The Hackett Group(HCKT) - 2019 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Financial Statements This section presents the unaudited consolidated financial statements, including balance sheets, statements of operations, cash flows, and detailed notes Consolidated Balance Sheets Total assets increased to $191.4 million from $180.8 million, driven by cash and new operating lease right-of-use assets, with shareholders' equity also growing Consolidated Balance Sheet Highlights (in thousands) | Account | June 28, 2019 | December 28, 2018 | | :--- | :--- | :--- | | Total Assets | $191,369 | $180,752 | | Cash | $16,682 | $13,808 | | Goodwill, net | $84,213 | $84,207 | | Operating lease right-of-use assets | $7,613 | $— | | Total Liabilities | $60,168 | $57,162 | | Long-term debt | $4,500 | $6,500 | | Operating lease liabilities (current & long-term) | $7,613 | $— | | Total Shareholders' Equity | $131,201 | $123,590 | Consolidated Statements of Operations Total revenue decreased to $73.5 million from $74.5 million in Q2 2019, with net income significantly declining to $7.0 million from $11.5 million due to a contingent consideration liability swing Q2 and Six-Month Performance (in thousands, except per share data) | Metric | Q2 2019 | Q2 2018 | Six Months 2019 | Six Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $73,521 | $74,527 | $140,676 | $145,634 | | Income from Operations | $9,759 | $14,243 | $18,349 | $22,523 | | Net Income | $6,989 | $11,521 | $14,083 | $18,888 | | Diluted EPS | $0.22 | $0.36 | $0.44 | $0.59 | - A key driver for the decrease in operating and net income was the change in 'Acquisition-related contingent consideration liability,' which was a $45 thousand expense in Q2 2019 compared to a $4.6 million benefit in Q2 2018[11] Consolidated Statements of Cash Flows Net cash provided by operating activities increased to $18.0 million for the six months ended June 28, 2019, with cash primarily used for dividends and stock repurchases Six-Month Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 28, 2019 | Six Months Ended June 29, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $18,032 | $14,833 | | Net cash used in investing activities | $(2,819) | $(5,161) | | Net cash used in financing activities | $(12,432) | $(13,918) | - Key financing activities for the first six months of 2019 included $5.4 million in dividend payments, $5.4 million in common stock repurchases, and a net repayment of $2.0 million on borrowings[17][121] Notes to Consolidated Financial Statements These notes detail accounting policies, including the adoption of a new lease standard, revenue disaggregation, discontinued operations, share repurchases, and segment performance - The company adopted a new lease accounting standard (ASU 2016-02) effective December 29, 2018, resulting in the recognition of operating lease right-of-use assets and liabilities of approximately $9.0 million[51][62] - The company strategically exited its European REL Working Capital business at the end of fiscal 2018 due to declining sales and a limited project pipeline[43] Revenue Before Reimbursements by Segment (in thousands) | Segment | Q2 2019 | Q2 2018 | Six Months 2019 | Six Months 2018 | | :--- | :--- | :--- | :--- | :--- | | S&BT | $35,718 | $37,816 | $68,988 | $72,955 | | EEA | $32,258 | $30,890 | $61,358 | $61,790 | | Total | $67,976 | $68,706 | $130,346 | $134,745 | - During the first six months of 2019, the company repurchased 193 thousand shares for $3.1 million under its share repurchase plan, with an additional $3.9 million remaining authorized for future repurchases[76] - The annual dividend was increased to $0.36 per share for 2019, with a semi-annual dividend of $0.18 per share ($5.8 million total) declared in Q2 2019[79] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the Q2 net revenue decline to international market weakness, partially offset by EEA segment growth, while maintaining strong operating cash flow Segment Net Revenue Performance (Q2 2019 vs Q2 2018) | Segment | Q2 2019 Revenue (in millions) | Change vs Q2 2018 | Key Driver | | :--- | :--- | :--- | :--- | | S&BT | $35.7 | -5.6% | Weaker international revenue (-21%) due to Brexit uncertainty | | EEA | $32.3 | +4.4% | Strong Oracle Cloud revenue growth | - Personnel costs as a percentage of revenue before reimbursements remained stable at around 60-61%, with cost decreases resulting from lower use of subcontractors and reduced incentive compensation accruals[107] - The company believes available funds, including $16.7 million in cash and $40.5 million in remaining revolver capacity, are sufficient to fund working capital and capital expenditures for at least the next twelve months[117][122] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate fluctuations on its variable-rate credit facility and foreign currency exchange rate movements, with interest rate exposure deemed immaterial - Interest rate risk is linked to the variable-rate Revolver, but management states a 100-basis point increase would not have a material impact on results[125] - The company is exposed to foreign currency risk from revenue and expenses denominated in the British Pound, Euro, and Australian Dollar[126] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 28, 2019[127] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[128] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, unregistered sales of equity securities, and a list of exhibits filed with the Form 10-Q Legal Proceedings The company is involved in routine legal proceedings, which management does not expect to have a material adverse effect on financial condition or results - Management believes that the final disposition of ongoing legal proceedings, claims, and litigation will not have a material adverse effect on the company's financials[129] Risk Factors No material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 28, 2018, have occurred - No material changes to risk factors have occurred since the filing of the 2018 Annual Report on Form 10-K[130] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2019, the company repurchased 92,354 shares for approximately $1.4 million, with $3.9 million remaining authorized for future repurchases Q2 2019 Share Repurchase Activity | Metric | Value | | :--- | :--- | | Total Shares Repurchased | 92,354 | | Average Price Paid per Share | $15.59 | | Total Cost (in millions) | ~$1.4 | | Remaining Authorization (in millions) | $3.9 | Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents and required CEO and CFO certifications - The filing includes CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, as well as XBRL data files[135]