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 year ended December 28, 2012, included in the Annual Report on Form 10-K filed by the Company with the SEC. The consolidated result
s of operations for the quarter
and
nine
months ended
September 27
, 2013, 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.
Fair Value
The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable and unbilled revenue, accounts payable, accrued expenses and other liabilities and debt. As of
September 27
, 2013 and December 28, 2012, the carrying amount of each financial instrument, with the exception of debt, 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.
Recently Issued Accounting Standards
In March 2013, the FASB issued guidance on a parent
company
’s accounting for the cumulative translation adjustment upon de-recognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity, which amends current accounting guidance on foreign currency matters. This guidance requires that the entire amount of a cumulative translation adjustment related to an entity’s investment in a foreign entity be released when there has been a: (i) sale of a subsidiary or group of net assets within a foreign entity and the sale represents the substantially complete liquidation of the investment in the foreign entity, (ii) loss of a controlling financial interest in an investment in a foreign entity, and (iii) step acquisition for a foreign entity. This guidance will be effective for the Company beginning in the first quarter of 2014. The Company does not expect the adoption to have a material impact on its consolidated financial statements.
In July 2013, the FASB issued guidance for the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This guidance will be effective for the Company beginning in the first quarter of 2014. The Company does not expect the adoption to have a material impact on its 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.
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
( unaudited)
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.
Dilutive 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:
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|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
September 27,
|
|
September 28,
|
|
September 27,
|
|
September 28,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
|
|
30,626,838
|
|
|
29,400,901
|
|
|
30,483,544
|
|
|
32,405,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested restricted stock units and common stock subject to
|
|
|
|
|
|
|
|
|
|
|
|
|
vesting requirements issued to employees and non-employees
|
|
|
2,159,234
|
|
|
2,057,492
|
|
|
1,676,932
|
|
|
1,858,667
|
Common stock issuable upon the exercise of stock options
|
|
|
10,572
|
|
|
30,246
|
|
|
13,392
|
|
|
48,171
|
Dilutive weighted average common shares outstanding
|
|
|
32,796,644
|
|
|
31,488,639
|
|
|
32,173,868
|
|
|
34,311,890
|
Approximately
0.8
million and
3.9
million shares of common stock equivalents were excluded from the computations of diluted net income per common share for the quarters ended
September 27
, 2013 and
September 28
, 2012, respectively, as their inclusion would have had an anti-dilutive effect on diluted net income per common share. This decrease is attributable to the conversion of
2.9
million performance-based
stock
options, granted during the quarter ended March 30, 2012, into stock appreciation rights (“SARs”), which will be settled in cash, Company stock or any combination thereof, at the C
ompany’s discretion (see Note 6
).
3. Accounts Receivable and Unbilled Revenue, Net
Accounts receivable and unbilled revenue, net, consisted of the following (in thousands):
|
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|
|
|
|
|
|
|
|
|
|
September 27,
|
|
December 28,
|
|
|
2013
|
|
2012
|
Accounts receivable
|
|
$
|
29,686
|
|
$
|
31,260
|
Unbilled revenue
|
|
|
9,266
|
|
|
6,860
|
Allowance for doubtful accounts
|
|
|
(1,585)
|
|
|
(1,251)
|
Accounts receivable and unbilled revenue, net
|
|
$
|
37,367
|
|
$
|
36,869
|
Accounts receivable is net of uncollected advanced billings. Unbilled revenue includes recognized recoverable costs and accrued profits on contracts for which billings had not been presented to clients.
4. Credit Facility
On February 21, 2012, the Company entered into a credit agreement with Bank of America, N.A
.
("Bank of America")
, pursuant to which B
ank of America agreed to lend the Company
up to
$20.0
million pursuant to a revolving line of credit (the “Revolver”) and up to
$30.0
million pursuant to a
five
-year term loan (the “Term Loan
”
)
,
which was used to finance the Company's
$55.0
million tender offer for its shares in March 2012
(
see
Note 7)
.
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
( unaudited)
4. Credit Facility (continued)
On August 27, 2013, the Company amended and restated the credit agreement (the "Credit Agreement") with Bank of America to
finance
a
tender offer for shares
of its common stock
completed
in Octo
ber 2013 (
see
Note 7). The Credit Agreement was amended
and restated
to
:
·
|
provide for up to
additional
$17
.0 million of borrowing under the Term Loan (the "Amended Term Loan" and together with the Revolver, the "Credit Facility") and
|
·
|
extend the maturity date on the Revolver and the
Amended
Term Loan to August 27, 2018, five years from the date of the
amendment and restatement of the
Credit Agreement.
|
As of
September 27
, 2013, the Company had
$
15.0
million principal amount outstanding on the
Amended
Term Loan and a zero balance outstanding on the Revolver.
Subsequent to September 27, 2013, the Company
incurred
an additional $
7.0
million
in
principal amount
of indebtedness under
the Amended
Term Loan
, for a total outstanding
principal
balance of $
22.0 million
as of
October 30
, 2013
(see Note 7)
.
The obligations of the Company under the Credit Facility are guaranteed by the active existing and future material U.S. subsidiaries of the Company and are secured by substantially all of the existing and future property and assets of the Company (subject to certain exceptions).
The interest rates per annum applicable to loans under the Credit Facility 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
September 27
, 2013, the applicable margin percentage was 1.50% per annum based on the consolidated leverage ratio, in the case of LIBOR rate advances, and 1.00% per annum, in the case of base rate advances.
The Term Loan requires amortization principal payments in equal quarterly installments beginning
December 31, 2013
through
August 27, 2018
. The Company
is subject to certain covenants and exceptions, including total consolidated leverage, fixed cost coverage and liquidity requirements, as defined in the Credit Agreement.
5. Discontinued Operations
During the quarter ended March 29, 2013, the Company exited the Oracle ERP implementation business. This transaction was not material to the Company’s
consolidated
financial statements.
6. Stock Based Compensation
During the
nine
months ended
September 27
, 2013, the Company
issued
1,253
,206
restricted
stock units at a weighted average grant-date fair value of
$4.6
7
per share
. As of
September 27
, 2013, the Company had
2,
983,241
restricted stock units outstanding at a weighted average grant-date fair value of
$4.1
6
per share. As of
September
27
, 2013,
$
8.0
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
1.9
years.
As of
September 27
, 2013, the Company had
314
,850
shares of common stock subject to vesting requirements outstanding at a weighted average grant-date fair value of
$3.43
per share. As of
September 27
, 2013,
$0.
2
million 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 less than
one
year.
On February 8, 2012, the Compensation Committee approved the fiscal year 2012 through 2015 equity compensation target for the Company’s Chief Executive Officer and Chief Operating Officer. Under this target, a single performance-based option grant was made to the Company’s Chief Executive Officer and the Chief Operating Officer of
1,912,500
options and
1,004,063
options, respectively, totaling
2,916,563
options
, each
with an exercise price of
$4.00
and a fair value of
$0.96
. One-half of the options vest upon the achievement of at least
50%
growth of pro forma earnings per share and the remaining half vest upon the achievement of at least
50%
pro forma EBITDA growth. Each metric can be achieved at any time during the
six
-year term of the award based on a trailing
twelve
month period measured quarterly.
In March of 2013 these performance-based stock option grants were surrendered by the Company’s Chief Executive Officer and Chief Operating Officer and replaced with
performance-based
SARs, equal to the number of options. The terms and conditions and the specific performance targets
applicable to the SARs
are th
e same to those applicable to the replaced options
, with the exception that the SARs will be settled in cash, stock or any combination thereof, at the Company’s discretion.
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
( unaudited)
6. Stock Based Compensation (continued)
Although the targets for the performance-based SARs have not been achieved as of
September 27
, 2013, the Company has recorded
$0.1
million and
$0.
4
million of compensation expense for the quarter and
nine
months ended
September 27
, 2013, respectively, and
$0.
2
million and
$0.
5
million for the quarter and
nine
months ended
September 28
, 2012, respectively, related to these SARs.
7. Shareholders’ Equity
Tender Offer
On
August 28
, 2013, the Company
announced
a tender offer to purchase up to $35.75 million in value of shares of its common stock, $0.001 par value per share, at a price
not greater than $6.50 nor less than $5.75 per share
, to the seller in cash
,
less any applicable withholding taxes and without interest (the "Offer").
On September 26, 2013, the Company amended the Offer (
the
"Amended Offer") to increase the price range at which it
would
purchase its common stock to a range of not greater than $7.00 nor less than $6.50 per share and to decrease the dollar amount of the Offer to $25.0 million. The Amended Offer was
completed on
October 15
, 2013
, with the Co
mpany purchasing
approximately
1.0
million shares of its common stock at a purchase price of $
7.00
per share, for an aggre
gate cost of approximately $6.9
million, excluding fees and expenses related to the
Amended
Offer
.
The 1.0
million shares represented approximately
3.1
% of the Company's issued and outstanding shares of common stock at that time.
The Company financed the
Amended Offer
from borrowings under the Amended Term Loan
under
its existing Credit Facility (
see
Note 4).
On March 21, 2012, the Company
completed a tender offer to purchase 11.0 million shares of its common stock at a purchase price of $5.00 per share, for an aggregate cost of approximately $55.0 million, excluding fees and expenses relating to the tender offer. The 11.0 million shares accepted for purchase represented approximately 27% of the Company’s issued and outstanding shares of common stock at that time.
Share Repurchase Plan
Under the Company’s share repurchase plan, the Company may buy back shares of its outstanding stock either on the open market or through privately negotiated transactions subject to market conditions and trading restricti
ons.
During the quarter ended September 27, 2013, t
he Company did not buy back any shares
under its share repurchase plan. During t
he
nine months ended September 27, 2013, the
Company
repurchase
d approximately 124 thousand shares of its common stock at an average price of $4.80, for a total cost of approximately $594 thousand
.
As of
September 27
, 2013
,
the Company had
approximately
$5.0 million available under its share repurchase plan authorization.
Subsequent to September 27, 2013, the Company's Board of Directors approved the repurchase of an additional $5.0 million of the Company's common stock, thereby increasing the program size to $85.0 million, and leaving $10.0
million
available under its share repurchase plan authorization.
8. 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.
9. Geographic and Group Information
Revenue is primarily based on the country of the contracting entity and was attributed to the following geographical areas (in thousands):
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|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
September 27,
|
|
September 28,
|
|
September 27,
|
|
September 28,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
47,377
|
|
$
|
44,663
|
|
$
|
136,323
|
|
$
|
131,627
|
International (primarily European countries)
|
|
|
10,539
|
|
|
10,984
|
|
|
34,903
|
|
|
36,067
|
Total revenue
|
|
$
|
57,916
|
|
$
|
55,647
|
|
$
|
171,226
|
|
$
|
167,694
|
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
( unaudited)
9. Geographic and Group Information (continued)
Long-lived assets are attributable to the following geographic areas (in thousands):
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 27,
|
|
December 28,
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
$
|
74,102
|
|
$
|
74,407
|
International (primarily European countries)
|
|
|
|
|
|
|
|
|
15,990
|
|
|
16,270
|
Total long-lived assets
|
|
|
|
|
|
|
|
$
|
90,092
|
|
$
|
90,677
|
As of
September 27
, 2013, foreign assets included
$
15.5
million of goodwill related to the Archstone and REL acquisitions. As of December 28, 2012, foreign assets included
$15.6
million of goodwill related to the REL and Archstone acquisitions and
$0.1
million of intangible assets related to the Archstone acquisition.
The Company’s revenue was derived from the following service groups (in thousands):
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
September 27,
|
|
September 28,
|
|
September 27,
|
|
September 28,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Hackett Group
|
|
$
|
48,689
|
|
$
|
45,429
|
|
$
|
139,960
|
|
$
|
142,657
|
ERP Solutions
|
|
|
9,227
|
|
|
10,218
|
|
|
31,266
|
|
|
25,037
|
Total revenue
|
|
$
|
57,916
|
|
$
|
55,647
|
|
$
|
171,226
|
|
$
|
167,694
|
10. Subsequent Event
s
Subsequent to September 27, 2013, the Company completed a tender offer
in
which it repurchased approximately 1.0 million shares
of its common stock
at a purchase price of $7.00
per share for an aggregate cost of
approximately $6.9 million
, excluding fees and expenses related to the Amended Offer
(
see
Note 7).
Subsequent to September 27, 2013, the Company's Board of Directors approved the repurchase of an additional $5.0 million of the Company's common stock, thereby increasing the program size to $85.0 million, and leaving $10.0
million
available under its share repurchase plan authorization.
On November 5, 2013, the Company announced that its Board of Directors declared an annual cash dividend of $0.10 per common share payable to holders of
record on December 10, 2013. The dividend will be paid on December 20, 2013.
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. 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 impact such forward-looking statements include, among others, 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, 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 and changes in general economic conditions, interest rates and our ability to obtain debt financing through additional borrowings under an amendment to our existing credit facility. An additional description of our risk factors is set forth in our Annual Report on Form 10-K for the year ended December 28, 2012. 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.
OVERVIEW
The Hackett Group, Inc. (“Hackett” or the “Company”) is a leading strategic advisory and technology consulting firm that enables companies to achieve world-class business performance. By leveraging the proprietary Hackett benchmarking database, the world’s leading repository of enterprise business process performance metrics and best practice intellectual capital, our business and technology solutions help clients optimize performance and returns on business transformation investments.
Only Hackett empirically defines world-class performance in sales, general and administrative and supply chain activities with analysis gained through more than 8,500 benchmark studies over 20 years at over 3,500 of the world’s leading companies.
In the following discussion, “The Hackett Group” encompasses our Benchmarking, Business Transformation, Executive Advisory and E
nterprise
P
erformance
M
anagement
("EPM")
groups. “ERP Solutions” encompasses our
SAP
ERP Technology group
.
During the quarter ended March 29, 2013, we exited the Oracle ERP implementation business. The transaction was not material to our
consolidated
financial statements, however, the following information has been recast to exclude activity related to the business.
The following table sets forth, for the periods indicated, our results of operations and the percentage relationship to revenue before reimbursements of such results (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
September 27,
|
|
September 28,
|
|
September 27,
|
|
September 28,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue before reimbursements
|
|
$
|
51,976
|
|
100.0%
|
|
$
|
49,806
|
|
100.0%
|
|
$
|
153,188
|
|
100.0%
|
|
$
|
150,319
|
|
100.0%
|
Reimbursements
|
|
|
5,940
|
|
|
|
|
5,841
|
|
|
|
|
18,038
|
|
|
|
|
17,375
|
|
|
Total revenue
|
|
|
57,916
|
|
|
|
|
55,647
|
|
|
|
|
171,226
|
|
|
|
|
167,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs before reimbursable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses
|
|
|
33,970
|
|
65.4%
|
|
|
31,665
|
|
63.6%
|
|
|
99,375
|
|
64.9%
|
|
|
94,392
|
|
62.8%
|
Reimbursable expenses
|
|
|
5,940
|
|
|
|
|
5,841
|
|
|
|
|
18,038
|
|
|
|
|
17,375
|
|
|
Total cost of service
|
|
|
39,910
|
|
|
|
|
37,506
|
|
|
|
|
117,413
|
|
|
|
|
111,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative costs
|
|
|
13,289
|
|
25.6%
|
|
|
13,922
|
|
28.0%
|
|
|
40,482
|
|
26.4%
|
|
|
43,248
|
|
28.8%
|
Restructuring benefit
|
|
|
—
|
|
|
|
|
(319)
|
|
|
|
|
—
|
|
|
|
|
(319)
|
|
|
Total costs and operating expenses
|
|
|
53,199
|
|
|
|
|
51,109
|
|
|
|
|
157,895
|
|
|
|
|
154,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
4,717
|
|
9.0%
|
|
|
4,538
|
|
9.1%
|
|
|
13,331
|
|
8.7%
|
|
|
12,998
|
|
8.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(92)
|
|
-0.2%
|
|
|
(194)
|
|
-0.3%
|
|
|
(355)
|
|
-0.2%
|
|
|
(451)
|
|
-0.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
4,625
|
|
8.8%
|
|
|
4,344
|
|
8.8%
|
|
|
12,976
|
|
8.5%
|
|
|
12,547
|
|
8.3%
|
Income tax expense
|
|
|
1,926
|
|
3.7%
|
|
|
1,751
|
|
3.5%
|
|
|
5,318
|
|
3.5%
|
|
|
2,265
|
|
1.5%
|
Income from continuing operations
|
|
|
2,699
|
|
5.1%
|
|
|
2,593
|
|
5.3%
|
|
|
7,658
|
|
5.0%
|
|
|
10,282
|
|
6.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations
|
|
|
(64)
|
|
|
|
|
43
|
|
|
|
|
(135)
|
|
|
|
|
(268)
|
|
|
Net income
|
|
$
|
2,635
|
|
5.1%
|
|
$
|
2,636
|
|
5.3%
|
|
$
|
7,523
|
|
4.9%
|
|
$
|
10,014
|
|
6.7%
|
Revenue
. We are a global company with operations located primarily in the United States and Western Europe. Our revenue is denominated in multiple currencies, primarily the U.S. Dollar, British Pound, Euro and Australian Dollar, and as a result is affected by currency exchange rate fluctuations.
Our results
for
the quarters and
nine
months ended
September 27
, 2013 and
September 28
, 2012, were not materially impacted by foreign currency
exchange
rate fluctuations.
Total Co
mpany revenue increased 4% and 2%
for the quarter and
nine
months ended
September 27
, 2013,
respectively,
as compared to the quarter and
nine
months ended
September 28
, 2012. The following table summarizes revenue (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
September 27,
|
|
September 28,
|
|
September 27,
|
|
September 28,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
The Hackett Group
|
|
$
|
48,689
|
|
$
|
45,429
|
|
$
|
139,960
|
|
$
|
142,657
|
ERP Solutions
|
|
|
9,227
|
|
|
10,218
|
|
|
31,266
|
|
|
25,037
|
Total revenue
|
|
$
|
57,916
|
|
$
|
55,647
|
|
$
|
171,226
|
|
$
|
167,694
|
The Hack
ett Group revenue increased 7
%
(increase of 11% domestically, offset by a decrease of 4% internationally)
and
decreased 2
% for the
quarter and
nine
months ended
September 27
, 2013, respectively, as compared to the quarter and
nine
months ended
September 28
, 2012
.
The increase in The Hackett Group's revenue quarter over quarter primarily related to the increased demand in the
Business Transformation and
EPM groups.
The Hackett Group’s international revenue, which is primarily based on the country of the contracting entity, accounted for
18% and 20
%
, respectively
,
of total Company
revenue for the quarter and nine
months ended
September 27, 2013 and 20
% and 22% of total Company revenue for the quarter and
nine
months ended
September 28
, 2012, respectively.
ERP Solutions revenue de
creased
10
% and
increased
25
% for the quarter and
nine
months ended
September 27
, 2013,
respectively,
as compared to the quarter and
nine
months ended
September 28
, 2012
.
The
decrease in revenue for the quarter ended September 27, 2013, as compared to the quarter ended September 28, 2012, reflected the higher than expected growth achieved in the quarter ended September 28, 2012.
During the quarters and
nine
months ended
September 27
, 2013 and
September 28
, 2012, no customer accounted for more than 5% of total Company revenue.
Cost of Service.
Cost of service primarily consists of salaries, benefits and incentive compensation for consultants, subcontractor fees and reimbursable expenses associated with projects. Cost of service before rei
mbursable expenses increased 7
%, or $2.3
million
,
and 5
%, or $5.0
million
,
for the quar
ter and nine
months ended
September 27
, 2013, respectively, as compared to the quarter and
nine
months ended
September 28
, 2012. Total cost of service before reimbursable expenses, as a percentage of revenue before
reimbursements, increased to 65
% for
both
the qua
rter and nine
months ended
September 27, 2013, as compared to 64% and 63
% for the quarter
and nine
months ended
September 28
, 2012, respectively. The increase was primarily due to greater utilization of subcontractors in both our SAP and EPM Oracle groups.
As a percentage of revenue before reimbursements, The Hackett G
roup gen
erated net margins of 37
% in
both
the quarter and
nine
months ended
September 27
, 2013, respectively
, which were unfa
vorably impacted by lower than
planned performance in Europe
. As a percentage of revenue before reimbursements, ERP Solut
ions generated net margins of 32% and 35
%
for
the quarter and nine months ended September 27
, 2013, respectively.
Selling, General and Administrative
. Selling, general and
administrative costs were $
13.3
million and $
40.5
million for the quarter and
nine
months ended
September 27
, 2013,
respectively,
as compared to $
13.9
million
and $
43.2
million for the quarter and
nine
months
September 28
, 2012, respectively. Selling, general and administrative costs as a percentage of revenue before rei
mbursements decreased to 26
% for both the quarter and
nine months ended September 27, 2013, as compared to 28
%
and 29% for
the quarter and
nine
months ended
September 28
,
2012,
respectively,
primarily due to cost containment initiatives implemented in 2013
.
Restructuring benefit
.
As of September 28, 2012, we no longer had any commitments relating to acquisition integration activities. Therefore, d
uring the
quarter ended September 28, 2012, we reversed the existing accrued facilities restructuring liability of $0.3 million
and recorded a corresponding facilities restructuring benefit on the Consolidated Statements of Operations.
Income Taxes.
In the quarter and
nine
months ended
September 27
, 2013, we recorded income tax expense of $
1.9
million and $
5.3
million, respectively, which reflected an estimated annual tax rate of
41.6
% and
41.0
% for certain federal, foreign and state taxes. In the quarter and
nine
months ended
September 28
, 2012, we recorded income tax expense of $
1.8 million and $2.3 million
, respectively, which reflected an estimated annual tax rate of 9.6% and 6.5% for certain foreign and state taxes. The increase in the tax rates in 2013 is the result of the release of the full valuation allowance related to the U.S. federal and state net operating loss carryforwards during 2011 and 2012 and the partial release of the foreign net operating loss carryforwards in 2012.
Liquidity and Capital Resources
As of
September 27
, 2013 and December 28, 2012, we had $
14.9
million and $16.9 million, respectively, classifie
d in cash and cash equivalents o
n the consolidated balance sheets. As of the same dates, we had $
0.5
mil
lion and $0.7
million on deposit with financial institutions that primarily related to certain employee compensation agreements. These deposit accounts have been classified as restricted cash on the consolidated balance sheets.
The following table summarizes our cash flow activity (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 27,
|
|
September 28,
|
|
|
2013
|
|
|
2012
|
Cash flows provided by operating activities
|
|
$
|
9,031
|
|
$
|
11,133
|
Cash flows used in investing activities
|
|
$
|
(1,458)
|
|
$
|
(2,362)
|
Cash flows used in financing activities
|
|
$
|
(9,644)
|
|
$
|
(27,318)
|
Cash Flows from Operating Activities
Net cash provided by operating activities was $
9.0
million and $11.1 million during the nine months ended September 27, 2013 and September 28
, 2012, respectively.
The decrease primarily related to
a decrease in net income as a result of the release of tax
valuation allowances in the first half of 2012, excluding the non-cash activity, and the
timing of vendor payments and incentive award accruals.
Cash Flows from Investing Activities
Net cash used
in investing ac
tivities was $1.5 million and $2.4
million during the
nine
months ended
September 27
, 2013 and
September 28
, 2012, respectively. The usage of cash primarily related to capital expenditures for the development of the Hackett Performance Exchange.
Cash Flows from Financing Activities
On October 15, 2013, we completed a tender offer to purchase
approximately
1.0
million shares of our common st
ock at a purchase price of $7.00
per share, for an agg
regate cost of approximately $6.9
million, excluding fees and expenses related to the tender offer.
On March 21, 2012, we completed a tender offer to purchase 11.0 million shares of our common stock at a purchase price of $5.00 per share, for an aggregate cost of approximately $55.0 million, excluding fees and expenses related to the tender offer.
On February 21, 2012, the Company entered into a credit agreement with Bank of America, N.A
.
("Bank of America"), pursuant to which Bank of America agreed to lend the Company up to $20.0 million pursuant to a revolving line of credit (the “Revolver”) and up to $30.0 million pursuant to a five-year term loan (the “Term Loan”) which was used to finance the Company's $55.0 million tender offer for its shares in March 2012 (
see
Note 7
to the consolidated financial statements
).
On August 27, 2013, the Company amended and restated the credit agreement (the "Credit Agreement") with Bank of America to
provide for up to
an additional $17
.0 million of borrowing availability under the Term Loan (the "Amended Term Loan" and together with the Revolver, the "Credit Facility") and extend the maturity date on the Revolver and the
Amended
Term Loan to August 27, 2018, five years from the date of the
amendment and restatement of the
Credit Agreement.
Additional borrowings under the Amended Term Loan were used to finance our tender offer in October 2013 (see Note 7 to the consolidated financial statements).
Net cash used in financing activities was $
9.8
million and $
27.3
million for the
nine
months ended
September 27
, 2013 and
September 28
, 2012, respectively. The usage of cash during the
nine
months ended
September 27
, 2013,
was
primarily
attributable to
$10.0 million
in repayments of borrowings under the Term Loan.
The usage of cash during the
nine
months ended
September 28
,
2012, was primarily attributable to the funding of the t
e
nder offer
completed in March 2012
, the
re
pay
ment of all borrowings outstanding under the Revolver and repayments of borrowings outstanding under the Term Loan.
On November 5, 2013,
we
announced that our
Board of Directors declared an annual cash dividend of $0.10 per common share payable to holders of
record on December 10, 2013. The dividend will be paid on December 20, 2013.
We currently believe that available funds (including the cash on hand and
$20.0 million in
funds available for borrowing under the
Revolver
), and cash flows generated by operations will be sufficient to fund our working capital and capital expenditure requirements for at least the next twelve months. 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, however, that additional financing will be available when needed or desired.
Contractual Obligations
On August 27, 2013, the Company amended and restated its Credit Agreement to provide for, among other items, up to an additional $17.0 million of borrowings under the Amended Term Loan. For additional information about the Credit Agreement, please see "Liquidity and Capital Resources" above and Note 4, "Credit Facilit
y," to our consolidated financial statements included in this Quarterly Report on Form 10-Q.
Recently Issued Accounting Standards
For a discussion of recently issued accounting standards, please see Note 1, “Basis of Presentation and General Information,” to our consolidated financial statements included in this Quarterly Report on Form 10-Q
on
Note 1, "Basis of Presentation and General Information," to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 28, 2012.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
As of
September 27
, 2013, 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 Credit Facility, which is subject to variable interest rates. The interest rates per annum applicable to loans under the Credit Facility will be, at our option, equal to either a base rate or a LIBOR rate for one-, two-, three- or nine-month in
terest periods chosen by us in each case, plus an applicable margin percentage
. A 100 basis point increase in our interest rate under our Credit Facility would not have had a material impact on our results of operations
for the
quarter and
nine
months ended
September 27
, 2013
.
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.
Our results for the quarter and nine months ended September 27, 2013 were not materially impacted by foreign currency exchange rate fluctuations.
Item 4.
Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal 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 Principal Executive Officer and Principal 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 Controls
There were no changes in our internal controls 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 controls over financial reporting.
PART II — OTHER INFORMATION
Item 1.
Legal Proceedings.
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.
There have been no material changes to any of the risk factors disclosed in the Company’s most recently filed Annual Report on Form 10-K.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
No shares were repurchased during the quarter ended September 27, 2013, under the Company's Board of Director approved repurchase plan. As of September 27, 2013, the Company had
approximately
$5.0 million of remaining authorization under this program.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 June 28, 2013
|
|
-
|
|
$ -
|
|
-
|
|
4,962,525
|
|
June 29, 2013 to July 26, 2013
|
|
-
|
|
$ -
|
|
-
|
|
4,962,525
|
|
July 27, 2013 to August 23, 2013
|
|
-
|
|
$ -
|
|
-
|
|
4,962,525
|
|
August 24, 2013 to September 27, 2013
|
|
-
|
|
$ -
|
|
-
|
|
4,962,525
|
|
|
|
-
|
|
$ -
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to September 27, 2013, the Company's Board of Directors approved the repurchase of an additional $5.0 million of the Company's common stock, thereby increasing the program size to $85.0 million, and leaving $10.0
million
available under its share repurchase plan authorization.
On October 15, 2013, the Company
completed a tender offer to purchase approximately 1.0 million shares of its common stock at a purchase price of $7.00 per share, for an aggregate cost of approximately $6.9 million, excluding fees and expenses related to the tender offer.
Item 6.
Exhibits.
See Index to Exhibits on page
19
, which is incorporated herein by reference.
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:
November 6
, 2013
|
/s/ Robert A. Ramirez
|
|
Robert A. Ramirez
|
|
Executive Vice President, Finance and Chief Financial Officer
|
INDEX TO EXHIBITS
|
|
|
|
Exhibit No.
|
Exhibit Description
|
10.1
|
Amended and Restated Credit Agreement, dated as of August 27, 2013, among The Hackett Group, Inc., the material domestic subsidiaries of Hackett named on the signature pages thereto and Bank of America, N.A., as lender (incorporated by reference to the Registrant's Form 8-K filed on August 29, 2013).
|
|
|
31.1
|
Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (exhibits filed herewith).
|
|
|
31.2
|
Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (exhibits filed herewith).
|
|
|
32
|
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (exhibits filed herewith).
|
|
|
101.INS
|
XBRL Instance Document
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase
|
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase
|