Company Overview
The Hackett Group, Inc. (NASDAQ: HCKT) is a leading IP-based executive advisory, strategic consulting, and digital transformation firm. With a rich history spanning over three decades, the company has established itself as a trusted partner for global organizations seeking to achieve Digital World Class® performance.
Historical Background
Founded in 1991 and originally incorporated in Florida, The Hackett Group has grown from a small consulting firm to a multinational powerhouse, with a client base that includes 97% of the Dow Jones Industrial Average, 89% of the Fortune 100, 70% of the DAX 40, and 55% of the FTSE 100. In its early years, the company focused on developing proprietary benchmarking and best practices expertise through working with major organizations worldwide, building a robust repository of intellectual property on process efficiency and performance improvement. By the late 1990s, The Hackett Group had established itself as a leading provider of these benchmarking and best practices advisory services.
During the 2000s, the company expanded its service offerings to include technology implementation and integration, particularly around enterprise systems like Oracle and SAP. This allowed The Hackett Group to provide a more comprehensive suite of strategic advisory and implementation services to its clients. The acquisition of Montgomery Research in 2006 further bolstered the company’s intellectual property and research capabilities. The 2010s saw The Hackett Group navigate some challenges, including the global financial crisis, increased competition, and the need to adapt to a rapidly changing technology landscape. However, the company was able to leverage its strong brand, deep client relationships, and intellectual property to continue growing its business. Key milestones included the launch of its Digital Transformation Platform in 2015 and the expansion of its Oracle and SAP practices.
Core Competencies
One of the key hallmarks of The Hackett Group’s success has been its relentless focus on benchmarking and best practices. The company has completed over 26,600 benchmarking and performance studies, leveraging its proprietary Quantum Leap (QL) platform and Digital Transformation Platform (DTP) to deliver unparalleled insights and solutions to its clients.
Strategic Pivot to Generative AI
In recent years, The Hackett Group has made a strategic pivot to become a leading architect of its clients’ generative artificial intelligence (Gen AI) journeys. The company’s acquisition of LeewayHertz, a recognized provider of advanced Gen AI solutions, has further strengthened its capabilities in this rapidly evolving technology landscape.
The Hackett Group’s AI XPLR platform has been a game-changer, enabling organizations to identify, design, and evaluate meaningful AI solutions and use cases. The platform’s ability to simulate enterprise use case opportunities, leveraging the company’s deep expertise in benchmarking, business processes, and software configuration knowledge, sets it apart from traditional AI advisory services.
Financials
Financially, The Hackett Group has demonstrated resilience in the face of challenging macroeconomic conditions. In the third quarter of 2024, the company reported total revenue of $79.8 million, with revenue before reimbursements reaching $77.9 million, exceeding the high end of its guidance. The company’s GAAP diluted earnings per share stood at $0.31 for the quarter, while its adjusted net income per diluted share was $0.43, surpassing analyst expectations.
The Hackett Group’s Oracle and SAP solutions segments have been particularly strong performers, with the Oracle Solutions segment reporting a 7% year-over-year increase in revenue and the SAP Solutions segment recording a 17% year-over-year revenue growth. These results highlight the company’s ability to capitalize on the growing demand for enterprise resource planning (ERP) implementation and support services.
For the most recent fiscal year (2023), The Hackett Group reported revenue of $296.59 million, net income of $34.15 million, operating cash flow of $37.40 million, and free cash flow of $33.30 million. In the most recent quarter (Q3 2024), the company achieved revenue of $79.78 million, net income of $8.59 million, operating cash flow of $10.58 million, and free cash flow of $9.35 million. The year-over-year revenue growth in Q3 2024 was 5.1%, primarily driven by strong performance in the Oracle Solutions and SAP Solutions segments.
Business Segments
The Hackett Group operates through three reportable business segments:
Oracle Solutions: This segment includes the company’s Oracle ERP, EPM, and digital AMS practices. It has shown strong performance, with revenue increasing 9% to $22.76 million in Q3 2024, up from $20.83 million in Q3 2023. For the first nine months of 2024, Oracle Solutions revenue grew 15% to $67.53 million, compared to $58.77 million in the prior year period.
SAP Solutions: This segment includes the company’s SAP applications and related service offerings. It experienced solid growth, with revenue increasing 15% to $12.95 million in Q3 2024, up from $11.23 million in Q3 2023. For the first nine months of 2024, SAP Solutions revenue rose 12% to $39.87 million, compared to $35.65 million in the prior year period. The increase was driven by strong software license sales, partially offset by higher commissions and sales-related costs.
Geographic Performance
The Hackett Group operates primarily in the United States and Western Europe. In Q3 2024, 83% of revenue was generated in the United States, 11% in Europe, and 6% in other regions like Australia, Canada, India, and Uruguay.
Liquidity
The Hackett Group maintains a strong financial position with a debt-to-equity ratio of 0.19. As of Q3 2024, the company had a cash balance of $9.96 million and access to a $100 million revolving credit facility, with $80 million of availability. The company’s current ratio and quick ratio both stand at 1.51, indicating a healthy short-term liquidity position.
Looking ahead, The Hackett Group expects continued strength in its Gen AI-related offerings, as clients increasingly prioritize investments in this transformative technology. The company’s guidance for the fourth quarter of 2024 calls for revenue before reimbursements in the range of $73.5 million to $75 million, representing a year-over-year growth of 3% to 5%. Adjusted diluted earnings per share are expected to be between $0.41 and $0.43.
The company anticipates an adjusted gross margin percentage of revenues before reimbursements to be approximately 45% to 46% in Q4 2024. Adjusted SG&A and interest expense for Q4 2024 are expected to be approximately $17.2 million. The Hackett Group also projects Q4 2024 adjusted EBITDA as a percentage of revenues before reimbursements to be in the range of approximately 23% to 24%. Additionally, cash flow from operations is expected to improve on a sequential basis in Q4 2024.
Investment Opportunity
The Hackett Group’s strategic focus on Gen AI, coupled with its long-standing expertise in benchmarking, business process optimization, and digital transformation, positions the company as a compelling investment opportunity in the rapidly evolving world of enterprise technology and consulting services. The company’s diverse service offerings, strong financial performance, and focus on emerging technologies like generative AI have positioned it well to capitalize on evolving market demands and drive future growth.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.