By:
Shant Poladian, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
• The Hackett Group, Inc. (NASDAQ: HCKT) is an
intellectual property-based consultancy providing services in business
strategy, finance, human capital management, strategic sourcing, procurement, and
information technology. Moreover, HKCT provides performance measurement services
including, benchmarking, enterprise performance management, and executive
advisory in the United States and internationally.
• Net revenue declined
for the fourth consecutive quarter, at -2% year-over-year.
• International revenue
declined 31% year-over-year, as Brexit uncertainty in European markets is
expected to continue.
• Cloud implementation revenue
grew 30% year-over-year, offset by the decline in on-premise related implementations.
• Strategic investments
in fully digitizing all of the intellectual property services, development of next
generation benchmarking platform, and the introduction of Hackett Digital
Transformation Platform drive competitive advantages.
Key
points:
On November 5, 2019, The
Hackett Group released third quarter results. HCKT reported net revenues of $72.7
million and earnings per share of $0.27, both of which were within management guidance.
However, according to the analyst consensus, HCKT was expected to generate net
revenues of $73.2 million and $0.28 earnings per share. Ted Fernandez, CFO of
HCKT, claimed unfavorable international revenues impacted earnings per share by
$0.03 when compared to guidance.
U.S. revenue grew 4.2%
year-over-year, led by 5.5% growth for the Strategy and Business Transformation
segment year-over-year, and 3.2% growth for the EEA Solutions Group
year-over-year. This was driven by strong growth from SAP and Oracle ERP
practices, as well as strong cloud revenue growth from EPM practices. Cloud
implementation revenue has grown 30% year-over-year, offsetting Oracle EPM on-premise
declines. Management expects U.S. revenue growth rate to accelerate into the
fourth quarter, by projecting year-on-year U.S. fourth quarter growth to be
above 6%.
Total company international
revenues for HCKT’s International Group were $8.4 million in the third quarter
of 2019, accounting for 13% of total company revenues. This represents a decrease
of 31.1% on a year-over-year basis. This decrease was higher than expected, as
uncertainty surrounding Brexit continues to impact client decision making. Furthermore,
management expects international revenues to decline 25% in the fourth quarter
of 2019. As a result of continued weakness in HCKT’s international operations,
HCKT will incur approximately $2.5 million in restructuring charges in the
fourth quarter of 2019.
HCKT’s balance sheet is
strong, and continues to generate strong profitability and cash flow from
operation. This allows HCKT the ability to fund acquisitions while continuing
to invest in the business. HCKT continues to increase acquisition deal size,
and expects a 12 to 24-month integration timeline. In May of 2017, HCKT made
their most aggressive deal in acquiring Jibe Consulting. This acquisition has
led to the growth in total Oracle Cloud revenue growth.
What
has the stock done lately?
On
November 5, 2019, HCKT closed at $17.60 per share, and incurred a 13.3% loss the
following day, closing at $15.26 per share. Following HCKT third quarter
earnings results, the stock price has remained between $15.26-$15.38. At HCKT’s
most recent meeting, the board of directors declared the next semi-annual
dividend of $0.18 per share, which will be paid in January 2020.
Past
Year Performance:
Over the past
year, HCKT reached a 52-week high at $19.57, and a 52-week low at $14.54. Over
the past year, HCKT is down $1.98, or 11.29%. YTD HCKT is down $0.55, or 3.42%.
Source:
FactSet
My
Takeaway
Uncertainty in European
markets, due to Brexit, is disappointing, but I believe management’s guidance
for international revenue is clearly identified and priced-in. I am optimistic that
Hackett will continue to recognize revenue growth in the U.S., as demand
declines for on-premise implementation, and demand for cloud implementation grows.
Moreover, investments in fully digitizing all of the intellectual property
services, development of next generation benchmarking platform, and the introduction
of Hackett Digital Transformation Platform will enable HCKT to position itself
ahead of competitors. With these reasons, I believe HCKT represents a hold.
Source:
FactSet
