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 June 30, 2023
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 August 4, 2023, there were 27,216,659 shares of common stock outstanding.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
Item 1.
Financial Statements
Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 30, 2022
3
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023, and July 1, 2022, (unaudited)
4
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2023, and July 1, 2022, (unaudited)
5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023, and July 1, 2022, (unaudited)
6
Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2023, and July 1, 2022, (unaudited)
7
Notes to Consolidated Financial Statements (unaudited)
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
19
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
24
Item 4.
Controls and Procedures
Item 5.
Other Information
PART II - OTHER INFORMATION
Legal Proceedings
25
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
26
SIGNATURES
27
2
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 30,
December 30,
2023
2022
ASSETS
Current assets:
Cash
$
15,834
30,255
Accounts receivable and contract assets, net of allowance of $1,128 and $856 at June 30, 2023 and December 30, 2022, respectively
57,797
48,376
Prepaid expenses and other current assets
3,203
2,535
Total current assets
76,834
81,166
Property and equipment, net
19,856
19,359
Other assets
285
268
Goodwill
84,148
83,502
Operating lease right-of-use assets
1,804
698
Total assets
182,927
184,993
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
5,475
8,741
Accrued expenses and other liabilities
22,342
30,953
Contract liabilities
14,452
13,278
Income tax payable
3,373
5,759
Operating lease liabilities
1,226
870
Total current liabilities
46,868
59,601
Non-current deferred tax liability, net
9,339
6,877
Long term debt, net
52,676
59,653
1,151
584
Total liabilities
110,034
126,715
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; 60,528,948 and 60,147,720 shares issued at June 30, 2023 and December 30, 2022, respectively
61
60
Additional paid-in capital
311,505
308,325
Treasury stock, at cost, 33,314,926 and 33,277,459 shares June 30, 2023 and December 30, 2022, respectively
(274,600
)
(273,866
Retained earnings
49,540
38,640
Accumulated other comprehensive loss
(13,613
(14,881
Total shareholders' equity
72,893
58,278
Total liabilities and shareholders' equity
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Quarter Ended
Six Months Ended
July 1,
Revenue:
Revenue before reimbursements
75,641
74,768
145,472
149,876
Reimbursements
1,461
1,160
2,859
1,716
Total revenue
77,102
75,928
148,331
151,592
Costs and expenses:
Cost of service:
Personnel costs before reimbursable expenses (includes $1,643 and $3,169 and $1,483 and $3,149 of non-cash stock based compensation expense in the three and six months ended June 30, 2023 and July 1, 2022, respectively)
45,426
44,701
88,569
92,034
Reimbursable expenses
Total cost of service
46,887
45,861
91,428
93,750
Selling, general and administrative costs (includes $1,129 and $2,050 and $1,235 and $2,168 of non-cash stock based compensation expense in the three and six months ended June 30, 2023 and July 1, 2022, respectively)
17,425
15,886
32,861
30,252
Total costs and operating expenses
64,312
61,747
124,289
124,002
Income from operations
12,790
14,181
24,042
27,590
Other expense, net:
Interest expense, net
(921
(28
(1,780
(56
Income from operations before income taxes
11,869
14,153
22,262
27,534
Income tax expense
3,149
3,938
5,381
6,814
Net income
8,720
10,215
16,881
20,720
Basic net income per common share:
Income per common share from operations
0.32
0.62
0.66
Weighted average common shares outstanding
27,192
31,652
27,109
31,551
Diluted net income per common share:
0.65
Weighted average common and common equivalent shares outstanding
27,548
32,221
27,408
32,032
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Foreign currency translation adjustment
(2,896
1,268
(4,030
Total comprehensive income
9,418
7,319
18,149
16,690
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense
1,636
1,630
Amortization expense
154
Amortization of debt issuance costs
36
28
Non-cash stock based compensation expense
5,219
5,317
Provision for doubtful accounts
303
204
Loss (gain) on foreign currency translation
605
(968
Deferred income tax expense
2,390
1,064
Changes in assets and liabilities:
(Increase) decrease in accounts receivable and contract assets
(9,772
1,079
(Increase) decrease in prepaid expenses and other assets
(1,710
3,369
Decrease in accounts payable
(3,266
(2,277
Decrease in accrued expenses and other liabilities
(6,459
(7,613
Increase (decrease) in contract liabilities
1,174
(366
(Decrease) increase in income tax payable
(2,387
1,948
Net cash provided by operating activities
4,650
24,289
Cash flows from investing activities:
Purchases of property and equipment
(2,125
(2,267
Net cash used in investing activities
Cash flows from financing activities:
Debt issuance costs
(13
(10
Proceeds from borrowings
5,000
Repayment of borrowings
(12,000
Proceeds from ESPP
481
407
Proceeds from the exercise of stock options
120
Dividends paid
(5,987
(3,475
Repurchase of common stock
(4,379
(3,142
Net cash used in financing activities
(16,898
(6,100
Effect of exchange rate on cash
(48
(36
Net (decrease) increase in cash and cash equivalents
(14,421
Cash at beginning of period
45,794
Cash at end of period
61,680
Supplemental disclosure of cash flow information:
Cash paid (refunded) for income taxes
5,192
(34
Cash paid for interest
1,819
Supplemental disclosure of non-cash flow investing and financing activities:
Dividend declared during the quarter and paid the following quarter
2,991
3,480
CONSOLIDATED STATEMENTS OF EQUITY
Accumulated
Additional
Other
Total
Common Stock
Paid in
Treasury Stock
Retained
Comprehensive
Shareholders'
Shares
Amount
Capital
Earnings
Loss
Equity
Balance at December 30, 2022
60,148
(33,277
Issuance of common stock
343
(3,529
Treasury stock purchased, net of costs
(37
(711
Amortization of restricted stock units and common stock subject to vesting requirements
3,662
Dividends declared
(2,990
8,161
Foreign currency translation
570
Balance at March 31, 2023
60,491
308,458
(33,314
(274,577
43,811
(14,311
63,441
38
1
362
363
(23
2,685
(2,991
Balance at June 30, 2023
60,529
Balance at December 31, 2021
59,631
300,288
(28,358
(157,294
11,272
(10,473
143,853
373
(2,432
(31
(635
3,632
(3,474
10,505
(1,134
Balance at April 1, 2022
60,004
301,488
(28,389
(157,929
18,303
(11,607
150,315
452
2,224
(3,480
Balance at July 1, 2022
60,065
304,164
25,038
(14,503
156,830
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 30, 2022, included in the Annual Report on Form 10-K filed by the Company with the SEC on March 3, 2023. The consolidated results of operations for the quarter and six months ended June 30, 2023, 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.
Segment Reporting
Segments are defined as components of a company that engage in business activities from which they earn revenues and incur expenses, and for which separate financial information is available and is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company assesses its operating segments under the management approach in accordance with ASC 280, Segment Reporting (ASC 280), and has determined that it has three operating segments: Global S&BT, Oracle Solutions and SAP Solutions which are also its reportable segments. See Note 11 “Segment Information and Geographic Data” for detailed segment information.
Goodwill and Other Intangible Assets
For acquisitions accounted for as a business combination, goodwill represents the excess of the cost over the fair value of the net assets acquired. The Company has organized its operating and internal reporting structure to align with its primary market solutions. In accordance with ASC 280, management made the determination to present three operating segments, three reportable segments and three reporting units as follows: (1) Global S&BT, (2) Oracle Solutions, and (3) SAP Solutions. Global S&BT includes the results of the Company’s strategic business consulting practices; Oracle Solutions includes the results of the Company’s Oracle EPM/ERP and Digital AMS practices; SAP Solutions includes the Company’s SAP applications and related SAP service offerings. A reporting unit is an operating segment or one level below an operating segment to which goodwill is assigned. The goodwill has been allocated to the reporting unit based on the reporting unit's relative fair value. The carrying amount of goodwill by reporting unit is as follows (in thousands):
Foreign
Additions/
Currency
Adjustments
Translation
Global S&BT
56,810
-
646
57,456
Oracle Solutions
16,699
SAP Solutions
9,993
1. Basis of Presentation and General Information (continued)
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.
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 ("SAP") software license or maintenance agreements provided by SAP. 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. The Company also provides software maintenance on other ERP systems, primarily Oracle. 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.
9
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 is recorded as contract assets and is included within accounts receivable and contract assets. Services not yet performed, however billed to the client and uncollected at period end, are recorded as contract assets and are included within accounts receivable and 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 and six months ended June 30, 2023, the Company recognized $2.8 million and $10.6 million, respectively, of revenue as a result of changes in the contract liability balance, as compared to $3.4 million and $10.3 million, respectively, for the quarter and six months ended July 1, 2022.
Based on the information that management reviews internally for evaluating operating segment performance and nature, amount, timing, and uncertainty of revenue and cash flows affected by economic factors, the Company disaggregates revenue as follows for the quarters and six months ended June 30, 2023 and July 1, 2022 (in thousands):
Global S&BT:
North America Consulting
36,444
38,698
72,611
73,783
International Consulting
7,188
5,832
13,356
13,384
Total Global S&BT
43,632
44,530
85,967
87,167
Oracle Solutions:
Consulting and software support and maintenance
20,775
19,971
37,943
41,483
Total Oracle Solutions
SAP Solutions:
11,054
10,413
21,767
20,762
Software license sales
1,641
1,014
2,654
2,180
Total SAP Solutions
12,695
11,427
24,421
22,942
Total segment revenue
The total revenue from the Global S&BT segment, the Oracle Solutions segment and the SAP Solutions segment's consulting and software support and maintenance services is all recognized over time. The software license sales total revenue included in the SAP Solutions segment is recognized at a point in time.
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 30, 2022 and December 31, 2021, the Company had $1.5 million and $1.6 million, respectively, of deferred commissions, of which $0.4 million and $0.6 million was amortized during the quarter and six months ended June 30, 2023, respectively, and $0.4 million and $0.7 million for the same periods in 2022, respectively. No impairment loss was recognized relating to the capitalization of deferred commission.
10
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.
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 June 30, 2023 and December 30, 2022, 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.
Impact of Macroeconomic Conditions 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. Any deterioration in the current macroeconomic environment or economic downturn as a result of weak or uncertain economic conditions due to inflation, high interest rates, national or geopolitical events or other factors impacting economic activity or business confidence could adversely affect the Company's clients' financial condition or outlook which may reduce clients' demand for the Company's services.
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.
11
2. Net Income per Common Share (continued)
The following table reconciles basic and dilutive weighted average common shares:
Basic weighted average common shares outstanding
27,191,648
31,652,413
27,109,054
31,550,911
Effect of dilutive securities:
Unvested restricted stock units and common stock subject to vesting requirements issued to employees and non-employees
355,999
566,969
299,078
468,500
Common stock issuable upon the exercise of stock options and SARs
1,656
12,889
Dilutive weighted average common shares outstanding
27,547,647
32,221,038
27,408,132
32,032,300
Approximately 5 thousand shares and 3 thousand shares of common stock equivalents were excluded from the computations of diluted net income per common share for the quarter and six months ended June 30, 2023, respectively, as compared to 3 thousand shares and 2 thousand shares for the quarter and six months ended July 1, 2022, 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):
Accounts receivable
37,934
28,913
Contract assets
20,991
20,319
Allowance for doubtful accounts
(1,128
(856
Accounts receivable and contract assets, net
Accounts receivable is net of uncollected advanced billings. Contract assets represents revenue for services performed that have not been invoiced.
4. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
Accrued compensation and benefits
11,530
9,320
Accrued bonuses
2,658
12,171
Accrued dividend payable
2,997
Restructuring liability
167
106
Accrued sales, use, franchise and VAT tax
2,065
2,572
Non-cash stock based compensation accrual
114
1,241
Other accrued expenses
2,817
2,546
Total accrued expenses and other liabilities
12
5. Leases
The Company has operating leases for office space and, to a much lesser extent, operating leases for equipment. The Company’s office leases are between terms of 1 year and 4 years. Rents usually increase annually in accordance with defined rent steps or are based on current year consumer price index adjustments. Some of the lease agreements contain one or more of the following provisions: tenant allowances, rent holidays, lease premiums, and rent escalation clauses. There are typically no purchase options, residual value guarantees or restrictive covenants. When renewal options exist, the Company generally does not deem them to be reasonably certain to be exercised, and therefore the amounts are not recognized as part of the lease liability nor the right of use asset.
The components of lease expense were as follows for the six months ended June 30, 2023 (in thousands):
Operating lease cost
560
Total net lease costs
The weighted average remaining lease term is 2.9 years. The weighted average discount rate utilized is 4%. For the quarter and six months ended June 30, 2023, the Company paid $0.3 million and $0.6 million, respectively, from operating cash flows for its operating leases.
Future minimum lease payments under non-cancellable operating leases as of June 30, 2023, were as follows (in thousands):
2023 (excluding the six months ended June 30, 2023)
722
2024
985
2025
260
2026
222
Thereafter
365
Total lease payments
2,554
Less imputed interest
(177
2,377
As of June 30, 2023, the Company does not have any additional operating leases that have not yet commenced.
6. Credit Facility
On November 7, 2022, the Company entered into a third amended and restated credit agreement (the “Credit Agreement”) with Bank of America, N.A., as administrative agent, and the lenders party thereto, pursuant to which the lenders agreed to amend and restate its existing credit agreement, in order to extend the maturity date of the revolving line of credit and provide the Company with an additional $55.0 million in borrowing capacity, for an aggregate amount of up to $100.0 million from time to time pursuant to a revolving line of credit (the “Credit Facility”). The Credit Facility matures on November 7, 2027.
The obligations of Hackett under the Credit Facility are guaranteed by active existing and future material U.S. subsidiaries of Hackett (the “U.S. Subsidiaries”) and are secured by substantially all of the existing and future property and assets of Hackett and the U.S. Subsidiaries.
The interest rates per annum applicable to loans under the Credit Facility will be, at the Company’s option, equal to either a base rate or a Bloomberg Short-Term Bank Yield Index ("BSBY") rate, plus an applicable margin percentage. The applicable margin percentage is based on the consolidated leverage ratio, as defined in the Credit Agreement. As of June 30, 2023, the applicable margin percentage was 1.50% per annum for the BSBY rate, and 0.75% per annum, for the base rate. The interest rate of the commitment fee as of June 30, 2023 was 0.125%. Interest payments are made monthly.
The Company is subject to certain covenants, including total consolidated leverage, fixed cost coverage and liquidity requirements, each as set forth in the Credit Agreement, subject to certain exceptions. As of June 30, 2023, the Company was in compliance with all covenants.
13
6. Credit Facility (continued)
As of June 30, 2023, the Company had $53.0 million of outstanding debt, excluding $0.3 million of deferred debt costs. As of December 30, 2022, the Company had $60.0 million of outstanding debt, excluding $0.3 million of deferred debt costs. During the second quarter and first six months ended June 30, 2023, the Company paid down $5.0 million and a net of $7.0 million, respectively, on the principal balance.
As of June 30, 2023, the Company had $0.3 million of debt issuance costs remaining which will be amortized over the remaining life of the Credit Facility.
7. Stock Based Compensation
During the quarter and six months ended June 30, 2023, the Company issued 7,886 and 589,443 restricted stock units, respectively, at a weighted average grant-date fair value of $18.98 and $21.40 per share, respectively. As of June 30, 2023, the Company had 1,254,301 restricted stock units outstanding at a weighted average grant-date fair value of $19.74 per share. As of June 30, 2023, $17.6 million of total restricted stock unit non-cash compensation expense related to unvested awards had not been recognized and is expected to be recognized over a weighted average period of approximately 2.4 years. In addition, as of June 30, 2023, the Company had 1,318 shares of common stock subject to vesting requirements outstanding at a weighted average grant-date fair value of $16.17 per share.
Forfeitures for all of the Company’s outstanding equity awards are recognized as incurred.
8. Shareholders’ Equity
Treasury Stock and Tender Offer
On July 30, 2002, the Company announced that its Board of Directors approved the repurchase of up to $5.0 million of the Company’s common stock through its share repurchase program. Since the inception of the repurchase plan, the Board of Directors has approved the repurchase of $287.2 million of the Company’s common stock, $120.0 million of which was approved in 2022. As of June 30, 2023, the Company had affected cumulative purchases under the plan of $273.2 million, leaving $14.0 million available for future purchases.
In December 2022, the Company completed a tender offer through which 4.9 million shares of the Company's common stock were purchased for a total cost, inclusive of transaction related fees, of $116.0 million, or $23.72 per share, which represented 15% of the Company's issued and outstanding stock at the time. The Company used $60.0 million in borrowings from its Credit Facility and cash on hand to fund the tender offer.
During the quarter ended June 30, 2023 and July 1, 2022, the Company did not repurchase any outstanding stock in the open market. During the six months ended June 30, 2023 and July 1, 2022, the Company repurchased 37 thousand shares and 31 thousand shares, respectively, from members of its Board of Directors at an average price per share of $18.96 and $20.50, respectively, for a total cost of $0.7 million and $0.6 million, respectively.
There is no expiration of the Company's repurchase authorization. Under the repurchase plan, the Company may buy back shares of its outstanding stock from time to time either on the open market or through privately negotiated transactions, subject to market conditions and trading restrictions. The Company holds repurchased shares of its common stock as treasury stock and accounts for treasury stock under the cost method.
Shares purchased under the repurchase plan do not include shares withheld to satisfy withholding tax obligations. These withheld shares are never issued and in lieu of issuing the shares, taxes were paid on the employee’s behalf. During the quarter and six months ended June 30, 2023, 6 thousand shares and 168 thousand were withheld and not issued, respectively, for a cost of $0.1 million and $3.6 million, respectively. During the quarter and six months ended July 1, 2022, 4 thousand shares and 130 thousand shares were withheld and not issued, respectively, for a cost of $76 thousand and $2.5 million, respectively. The shares withheld for taxes are included under issuance of common stock in the accompanying consolidated statements of shareholders’ equity.
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Dividend Program
In 2022, the Company increased the annual dividend from $0.40 per share to $0.44 per share to be paid on a quarterly basis. During the first half of 2023, the Company declared two quarterly dividends to its shareholders for an aggregate of $6.0 million, which were paid in April 2023 and July 2023. These dividends were paid from U.S. domestic sources and are accounted for as a decrease to retained earnings. Subsequent to June 30, 2023, the Company declared its third quarter dividend in 2023 to be paid in October of 2023.
15
9. Transactions with Related Parties
During the six months ended June 30, 2023, the Company bought back 37 thousand shares of its common stock from members of its Board of Directors for $0.7 million, or $18.96 per share.
10. Litigation
The Company is involved in legal proceedings, claims, and litigation arising in the ordinary course of business not specifically discussed herein. In the opinion of management, the final disposition of such matters will not have a material adverse effect on the Company’s financial position, cash flows or results of operations.
11. Segment Information and Geographical Data
The Company has organized its operating and internal reporting structure to align with its primary market solutions. In accordance with ASC 280, the Company determined it has three operating segments and three reportable segments: (1) Global S&BT, (2) Oracle Solutions, and (3) SAP Solutions. Global S&BT includes the results of the Company’s strategic business consulting practices; Oracle Solutions includes the results of the Company’s Oracle EPM/ERP and Digital AMS practices; SAP Solutions includes the Company’s SAP applications and related SAP service offerings. The SAP Solutions reportable segment is the only segment that contains software license sales.
The measurement criteria for segment profit or loss are substantially the same for each reportable segment, excluding any unusual or infrequent items, if any. Segment profit consists of the revenues generated by a segment, less operating expenses that are incurred directly by the segment. Unallocated costs include corporate costs related to administrative functions that are performed in a centralized manner that are not attributable to a particular segment, depreciation and amortization expense, interest expense, non cash compensation expense and any non recurring transactions. Segment information related to assets has been omitted as the Chief Operating Decision Maker does not receive discrete financial information regarding assets at the segment level.
The tables below set forth information about the Company’s operating segments for the second quarter and six months ended June 30, 2023, and July 1, 2022, along with the items necessary to reconcile the segment information to the totals reported in the accompanying consolidated financial statements (in thousands):
Total revenue*
Segment profit
13,102
16,269
26,909
31,910
5,886
4,301
8,935
8,834
2,990
2,977
5,624
5,391
Total Company:
Total segment profit
21,978
23,547
41,468
46,135
Items not allocated to segment level:
Corporate general and administrative expenses**
5,610
5,935
10,571
11,569
2,772
2,718
Depreciation and amortization
806
838
1,784
Restructuring and asset impairment settlement
(125
921
1,780
56
Income from continuing operations before taxes
16
*Total revenue includes reimbursable expenses, which are project travel-related expenses passed through to a client with no associated operating margin.
**Corporate general and administrative expenses primarily include costs related to business support functions including accounting and finance, human resources, legal, information technology and office administration, as well as any foreign currency gains and losses. Corporate general and administrative expenses exclude non cash compensation expense and one-time, non-recurring expenses and benefits.
17
11. Segment Information and Geographical Data (continued)
The tables below set forth information on the Company's geographical data. Total revenue, which is primarily based on the country of the contracting entity, was attributed to the following geographical areas (in thousands):
United States
65,272
66,717
126,622
131,110
Europe
7,673
5,103
13,734
12,640
Other (Australia, Canada, India and Uruguay)
4,157
4,108
7,975
7,842
Long-lived assets are attributable to the following geographic areas (in thousands):
Long-lived assets:
91,327
89,705
14,349
13,640
417
482
Total long-lived assets
106,093
103,827
As of June 30, 2023 and December 30, 2022, foreign assets included $14.2 million and $13.5 million, respectively, of goodwill related to prior acquisitions.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. All statements regarding our expected financial position and operating results, our business strategy, our financing plans and forecasted demographic and economic trends relating to our industry are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect,” or “intend” and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. We cannot promise you that our expectations reflected in such forward-looking statements will turn out to be correct. Factors that could impact such forward-looking statements include, among others, changes in worldwide and U.S. economic conditions that impact business confidence and the demand for our products and services, the impact of the coronavirus (COVID-19) pandemic, 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, the timing of projects and the potential for contract cancellation 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, the impact of national or geopolitical conflict, such as the war involving Russia and Ukraine on our business and changes in general economic conditions, inflation, interest rates and our ability to obtain additional debt financing if needed. 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.
OVERVIEW
The following Management's Discussion and Analysis ("MD&A") is intended to help the reader understand the results of operations and financial condition of Hackett. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to our consolidated financial statements included in this Quarterly Report on Form 10-Q.
The Hackett Group, Inc. (“Hackett” or the “Company”) is a leading IP-based strategic advisory and technology consulting firm that enables companies to achieve world-class business performance. By leveraging the comprehensive Hackett database, the world’s leading repository of enterprise business process performance metrics and best practice intellectual capital, our business and technology solutions help clients improve performance and maximize returns on technology investments. Only Hackett empirically defines world-class performance in sales, general and administrative and certain supply chain activities with analysis gained through over 25,000 benchmark and performance studies over 29 years at over 8,800 of the world’s leading companies.
Impact of Macroeconomic Conditions on Our Business
The level of revenue we achieve is based on our ability to deliver market leading services and solutions and to deploy skilled teams of professionals quickly. Our results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence. Any deterioration in the current macroeconomic environment or economic downturn as a result of weak or uncertain economic conditions due to inflation, high interest rates, national or geopolitical events or other factors impacting economic activity or business confidence could adversely affect our clients' financial condition or outlook which may reduce the clients' demand for our services.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, our results of operations (in thousands and unaudited):
Other expense:
Interest expense
Income from continuing operations before income taxes
Diluted net income per common share
Revenue. We are a global company with operations in our primary markets located in the United States and Western Europe. Our revenue is denominated in multiple currencies, primarily the U.S. Dollar, British Pound and Euro, and as a result is affected by currency exchange rate fluctuations. The impact of currency fluctuations did not have a significant impact on comparisons between the second quarter and first six months of 2023 and the comparable periods of 2022. In this MD&A, we discuss revenue based on geographical location of engagement team personnel.
Our Company total revenue was $77.1 million and $148.3 million during the second quarter and first six months of 2023, respectively, as compared to $75.9 million and $151.6 million in the same periods in 2022, respectively. During the first six months of 2022, we experienced stronger than expected post-Covid pent-up demand that drove strong results. By the middle of 2022, the impact of the increase in interest rates started to disrupt economic growth and resulted in extended client decision making. In both the second quarter and first six months of 2023, one customer accounted for 5% of our total Company revenue and in both the second quarter and first six months of 2022, one customer accounted for 7% of our total Company revenue.
Segment revenue. The Company has three reportable segments: Global Strategy & Business Transformation (Global S&BT), Oracle Solutions and SAP Solutions. Global S&BT includes S&BT Consulting, Benchmarking, Business Advisory Services, Intellectual Property as-a-Service (IPASS) and OneStream offerings. Oracle Solutions and SAP Solutions support the two fundamentally distinct ERP systems: Oracle and SAP.
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The following table sets forth total revenue by operating segment, which includes reimbursable expenses related to project travel-related expenses passed through to a client with no associated operating margin (in thousands):
Global S&BT total revenue was $43.6 million and $86.0 million during the second quarter and first six months of 2023, respectively, as compared to $44.5 million and $87.2 million in the same periods of 2022, respectively. This segment has been impacted by slowing economic growth resulting in extended client decision making in our business transformation engagements. Additionally, the 2022 periods experienced the post pandemic demand that we experienced throughout the first half of 2022.
Oracle Solutions total revenue was $20.8 million and $37.9 million during the second quarter and first six months of 2023, respectively, as compared to $20.0 million and $41.5 million in the same periods of 2022, respectively. The decrease in revenue over the six months ended June 30, 2023, as compared to the same period in 2022, was primarily due to the segment coming off of solid 2022 results and rebuilding the pipeline in light of unfavorable macroeconomic conditions as we entered 2023.
SAP Solutions total revenue was $12.7 million and $24.4 million during the second quarter and first six months of 2023, respectively, as compared to $11.4 million and $22.9 million in the same periods of 2022, respectively. The increase in revenue over the three month and six month periods in 2023, as compared to the same period in 2022, were due to higher sales of SAP cloud license deals.
Reimbursements as a percentage of Company total revenue were 2% during both the second quarter and first six months of 2023, respectively, as compared to 2% and 1%, in the same periods in 2022, respectively. Reimbursements are project travel-related expenses passed through to a client with no associated operating margin. We have experienced increased client-related travel since the transition to a remote delivery model, however we do not expect reimbursements to return to pre-pandemic levels.
Cost of Service. Cost of service consists of personnel costs before reimbursable expenses, which includes salaries, benefits and incentive compensation for consultants and subcontractor fees, acquisition-related cash, acquisition-related non-cash stock based compensation expense and non-cash stock based compensation expense, and reimbursable expenses which are travel and other expenses passed through to a client and are associated with projects.
Personnel costs before reimbursable expenses increased 2%, to $45.4 million, and decreased 4%, to $88.6 million, for the second quarter and first six months of 2023, respectively, as compared to $44.7 million and $92.0 million in the same periods of 2022, respectively. The lower costs in the six-month period of 2023 were primarily a result of lower incentive compensation accruals commensurate with Company performance. Personnel costs as a percentage of total Company revenue were 59% and 60% during the second quarter and first six months of 2023, respectively, as compared to 59% and 61% for the same periods of 2022, respectively.
Non-cash stock based compensation expense, included in personnel costs before reimbursable expenses was $1.6 million and $3.2 million during the second quarter and first six months of 2023, respectively, as compared to $1.5 million and $3.1 million for the same periods of 2022, respectively.
Selling, General and Administrative Costs (“SG&A”). SG&A primarily consists of salaries, benefits and incentive compensation for the selling, marketing, administrative and executive employees, non-cash stock based compensation expense, amortization of intangible assets, acquisition related costs and various other overhead expenses.
SG&A costs increased 10%, to $17.4 million, and 9%, to $32.9 million, during the second quarter and first six months of 2023, respectively, as compared to $15.9 million and $30.3 million for the same periods of 2022, respectively. This increase in the costs during the second quarter and first six months of 2023 was primarily due to the increased investments in dedicated sales resources for our IP-based offerings in our Global S&BT segment, partially offset by lower incentive compensation commensurate with Company performance. SG&A costs as a percentage of total Company revenue were 23% and 22% during the second quarter and first six months of 2023, respectively, as compared to 21% and 20% during the same periods in 2022, respectively.
Non-cash stock based compensation expense, included in SG&A, was $1.1 million and $2.1 million during the second quarter and first six months of 2023, respectively, as compared to $1.2 million and $2.2 million for the same periods, respectively.
Amortization expense, included in SG&A, was $10 thousand and $154 thousand in the second quarter and first six months of 2022, respectively. There was no amortization expense in the first six months of 2023. The amortization expense in 2022 related to the
21
intangible assets acquired in our acquisitions and the buyout of our partner’s joint venture interest in the CGBS Training and Certification Programs in 2017. The intangible assets related to the acquisitions were fully amortized as of the second quarter of 2022.
Segment Profit. Segment profit consists of the revenue generated by the segment, less the direct costs of revenue and selling, general and administrative expenses that are incurred directly by the segment. Items not allocated to the segment level include corporate costs related to administrative functions that are performed in a centralized manner that are not attributable to a particular segment, depreciation and amortization expense, interest expense, non cash compensation expense and any non recurring transactions.
Global S&BT segment profit was $13.1 million and $26.9 million during the second quarter and first six months of 2023, respectively, as compared to $16.3 million and $31.9 million for the same periods in 2022, respectively. This decrease was primarily due to the incremental investments we are making in program development and additional dedicated sales resources for Benchmark, Executive Advisory Market Intelligence and our other IP as-a-service offerings.
Oracle Solutions segment profit was $5.9 million and $8.9 million during the second quarter and first six months of 2023, respectively, as compared to $4.3 million and $8.8 million for the same periods in 2022, respectively. The increase in the second quarter of 2023 segment profit as compared the same period in the prior year, was primarily due the increase in year over year revenue.
SAP Solutions segment profit was $3.0 million and $5.6 million during the second quarter and first six months of 2023, respectively, as compared to $3.0 million and $5.4 million in the same periods in 2022, respectively.
Interest Expense. Interest expense was $0.9 million and $1.8 million during the second quarter and first six months of 2023, as compared to $28 thousand and $56 thousand in 2022, respectively. In the fourth quarter of 2022, we drew down $60.0 million on our Credit Facility (as defined below) to fund the tender offer transaction. As of June 30, 2023, we had an outstanding balance of $53.0 million. As of July 1, 2022, we did not have any outstanding debt.
Income Taxes. During the second quarter and first six months of 2023, we recorded $3.1 million and $5.4 million of income tax expense, respectively, related to certain federal, foreign and state taxes which reflected an effective tax rate of 26.5% and 24.2%, respectively. During the second quarter and first six months of 2022, we recorded $3.9 million and $6.8 million of income tax expense, respectively, related to certain federal, foreign and state taxes which reflected an effective tax rate of 27.8% and 24.8%, respectively.
Liquidity and Capital Resources
As of June 30, 2023 and December 30, 2022, we had $15.8 million and $30.3 million, respectively, classified as cash on the consolidated balance sheets. We currently believe that available funds (including the cash on hand and funds available for borrowing under our revolving line of credit the "Credit Facility") and cash flows generated by operations will be sufficient to fund our working capital and capital expenditure requirements, including working capital, debt payments, lease obligations and capital expenditures for at least the next twelve months and beyond. We may decide to raise additional funds in order to fund expansion, to develop new or further enhance products and services, to respond to competitive pressures, or to acquire complementary businesses or technologies. There is no assurance that additional financing would be available when needed or desired. Our cash requirements have not changed materially from those disclosed in Item 7 included in Part II of our Annual Report on Form 10-K for the year ended December 30, 2022.
The following table summarizes our cash flow activity (in thousands):
Cash flows provided by operating activities
Cash flows used in investing activities
Cash flows used in financing activities
Cash Flows from Operating Activities
Net cash provided by operating activities was $4.7 million during the first six months of 2023, as compared to $24.3 million during the same period in 2022. In 2023, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items and an increase in contract liabilities, partially offset by an increase in accounts receivable and contract assets, a decrease in accrued liabilities and other accruals primarily due to payments of the 2022 incentive compensation and payments to vendors and income tax liabilities. In 2022, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items, partially offset by a decrease in accrued liabilities and other accruals primarily due to payments of the 2021 incentive compensation and payments to vendors.
Cash Flows from Investing Activities
22
Net cash used in investing activities was $2.1 million during the first six months of 2023, as compared to $2.3 million during the same period in 2022. During both periods, cash flows used in investing activities primarily related to investments for the development of our Hackett Connect Executive Advisory member platform and continued development of our Quantum Leap benchmark and Digital Transformation technologies.
Cash Flows from Financing Activities
Net cash used in financing activities was $16.9 million and $6.1 million during the first six months of 2023 and 2022, respectively. The usage of cash in 2023 primarily related to the net repayment of borrowings of $7.0 million related to our Credit Facility, dividend payments of $6.0 million and the repurchase of $4.4 million of the Company's common stock. The usage of cash in 2022 primarily related to the repurchase of $3.1 million of the Company’s common stock and dividend payments of $3.5 million.
On November 7, 2022, we amended and restated our credit agreement in order to extend the maturity date of the Credit Facility and provide the Company with an additional $55 million in borrowing capacity, for an aggregate amount of up to $100 million. See Note 6, “Credit Facility,” to our consolidated financial statements included in this Quarterly Report on Form 10-Q for more information. As of June 30, 2023, we had $53.0 million of outstanding borrowings under our Credit Facility, excluding deferred debt costs, leaving us with a capacity of approximately $47.0 million.
23
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As of June 30, 2023, our exposure to market risk related primarily to changes in interest rates and foreign currency exchange rate risks.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to the Credit Facility, which is subject to variable interest rates. Under our prior credit agreement which was amended and restated in November 2022, the interest rates per annum applicable to loans under the Credit Facility was, at our option, equal to a base rate for one-, two-, three- or nine-month interest periods chosen by us in each case, plus an applicable margin percentage. A 100-basis point increase in our interest rate under our Credit Facility (Bloomberg Short-Term Bank Yield Index) would not have had a material impact on our results of operations for the quarter and six months ended June 30, 2023.
Exchange Rate Sensitivity
We face exposure to adverse movements in foreign currency exchange rates as a portion of our revenue, expenses, assets and liabilities are denominated in currencies other than the U.S. Dollar, primarily the British Pound, the Euro and the Australian Dollar. These exposures may change over time as business practices evolve.
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 5. Other Information.
Rule 10b5-1 Trading Arrangements
During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Frequency of Say on Pay
As previously reported in our Form 8-K filed on May 9, 2023, the 2023 Annual Meeting of Shareholders was held on May 4, 2023 (the “2023 Annual Meeting”). The shareholders voted on the matters set forth in such Form 8-K, including Proposal 3 related to the say-on-frequency advisory vote. Based on consideration of the voting results set forth in Proposal 3 in the Form 8-K, and as was recommended with respect to this proposal by our Board of Directors in the proxy statement for the 2023 Annual Meeting, the Company’s Board of Directors has determined that an advisory vote by the shareholders regarding named executive officer compensation as set forth in the proxy statement will be conducted on an annual basis. This disclosure is intended to satisfy the requirements of Item 5.07(d) of Form 8-K.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
For a discussion of our potential risks and uncertainties, see the risk factor below and the information under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 30, 2022 (the “Annual Report”).
There have been no material changes to any of the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 30, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
During the quarter ended June 30, 2023 the Company did not repurchase any common stock under the repurchase plan and during the six months ended June 30, 2023, the Company repurchased 37 thousand shares of its common stock under the repurchase plan. As of June 30, 2023, the Company had $13.9 million of authorization remaining under the repurchase plan.
Total Number
Maximum Dollar
of Shares as Part
Value That May
of Publicly
Yet be Purchased
Average Price
Announced
Under the
Period
of Shares
Paid per Share
Program
Balance as of March 31, 2023
13,961,293
April 1, 2023 to April 28, 2023
April 29, 2023 to May 26, 2023
May 27, 2023 to June 30, 2023
13,937,978
*
*The decrease in the repurchase plan authorization related to additional transaction related fees for the tender offer which occurred in December 2022.
Shares repurchased during the quarter and six months ended June 30, 2023 under the repurchase plan do not include 6 thousand shares and 168 thousand shares, respectively, for a cost of $0.1 million and $3.6 million, respectively, that the Company bought back to satisfy employee net vesting obligations.
Item 6. Exhibits
Exhibit No.
Exhibit Description
3.1
Second Amended and Restated Articles of Incorporation of the Registrant, as amended (incorporated herein by reference to the Registrant's Form 10-K for the year ended December 29, 2000).
3.2
Articles of Amendment of the Articles of Incorporation of the Registrant (incorporated herein by reference to the Registrant's Form 10-K for the year ended December 28, 2007).
3.3
Amended and Restated Bylaws of the Registrant, as amended (incorporated herein by reference to the Registrant's Form 10-K for the year ended December 29, 2000).
3.4
Amendment to Amended and Restated Bylaws of the Registrant (incorporated herein by reference to the Registrant's Form 8-K filed on March 31, 2008).
3.5
Amendment to Amended and Restated Bylaws of the Registrant (incorporated herein by reference to the Registrant's Form 8-K filed on January 21, 2015).
31.1*
Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32*
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**
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Inline XBRL Taxonomy Extension Definition Linkbase
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104**
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Filed herewith
** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 9, 2023
/s/ Robert A. Ramirez
Robert A. Ramirez
Executive Vice President, Finance and Chief Financial Officer