The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
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, 2018, included in the Annual Report on Form 10-K filed by the Company with the SEC on March 8, 2019. The consolidated results of operations for the quarter ended March 29, 2019, 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
We generate substantially all of our revenue from providing professional services to our clients. We also generate revenue from software licenses, software support, maintenance and subscriptions to our executive and best practices advisory programs. A single contract could include one or multiple performance obligations. For those contracts that have multiple performance obligations, we allocate the total transaction price to each performance obligation based on its relative standalone selling price. We determine 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 our customers, in an amount that reflects the consideration we expect 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 satisfy the performance obligations.
We typically satisfy our performance obligations for professional services over time as the related services are provided. The performance obligations related to software support, maintenance and subscriptions to our 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.
We generate our revenue under four types of billing arrangements: fixed-fee (including software license revenue); time-and-materials; executive and best practice advisory services; and software sales, maintenance and support.
In fixed-fee billing arrangements, which would also include contracts with capped fees, we agree to a pre-established fee or fee cap in exchange for a predetermined set of professional services. We set the fees based on our estimates of the costs and timing for completing the engagements. We generally recognize 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 our 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 mile-stone driven, with net thirty-day terms.
Time-and-material billing arrangements require the client to pay based on the number of hours worked by our consultants at agreed upon hourly rates. We recognize revenue under time-and-material arrangements as the related services or goods are provided, using the right to invoice practical expedient which allows us 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)
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 service 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.
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 is sold simultaneously. The transaction price is the Company’s agreed-upon percentage of the software license or maintenance amount in the contract with 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.
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 our customer contracts vary. The agreements entered into in connection with a project, whether time-and-materials based or fixed-fee or capped-fee based, typically allow clients to terminate early due to breach or for convenience with 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 unbilled services or deferred revenue in the accompanying consolidated balance sheets. Revenue recognized for services performed but not yet billed to clients are recorded as unbilled services. 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 unbilled services. Client prepayments are classified as deferred revenue and recognized over future periods as earned in accordance with the applicable engagement agreement. See Note 3 for the accounts receivable and unbilled revenue balances and see Note 4 for the deferred revenue balances. During the quarter ended March 29, 2019, the Company recognized $4.0 million of revenue as a result of changes in deferred revenue liability balance, as compared to $4.8 million for the quarter ended March 30, 2018.
The following table reflects the Company’s disaggregation of total revenue including reimbursable expenses for the quarters ended March 29, 2019 and March 30, 2018:
|
|
Quarter Ended
|
|
|
|
March 29,
|
|
|
March 30,
|
|
|
|
2019
|
|
|
2018
|
|
Consulting
|
|
$
|
61,831
|
|
|
$
|
65,327
|
|
Software License Sales
|
|
|
539
|
|
|
|
712
|
|
Revenue before reimbursements from continuing operations
|
|
$
|
62,370
|
|
|
$
|
66,039
|
|
Capitalized Sales Commissions
Sales commissions earned by our 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. We 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 condensed consolidated statements of operations. As of December 28, 2018, and December 29, 2017, the Company had $1.2 million and $1.4 million, respectively, of deferred commissions, of which $0.1 million and $0.3 million was amortized during the first three months of each respective year.
No impairment loss was recognized relating to the capitalization 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.
Discontinued Operations
The Company’s European REL Working Capital group’s sales had declined over the past several years as European countries have experienced continued economic recoveries and improved cash balances. Companies are holding high cash reserves which drove working capital project sales of this group down across all of Europe. The REL practice had a limited pipeline of potential client engagements; therefore, the Company made the strategic decision to exit the business at the end of fiscal year 2018.
The following table includes the carrying amounts of the major classes of assets and liabilities presented in discontinued operations in our consolidated balance sheet:
|
|
March 29,
|
|
|
December 28,
|
|
|
|
2019
|
|
|
2018
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Accounts receivable and unbilled revenue (no allowance as of
March 29, 2019 and December 28, 2018)
|
|
$
|
—
|
|
|
$
|
137
|
|
Assets related to discontinued operations
|
|
$
|
—
|
|
|
$
|
137
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities (1)
|
|
$
|
669
|
|
|
$
|
2,300
|
|
Liabilities related to discontinued operations
|
|
$
|
669
|
|
|
$
|
2,300
|
|
|
|
|
|
|
|
|
|
|
(1) The balance at March 29, 2019 and December 28, 2018, primarily represents the accrued severance related to terminated employees.
|
|
The following table presents the gain and loss results for the Company’s discontinued operations:
|
|
Quarter Ended
|
|
|
|
March 29,
|
|
|
March 30,
|
|
|
|
2019
|
|
|
2018
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Revenue before reimbursements
|
|
$
|
92
|
|
|
$
|
1,436
|
|
Reimbursements
|
|
|
17
|
|
|
|
190
|
|
Total revenue
|
|
|
109
|
|
|
|
1,626
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of service:
|
|
|
|
|
|
|
|
|
Personnel costs before reimbursable expenses
|
|
|
39
|
|
|
|
1,037
|
|
Reimbursable expenses
|
|
|
17
|
|
|
|
190
|
|
Total cost of service
|
|
|
56
|
|
|
|
1,227
|
|
Selling, general and administrative costs
|
|
|
(5
|
)
|
|
|
359
|
|
Total costs and operating expenses
|
|
|
51
|
|
|
|
1,586
|
|
Income from discontinued operations before income taxes
|
|
|
58
|
|
|
|
40
|
|
Income tax expense (benefit)
|
|
|
13
|
|
|
|
(26
|
)
|
Gain from discontinued operations
|
|
$
|
45
|
|
|
$
|
66
|
|
10
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
and General Information (continued)
Fair Value
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable and unbilled revenue, accounts payable, accrued expenses and other liabilities and debt. As of March 29, 2019 and December 28, 2018, 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.
Business Combinations
The Company applies the provisions of ASC 805, Business Combinations, in the accounting for its acquisitions, which requires recognition of the assets acquired and the liabilities assumed at their acquisition date fair values, separately from goodwill. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the tangible and identifiable intangible assets acquired and liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, that may be up to 12 months from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with a corresponding adjustment to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, the impact of any subsequent adjustments is included in the consolidated statements of operations.
Recently Issued Accounting Standards
In February 2016, the FASB issued guidance on leases which supersedes the current lease guidance. The core principle establishes a right-of-use model (ROU) that
requires lessees to recognize the assets and liabilities that arise from nearly all leases on the balance sheet. Accounting applied by lessees has remain largely consistent with previous guidance. The Company adopted the amended guidance effective December 29, 2018, including interim periods within this fiscal year, using the effective date as the date of initial application.
Consequently, on adoption, the Company recognized additional operating liabilities of approximately $9.0 million, with corresponding ROU assets of approximately the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. The amended guidance did not have a material impact on the Company’s consolidated statements of comprehensive income or its consolidated statements of cash flows. See Note 5 for additional information.
In July 2018, the FASB issued ASU 2018-09, which affects a wide variety of Topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. The amendments in the ASU represent changes that clarify, correct errors in, or make minor improvements to the Codification. Ultimately, the amendments make the Codification easier to understand and apply by eliminating inconsistencies and providing clarifications. Some of the amendments in this ASU do not require transition guidance and are effective upon issuance of the ASU, while many of the amendments have transition guidance with effective dates for annual periods beginning after December 15, 2018. The adoption of the amendments in this ASU did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, which eliminates Step 2 from the goodwill impairment test. For public companies, this update will be effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual goodwill impairment test with a measurement date after January 1, 2017. The Company does not expect the guidance to 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.
11
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.
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
|
|
|
|
March 29,
|
|
|
March 30,
|
|
|
|
2019
|
|
|
2018
|
|
Basic weighted average common shares outstanding
|
|
|
29,682,888
|
|
|
|
29,089,356
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Unvested restricted stock units and common stock subject to vesting requirements issued to employees and non-employees
|
|
|
239,047
|
|
|
|
370,339
|
|
Common stock issuable upon the exercise of stock options and SARs
|
|
|
2,372,515
|
|
|
|
2,355,118
|
|
Dilutive weighted average common shares outstanding
|
|
|
32,294,450
|
|
|
|
31,814,813
|
|
Approximately 4 thousand shares and 21 shares of common stock equivalents were excluded from the computations of diluted net income per common share for the quarters ended March 29, 2019 and March 30, 2018, respectively, as their inclusion would have had an anti-dilutive effect on diluted net income per common share.
3. Accounts Receivable and Unbilled Revenue, Net
Accounts receivable and unbilled revenue, net, consisted of the following (in thousands):
|
|
March 29,
|
|
|
December 28,
|
|
|
|
2019
|
|
|
2018
|
|
Accounts receivable
|
|
$
|
37,140
|
|
|
$
|
35,794
|
|
Unbilled revenue
|
|
|
20,062
|
|
|
|
20,454
|
|
Allowance for doubtful accounts
|
|
|
(1,190
|
)
|
|
|
(1,441
|
)
|
Accounts receivable and unbilled revenue, net
|
|
$
|
56,012
|
|
|
$
|
54,807
|
|
Accounts receivable is net of uncollected advanced billings. Unbilled revenue represents revenue for services performed that have not been invoiced.
4. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
|
|
March 29,
|
|
|
December 28,
|
|
|
|
2019
|
|
|
2018
|
|
Accrued compensation and benefits
|
|
$
|
8,286
|
|
|
$
|
5,012
|
|
Accrued bonuses
|
|
|
389
|
|
|
|
5,064
|
|
Accrued dividend payable
|
|
|
—
|
|
|
|
5,407
|
|
Acquisition earnout accruals
|
|
|
1,359
|
|
|
|
2,559
|
|
Deferred revenue
|
|
|
11,216
|
|
|
|
8,259
|
|
Accrued sales, use, franchise and VAT tax
|
|
|
2,221
|
|
|
|
3,077
|
|
Non-cash stock compensation accrual
|
|
|
525
|
|
|
|
872
|
|
Income tax payable
|
|
|
1,167
|
|
|
|
1,769
|
|
Other accrued expenses
|
|
|
1,776
|
|
|
|
2,479
|
|
Total accrued expenses and other liabilities
|
|
$
|
26,939
|
|
|
$
|
34,498
|
|
12
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
5. Leases
As described in Note 1 “Recently Issued Accounting Standards”, effective December 29, 2018, the Company adopted the new lease accounting standard. 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 and 10 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 or clauses: 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 our lease liability nor our right of use asset.
The components of lease expense were as follows (in thousands):
Operating lease cost
|
|
$
|
690
|
|
|
|
|
|
|
Total net lease costs
|
|
$
|
690
|
|
The weighted average remaining lease term is 5.4 years. Assuming the Company exercises its opt-out option in year 5 for the London office lease, the weighted average remaining lease term would be 3.3 years. The
weighted average discount rate utilized is 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 three months ended March 29, 2019, the Company paid $0.7 million from operating cash flows for operating leases.
Future minimum lease payments under non-cancellable operating leases as of March 29, 2019, were as follows (in thousands):
2019 (excluding the three months ended March 29, 2019
|
|
$
|
1,978
|
|
2020
|
|
|
2,067
|
|
2021
|
|
|
1,622
|
|
2022
|
|
|
1,380
|
|
2023
|
|
|
501
|
|
2024 and thereafter
|
|
|
1,726
|
|
Total lease payments
|
|
|
9,274
|
|
Less imputed interest
|
|
|
(973
|
)
|
Total
|
|
$
|
8,301
|
|
As of March 29, 2019, the Company does not have any additional operating leases that have not yet commenced.
6. Credit Facility
In February 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 $47.0 million pursuant to a term loan (the “Term Loan”, and together with the Revolver, the “Credit Facility”). The Company has fully utilized and repaid its Term Loan.
On May 9, 2016, the Company amended and restated the credit agreement with Bank of America (the “Credit Agreement”) to:
|
•
|
Provide for up to an additional $25.0 million of borrowing under the Revolver for a total borrowing capacity of $45.0 million; and
|
|
•
|
Extend the maturity date on the Revolver to May 9, 2021.
|
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% pledge of the capital stock of the U.S. Subsidiaries, and a 66% pledge of the capital stock of Hackett’s direct foreign subsidiaries (subject to certain exceptions).
13
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
6. Cr
edit Facility (continued)
During the quarter ended March 29, 2019, the Company borrowed $1.0 million under the Revolver,
and had a balance of $7.5 million outstanding as of March 29, 2019.
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 March 29, 2019, the applicable margin percentage was 1.50% per annum based on the consolidated leverage ratio, in the case of LIBOR rate advances, and 0.75% per annum, in the case of base rate advances. The interest rate as of March 29, 2019, was 4.0%.
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 March 29, 2019, the Company was in compliance with all covenants.
7. Stock Based Compensation
During the three months ended March 29, 2019, the Company issued 407,531 restricted stock units at a weighted average grant-date fair value of $18.57 per share. As of March 29, 2019, the Company had 1,001,781 restricted stock units outstanding at a weighted average grant-date fair value of $17.36 per share. As of March 29, 2019, $14.3 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 2.6 years.
As of March 29, 2019, the Company had 174,733 shares of common stock subject to vesting requirements outstanding at a weighted average grant-date fair value of $19.82 per share. As of March 29, 2019, $1.8 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 approximately 2.1 years.
Forfeitures for all of the Company’s outstanding equity are recognized as incurred.
8. Shareholders’ Equity
Stock Appreciation Rights (“SARs”)
As of March 29, 2019, the Company had 2.9 million SARs outstanding with an exercise price of $4.00 per share and an expiration date of February 2022.
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 three months ended March 29, 2019, the Company repurchased 101 thousand shares of its common stock at an average price of $15.99 per share for a total cost of $1.6 million.
As of March 29, 2019, the Company had a total authorization remaining of $5.3 million under its repurchase plan with a
total authorization of $142.2 million. Subsequent to March 29, 2019, the Company repurchased an additional 82 thousand shares of its common stock at an average price of $15.56 per share for a total cost of $1.3 million.
During the quarter ended March 30, 2018, the Company repurchased 53 thousand shares of its common stock at an average price of $18.33
per share for a total cost of $1.0 million.
The shares repurchased under the share repurchase plan during the quarter ended March 29, 2019, do not include 123
thousand shares which the Company bought back to satisfy employee net vesting obligations for a cost of $2.4 million.
During the quarter ended March 30, 2018, the Company bought back 175 thousand
shares at a cost of $3.0 million to satisfy employee net vesting obligations.
Dividend Program
In 2018, the Company increased the annual dividend from $0.30 per share to $0.34 per share to be paid on a semi-annual basis. During the first quarter of 2019, the Company paid its second semi-annual dividend payment to shareholders, which was declared in 2018 of $5.4 million.
Also during the quarter ended March 29, 2019, the Company increased its annual dividend to $0.36 per share to be paid on a semi-annual basis.
Subsequent to March 29, 2019, the Company declared its semi-annual dividend of $0.18 per share for shareholders of record as of June 28, 2019, which is to be paid on July 10, 2019.
These dividends were paid from U.S. domestic sources and are accounted for as an increase to accumulated deficit.
14
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
9.
Transactions with Related Parties
During the three months ended March 29, 2019, the Company bought back 28 thousand shares of its common stock from members of its Board of Directors for $0.5 million, or $16.25 per share.
10. 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.
11. 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
|
|
|
|
March 29,
|
|
|
March 30,
|
|
|
|
2019
|
|
|
2018
|
|
Revenue before reimbursements:
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
52,537
|
|
|
$
|
53,525
|
|
International (primarily European countries)
|
|
|
9,833
|
|
|
|
12,514
|
|
Revenue before reimbursements
|
|
$
|
62,370
|
|
|
$
|
66,039
|
|
Long-lived assets are attributable to the following geographic areas (in thousands):
|
|
March 29,
|
|
|
December 28,
|
|
|
|
2019
|
|
|
2018
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
89,404
|
|
|
$
|
88,317
|
|
International (primarily European countries)
|
|
|
19,283
|
|
|
|
19,344
|
|
Total long-lived assets
|
|
$
|
108,687
|
|
|
$
|
107,661
|
|
As of March 29, 2019 and December 28, 2018, foreign assets included $14.6 million and $14.5 million, respectively, of goodwill related to acquisitions.
In the following table, Strategy and Business Transformation Group (S&BT) includes the results of our Executive Advisory Programs, Benchmarking Services, and Business Transformation Practices. ERP, EPM and Analytics Solutions (EEA) includes the results of our Oracle EEA and SAP Solutions Practices (in thousands):
|
|
Quarter Ended
|
|
|
|
March 29,
|
|
|
March 30,
|
|
|
|
2019
|
|
|
2018
|
|
S&BT
|
|
$
|
33,270
|
|
|
$
|
35,139
|
|
EEA
|
|
|
29,100
|
|
|
|
30,900
|
|
Revenue before reimbursements
|
|
$
|
62,370
|
|
|
$
|
66,039
|
|
15
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1
2
.
Acquisitions
Jibe Consulting, Inc.
Effective May 1, 2017, the Company acquired certain assets and liabilities of Jibe Consulting, Inc. (“Jibe”), a U.S.-based Oracle E-Business Suite (“EBS”) and Oracle Cloud Business Application implementation firm. The acquisition of Jibe enhances the Company’s Cloud Application capabilities and strongly complements its market leading EPM transformation and technology implementation group.
The sellers’ purchase consideration was $5.4
million in cash, not subject to vesting, and $3.6 million in shares of the Company’s common stock, subject to vesting. The initial cash consideration was funded from borrowings under the Revolver. The equity that was issued has a four-year vesting term and will be recorded as compensation expense over the respective vesting period. In addition, the sellers had the opportunity to earn an additional $6.6 million in cash and $4.4 million in Company common stock based on the achievement of the performance targets over the 18 month period following closing for a total of $11.0 million in contingent consideration, a portion of which will be allocated to key employees in both cash and Company stock.
The cash related to the contingent consideration, which is to be paid to the sellers, is not subject to service vesting and has been accounted for as part of the purchase consideration. The cash related to the contingent consideration, which is to be paid to the key employees, is subject to service vesting and is being accounted for as compensation expense. Due to the projected earnout results, during the first quarter of 2019, the acquisition-related purchase consideration and compensation expense allocated to both the selling shareholders and key employees resulted in a benefit. During the quarter ended March 29, 2019, the Company recorded a benefit of $1.1 million
in earnings from operations on the consolidated statement of operations related to the contingent earnout liability for the Jibe acquisition. During the quarter ended March 29, 2019, the Company recorded, in personnel costs before reimbursements on the consolidated statement of operations,
a benefit of $0.1 million, respectively, related to the key employees’ portion of the cash related contingent consideration. Management utilizes the most recent financial results from which to base these estimates. These contingent liabilities have been recorded in the consolidated balance sheet as current accrued expenses and other liabilities.
The equity related to the contingent consideration will be subject to service vesting and will be recorded as compensation expense over the respective vesting period. As mentioned above, due to the projected results, the Company recorded a $0.3 million benefit during the quarter ended March 29, 2019, of
acquisition-related non-cash stock
compensation in cost of sales on the consolidated statement of operations.
Aecus Limited
Effective April 6, 2017, the Company acquired 100% of the equity of the U.K.-based operations of Aecus Limited (“Aecus”), a European Outsourcing Advisory and RPA consulting firm. This acquisition complements the global strategy and business transformation offerings of the Hackett Group.
The sellers’ purchase consideration was £3.2 million in cash. The closing purchase consideration was funded with the Company’s available funds. In addition, the sellers had the opportunity to earn an additional £2.4 million in contingent consideration in cash based on the achievement of performance targets achieved over the next 12 months, and key personnel had the opportunity to earn £0.3 million in cash and £0.3 million in the Company’s common stock. The contingent consideration for the selling shareholders and key personnel is subject to performance and service periods and will be accounted for as compensation expense and in non-current accrued expenses and other liabilities. During the first quarter of 2018, the acquisition related compensation expense for Aecus resulted in a benefit due to the estimated results of the contingent earnout calculation.
During the first quarter of 2018, the Company recorded a £0.5 million compensation benefit from acquisition-related cash and non-cash compensation for the cash portion of the contingent consideration.
As of fiscal year end 2018, the cash portion of the contingent earnout had been fully accounted for.
Chartered Institute of Management Accountants
Effective October 2017, Hackett-REL, Ltd., a subsidiary of the Company located in the United Kingdom, acquired The Chartered Institute of Management Accountants' share of the Certified GBS Professionals program. This acquisition allows those studying under the program and their employers to benefit further from the Company’s sector specific expertise and focus on the growing global business services market. Purchase consideration was $2.0 million in cash and was funded with the Company’s available funds. Also in connection with this transaction, the Alliance and Program Development Agreement between the Company, Hackett-REL, Ltd. and The Chartered Institute of Management Accountants was terminated.
16