HACKETT GROUP INC

Previous wording

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 (the "Exchange Act"). We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking 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, changes in worldwide and U.S. economic conditions that impact business confidence and the demand for our products and services, 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, the impact of the geopolitical conflict involving Russia and Ukraine and in the Middle East on our business and changes in general economic conditions, interest rates and our ability to obtain additional debt financing if needed. An additional description of our risk factors is described in Part I – Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended Decemeber 29, 2023. 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. 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.

Current wording

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 (the "Exchange Act"). We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking 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, changes in worldwide and U.S. economic conditions that impact business confidence and the demand for our products and services, 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, the impact of the geopolitical conflict involving Russia and Ukraine and in the Middle East on our business and changes in general economic conditions, interest rates and our ability to obtain additional debt financing if needed. An additional description of our risk factors is described in Part I – Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 29, 2023. 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. 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.

Previous wording

Revenue. We are a global company with operations in our primary markets 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 three months ended March 29, 2024 and the three months ended March 31, 2023. In this MD&A, we discuss revenue based on geographical location of engagement team personnel.

Current wording

Revenue. We are a global Company with operations in our primary markets 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 first six months of 2024 and the same comparable periods of 2023. In this MD&A, we discuss revenue based on geographical location of engagement team personnel.

Previous wording

Our Company total revenue was $77.2 million during the first three months of 2024, as compared to $71.2 million in the same period in 2023. In the first three months of 2024 and 2023, one customer accounted for 9% and 5% of our total Company revenue, respectively.

Current wording

Our Company total revenue was $77.7 million and $154.8 million during the second quarter and first six months of 2024, respectively, as compared to $77.1 million and $148.3 million in the same periods in 2023, respectively. In the second quarter and first six months of 2024, one customer accounted for 13% and 11%, respectively, of our total revenue. In both the second quarter and first six months of 2023, one customer accounted for 5% of our total Company revenue.

Previous wording

Global S&BT total revenue was $40.9 million and $42.3 million during the first three months of 2024 and 2023, respectively. This segment has been impacted by slowing economic growth resulting in extended client decision making and increased market volatility in our business transformation engagements, particularly impacting our e-procurement offerings.

Current wording

Global S&BT total revenue was $42.3 million and $83.2 million during the second quarter and first six months of 2024, respectively, as compared to $43.6 million and $86.0 million in the same periods of 2023, respectively. This segment has been impacted by extended client decision making in our business transformation engagements, particularly impacting our e-procurement offerings.

Previous wording

Oracle Solutions total revenue was $21.7 million and $17.2 million during the first three months of 2024 and 2023, respectively. The segment has continued the momentum it has experienced since the second quarter of 2023, with double-digit growth over the last three quarters when compared to prior year periods.

Current wording

Oracle Solutions total revenue was $23.0 million and $44.8 million during the second quarter and first six months of 2024, respectively, as compared to $20.8 million and $37.9 million in the same periods of 2023, respectively. The segment has continued the momentum it has experienced since the second quarter of 2023, with significant growth over the last five quarters when compared to prior year periods.

Previous wording

SAP Solutions total revenue was $14.6 million and $11.7 million during the first three months of 2024 and 2023, respectively. The increase in revenue during the quarter ended March 29, 2024, as compared to the same period in 2023, was due to the very strong value-added reseller activity in the quarter.

Current wording

SAP Solutions total revenue was $12.3 million and $26.9 million during the second quarter and first six months of 2024, respectively, as compared to $12.7 million and $24.4 million in the same periods of 2023, respectively. The increase in revenue during the first six months of 2024, as compared to the same period in 2023, was due to the very strong value-added reseller activity in the first half of 2024.

Previous wording

Reimbursements as a percentage of Company total revenue were 2.0% during both the first three months of 2024 and 2023. Reimbursements are project travel-related expenses passed through to a client with no associated operating margin. We have experienced increased client-related travel since the transition to a remote delivery model, however we do not expect reimbursements to return to pre-pandemic levels.

Current wording

Reimbursements as a percentage of Company total revenue were 2% during both the second quarter and first six months of 2024 and 2023. Reimbursements are project travel-related expenses passed through to a client with no associated operating margin.

Previous wording

Personnel costs before reimbursable expenses increased 6%, to $45.8 million for the first three months of 2024, as compared to $43.1 million in the same period of 2023. The higher costs in the first three months of 2024 were primarily a result of increased salaries and higher utilization of subcontractors. Personnel costs as a percentage of total Company total revenue were 59% and 61% during the first three months of 2024 and 2023, respectively.

Current wording

Personnel costs before reimbursable expenses were $45.4 million and $91.2 million for the second quarter and first six months of 2024, respectively, as compared to $45.4 million and $88.6 million in the same periods of 2023, respectively. The higher costs in the first six months of 2024 were primarily a result of increased salaries and higher utilization of subcontractors. Personnel costs as a percentage of total Company total revenue were 58% and 59% during the second quarter and first six months of 2024 and 59% and 60% for the same periods in 2023, respectively.

Previous wording

Non-cash stock based compensation expense, included in personnel costs before reimbursable expenses was $1.4 million and $1.5 million during the first three months of 2024 and 2023, respectively.

Current wording

Non-cash stock based compensation expense, included in personnel costs before reimbursable expenses was $1.6 million and $3.0 million during the second quarter and first six months of 2024, respectively, as compared to $1.6 million and $3.2 million in the same periods of 2023, respectively.

Previous wording

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 stock based compensation expense, amortization of intangible assets, acquisition related costs and various other overhead expenses.

Current wording

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 stock based compensation expense and various other overhead expenses.

Previous wording

SG&A costs increased 19%, to $18.3 million, as compared to $15.4 million for the same period in 2023. This increase in the costs during the first three months of 2024 was primarily due to the incremental investments we are making in program development and additional dedicated sales resources for Benchmark, Executive Advisory Market Intelligence and our other IP as-a-service offerings and higher incentive compensation commensurate with Company performance. SG&A costs as a percentage of total Company revenue were 24% during the first three months of 2024, respectively, as compared to 22% during the same period in 2023.

Current wording

SG&A costs increased 3%, to $18.0 million, and 11%, to $36.3 million, for the second quarter and first six months of 2024, respectively, as compared to $17.4 million and $32.9 million for the same periods in 2023, respectively. This increase in the costs during the second quarter and first six months of 2024 was primarily due to the incremental investments we are making in program development and additional dedicated sales resources for Benchmark, Executive Advisory Market Intelligence and our other IP as-a-service offerings. SG&A costs as a percentage of total Company revenue were 23% during both the second quarter and first six months of 2024, respectively, as compared to 23% and 22% during the same periods in 2023, respectively.

Previous wording

Non-cash stock based compensation expense, included in SG&A, was $1.2 million and $0.9 million during the first three months of 2024 and 2023, respectively.

Current wording

Non-cash stock based compensation expense, included in SG&A, was $1.2 million and $2.4 million during the second quarter and first six months of 2024, respectively, as compared to $1.1 million and $2.1 million for the same periods in 2023, respectively.

Previous wording

Global S&BT segment profit was $10.1 million during the first three months of 2024, as compared to $13.8 million for the same period in 2023. This decrease was primarily due to the incremental investments we are making in program development and additional dedicated sales resources for Benchmark, Executive Advisory Market Intelligence and our other IP as-a-service offerings.

Current wording

Global S&BT segment profit was $12.7 million and $22.8 million during the second quarter and first six months of 2024, respectively, as compared to $13.1 million and $26.9 million for the same periods in 2023, respectively. This decrease was primarily due to the incremental investments we are making in program development and additional dedicated sales resources for Benchmark, Executive Advisory Market Intelligence and our other IP as-a-service offerings.

Previous wording

Oracle Solutions segment profit was $5.3 million during the first three months of 2024, respectively, as compared to $3.0 million for the same period in 2023.The increase was primarily due to higher revenue, partially offset by the higher usage of subcontractors which support the revenue growth.

Current wording

Oracle Solutions segment profit was $5.4 million and $10.6 million during the second quarter and first six months of 2024, respectively, as compared to $5.9 million and $8.9 million for the same periods in 2023, respectively. The increase during the second quarter and first six months of 2024 was primarily due to higher revenue, partially offset by increased headcount and increased usage of subcontractors.

Previous wording

SAP Solutions segment profit was $4.9 million during the quarter first three months of 2024, as compared to $2.6 million in the same period in 2023. The increase in segment profit in the three month period in 2024, as compared to the same period in 2023, was primarily due to the value-added reseller activity in the quarter.

Current wording

SAP Solutions segment profit was $3.3 million and $8.1 million during the second quarter and first six months of 2024, respectively, as compared to $3.0 million and $5.6 million for the same periods in 2023, respectively. The increase in segment profit in the first six months of 2024, as compared to the same period in 2023, was primarily due to the value-added reseller activity in the quarter.

Previous wording

Interest Expense, Net. Interest expense, net was $0.5 million and $0.9 million during the first three months of 2024 and 2023, respectively. As of March 29, 2024, we had an outstanding debt of $31.0 million. As of March 31, 2023, we had outstanding debt of $58.0 million.

Current wording

Interest Expense, Net. Interest expense, net was $0.5 million and $1.0 million during the second quarter and first six months of 2024, respectively, as compared to $0.9 million and $1.8 million in the same periods in 2023, respectively. As of June 28, 2024, we had outstanding debt of $27.0 million, excluding debt issue costs. As of June 30, 2023, we had outstanding debt of $53.0 million, excluding debt issue costs.

Previous wording

Income Taxes. During the first three months of 2024, we recorded $2.3 million of income tax expense related to certain federal, foreign and state taxes which reflected an effective tax rate of 21.0%. During the first three months of 2023, we recorded $2.2 million of income tax expense related to certain federal, foreign and state taxes which reflected an effective tax rate of 21.5%.

Current wording

Income Taxes. During the second quarter and first six months of 2024, we recorded $3.3 million and $5.6 million of income tax expense, respectively, related to certain federal, foreign and state taxes which reflected an effective tax rate of 27.1% and 24.2%, respectively. During the second quarter and first six months of 2023, we recorded $3.1 million and $5.4 million of income tax expense, respectively, related to certain federal, foreign and state taxes which reflected an effective tax rate of 26.5% and 24.2%, respectively.

Previous wording

As of March 29, 2024 and December 39, 2023, we had $13.0 million and $21.0 million, respectively, classified as cash on the consolidated balance sheets. We currently believe that available funds (including the cash on hand and funds available for borrowing under our revolving line of credit the "Credit Facility") and cash flows generated by operations will be sufficient to fund our working capital requirements, including debt payments, lease obligations and capital expenditures for at least the next twelve 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 29, 2023.

Current wording

As of June 28, 2024 and December 29, 2023, we had $19.1 million and $21.0 million, respectively, classified as cash on the consolidated balance sheets. We currently believe that available funds (including the cash on hand and funds available for borrowing under our revolving line of credit the "Credit Facility") and cash flows generated by operations will be sufficient to fund our working capital requirements, including debt payments, lease obligations and capital expenditures for at least the next twelve 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 29, 2023.

Previous wording

Net cash provided by operating activities was $2.8 million during the first three months of 2024, as compared to net cash used in operating activities of $3.1 million during the same period in 2023. In 2024 and 2023, the net cash provided by (or used in) operating activities was primarily due to net income adjusted for non-cash items and an increase in contract liabilities, partially offset by increases in accounts receivable and contract assets, decreases in accrued liabilities and other accruals primarily due to payments of the prior year earned incentive compensation liabilities and payments to vendors.

Current wording

Net cash provided by operating activities was $16.5 million during the first six months of 2024, as compared to $4.7 million during the same period in 2023. In 2024 and 2023, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items and an increase in contract liabilities, partially offset by increases in accounts receivable and contract assets, decreases in accrued liabilities and other accruals primarily due to payments of the prior year earned incentive compensation liabilities and payments to vendors.

Previous wording

Net cash used in investing activities was $0.9 million during the first three months of 2024, as compared to $1.1 million during the same period in 2023. During both periods, cash flows used in investing activities primarily related to investments for the continued development of our Hackett Connect Executive Advisory member platform, our Quantum Leap benchmark and Digital Transformation technologies.

Current wording

Net cash used in investing activities was $1.8 million during the first six months of 2024, as compared to $2.1 million during the same period in 2023. During both periods, cash flows used in investing activities primarily related to investments for the continued development of our Hackett Connect Executive Advisory member platform, our Quantum Leap benchmark and Digital Transformation technologies.

Previous wording

Net cash used in financing activities was $9.8 million and $9.2 million during the first three months of 2024 and 2023, respectively. The usage of cash in 2024 primarily related to the repurchase of $4.8 million of the Company's common stock, dividend payments of $3.0 million and the repayment of borrowings of $2.0 million related to our Credit Facility. The usage of cash in 2023 primarily related to the repurchase of $4.2 million of the Company's common stock, dividend payments of $3.0 million and the net paydown of $2.0 million related to our Credit Facility.

Current wording

Net cash used in financing activities was $16.5 million and $16.9 million during the first six months of 2024 and 2023, respectively. The usage of cash in 2024 primarily related to the repurchase of $5.0 million of the Company's common stock, dividend payments of $6.0 million and the repayment of borrowings of $6.0 million related to our Credit Facility. The usage of cash in 2023 primarily related to the net repayment of borrowings of $7.0 million related to our Credit Facility, dividend payments of $6.0 million and the repurchase of $4.4 million of the Company's common stock.

Previous wording

As of March 29, 2024, we had $31.0 million of outstanding borrowings under our Credit Facility, excluding deferred debt costs, leaving us with a capacity of approximately $69.0 million.

Current wording

As of June 28, 2024, we had $27.0 million of outstanding borrowings under our Credit Facility, excluding deferred debt costs, leaving us with a capacity of approximately $73.0 million.