The Hackett Group, Inc. (HCKT)

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Hackett Group, Inc. (HCKT)

Q3 2008 Earnings Call

November 5, 2008 5:00 pm ET


Ted A. Fernandez - Chief Executive Officer

Robert A. Ramirez - Chief Financial Officer


Bill [Detillio] – Boenning & Scattergood

George Sutton - Craig-Hallum Capital



Welcome to The Hackett Group third quarter conference call. (Operator Instructions) Hosting tonight’s call are Mr. Ted Fernandez, Chairman and CEO, and Mr. Rob Ramirez, Chief Financial Officer.

Robert A. Ramirez

Thank you for joining us to discuss The Hackett Group’s third quarter 2008 results. Speaking on the call today and here to answer your questions are Ted Fernandez, Chairman and CEO of The Hackett Group, and myself, Robert Ramirez, CFO.

Our press announcement was released over the wires at 4:05 p.m. Eastern time. For a copy of the release, please visit our website at We will also place any additional financial or statistical data discussed in this call that is not contained in the release on the Investor Relations page of our website.

Before we begin, I would like to remind you that in the following comments and in the Question and Answer Session, we will be making statements about expected future results which may be forward-looking statements for the purposes of the federal securities laws. These statements relate to our current expectations, estimates and projections and are not a guarantee of future performance. They involve risks, uncertainties and assumptions that are difficult to predict and which may not be accurate. Actual results may vary. These forward-looking statements should be considered only in conjunction with the detailed information, particularly the risk factors contained in our SEC filings.

At this point, I would like to turn it over to Ted.

Ted A. Fernandez

As we customarily do, I will start by providing some overview or highlight comments on the quarter. I will then turn it back over to Rob and ask him to comment on our operating results, also speak to cash flow, and provide some commentary on outlook. Rob will turn it back over to me. It will allow me a chance to provide some market perspective and talk about some of our strategic priorities and then we will open it up for Q&A.

Let me start with the Q3 highlights and welcome everyone to our third quarter earnings call. We are pleased to report another strong quarter with pro forma earnings per share increasing 29%, led by the Hackett Group’s 11% revenue growth, 13% on a constant currency basis.

Our strong operating results, coupled with improved DSO performance, resulted in over $12.0 million in cash flow from operations in the quarter. This allowed us to increase our cash balances during the quarter while returning over $6.0 million to our shareholders through our stock buyback program.

On a year-to-date basis our operating income of $16.3 million has more than doubled from last year, which speaks to all aspects of our progress.

Despite the economic turmoil and even though the sudden drop in foreign currencies are reducing our total company fourth quarter revenue guidance by nearly 4% and our EPS guidance by $0.01, we are poised to have another strong quarter to close out 2008.

We have seen clients continue to seek our advice in implementation assistance. We know their need to better understand and manage their costs and working capital has only increased as the economy has slowed and as credit availability has become more difficult to obtain.

The question is where they can do this for themselves or who they decide to turn to for assistance. Our job is to continue to ensure that our clients understand that our unique intellectual capital and implementation expertise enable them to make the necessary changes in a very targeted and timely manner.

We are also pleased to report our first year-over-year growth in our technology solutions group since the first quarter of 2006. It is clear that the investment we have made in new leadership, our offshore facility, and in our best practice and industry solutions, are paying off for this group.

As I have mentioned throughout the year, several changes have driven our improved performance. The introduction of our transformational benchmark has expanded our initial entry point with our clients. The improved performance by our REL team has been meaningful and the cross-selling opportunities to and from our other Hackett offerings still represent a significant growth opportunity that we have yet to capture.

Lastly, our ability to sell other services into our executive advisory client base has been expanding but we are just starting to fully realize the power of this continuous and trusted relationship that we have with these clients.

Let me elaborate just a little bit more on each of these items. As you will recall, at the beginning of last year we introduced the transformational benchmark that allowed us to sell our transformation planning, design and implementation services along with our benchmark. As a result, we have experienced an increase in the average revenue per client and we have improved the leverage of our intellectual property in our pricing, which is also evident in the increase in revenue per professional and also in gross margins.

Along with this strategy, the improved REL performance, and the improved [REL] performance, have been the primary reasons for our increased growth and profitability since the beginning of 2007.

On the REL front, we are seeing improved performance across all of our operating metrics and regions. This is a group that is benefitting from the credit crisis as clients seeks alternative ways to generate cash. Over the last two years we increased our investment in both resources and infrastructure across France, Germany, and the U.K. and we launched our line to the Nordic regions. Those investments continue to pay off with year-over-year international growth of 22% in Q3.

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