The Hackett Group Ups IP Investment As On-Ramp To Consulting Business

A Fast Take On The Hackett Group

The Hackett Group, Inc. (NASDAQ:HCKT) reported its Q1 2023 monetary outcomes on Could 9, 2023, beating each income and EPS consensus estimates.

The corporate gives a spread of strategic advisory and know-how consulting companies to World 1000 corporations.

I beforehand wrote about Hackett Group with a Maintain score.

The agency is growing its concentrate on its IP-related merchandise as an onramp to upsell and generate progress in its consulting service choices.

Given these assumptions, HCKT inventory could also be value placing on a watch record, however for now, I am Impartial (Maintain) on the inventory.

The Hackett Group Overview

Miami, Florida-based The Hackett Group, Inc. was based in 1991 to assist purchasers enhance their operational outcomes by benchmarking, efficiency surveys, enterprise transformation companies, and varied software program implementation options.

The agency is headed by founder, Chairman and CEO, Ted Fernandez, who was beforehand Nationwide Managing Companion at KPMG.

The corporate’s major choices embrace:

• Strategic Advisory

• Benchmarking Research

• Oracle & SAP Options

• OneStream Platform and Market Place options

• Enterprise Transformation

• Market Intelligence Service

• Different companies

The agency acquires clients by its direct gross sales and advertising and marketing efforts in addition to by companion referrals.

The Hackett Group’s Market & Competitors

In keeping with a 2021 market analysis report by 360 Market Updates, the worldwide marketplace for digital transformation technique consulting was an estimated $58.2 billion in 2019 and is forecast to succeed in $143 billion by 2025.

This represents a forecast CAGR of 16.2% from 2020 to 2025.

The principle drivers for this anticipated progress are a big transition from on-premises, legacy programs to cloud-based environments with advanced architectures.

Additionally, the COVID-19 pandemic has probably pulled ahead important demand to modernize enterprise programs, leading to elevated progress prospects for digital transformation consultancies.

Main aggressive or different business individuals embrace:

• Globant

• EPAM

• Slalom

• Accenture

• Deloitte Digital

• McKinsey

• BCG

• Ideo

• Cognizant Expertise Options

• Capgemini

• Firm in-house growth efforts

The Hackett Group’s Latest Monetary Developments

• Complete income by quarter has plateaued in current quarters:

• Gross revenue margin by quarter has trended barely larger extra just lately:

• Promoting, G&A bills as a proportion of complete income by quarter have diverse inside a slender vary:

• Working revenue by quarter has typically trended larger, though Q1 2023’s outcomes noticed a decline:

• Working leverage by quarter dropped sharply in Q1 2023:

• Earnings per share (Diluted) have remained comparatively steady in current quarters:

(All knowledge within the above charts is GAAP)

Previously 12 months, The Hackett Group, Inc.’s inventory value has fallen 6.92% vs. that of the SPDR S&P Software program & Companies ETF’s (XSW) rise of 4.74%, because the chart signifies beneath:

For the stability sheet, the agency ended the quarter with $16.9 million in money and equivalents and $57.7 million in complete debt, none of which was categorized as the present portion due inside 12 months.

Over the trailing twelve months, free money stream was $45.1 million, of which capital expenditures accounted for less than $4.7 million. The corporate paid $10.1 million in stock-based compensation within the final 4 quarters, an identical quantity to a number of earlier quarters.

Valuation And Different Metrics For The Hackett Group

Under is a desk of related capitalization and valuation figures for the corporate:

Click on to enlarge

(Supply – Searching for Alpha)

Under is an estimated DCF (Discounted Money Circulate) evaluation of the agency’s projected progress and earnings:

Assuming beneficiant DCF parameters, the agency’s shares could be valued at roughly $18.48 versus the present value of $19.51, indicating they’re probably presently overvalued, with the given earnings, progress, and low cost price assumptions of the DCF.

Commentary On The Hackett Group

In its final earnings name (Supply – Searching for Alpha), protecting Q1 2023’s outcomes, administration highlighted the financial volatility from 12 months to 12 months that it contends with, particularly as the present larger value of capital setting has triggered purchasers to delay spending and improve mission scrutiny.

The agency expects to launch its Hackett Join platform in Q2 2023, which guarantees to enhance its analysis and improve its availability to clients.

Administration is growing its concentrate on “recurring high-margin IP-related companies by growing the event of recent applications and gross sales and advertising and marketing devoted to this space.”

Management additionally expects to pay down its credit score facility because it plans to extra aggressively use its stability sheet “to fund acquisitions and purchase again inventory whereas persevering with to spend money on our enterprise.”

Administration didn’t disclose any firm, buyer or worker retention price metrics, however mentioned that turnover has continued to ‘reasonable’ and its transition to a ‘hybrid supply mannequin’ will assist it to draw the sorts of staff which were tough to seek out given historic journey necessities.

Complete income for Q1 2023 dropped 7.1% YoY, whereas gross revenue margin elevated by 1.2 proportion factors.

Promoting, G&A bills as a proportion of income grew 2.9 proportion factors, a unfavourable sign indicating diminished effectivity on this regard, and working revenue dropped a considerable 15.7% YoY.

Wanting forward, administration solely offered steerage for Q2 2023, with anticipated income of $73.3 million on the midpoint of the vary, or barely down from 2022’s outcomes.

Adjusted diluted web revenue per share is forecasted to be $0.375 on the midpoint.

The corporate’s monetary place is strong, with ample liquidity, comparatively low debt, and important free money stream; its web debt-to-EBITDA a number of is a fairly low 0.7x.

From administration’s most up-to-date earnings name, I ready a chart exhibiting the frequency of key phrases talked about (or not) within the name, as proven beneath:

I am most within the frequency of doubtless unfavourable phrases, so administration or analyst questions cited “Challeng(es)(ing)” 3 times and “Macro” as soon as.

The unfavourable phrases consult with administration’s feedback concerning the uncertainties within the present macroeconomic setting, leading to purchasers exercising better warning of their buying selections.

Basically, HCKT is growing its concentrate on its IP-related merchandise as an onramp to upsell and produce progress in its consulting companies.

Within the quick time period, its working outcomes could endure attributable to growing investments on this method.

Concerning The Hackett Group, Inc. valuation, my discounted money stream calculation, which assumes a ten% low cost price and progress price of 5%, suggests the inventory could also be totally valued at its present degree of round $19.50.

Given these assumptions, The Hackett Group, Inc. could also be value placing on a watch record, however for now, I am Impartial (Maintain) on the inventory.