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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

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

 

For the quarterly period ended April 1, 2022

OR

 

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

 

For the transition period from              to             

Commission File Number 333-48123

 

The Hackett Group, Inc.

(Exact name of registrant as specified in its charter)

 

 

Florida

 

65-0750100

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1001 Brickell Bay Drive, Suite 3000

Miami, Florida

 

33131

(Address of principal executive offices)

 

(Zip Code)

 

(305) 375-8005

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.001 per share

HCKT

NASDAQ Stock Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

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

 

Large Accelerated Filer

 

Accelerated Filer

 

 

 

 

 

 

 

Non-Accelerated Filer

 

Smaller Reporting Company

 

 

 

 

 

 

 

 

 

 

Emerging Growth Company

 

 

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

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

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

As of May 5, 2022, there were 31,650,966 shares of common stock outstanding.

 

 

 

 

 


 

 

The Hackett Group, Inc.

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

Page

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets as of April 1, 2022 (unaudited) and December 31, 2021

3

 

 

 

 

Consolidated Statements of Operations for the Three Months Ended April 1, 2022 and April 2, 2021 (unaudited)

4

 

 

 

 

Consolidated Statements of Comprehensive Income for the Three Months Ended April 1, 2022 and April 2, 2021 (unaudited)

5

 

 

 

 

Consolidated Statements of Cash Flows for the Three Months Ended April 1, 2022 and April 2, 2021 (unaudited)

6

 

 

 

 

Consolidated Statements of Equity for the Three Months Ended April 1, 2022, and April 2, 2021 (unaudited)

7

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

8

 

 

 

Item 2.

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

16

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

20

 

 

 

Item 4.

Controls and Procedures

20

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

21

 

 

 

Item 1A.

Risk Factors

21

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

21

 

 

 

Item 6.

Exhibits

22

 

 

SIGNATURES

23

 

 

2


 

 

PART I — FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

The Hackett Group, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

 

 

 

April 1,

 

 

December 31,

 

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

47,752

 

 

$

45,794

 

Accounts receivable and contract assets, net of allowance of $3,925 and $2,702 at April 1, 2022 and December 31, 2021, respectively

 

 

50,514

 

 

 

50,616

 

Prepaid expenses and other current assets

 

 

5,364

 

 

 

5,766

 

Total current assets

 

 

103,630

 

 

 

102,176

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

18,212

 

 

 

18,026

 

Other assets

 

 

540

 

 

 

620

 

Goodwill

 

 

84,639

 

 

 

85,070

 

Operating lease right-of-use assets

 

 

1,424

 

 

 

1,649

 

Total assets

 

$

208,445

 

 

$

207,541

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

8,041

 

 

$

7,677

 

Accrued expenses and other liabilities

 

 

21,981

 

 

 

30,297

 

Contract liabilities (deferred revenue)

 

 

15,863

 

 

 

14,616

 

Operating lease liabilities

 

 

2,073

 

 

 

2,299

 

Total current liabilities

 

 

47,958

 

 

 

54,889

 

Non-current deferred tax liability, net

 

 

8,992

 

 

 

7,325

 

Operating lease liabilities

 

 

1,180

 

 

 

1,474

 

Total liabilities

 

 

58,130

 

 

 

63,688

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 1,250,000 shares authorized; none

   issued and outstanding

 

 

 

 

 

 

Common stock, $0.001 par value, 125,000,000 shares authorized; 60,004,457 and

   59,631,003 shares issued at April 1, 2022 and December 31, 2021, respectively

 

 

60

 

 

 

60

 

Additional paid-in capital

 

 

301,488

 

 

 

300,288

 

Treasury stock, at cost, 28,388,144 and 28,357,145 shares April 1, 2022

   and December 31, 2021, respectively

 

 

(157,929

)

 

 

(157,294

)

Retained earnings

 

 

18,303

 

 

 

11,272

 

Accumulated other comprehensive loss

 

 

(11,607

)

 

 

(10,473

)

Total shareholders' equity

 

 

150,315

 

 

 

143,853

 

Total liabilities and shareholders' equity

 

$

208,445

 

 

$

207,541

 

 

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

3


 

The Hackett Group, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

 

Quarter Ended

 

 

 

April 1,

 

 

April 2,

 

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

 

 

 

Revenue before reimbursements

 

$

75,108

 

 

$

63,410

 

Reimbursements

 

 

556

 

 

 

76

 

Total revenue

 

 

75,664

 

 

 

63,486

 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of service:

 

 

 

 

 

 

 

 

Personnel costs before reimbursable expenses (includes $1,666 and $1,847 of stock compensation expense in 2022 and 2021, respectively)

 

 

47,333

 

 

 

41,170

 

Reimbursable expenses

 

 

556

 

 

 

76

 

Total cost of service

 

 

47,889

 

 

 

41,246

 

Selling, general and administrative costs (includes $933 and $740 of stock compensation expense in 2022 and 2021, respectively)

 

 

14,366

 

 

 

13,387

 

Total costs and operating expenses

 

 

62,255

 

 

 

54,633

 

Income from operations

 

 

13,409

 

 

 

8,853

 

 

 

 

 

 

 

 

 

 

Other expense:

 

 

 

 

 

 

 

 

Interest expense

 

 

(28

)

 

 

(25

)

Income from operations before income taxes

 

 

13,381

 

 

 

8,828

 

Income tax expense

 

 

2,876

 

 

 

2,460

 

Income from continuing operations

 

 

10,505

 

 

 

6,368

 

Loss from discontinued operations

 

 

 

 

 

(7

)

Net income

 

$

10,505

 

 

$

6,361

 

 

 

 

 

 

 

 

 

 

Basic net income per common share:

 

 

 

 

 

 

 

 

Income per common share from continuing operations

 

$

0.33

 

 

$

0.21

 

Loss per common share from discontinued operations

 

 

-

 

 

 

(0.00

)

Net income per common share

 

$

0.33

 

 

$

0.21

 

 

 

 

 

 

 

 

 

 

Diluted net income per common share:

 

 

 

 

 

 

 

 

Income per common share from continuing operations

 

$

0.33

 

 

$

0.19

 

Loss per common share from discontinued operations

 

 

-

 

 

 

(0.00

)

Net income per common share

 

$

0.33

 

 

$

0.19

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

31,449

 

 

 

30,207

 

Diluted

 

 

31,844

 

 

 

32,769

 

 

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

4


 

The Hackett Group, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

Quarter Ended

 

 

 

April 1,

 

 

April 2,

 

 

 

2022

 

 

2021

 

Net income

 

$

10,505

 

 

$

6,361

 

Foreign currency translation adjustment

 

 

(1,134

)

 

 

269

 

Total comprehensive income

 

$

9,371

 

 

$

6,630

 

 

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

5


 

The Hackett Group, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Quarter Ended

 

 

 

April 1,

 

 

April 2,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

10,505

 

 

$

6,361

 

Plus loss from discontinued operations

 

 

 

 

 

7

 

Net income from continuing operations

 

 

10,505

 

 

 

6,368

 

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

 

 

 

 

 

 

 

 

Depreciation expense

 

 

802

 

 

 

874

 

Amortization expense

 

 

144

 

 

 

261

 

Amortization of debt issuance costs

 

 

14

 

 

 

11

 

Non-cash stock compensation expense

 

 

2,599

 

 

 

2,587

 

(Reversal) provision for doubtful accounts

 

 

(23

)

 

 

137

 

(Gain) loss on foreign currency translation

 

 

(298

)

 

 

61

 

Deferred income tax expense

 

 

1,643

 

 

 

1,378

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Decrease (increase) in accounts receivable and contract assets

 

 

177

 

 

 

(6,091

)

Decrease in prepaid expenses and other assets

 

 

640

 

 

 

182

 

Increase (decrease) in accounts payable

 

 

363

 

 

 

(1,159

)

Decrease in accrued expenses and other liabilities

 

 

(11,760

)

 

 

(4,985

)

Increase in contract liabilities

 

 

1,248

 

 

 

5,037

 

Increase in income tax payable

 

 

 

 

 

1,241

 

Net cash provided by operating activities

 

 

6,054

 

 

 

5,895

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(993

)

 

 

(525

)

Net cash used in investing activities

 

 

(993

)

 

 

(525

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Debt issuance costs

 

 

(10

)

 

 

 

Repurchase of common stock

 

 

(3,066

)

 

 

(3,716

)

Net cash used in financing activities

 

 

(3,076

)

 

 

(3,716

)

Effect of exchange rate on cash

 

 

(27

)

 

 

(4

)

Net increase in cash and cash equivalents

 

 

1,958

 

 

 

1,650

 

Cash at beginning of period

 

 

45,794

 

 

 

49,455

 

Cash at end of period

 

$

47,752

 

 

$

51,105

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid (refunded) for income taxes

 

$

1

 

 

$

(181

)

Cash paid for interest

 

$

-

 

 

$

14

 

 

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

6


 

The Hackett Group, Inc.

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid in

 

 

Treasury Stock

 

 

Retained

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

Loss

 

 

Equity

 

Balance at December 31, 2021

 

 

59,631

 

 

$

60

 

 

$

300,288

 

 

 

(28,358

)

 

$

(157,294

)

 

$

11,272

 

 

$

(10,473

)

 

$

143,853

 

Issuance of common stock

 

 

373

 

 

 

 

 

 

(2,432

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,432

)

Treasury stock purchased

 

 

 

 

 

 

 

 

 

 

 

(31

)

 

 

(635

)

 

 

 

 

 

 

 

 

(635

)

Amortization of restricted stock

   units and common stock subject to

   vesting requirements

 

 

 

 

 

 

 

 

3,632

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,632

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,474

)

 

 

 

 

 

(3,474

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,505

 

 

 

 

 

 

10,505

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,134

)

 

 

(1,134

)

Balance at April 1, 2022

 

 

60,004

 

 

$

60

 

 

$

301,488

 

 

 

(28,389

)

 

$

(157,929

)

 

$

18,303

 

 

$

(11,607

)

 

$

150,315

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid in

 

 

Treasury Stock

 

 

Accumulated

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance at January 1, 2021

 

 

57,693

 

 

$

58

 

 

$

312,039

 

 

 

(27,609

)

 

$

(144,254

)

 

$

(17,388

)

 

$

(9,568

)

 

$

140,887

 

Issuance of common stock

 

 

294

 

 

 

 

 

 

(1,605

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,605

)

Treasury stock purchased

 

 

 

 

 

 

 

 

 

 

 

(136

)

 

 

(2,110

)

 

 

 

 

 

 

 

 

(2,110

)

Amortization of restricted stock

   units and common stock subject to

   vesting requirements

 

 

 

 

 

 

 

 

2,633

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,633

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,254

)

 

 

 

 

 

(3,254

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,361

 

 

 

 

 

 

6,361

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

269

 

 

 

269

 

Balance at April 2, 2021

 

 

57,987

 

 

$

58

 

 

$

313,067

 

 

 

(27,745

)

 

$

(146,364

)

 

$

(14,281

)

 

$

(9,299

)

 

$

143,181

 

 

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

 

 

7


 

 

The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation and General Information

Basis of Presentation

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

In the opinion of management, the accompanying consolidated financial statements reflect all normal and recurring adjustments which are necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows as of the dates and for the periods presented. The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these statements do not include all the disclosures normally required by U.S. GAAP for annual financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2021, included in the Annual Report on Form 10-K filed by the Company with the SEC on March 4, 2022. The consolidated results of operations for the quarter ended April 1, 2022, are not necessarily indicative of the results to be expected for any future period or for the full fiscal year.

Use of Estimates

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

Revenue Recognition

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

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

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

The Company generates 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 and software maintenance and support.

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


8


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1. Basis of Presentation and General Information (continued)

Time-and-material billing arrangements require the client to pay based on the number of hours worked by the Company’s consultants at agreed upon hourly rates. The Company recognizes revenue under time-and-material arrangements as the related services or goods are provided, using the right to invoice practical expedient which allows it 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, however client terms are subject to change.

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 services 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, however client terms are subject to change.

The resale of software and maintenance contracts are in the form of SAP America software license or maintenance agreements provided by SAP America.  SAP is the principal and the Company is the agent in these transactions as the Company does not obtain title to the software and maintenance which is sold simultaneously.  The transaction price is the Company’s agreed-upon percentage of the software license or maintenance amount in the contract with 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, however client terms are subject to change.

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

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

The payment terms and conditions in the Company’s customer contracts vary. The agreements entered into in connection with a project, whether time and materials-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.

Differences between the timing of billings and the recognition of revenue are recognized as either contract assets or contract liabilities in the accompanying consolidated balance sheets. Revenue recognized for services performed but not yet billed to clients are recorded as contract assets. Revenue recognized, but for which are not yet entitled to bill because certain events, such as the completion of the measurement period, are recorded as contract assets and included within contract assets. Client prepayments are classified as contract liabilities and recognized over future periods as earned in accordance with the applicable engagement agreement. See Note 3 for the accounts receivable and contract asset balances. During the quarter ended April 1, 2022, the Company recognized $6.9 million of revenue as a result of changes in the contract liability balance, as compared to $4.0 million for the quarter ended April 2, 2021. 

The following table reflects the Company’s disaggregation of total revenue for the quarters ended April 1, 2022 and April 2, 2021:

 

 

 

Quarter Ended

 

 

 

April 1,

 

 

April 2,

 

 

 

2022

 

 

2021

 

Consulting

 

$

74,498

 

 

$

62,109

 

Software license sales

 

 

1,166

 

 

 

1,301

 

Total revenue

 

$

75,664

 

 

$

63,486

 

 

 

 

 

 

 

 

 

 

9


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

1.  Basis of Presentation and General Information (continued)

Capitalized Sales Commissions

Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized as project revenue is recognized.  The Company determined the period of amortization by taking into consideration the customer contract period, which are generally less than 12 months. Commission expense is included in Selling, General and Administrative Costs in the accompanying consolidated statements of operations. As of December 31, 2021, and January 1, 2021, the Company had $1.6 million and $1.5 million, respectively, of deferred commissions, of which $0.4 million and $0.2 million was amortized during the first three months of the year 2022 and 2021, respectively.  No impairment loss was recognized relating to the capitalization of deferred commission.

Practical Expedients

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

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

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

Fair Value

The Company’s financial instruments consist of cash, accounts receivable and contract assets, accounts payable, accrued expenses and other liabilities and contract liabilities. As of April 1, 2022 and December 31, 2021, the carrying amount of each financial instrument approximated the instrument’s respective fair value due to the short-term nature and maturity of these instruments.

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

 

COVID-19 Pandemic Impact on the Business

 

The level of revenue the Company achieves is based on its ability to deliver market leading services and solutions and to deploy skilled teams of professionals quickly. The Company’s results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence. In each of the four quarters of 2021, the Company’s revenue before reimbursements and diluted earnings per share grew when compared to the fourth quarter of 2020 reflecting a continuation of improved economic conditions. However, any reversal of these trends or a prolonged economic downturn as a result of the impact of COVID-19 variants, or otherwise, weak or uncertain economic conditions or similar factors could adversely affect our clients' financial condition which may further reduce our clients' demand for our services.

 

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

 

 


10


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1.  Basis of Presentation and General Information (continued)

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

 

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

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

 

 

 

April 1,

 

 

April 2,

 

 

 

2022

 

 

2021

 

Basic weighted average common shares outstanding

 

 

31,449,408

 

 

 

30,207,490

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Unvested restricted stock units and common stock subject

   to vesting requirements issued to employees and

   non-employees

 

 

370,033

 

 

 

264,210

 

Common stock issuable upon the exercise of stock options

   and SARs

 

 

24,122

 

 

 

2,297,467

 

Dilutive weighted average common shares outstanding

 

 

31,843,563

 

 

 

32,769,167

 

 

Approximately 6 hundred shares and 3 thousand shares of common stock equivalents were excluded from the computations of diluted net income per common share for the quarters ended April 1, 2022 and April 2, 2021, respectively, as inclusion would have had an anti-dilutive effect on diluted net income per common share.   

3. Accounts Receivable and Contract Assets, Net

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

 

 

 

April 1,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Accounts receivable

 

$

32,924

 

 

$

30,732

 

Contract assets (unbilled revenue)

 

 

21,515

 

 

 

22,586

 

Allowance for doubtful accounts

 

 

(3,925

)

 

 

(2,702

)

Accounts receivable and contract assets, net

 

$

50,514

 

 

$

50,616

 

 

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

11


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

4. Accrued Expenses and Other Liabilities

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

 

 

 

April 1,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Accrued compensation and benefits

 

$

6,143

 

 

$

7,730

 

Deferred employer's payroll taxes

 

 

1,780

 

 

 

1,780

 

Accrued bonuses

 

 

5,247

 

 

 

13,753

 

Accrued dividend payable

 

 

3,475

 

 

 

-

 

Restructuring liability

 

 

666

 

 

 

740

 

Accrued sales, use, franchise and VAT tax

 

 

1,515