The Hackett Group Announces Fourth Quarter and Fiscal 2018 Results

Q4 2018 net revenue from continuing operations of $61.6 million, and
pro forma EPS of $0.26, both within guidance range
Q4 2018 GAAP EPS of $0.00 as compared to GAAP EPS of $0.29 in the same
period in the prior year. Q4 2018 GAAP EPS include the discontinued
operations for REL Working Capital group and the write-off of the
investment for the HPE software offering.
Fiscal 2018 net revenue from continuing operations of $264.5 million,
pro forma EPS of $1.06, and GAAP EPS of $0.74.
Company announces annual dividend increase of 6% from $0.34 to $0.36

MIAMI MIAMI–(BUSINESS WIRE)–The Hackett Group, Inc. (NASDAQ: HCKT), a global intellectual
property-based strategic consultancy and leading
enterprise benchmarking and best practices digital transformation firm,
today announced its financial results for the fourth quarter, which
ended on December 28, 2018.

Q4 2018 net revenue (gross revenue less reimbursable expenses) from
continuing operations was $61.6 million, down 1% as compared to the same
period in the prior year. Q4 2018 gross revenue from continuing
operations was $66.5 million, down 1% from the same period in the prior
year. Fiscal year 2018 net revenue (gross revenue less reimbursable
expenses) from continuing operations was $264.5 million, up 4% from
prior year.

GAAP diluted losses per share were $0.00 for the fourth quarter of 2018,
compared to earnings of $0.29 in the fourth quarter of 2017. GAAP
diluted earnings per share were $0.74 for fiscal year 2018, compared to
earnings of $0.85 for the fiscal year 2017. During the fourth quarter of
2018, the Company recorded a $6.3 million write-off of its investments
in HPE software and Working Capital and recorded discontinued operations
of its REL working capital group, all of which negatively impacted
earnings per share by $0.23. During the fourth quarter of 2017, the
adoption of the new tax pronouncements and tax legislation favorably
impacted GAAP diluted earnings per share by $0.12.

Q4 2018 pro forma diluted earnings per share were $0.26, up 4% when
compared to $0.25 for the same period in the prior year. Fiscal 2018 pro
forma diluted earnings per share were $1.06, up 12% when compared to
$0.95 for the prior year. Pro forma information is provided to enhance
the understanding of the Company’s financial performance and is
reconciled to the Company’s GAAP information in the accompanying tables.

At the end of the fourth quarter of 2018, the Company’s cash balances
were $13.8 million. During the quarter, the Company repurchased 15
thousand shares under its stock repurchase program. As of the end of the
fourth quarter of 2018, the Company’s remaining stock repurchase program
authorization was $6.9 million.

“In Q4 we took several actions that reinforced our focus on our growing
digital transformation groups and strengthened our organization as we
head into 2019,” stated Ted A. Fernandez, Chairman and CEO of The
Hackett Group. “Although the decline in our on premise implementation
revenues unfavorably impacted our Q4 results and the start of 2019, as
we decrease our exposure to our legacy on premise revenue, we expect to
continue to get closer to realizing the revenue growth of our digital
transformation focus.”

Based on the current economic outlook, the Company estimates total net
revenue for the first quarter of 2019 to be in the range of $61.5
million and $63.0 million or gross revenue (inclusive of reimbursable
expenses) to be in the range of $66.5 million and $68.0 million. The
Company estimates pro forma diluted earnings per share for the first
quarter of 2019 to be in the range of $0.21 and $0.23.

Other Highlights

European Best Practices Conference – Nearly 200 business
executives from over 134 companies attended The Hackett Group’s 2018
European Best Practices Conference “Unlocking Digital Value” in London
from October 9^th to October 11^th. Speakers
included leaders in finance, procurement, HR, IT, global business
services and working capital from over a dozen of Europe’s largest and
most successful companies, including: Agrekko, AstraZeneca, Cisco, HP
Inc., IBM, Nokia, Robert Bosch GmbH, Rolls-Royce, Pearson Plc, Redwood
Software, SAP, Shell Smith & Nephew, Tungsten Network, Wipro and
Vodafone.

UiPath Alliance – The Hackett Group, Inc. announced that it has
been named a Recommended Partner by UiPath, the leading enterprise
Robotic Process Automation (RPA) software company. The partnership will
enable The Hackett Group to further expand its ability to offer UiPath
solutions to clients.

Oracle Excellence Award – Oracle awarded The Hackett Group with
its 2018 Oracle Excellence Award for Specialized Partner of the Year –
SaaS Innovation Solution of the Year. The award recognizes The Hackett
Group for its commitment to delivering innovative, specialized solutions
and services using Oracle Cloud software and hardware.

CASME Alliance – The Hackett Group, Inc. and CASME launched an
alliance that will provide procurement clients of both companies with
access to additional insights, research assets and networking
opportunities. Through the reciprocal alliance, members of The Hackett
Group’s Procurement Advisory Programs will benefit from access to
CASME’s extensive spend category-specific market intelligence and
indirect spending expertise, as well as selected Webcasts, RoundTables,
virtual events and other peer networking opportunities. CASME clients
will gain access to select research insights from The Hackett Group’s
procurement membership advisory teams. The Hackett Group will also host
Webcasts and provide seats at selected virtual events for CASME members.

On Tuesday, February 19, 2019 senior management will discuss fourth
quarter results in a conference call at 5:00 P.M. ET. The number for the
conference call is (800) 593-0486, [Passcode: Fourth Quarter]. For
International callers, please dial (517) 308-9371.

Please dial in at least 5-10 minutes prior to start time. If you are
unable to participate on the conference call, a rebroadcast will be
available beginning at 8:00 P.M. ET on Tuesday, February 19, 2019 and
will run through 5:00 P.M. ET on Tuesday, March 5, 2019. To access the
rebroadcast, please dial (866) 458-4758. For International callers,
please dial (203) 369-1315. In addition, The Hackett Group will also be
webcasting this conference call live through the StreetEvents.com
service. To participate, simply visit http://www.thehackettgroup.com
approximately 10 minutes prior to the start of the call and click on the
conference call link provided. An online replay of the call will be
available after 8:00 P.M. ET on Tuesday, February 19, 2019 and will run
through 5:00 P.M. ET on Tuesday, March 5, 2019. To access the replay,
visit www.thehackettgroup.com
or http://www.streetevents.com.

About The Hackett Group

The
Hackett Group (NASDAQ: HCKT) is an intellectual property-based
strategic consultancy and leading enterprise benchmarking and best
practices digital transformation firm to global companies, offering
digital transformation including robotic process automation and
enterprise cloud application implementation. Services include business
transformation, enterprise analytics and global
business services. The Hackett Group also provides dedicated
expertise in business strategy, operations, finance, human capital
management, strategic sourcing, procurement and information technology,
including its award-winning Oracle and SAP practices.

The Hackett Group has completed more than 16,500 benchmarking and
performance studies with major corporations and government agencies,
including 97% of the Dow Jones Industrials, 89% of the Fortune 100, 87%
of the DAX 30 and 59% of the FTSE 100. These studies drive Hackett’s
Digital Transformation Platform which includes the firm’s benchmarking
metrics, best practices repository and best practice configuration
guides and process flows, which enable The Hackett Group’s clients and
partners to achieve world-class performance.

More information on The Hackett Group is available at: www.thehackettgroup.com, info@thehackettgroup.com,
or by calling (770) 225-3600.

This press release contains “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995 and
involve known and unknown risks, uncertainties and other factors that
may cause The Hackett Group’s actual results, performance or
achievements to be materially different from the results, performance or
achievements expressed or implied by the forward-looking statements.
Factors that impact such forward-looking statements include, among
others, the ability of our products, services, or offerings mentioned in
this release to deliver the desired effect, 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, including those referenced above, the timing of projects and
the potential for contract cancellations 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,
changes in general economic conditions and interest rates, our ability
to obtain debt financing through additional borrowings under an
amendment to our existing credit facility as well as other risks
detailed in our Company’s Annual Report on Form 10-K for the most recent
fiscal year filed with the Securities and Exchange Commission. 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.

The Hackett Group, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
	Quarter Ended				Twelve Months Ended
	December 28,		December 29,		December 28,		December 29,
	2018		2017		2018		2017
Revenue:
Revenue before reimbursements (“net revenue”)	$	61,595	$	62,307	$	264,523	$	255,131
Reimbursements		4,940		4,622		21,364		21,468
Total revenue		66,535		66,929		285,887		276,599

Costs and expenses:
Cost of service:
Personnel costs before reimbursable expenses		35,979		35,744		159,614		153,357
Non-cash stock compensation expense		900		1,015		3,815		4,409
Acquisition-related compensation expense (benefit)		14		540		(535)		1,582
Acquisition-related non-cash stock compensation expense		575		795		2,027		2,515
Reimbursable expenses		4,940		4,622		21,364		21,468
Total cost of service		42,408		42,716		186,285		183,331

Selling, general and administrative costs		14,352		14,880		58,516		57,473
Non-cash stock compensation expense		743		903		3,238		3,330
Amortization of intangible assets		580		615		2,369		2,090
Acquisition-related costs		—		—		—		378
Acquisition-related contingent consideration liability		(614)		—		(4,364)		—
Impairment of assets (3)		6,269		—		6,269		—
Restructuring costs		—		—		—		1,293
Total selling, general, and administrative expenses		21,330		16,398		66,028		64,564

Total costs and operating expenses		63,738		59,114		252,313		247,895

Income from operations		2,797		7,815		33,574		28,704

Other expense:
Interest expense		(123)		(183)		(638)		(584)

Income from continuing operations before income taxes		2,674		7,632		32,936		28,120
Income tax expense (benefit)		(41)		(1,203)		5,577		2,564
Income from continuing operations		2,715		8,835		27,359		25,556
Gain (loss) from discontinued operations		(2,851)		606		(3,450)		1,798
Net income (loss)	$	(136)	$	9,441	$	23,909	$	27,354


Weighted average common shares outstanding:
Basic		29,517		28,735		29,379		28,852
Diluted		32,677		32,022		32,330		32,196


Basic net income per common share:
Income per common share from operations	$	0.09	$	0.31	$	0.93	$	0.89
Income (loss) per common share from discontinued operations (2)		(0.09)		0.02		(0.12)		0.06
Net income per common share	$	(0.00)	$	0.33	$	0.81	$	0.95


Diluted net income per common share:
Income per common share from operations	$	0.08	$	0.27	$	0.85	$	0.79
Income (loss) per common share from discontinued operations		(0.08)		0.02		(0.11)		0.06
Net income per common share	$	(0.00)	$	0.29	$	0.74	$	0.85

Pro forma data (1):
Income from operations before income taxes	$	2,674	$	7,632	$	32,936	$	28,120
Non-cash stock compensation expense		1,643		1,918		7,053		7,739
Acquisition-related compensation expense (benefit)		14		540		(535)		1,582
Acquisition-related non-cash stock compensation expense		575		795		2,027		2,515
Acquisition-related costs		—		—		—		378
Acquisition-related contingent consideration liability		(614)		—		(4,364)		—
Impairment of assets (3)		6,269		—		6,269		—
Restructuring costs		—		—		—		1,293
Amortization of intangible assets		580		615		2,369		2,090
Pro forma income before income taxes		11,141		11,500		45,755		43,717
Pro forma income tax expense		2,785		3,450		11,439		13,115
Pro forma net income	$	8,356	$	8,050	$	34,316	$	30,602

Pro forma basic net income per common share	$	0.28	$	0.28	$	1.17	$	1.06
Weighted average common shares outstanding		29,517		28,735		29,379		28,852

Pro forma diluted net income per common share	$	0.26	$	0.25	$	1.06	$	0.95
Weighted average common and common equivalent shares outstanding		32,677		32,022		32,330		32,196


————————————————-
(1) The Company provides pro forma earnings results (which exclude the amortization of intangible assets, stock compensation expense, acquisition-related one-time expense, cash and stock compensation expense (benefit), restructuring and impairment charges and include a normalized tax rate, which is our long term projected cash tax rate) as a complement to results provided in accordance with Generally Accepted Accounting Principles (GAAP). These non-GAAP results are provided to enhance the overall users’ understanding of the Company’s current financial performance and its prospects for the future. The Company believes the non-GAAP results provide useful information to both management and investors and by excluding certain expenses that it believes are not indicative of its core operating results. The non-GAAP measures are included to provide investors and management with an alternative method for assessing operating results in a manner that is focused on the performance of ongoing operations and to provide a more consistent basis for comparison between quarters. Further, these non-GAAP results are one of the primary indicators management uses for planning and forecasting in future periods. In addition, since the Company has historically reported non-GAAP results to the investment community, it believes the continued inclusion of non-GAAP results provides consistency in its financial reporting. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

(2) Discontinued operations relate to the discontinuance of the Company’s REL Working Capital group.

(3) The charge for the impairment of assets relates to the discontinuance of the Hackett Performance Exchange and the Working Capital training course.

The Hackett Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
		December 28,		December 29,
		2018		2017
	ASSETS
Current assets:
	Cash and cash equivalents	$	13,808	$	17,512
	Accounts receivable and unbilled revenue, net		54,807		52,267
	Prepaid expenses and other current assets		4,339		2,511
	Assets related to discontinued operations (4)		137		2,995
	Total current assets		73,091		75,285

Property and equipment, net			19,750		18,851
Other assets			3,704		6,021
Goodwill, net			84,207		85,074
	Total assets	$	180,752	$	185,231

	LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable	$	7,429	$	8,434
	Accrued expenses and other liabilities		34,498		42,685
	Liabilities related to discontinued operations (4)		2,300		329
	Total current liabilities		44,227		51,448
Non-current accrued expenses and other liabilities			–		1,268
Long-term deferred tax liability, net			6,435		6,240
Long-term debt			6,500		19,000
	Total liabilities		57,162		77,956

Shareholders’ equity			123,590		107,275
	Total liabilities and shareholders’ equity	$	180,752	$	185,231


(4) The assets and liabilities related to discontinued operations relate to the discontinuance of the Company’s European Working Capital Group.

The Hackett Group, Inc.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)

	Quarter Ended
	December 28,		December 29,		September 28,
	2018		2017		2018
Revenue Breakdown by Group:
(in thousands)
The Hackett Group (5)	$	52,906	$	52,435	$	60,225
SAP Solutions (6)		8,689		9,872		7,958
Net revenue (7)	$	61,595	$	62,307	$	68,183

Revenue Concentration:
(% of total revenue)
Top customer		4%		4%		7%
Top 5 customers		16%		13%		19%
Top 10 customers		24%		20%		26%

Key Metrics and Other Financial Data:

Total Company:
Consultant headcount		1,003		1,011		1,046
Total headcount		1,246		1,243		1,290
Days sales outstanding (DSO)		75		72		70
Cash provided by operating activities (in thousands)	$	8,056	$	7,559	$	9,521
Pro forma return on equity (8)		30%		32%		32%
Depreciation (in thousands)	$	609	$	601	$	652
Amortization (in thousands)	$	580	$	615	$	585


Remaining Plan authorization:
Shares purchased (in thousands)		15		–		–
Cost of shares repurchased (in thousands)	$	240	$	—	$	—
Average price per share of shares purchased	$	16.01	$	—	$	—
Remaining Plan authorization (in thousands)	$	6,934	$	3,138	$	7,174

Shares Purchased to Satisfy Employee Net Vesting Obligations:
Shares purchased (in thousands)		14		6		8
Cost of shares purchased (in thousands)	$	274	$	89	$	118
Average price per share of shares purchased	$	19.74	$	15.37	$	15.77

(5) The Hackett Group encompasses the Benchmarking, Business Transformation and Executive Advisory groups, and EPM Groups and excludes AMS.
(6) SAP Solutions encompasses Best Practice Implementation of ERP Software, the SAP group, approximately 50% of which are offshore resources.
(7) Net revenue excludes reimbursable expenses which are primarily travel-related expenses passed through to a client with no associated margin.
(8) Twelve months of pro forma net income divided by average shareholder’s equity
(9) Certain reclassifications have been made to conform with current reporting requirements.

Contacts

Robert A. Ramirez, CFO, 305-375-8005 or rramirez@thehackettgroup.com