects the Company’s estimated incremental borrowing rate. This includes an assessment of the Company’s credit rating to determine the rate that the Company would have to pay to borrow, on a collateralized basis for a similar term, an amount equal to our lease payments in a similar economic environment. For the quarter and ninesix months ended OctoberJuly 1, 2021,2022, the Company paid $0.6 $0.7million and $1.9$1.3 million, respectively,, from operating cash flows for its operating leases.

Future minimum lease payments under non-cancellable operating leases as of OctoberJuly 1, 2021,2022, were as follows (in thousands):

 

2021 (excluding the nine months ended October 1, 2021)

 

$

593

 

2022

 

 

2,298

 

2022 (excluding the six months ended July 1, 2022)

 

$

1,055

 

2023

 

 

988

 

 

 

986

 

2024

 

 

585

 

 

 

567

 

2025 and thereafter

 

 

-

 

Thereafter

 

 

-

 

Total lease payments

 

 

4,464

 

 

 

2,608

 

Less imputed interest

 

 

(164

)

 

 

(112

)

Total

 

$

4,300

 

 

$

2,496

 

 

As of OctoberJuly 1, 2021,2022, the Company does not have any additional operating leases that have not yet commenced.  commenced.

7. Credit Facility

The Company has a credit agreement with Bank of America, N.A., which provides for borrowing up to $45.0$45.0 million pursuant to a revolving line of credit (the “Revolver”) which has a maturity date of November 30, 2022 (as amended the “Credit Agreement”).

 

The obligations of Hackett under the Revolver are guaranteed by active existing and future material U.S. subsidiaries of Hackett (the “U.S. Subsidiaries”), and are secured by substantially all of the existing and future property and assets of Hackett and the U.S. Subsidiaries, a 100%100% pledge of the capital stock of the U.S. Subsidiaries, and a 66%66% pledge of the capital stock of Hackett’s direct foreign subsidiaries (subject to certain exceptions).

As of the quarterJuly 1, 2022 and nine months ended October 1, 2021,December 31,2021, the Company did 0t0t have any outstanding balanceunder the Revolver. The interest rates per annum applicable to borrowings under Revolver will be, at the Company’s option, equal to either a base rate or a LIBOR base rate, plus an applicable margin percentage. The applicable margin percentage is based on the consolidated leverage ratio, as defined in the Credit Agreement. As of OctoberJuly 1, 2021,2022, the applicable margin percentage was 1.50%1.50% per annum based on the consolidated leverage ratio, in the case of LIBOR rate advances, and 0.75%0.75% per annum, in the case of base rate advances. The interest rate of the commitment fees as of OctoberJuly 1, 2021,2022, was 0.125%0.125%.

The Company is subject to certain covenants, including total consolidated leverage, fixed cost coverage, adjusted fixed cost coverage and liquidity requirements, each as set forth in the Credit Agreement, subject to certain exceptions. As of OctoberJuly 1, 2021,2022, the Company was in compliance with all covenants.

13


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

8. Stock Based Compensation

During the quarter and ninesix months ended OctoberJuly 1, 2021,2022, the Company issued 14,35729,538 and 482,031712,319 restricted stock units at a weighted average grant-date fair value of $18.15 $23.42and $14.70$19.41 per share, respectively. As of OctoberJuly 1, 2021,2022, the Company had 1,196,9521,322,995 restricted stock units outstanding at a weighted average grant-date fair value of $15.75 $17.80per share. As of OctoberJuly 1, 2021, $10.92022, $16.4 million of total restricted stock unit compensation expense related to unvested awards had not been recognized and is expected to be recognized over a weighted average period of approximately 2.22.6 years.

As of OctoberJuly 1, 2021,2022, the Company had 12,8662,945 sharesof common stock subject to vesting requirements outstanding at a weighted average grant-date fair value of $16.17 $16.17per share. As of OctoberJuly 1, 2021, $61 2022, $19thousand of compensation expense related to common stock subject to vesting requirements had not been recognized and is expected to be recognized over a weighted average period of approximately 1.3 years.

Forfeitures for all of the Company’s outstanding equity awards are recognized as incurred.

9. Shareholders’ Equity

Stock Appreciation Rights (“SARs”)

As of OctoberJuly 1, 2021,2022, the Company had did 0t have any outstanding SARs. In December 2021, 2.9 million SARs outstandingwere exercised with an exercise price of $4.00$4.00 per share and an expiration date of February 8, 2022.           share.

Treasury Stock

Under the Company’s share repurchase plan, the Company may repurchase shares of its outstanding common stock either on the open market or through privately negotiated transactions subject to market conditions and trading restrictions. During the quarter, and ninethe Company did 0t repurchase any outstanding common stock. During the six months ended OctoberJuly 1, 2022, the Company repurchased31 thousand of its common stock at an average price of $20.50 for a total cost of $0.6million. As of July 1, 2022 the Company had a total authorization remaining of $10.6 million under its repurchase plan with atotal authorization of $167.2 million.

During the quarter and six months ended July 2, 2021, the Company repurchased 113489 thousand shares and 738626 thousand shares of its common stock at an average price of $18.68$17.58 and $17.35 per share, respectively, for a total cost of $2.1 million and $12.8 million, respectively.  As of October 1, 2021 the Company had a total authorization remaining of $11.5 million under it’s repurchase plan with a$17.11total authorization of $167.2 million. 

During the quarter and nine months ended September 25, 2020, the Company repurchased 75 thousand and 148 thousand shares of its common stock at an average price of $12.41 and $13.09 per share for a total cost of $0.9$8.6 million and $1.9$10.7 million, respectively.

The shares repurchased under the share repurchase plan during the quarter and ninesix months ended OctoberJuly 1, 2021,2022, do not include 84 thousandshares and 118130 thousandshares, respectively, which the Company bought back to satisfy employee net vesting obligations for a cost of $155$76 thousand and $1.8$2.5 million, respectively. During the quarter and ninesix months ended September 25, 2020,July 2, 2021, the Company bought back 82 thousand shares and 135110 thousand shares, respectively, at a cost of $111$38 thousand and $2.1$1.6 million, respectively, to satisfy employee net vesting obligations.

Dividend Program

In 2020,2021, the Company increased the annual dividend from $0.36$0.38 per share to $0.38$0.40 per share to be paid on a quarterly basis and during the first quarter of 2021,2022, the Company further increased the annual dividend to $0.40$0.44 per share. During the first quarterhalf of 2021,2022, the Company declared its firsttwo quarterly dividenddividends to its shareholders of $3.3$3.5 million each, which waswere paid in April 2021. During the second quarter of 2021, the Company declared its second quarterly dividend to shareholders of $3.2 million, which was paid in 2022 and July 2021.  During the third quarter of 2021, the Company declared its third quarterly dividend to shareholders of $3.2 million, which was paid in October 2021.2022. These dividends were paid from U.S. domestic sources and are accounted for as an increasea decrease to accumulated deficit.retained earnings. Subsequent to OctoberJuly 1, 2021,2022, the Company declared its fourththird quarterly dividend in 20212022 to be paid in December 2021.October 2022.

10. Transactions with Related Parties

During the ninesix months ended OctoberJuly 1, 2021,2022, the Company bought back 2431 thousand shares of its common stock from members of its Board of Directors for $0.4$0.6 million, or $16.05$20.50 per share.

11. Litigation

The Company is involved in legal proceedings, claims, and litigation arising in the ordinary course of business not specifically discussed herein. In the opinion of management, the final disposition of such matters will not have a material adverse effect on the Company’s financial position, cash flows or results of operations.

14


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

12. Geographic and Group Information

Revenue before reimbursements, which is primarily based on the country of the contracting entity, was attributed to the following geographical areas (in thousands):

 

 

Quarter Ended

 

 

Six Months Ended

 

 

 

July 1,

 

 

July 2,

 

 

July 1,

 

 

July 2,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

66,717

 

 

$

63,959

 

 

$

131,110

 

 

$

119,218

 

Europe

 

 

5,103

 

 

 

5,641

 

 

 

12,640

 

 

 

11,199

 

Other (Australia, Canada, India and Uruguay)

 

 

4,108

 

 

 

3,597

 

 

 

7,842

 

 

 

6,266

 

Total revenue

 

$

75,928

 

 

$

73,197

 

 

$

151,592

 

 

$

136,683

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

 

Nine Months Ended

 

 

 

October 1,

 

 

September 25,

 

 

October 1,

 

 

September 25,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue before reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

64,664

 

 

$

51,343

 

 

$

188,371

 

 

$

155,912

 

International (primarily European countries)

 

 

6,736

 

 

 

6,426

 

 

 

19,436

 

 

 

19,675

 

Revenue from continuing operations before reimbursements

 

$

71,400

 

 

$

57,769

 

 

$

207,807

 

 

$

175,587

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-lived assets are attributable to the following geographic areas (in thousands):

 

 

October 1,

 

 

January 1,

 

 

 

2021

 

 

2021

 

Long-lived assets:

 

 

 

 

 

 

 

 

North America

 

$

89,297

 

 

$

90,384

 

International (primarily European countries)

 

 

16,347

 

 

 

17,329

 

Total long-lived assets

 

$

105,644

 

 

$

107,713

 

 

 

July 1,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Long-lived assets:

 

 

 

 

 

 

United States

 

$

89,175

 

 

$

89,199

 

Europe

 

 

13,935

 

 

 

15,584

 

Other (Australia, Canada, India and Uruguay)

 

 

581

 

 

 

582

 

Total long-lived assets

 

$

103,691

 

 

$

105,365

 

 

As of OctoberJuly 1, 20212022 and January 1,December 31, 2021, foreign assets included $15.1 13.5million and $15.3$15.1 million, respectively, of goodwill related to acquisitions.


15


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements.statements in these sections. All statements regarding our expected financial position and operating results, our business strategy, our financing plans and forecasted demographic and economic trends relating to our industry are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect,” or “intend” and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. We cannot promise you that our expectations reflected in such forward-looking statements will turn out to be correct. Factors that could impact such forward-looking statements include, among others, the impact of the coronavirus (COVID-19) pandemic and our ability to mitigate or manage disruptions posed by COVID-19 pandemic, changes in worldwide and U.S. economic conditions that impact business confidence and the demand for our products and services,, our ability to mitigate or manage disruptions posed by the COVID-19 pandemic, 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, the timing of projects and the potential for contract cancellation by our customers, changes in expectations regarding the business consulting and information technology industries, our ability to attract and retain skilled employees, the impact of any federally-mandated vaccine, testing or other COVID-19 related requirements on employee retention and our results of operations, 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 Brexitthe geopolitical conflict involving Russia and Ukraine on our business and changes in general economic conditions, inflation, interest rates and our ability to obtain additional debt financing if needed. For a discussion of risks and actions taken in response to the COVID-19 pandemic, see “Our results of operations have been adversely affected and could in the future be materially adversely impacted by the coronavirus pandemic (COVID-19)” under Item 1A, “Risk Factors” of our Annual Report on Form 10-K. An additional description of our risk factors is described in Part I – Item 1A, “Risk Factors”. 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. Many of the risks, uncertainties and other factors identified in our Annual Report on Form 10-K for the year ended January 1,December 31, 2021 have been amplified by the COVID-19 pandemic.

 

OVERVIEW

The following Management's Discussion and Analysis ("MD&A") is intended to help the reader understand the results of operations and financial condition of Hackett. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

The Hackett Group, Inc. (“Hackett” or the “Company”) is a leading IP-based strategic advisory and technology consulting firm that enables companies to achieve world-class business performance. By leveraging the comprehensive Hackett database, the world’s leading repository of enterprise business process performance metrics and best practice intellectual capital, our business and technology solutions help clients improve performance and maximize returns on technology investments. Only Hackett empirically defines world-class performance in sales, general and administrative and certain supply chain activities with analysis gained through nearly 20,000 benchmark and performance studies over 27 years at over 7,000 of the world’s leading companies.

 

In the following discussion, Strategy and Business Transformation Group includes the results of our North America IP as-a-service offerings, which include our Executive Advisory Programs and Benchmarking Services, and our Business Transformation Practices (S&BT). ERP, EPM and Analytics Solutions includes the results of our North America Oracle EEA and SAP Solutions Practices (EEA). International includes results of our S&BT and EEA Practices primarily in Europe.

 

COVID-19 Pandemic Impact on Our Business

 

The level of revenue we achieve is based on our ability to deliver market leading services and solutions and to deploy skilled teams of professionals quickly. Our results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence. Despite the disruption beginning in March 2020, the COVID-19 pandemic did not have a significant impact on our consolidated results of operations during the first quarter of 2020. However, our net revenue and diluted earnings per share were negatively impacted for the remainder of 2020, due to adverse economic conditions as a resultIn each of the COVID-19 pandemic. In the first threefour quarters of 2021, our net revenue before reimbursements and diluted earnings per share grew when compared to the fourth quarter of 2020 reflecting a continuation of improved economic conditions. However, any reversal of these trends or a prolonged economic downturn as a result of the impact of COVID-19 variants, or otherwise, weak or uncertain economic conditions or similar factors could adversely affect our clients’clients' financial condition which may further reduce our clients’clients' demand for our services.

 

16


We continue toare actively managemanaging our business to respond to the impact of the COVID-19 pandemic. At the onset of the pandemic, we reduced employee headcount and restricted employee travel to only essential business needs.  While headcount has increased and some select non-essential travel is being allowed, most of our employees continue to work remotely from home. We are generally following the requirements recommendation and protocols published by the U.S. Centers for Disease Control and the World Health Organization, and state and local governments.


As a response to the ongoing COVID-19 pandemic, we implemented plans to manage our costs and preserve cash at the onset of the COVID-19 pandemic. We significantly limited the addition of new employees and third party contracted services, eliminated all travel except where necessary to meet customer needs, and limited discretionary spending. At the end of June 2020, we reduced our global workforce by approximately 10% and recorded a $5.0 million restructuring charge. During the fourth quarter of 2020, as a result of and in consideration of the COVID-19 pandemic, and the changing nature of our use of office space for its workforce, we evaluated our existing office leases as part of our transformation initiatives related to real estate. This evaluation resulted in the complete and partial abandonment of certain leased office spaces and an asset impairment charge of $3.9 million for certain lease right-of-use assets and certain property, equipment and leasehold improvements. All client concessions and accounts receivable allowances have been appropriately reflected in our financial statements. To the extent that economic conditions do not continue to improve and our business is again disrupted the reinstatement of cost management actions will be considered. Future asset impairment charges, increases in allowance for doubtful accounts, or restructuring charges will be dependent on the severity and duration of the COVID-19 pandemic.

In light of the evolving health, social, economic and business environment, governmental regulations or mandates, and business disruptions that could occur, the potential impact that the COVID-19 pandemic could have on our financial condition and operating results in the future remains highly uncertain.

 

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, our results of operations and the percentage relationship to revenue before reimbursements of such results (inoperations(in thousands and unaudited):

 

 

Quarter Ended

 

 

Nine Months Ended

 

 

Quarter Ended

 

 

Six Months Ended

 

 

October 1,

 

 

September 25,

 

 

October 1,

 

 

September 25,

 

 

July 1,

July 2,

 

July 1,

July 2,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2022

2021

 

 

2022

2021

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue before reimbursements

 

$

71,400

 

 

 

100.0

%

 

$

57,769

 

 

 

100.0

%

 

$

207,807

 

 

 

100.0

%

 

$

175,587

 

 

 

100.0

%

 

$

74,768

 

 

$

72,997

 

 

$

149,876

 

 

$

136,407

 

Reimbursements

 

 

494

 

 

 

 

 

 

 

148

 

 

 

 

 

 

 

770

 

 

 

 

 

 

 

4,614

 

 

 

 

 

 

 

1,160

 

 

 

200

 

 

 

1,716

 

 

 

276

 

Total revenue

 

 

71,894

 

 

 

 

 

 

 

57,917

 

 

 

 

 

 

 

208,577

 

 

 

 

 

 

 

180,201

 

 

 

 

 

 

 

75,928

 

 

 

73,197

 

 

 

151,592

 

 

 

136,683

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of service:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personnel costs before reimbursable expenses

 

 

43,552

 

 

 

61.0

%

 

 

37,791

 

 

 

65.4

%

 

 

124,312

 

 

 

59.8

%

 

 

117,558

 

 

 

67.0

%

Stock compensation expense

 

 

1,651

 

 

 

 

 

 

 

1,508

 

 

 

 

 

 

 

4,918

 

 

 

 

 

 

 

4,449

 

 

 

 

 

Acquisition-related compensation expense

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

11

 

 

 

 

 

 

 

39

 

 

 

 

 

Acquisition-related non-cash stock compensation expense

 

 

19

 

 

 

 

 

 

 

243

 

 

 

 

 

 

 

378

 

 

 

 

 

 

 

755

 

 

 

 

 

Personnel costs before reimbursable expenses (includes $1,483 and $3,149 and $1,779 and $3,626 of stock compensation expense in the three and six months ended July 1, 2022 and July 2, 2021, respectively)

 

 

44,701

 

 

 

43,227

 

 

 

92,034

 

 

 

84,397

 

Reimbursable expenses

 

 

494

 

 

 

 

 

 

 

148

 

 

 

 

 

 

 

770

 

 

 

 

 

 

 

4,614

 

 

 

 

 

 

 

1,160

 

 

 

200

 

 

 

1,716

 

 

 

276

 

Total cost of service

 

 

45,716

 

 

 

 

 

 

 

39,700

 

 

 

 

 

 

 

130,389

 

 

 

 

 

 

 

127,415

 

 

 

 

 

 

 

45,861

 

 

 

43,427

 

 

 

93,750

 

 

 

84,673

 

Selling, general and administrative costs

 

 

13,613

 

 

 

19.1

%

 

 

12,732

 

 

 

22.0

%

 

 

40,415

 

 

 

19.4

%

 

 

38,042

 

 

 

21.7

%

Non-cash stock compensation expense

 

 

901

 

 

 

 

 

 

 

711

 

 

 

 

 

 

 

2,515

 

 

 

 

 

 

 

1,830

 

 

 

 

 

Amortization of intangible assets

 

 

259

 

 

 

 

 

 

 

247

 

 

 

 

 

 

 

783

 

 

 

 

 

 

 

723

 

 

 

 

 

Restructuring costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,034

 

 

 

 

 

Total selling, general, and administrative expenses

 

 

14,773

 

 

 

 

 

 

 

13,690

 

 

 

 

 

 

 

43,713

 

 

 

 

 

 

 

45,629

 

 

 

 

 

Selling, general and administrative costs (includes $1,235 and $2,168 and $874 and $1,614 of stock compensation expense in the three and six months ended July 1, 2022 and July 2, 2021, respectively)

 

 

15,886

 

 

 

15,553

 

 

 

30,252

 

 

 

28,940

 

Total costs and operating expenses

 

 

60,489

 

 

 

 

 

 

 

53,390

 

 

 

 

 

 

 

174,102

 

 

 

 

 

 

 

173,044

 

 

 

 

 

 

 

61,747

 

 

 

58,980

 

 

 

124,002

 

 

 

113,613

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

11,405

 

 

 

16.0

%

 

 

4,527

 

 

 

7.8

%

 

 

34,475

 

 

 

16.6

%

 

 

7,157

 

 

 

4.1

%

 

 

14,181

 

 

 

14,217

 

 

 

27,590

 

 

 

23,070

 

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(26

)

 

 

 

 

 

 

(22

)

 

 

 

 

 

 

(76

)

 

 

 

 

 

 

(100

)

 

 

 

 

 

 

(28

)

 

 

(25

)

 

 

(56

)

 

 

(50

)

Income from continuing operations before income taxes

 

 

11,379

 

 

 

15.9

%

 

 

4,505

 

 

 

7.8

%

 

 

34,399

 

 

 

16.6

%

 

 

7,057

 

 

 

4.0

%

 

 

14,153

 

 

 

14,192

 

 

 

27,534

 

 

 

23,020

 

Income tax expense

 

 

3,248

 

 

 

4.5

%

 

 

1,362

 

 

 

2.4

%

 

 

9,368

 

 

 

4.5

%

 

 

2,312

 

 

 

1.3

%

 

 

3,938

 

 

 

3,660

 

 

 

6,814

 

 

 

6,120

 

Income from continuing operations (net of taxes)

 

 

8,131

 

 

 

 

 

 

 

3,143

 

 

 

 

 

 

 

25,031

 

 

 

 

 

 

 

4,745

 

 

 

 

 

Income from continuing operations

 

 

10,215

 

 

 

10,532

 

 

 

20,720

 

 

 

16,900

 

Loss from discontinued operations

 

 

 

 

 

 

 

 

 

(157

)

 

 

 

 

 

 

(7

)

 

 

 

 

 

 

(165

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7

)

Net income

 

$

8,131

 

 

 

11.4

%

 

$

2,986

 

 

 

5.2

%

 

$

25,024

 

 

 

12.0

%

 

$

4,580

 

 

 

2.6

%

 

$

10,215

 

 

$

10,532

 

 

$

20,720

 

 

$

16,893

 

Diluted net income per common share

 

$

0.25

 

 

 

 

 

 

$

0.09

 

 

 

 

 

 

$

0.76

 

 

 

 

 

 

$

0.14

 

 

 

 

 

 

$

0.32

 

 

$

0.32

 

 

$

0.65

 

 

$

0.51

 


 

Revenue. We are a global company with operations located in the United States and Western Europe. Our revenue is denominated in multiple currencies, primarily the U.S. Dollar, British Pound and Euro, and as a result is affected by currency exchange rate fluctuations. The impact of currency fluctuations did not have a significant impact on comparisons between the second quarter and ninefirst six months ended October 1, 2021of 2022 and the comparable periods of 2020. Revenue is analyzed2021. In this MD&A, we discuss revenue based on geographical location of engagement team personnel.

 

The following table sets forth revenue by group for the periods indicated (in thousands):

 

 

Quarter Ended

 

 

Nine Months Ended

 

 

Quarter Ended

 

 

Six Months Ended

 

 

October 1,

 

 

September 25,

 

 

October 1,

 

 

September 25,

 

 

July 1,

 

July 2,

 

July 1,

 

July 2,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

S&BT

 

$

27,623

 

 

$

22,217

 

 

$

79,808

 

 

$

65,293

 

 

$

33,390

 

 

$

26,496

 

 

$

63,370

 

 

$

52,255

 

EEA

 

 

38,201

 

 

 

29,710

 

 

 

110,860

 

 

 

92,516

 

 

 

36,774

 

 

 

40,673

 

 

 

74,739

 

 

 

72,865

 

International

 

 

5,576

 

 

 

5,842

 

 

 

17,139

 

 

 

17,778

 

 

 

5,764

 

 

 

6,028

 

 

 

13,483

 

 

 

11,563

 

Revenue from continuing operations before reimbursements

 

$

71,400

 

 

$

57,769

 

 

$

207,807

 

 

$

175,587

 

Total revenue

 

$

75,928

 

 

$

73,197

 

 

$

151,592

 

 

$

136,683

 

 

17


Our Company total Company net revenue from continuing operations, or revenue before reimbursements, increased 24%4%, to $71.4$75.9 million, and 18%11%, to $207.8$151.6 million in the thirdsecond quarter and first ninesix months of 2021, respectively,2022, as compared to $57.8$73.2 million, and $175.6$136.7 million, in the same periods of 2020,2021, respectively. The nine month growth includes a $5.3 million software sale transaction which was recorded inIn the second quarter and first six months of 2022, one customer accounted for 7% of our total revenue. In the second quarter of 2021. Our2021 one customer accounted for 7% of our total Company net revenue excluding this software sale transaction was $202.5 million forand in the first ninesix months of 2021.

Our North America revenue before reimbursements was $65.8 million and $190.7 million in the third quarter and first nine months of 2021 respectively, as compared to $51.9 million and $157.8 million in the third quarter and first nine months of 2020, respectively.  North America revenue excluding the impact of the software sale transaction was $185.4 million for the first nine months of 2021. Net revenue in 2020 and reimbursable expenses in both 2021 and 2020 were affected from the economic disruption of the COVID-19 pandemic as we transitioned to a remote service delivery model throughout the U.S. and Europe. In the third quarter and first nine months of both 2021 and 2020, no customer accounted for more than 5% of our total revenue.

S&BT nettotal revenue was $27.6$33.4 million and $79.8$63.4 million during the thirdsecond quarter and first ninesix months of 2021,2022, respectively, as compared to $22.2$26.5 million and $65.6$52.3 million in the same period of 2021, reflecting the continued sequential growth since the second quarter of 2020.

EEA total revenue was $36.8 million and $74.7 million during the second quarter and first six months of 2022, respectively, as compared to $40.7 million and $72.9 million in the same periods of 2020, respectively, due to2021. EEA total revenue in the improved demand for enterprise digital transformation initiatives experienced since the end of the third quarter of 2020.

EEA net revenue was $38.2 million and $110.9 million during the thirdsecond quarter and first ninesix months of 2021 respectively,included a a $5.3 million software sales transaction. EEA total revenue, excluding the software transaction, was $35.4 million and $67.6 million in the second quarter and first six months of 2021, respectively. The increase in revenue in 2022 as compared to $29.7 million and $92.5 million in the same periods of 2020, respectively, primarily driven by strong growth across all of our practices. In addition, included in net revenue in the first nine months of 2021, was the $5.3 million software sale transaction referenced above.  EEA net revenue excluding the software sale transaction, was $105.6 million forprimarily driven by large ERP and EPM Oracle engagements and continuing growth of our OneStream implementation offerings; partially offset by a decline in our SAP offerings as we are rebuilding our sales pipeline after the completion of large SAP related engagements.

Hackett international total revenue decreased 4% in the second quarter of 2022 and increased 17% during the first ninesix months of 2021.

Hackett international net revenue from continuing operations decreased 5% in both the third quarter and first nine months of 2021,2022, respectively, as compared to the same periods in 2020. Europe continues2021. The increase in total revenue was primarily due to be impacted by lengthened client decision-making from economic uncertainty which has been further impacted by the COVID-19 pandemic. Total CompanyU.S. driven global engagements. The Company’s international nettotal revenue accounted for 8% and 9% of total Company nettotal revenue during both the thirdsecond quarter and first ninesix months of 2021,2022, respectively, and 8% for both of the comparable periods in 2021.

Reimbursements as a percentage of Company total revenue were 1.5% and 1.1% during the second quarter and first six months of 2022, respectively, as compared to 10% for0.3% and 0.2%, in the same periods in 2020.

The low percentage of reimbursements to net revenue is directly attributable to the decreases in travel requirements resulting from the COVID-19 pandemic during 2021 and 2020.2021. Reimbursements are project travel-related expenses passed through to a client with no associated impactoperating margin. We have experienced increased client-related travel since the transition to gross margins or profitability.a remote delivery model, however we do not expect reimbursements to return to pre-pandemic levels.

Cost of Service. Cost of service primarily consists of personnel costs before reimbursable expenses, which includes salaries, benefits and incentive compensation for consultants and subcontractor fees, acquisition-related cash and stock compensation costs, non-cash stock compensation expense, and reimbursable expenses which are travel and other expenses passed through to a client and are associated with projects.

Personnel costs before reimbursable expenses, increased 3% to $43.6$44.7 million and $124.39% to $92.0 million, for the thirdsecond quarter and first ninesix months of 2021,2022 respectively, as compared to $37.8$43.2 million and $117.6$84.4 million duringin the same periods of 2021. The higher costs in 2020, respectively. The increase wasthe six-month period of 2022 were primarily a result of increased hiring activities and increased utilization of subcontractors to support revenue growth, in 2021, as well as increases in incentive compensation accruals commensurate with Company performance. Personnel costs before reimbursable expenses, as a percentage of total revenue before reimbursements, were 61%59% and 60%61% for the thirdsecond quarter and first ninesix months of 2021,2022, respectively, as compared to 65%59% and 67%62% for the same periods of 2020,2021, respectively.

Non-cash stock compensation expense, included in personnel costs before reimbursable expenses was $1.7$1.5 million and $4.9$3.1 million for the thirdsecond quarter and first ninesix months of 2021,2022, respectively, as compared to $1.5$1.8 million and $4.4$3.6 million for the same periods of 2020,2021, respectively. This increase was primarily driven by higher non-cash incentive compensation plans.

Acquisition related non-cash stock compensation expense, included in personnel costs before reimbursable expenses, was $4 thousand and $8 thousand for the second quarter and first six months of 2022, respectively, as compared to $111 thousand and $359 thousand for the same periods of 2021, and 2020respectively, primarily related to equity issued in relation to acquisitions.


Selling, General and Administrative Costs (“SG&A”). SG&A primarily consists of salaries, benefits and incentive compensation for the selling, marketing, administrative and executive employees, non-cash compensation expense, amortization of intangible assets, acquisition related costs and various other overhead expenses.

SG&A costs were $13.6increased 2%, to $15.9 million and $40.45%, to $30.3 million, for the thirdsecond quarter and first ninesix months of 2021,2022, respectively, as compared to $12.7$15.6 million and $38.0$28.9 million for the same periods in 2020,of 2021, respectively. This increase in the costs during the first six months of 2022 was primarily due to higher sales commissions andincreased incentive compensation accruals associatedcommensurate with Company performance, increased Company performance. Theseprofessional fees and increased investments in sales and marketing. SG&A costs as a percentage of total revenue before reimbursements were 19%21% and 20% during both the thirdsecond quarter and first ninesix months of 2021 and 22%2022, as compared to 21% for both of the same two periods in 2020.2021.

AmortizationNon-cash stock compensation expense, included in SG&A, was $0.3$1.2 million and $0.8$2.2 million infor the thirdsecond quarter and first ninesix months of 2021,2022, respectively, as compared to $0.2$0.9 million and $0.7$1.6 million for the same periods of 2021, respectively. The increase is due to higher incentive compensation expense commensurate with Company performance.

18


Amortization expense, included in SG&A, was $10 thousand and $154 thousand million in the second quarter and first six months of 2022, respectively, as compared to $0.3 million and $0.5 million in the same periods in 2020,2021, respectively. The amortization expense relatesrelated to the amortization of the intangible assetsasset acquired in our acquisitions and the buyout of our partner’s joint venture interest in the CGBS Training and Certification Programs in 2017. TheAs of July 1, 2022, the intangible assets will continuerelated to amortize until 2022.the acquisitions have been fully amortized.

Income Taxes. During the thirdsecond quarter and the first ninesix months of 2021,2022, we recorded $3.2$3.9 million and $9.4$6.8 million of income tax expense, respectively, related to certain federal, foreign and state taxes which reflected an effective tax rate of 29%28% and 27%25%, respectively. In the thirdsecond quarter and first ninesix months of 2020,2021, we recorded $1.4$3.7 million and $2.3$6.1 million of income tax expense respectively, related to certain federal, foreign and state taxes which reflected an effective tax rate benefit of 30%26% and expense of 33%27%, respectively.

Liquidity and Capital Resources

As of OctoberJuly 1, 2021,2022, and January 1,December 31, 2021, we had $52.9$61.7 million and $49.5$45.8 million, respectively, classified in cash on the consolidated balance sheets. We currently believe that available funds (including the cash on hand and funds available for borrowing capacity under our credit facility) and cash flows generated by operations will be sufficient to fund our working capital and capital expenditure requirements, including working capital, debt payments, lease obligations and capital expenditures for at least the next twelve months.months and beyond. We may decide to raise additional funds in order to fund expansion, to develop new or further enhance products and services, to respond to competitive pressures, or to acquire complementary businesses or technologies. There is no assurance that additional financing would be available when needed or desired. Our cash requirements have not changed materially from those disclosed in Item 7 included in Part II of our Annual Report on Form 10-K for the year ended December 31, 2021.

The following table summarizes our cash flow activity (in thousands):

 

 

Nine Months Ended

 

 

 

October 1,

 

 

September 25,

 

 

 

2021

 

 

2020

 

Cash flows provided by operating activities

 

$

26,469

 

 

$

31,156

 

Cash flows used in investing activities

 

$

(2,255

)

 

$

(1,498

)

Cash flows used in financing activities

 

$

(20,704

)

 

$

(12,526

)

 

 

Six Months Ended

 

 

 

July 1,

 

 

July 2,

 

 

 

2022

 

 

2021

 

Cash flows provided by operating activities

 

$

24,289

 

 

$

19,651

 

Cash flows used in investing activities

 

$

(2,267

)

 

$

(1,417

)

Cash flows used in financing activities

 

$

(6,100

)

 

$

(15,219

)

Cash Flows from Operating Activities

Net cash provided by operating activities was $26.5$24.3 million during the first ninesix months of 2021,2022, as compared to $31.2$19.7 million during the same period in 2020.2021. In 2022, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items, partially offset by the decrease in accounts payable and accrued liabilities and other accruals primarily due to the payout of vendor payments and the 2021 incentive compensation payments. In 2021, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items and an increase in accounts payable, incentive compensation and income tax accruals, partially offset by an increase in accounts receivable and contract assets.  In 2020, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items, partially offset by decreases in accounts receivable and contract assets and increases in accrued expenses and other liabilities, partially offset by decreases in accounts payable due to the timing of vendor payments and decreases in employee reimbursable expenses resulting from decreased travel.

Cash Flows from Investing Activities

Net cash used in investing activities was $2.3 million and $1.5during the first six months of 2022, as compared to $1.4 million during the first nine months of 2021 and 2020, respectively.same period in 2021. During both periods, cash flows used in investing activities was primarily driven by investments related to investments for the development of our Quantum Leap benchmark technologies. The investing activities in 2022 also included purchases of computer equipment.

Cash Flows from Financing Activities

Net cash used in financing activities was $20.7$6.1 million and $12.5$15.2 million during the first ninesix months 2021of 2022 and 2020,2021, respectively. The usage of cash in the first six months 2022 primarily related to the repurchase of $3.1 million of the Company's common stock and dividend payments of $3.5 million. The usage of cash in the first six months 2021 primarily related to the repurchase of $14.6$12.4 million of the Company’s common stock and the dividend payments of $6.5$3.3 million. The usage of cash in 2020 was primarily related to the dividend payment of $8.9 million and the repurchase of $4.0 million of the Company’s common stock.

As of OctoberJuly 1, 2021,2022, we did not have any outstanding borrowings under our revolving line of credit (the “Revolver”), leaving us with a borrowing capacity of approximately $45.0 million. See Note 7, “Credit Facility,” to our consolidated financial statements included in this Quarterly Report on Form 10-Q for more information.


In the fourth quarter of 2021, the Company expects to pay approximately $21 million to $23 million in cash for employee withholding taxes related to the expected net share settlement of outstanding stock appreciation rights (“SARs”) that expire in February 2022.  We have been advised by the holders of the SARs that they intend to exercise the awards in the fourth quarter of 2021.  In connection with the net share settlement of the SARs, we anticipate issuing an aggregate of approximately 1.5 million shares of common stock.  The maximum number of shares issuable under the SARs as of October 1, 2021 was approximately $2.4 million which number was included in the calculation of diluted weighted average common shares outstanding for the quarter and nine months ended October 1, 2021.   As a result of the net share settlement, we expect diluted weighted average common shares outstanding to decrease in 2022.   The estimated amount of the cash payment and number of shares to be withheld and issued upon the net share settlement of the SARs, as well as the impact on diluted weighted average shares outstanding, depends on the timing of the exercise by the holder and price per share of our common stock at that time. 

Recently Issued Accounting Standards19

For a discussion of recently issued accounting standards, see Note 1, “Basis of Presentation and General Information,” to our consolidated financial statements included in this Quarterly Report on Form 10-Q and Note 1, “Basis of Presentation and General Information,” to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended January 1, 2021.



Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

As of OctoberJuly 1, 2021,2022, our exposure to market risk related primarily to changes in interest rates and foreign currency exchange rate risks.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to the Revolver, which is subject to variable interest rates. TheUnder our current credit agreement which expires in November 2022, the interest rates per annum applicable to loans under the Revolver will be, at our option, equal to either a base rate or a LIBOR rate for one-, two-, three- or nine-month interest periods chosen by us in each case, plus an applicable margin percentage. A 100-basis point increase in our interest rate under our Revolver would not have had a material impact on our results of operations for the quarter and ninesix months ended OctoberJuly 1, 2021.2022. Upon renewal of our credit agreement in November 2022, the interest rate will change from LIBOR to a different benchmark index, which is yet to be determined.

Exchange Rate Sensitivity

We face exposure to adverse movements in foreign currency exchange rates as a portion of our revenue, expenses, assets and liabilities are denominated in currencies other than the U.S. Dollar, primarily the British Pound, the Euro and the Australian Dollar. These exposures may change over time as business practices evolve.

Item 4. Controls and Procedures

Item 4.

Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Changes in Internal Control Over Financial Controls

There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


20


PART II — OTHER INFORMATION

Item 1.

The Company is involved in legal proceedings, claims, and litigation arising in the ordinary course of business not specifically discussed herein. In the opinion of management, the final disposition of such matters will not have a material adverse effect on the Company’s financial position, cash flows or results of operations.

Item 1A. Risk Factors.

Item 1A.

Risk Factors.

For a discussion of our potential risks and uncertainties, see the risk factor below and the information under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended January 1,December 31, 2021 (the “Annual Report”).

 

There have been no material changes to any of the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended January 1,December 31, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

During the quarter ended OctoberJuly 1, 2021,2022, the Company did not repurchase any common stock under the repurchase plan during the quarter ended July 1, 2022, and during the six months ended July 1, 2022 the Company repurchased 11331 thousand shares of its common stock under the repurchase plan approved by the Company's Board of Directors for $2.1 million at an average price of $18.68. During the nine months ended October 1, 2021, the Company repurchased 738 thousand shares of its common stock under the repurchase plan approved by the Company’s Board of Directors for $12.8 million at an average price of $17.35. Directors. As of OctoberJuly 1, 2021,2022, the Company had $11.5$10.6 million of authorization remaining under the repurchase plan.

 

 

 

 

 

 

 

 

 

 

 

Total Number

 

 

Maximum Dollar

 

 

 

 

 

 

 

 

 

 

 

 

of Shares as Part

 

 

Value That May

 

 

 

 

 

 

 

 

 

 

 

 

of Publicly

 

 

Yet be Purchased

 

 

 

 

Total Number

 

 

Average Price

 

 

Announced

 

 

Under the

 

 

Period

 

of Shares

 

 

Paid per Share

 

 

Program

 

 

Program

 

 

Balance as of July 2, 2021

 

 

 

 

$

 

 

 

 

 

$

13,575,132

 

 

July 3, 2021 to July 30, 2021

 

 

21,994

 

 

$

17.98

 

 

 

21,994

 

 

$

13,179,653

 

 

July 31, 2021 to August 27, 2021

 

 

78,095

 

 

$

18.71

 

 

 

78,095

 

 

$

11,718,551

 

 

August 28, 2021 to October 1, 2021

 

 

12,461

 

 

$

19.76

 

 

 

12,461

 

 

$

11,472,333

 

 

 

 

 

112,550

 

 

$

18.68

 

 

 

112,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Number

 

 

Maximum Dollar

 

 

 

 

 

 

 

 

 

of Shares as Part

 

 

Value That May

 

 

 

 

 

 

 

 

 

of Publicly

 

 

Yet be Purchased

 

 

 

Total Number

 

 

Average Price

 

 

Announced

 

 

Under the

 

Period

 

of Shares

 

 

Paid per Share

 

 

Program

 

 

Program

 

Balance as of April 1, 2022

 

 

 

 

 

 

 

 

 

 

$

10,608,767

 

April 2, 2022 to April 29, 2022

 

 

 

 

$

 

 

 

 

 

$

10,608,767

 

April 30, 2022 to May 27, 2022

 

 

 

 

$

 

 

 

 

 

$

10,608,767

 

May 28, 2022 to July 1, 2022

 

 

 

 

$

 

 

 

 

 

$

10,608,767

 

 

 

 

 

 

$

 

 

 

 

 

 

 

 

 

Shares repurchased during the quarter and ninesix months ended OctoberJuly 1, 20212022 under the repurchase plan approved by the Company's Board of Directors do not include 84 thousand shares and 118130 thousand shares, respectively, for a cost of $155$76 thousand and $1.8$2.5 million, respectively, that the Company bought back to satisfy employee net vesting obligations.


21


Item 6. Exhibits

Exhibit No.

Exhibits

Exhibit No.

Exhibit Description

    3.1

 

Second Amended and Restated Articles of Incorporation of the Registrant, as amended (incorporated herein by reference to the Registrant's Form 10-K for the year ended December 29, 2000).

 

 

 

    3.23.2

 

Articles of Amendment of the Articles of Incorporation of the Registrant (incorporated herein by reference to the Registrant's Form 10-K for the year ended December 28, 2007).

 

 

 

    3.3

 

Amended and Restated Bylaws of the Registrant, as amended (incorporated herein by reference to the Registrant's Form 10-K for the year ended December 29, 2000).

 

 

 

    3.43.4

 

Amendment to Amended and Restated Bylaws of the Registrant (incorporated herein by reference to the Registrant's Form 8-K filed on March 31, 2008).

 

 

 

    3.5

 

Amendment to Amended and Restated Bylaws of the Registrant (incorporated herein by reference to the Registrant's Form 8-K filed on January 21, 2015).

 

 

 

  31.1*

 

Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  31.2*

 

Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32*

 

Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS**

 

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.

 

 

 

101.SCH**

 

Inline XBRL Taxonomy Extension Schema

 

 

 

101.CAL**

 

Inline XBRL Taxonomy Extension Calculation Linkbase

 

 

 

101.DEF**

 

Inline XBRL Taxonomy Extension Definition Linkbase

 

 

 

101.LAB**

 

Inline XBRL Taxonomy Extension Label Linkbase

 

 

 

101.PRE**

 

Inline XBRL Taxonomy Extension Presentation Linkbase

 

 

 

104**

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

 

 

* Filed herewith

** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

22


SIGNATURES

*

Filed herewith

**

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

The Hackett Group, Inc.

 

 

 

Date: NovemberAugust 10, 20212022

 

/s/ Robert A. Ramirez

 

 

Robert A. Ramirez

 

 

Executive Vice President, Finance and Chief Financial Officer

 

23

24