Investment Thesis
While Hackett Group demonstrates exceptional gross margins (94.3%) and solid interest coverage, the company is experiencing declining revenue (-2.6% YoY), deeply negative free cash flow (-$7.5M), and deteriorating shareholder value (EPS -56.2% YoY). The disconnect between positive net income and negative operating cash flow raises concerns about earnings quality and sustainability, coupled with high debt leverage (1.19x D/E) relative to minimal cash reserves.
Strengths
- Exceptional gross margin of 94.3% demonstrates strong pricing power and operational efficiency
- Solid interest coverage ratio of 8.9x indicates manageable debt service capability
- Healthy liquidity position with current and quick ratios at 1.88x
Risks
- Critical: Negative operating cash flow (-$5.1M) and free cash flow (-$7.5M) despite positive accounting earnings signals potential quality-of-earnings issues
- Revenue declining year-over-year (-2.6%) with stagnant net income growth, indicating business contraction
- Severe shareholder dilution with EPS collapsed 56.2% YoY while net income remained flat; ROE and ROA remain weak at 6.5% and 2.1%
- High financial leverage (Debt/Equity 1.19x) with low cash buffer ($6.1M) relative to $78.8M long-term debt
Key Metrics to Watch
- Operating cash flow and free cash flow trends - resolution of cash burn despite profitability is critical
- Revenue growth trajectory - current decline must reverse to justify debt levels
- Debt reduction progress and refinancing needs - assess sustainability of current leverage
- Working capital management and cash conversion cycle - understand source of operational cash drain
Financial Metrics
Revenue
68.8M
Net Income
4.3M
EPS (Diluted)
$0.17
Free Cash Flow
-7.5M
Total Assets
204.4M
Cash
6.1M
Profitability Ratios
Gross Margin
94.3%
Operating Margin
13.0%
Net Margin
6.2%
ROE
6.5%
ROA
2.1%
FCF Margin
-10.9%
Balance Sheet & Liquidity
Current Ratio
1.88x
Quick Ratio
1.88x
Debt/Equity
1.19x
Debt/Assets
67.7%
Interest Coverage
8.87x
Long-term Debt
78.8M
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-07T09:11:40.970180 |
Data as of: 2026-03-27 |
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