November 1, 2006
Miami, FL - November 1, 2006 - Answerthink, Inc. (Nasdaq: ANSR), a strategic business advisory and technology consulting firm, today announced its preliminary financial results for the third quarter, which ended September 29, 2006, and said it will likely delay the filing of its Quarterly Report on Form 10-Q, which is due on November 8, 2006, pending the results of an internal investigation, described below, into the misappropriation of funds transferred to an agent to disburse payroll, payroll taxes and vendor payments in the United Kingdom. The following results of operations exclude any impact related to the outcome of the ongoing investigation described below and the completion of the required quarterly review procedures by the Company's independent public accountants, BDO Seidman, LLP. These preliminary results may differ materially from results that the Company reports when it files its Quarterly Report on Form 10-Q for the quarter ended September 29, 2006.
Third quarter revenue was $43.6 million, a 9% increase from the same period in 2005. Diluted earnings per share were $0.01 compared to $0.05 per share in the third quarter of 2005. Pro forma diluted earnings per share were $0.03, compared to $0.05 in the third quarter of 2005. Pro forma information is provided to enhance the understanding of the Company's financial performance and is reconciled to the Company's GAAP information in the accompanying tables.
For the first nine months of 2006, revenues were $142.4 million, a 20% increase from the first nine months of 2005. Diluted loss per share was $0.07, compared to diluted earnings of $0.04 for the same period in the previous year. The 2006 and 2005 results include restructuring costs of $0.14 and $0.03 per diluted share, respectively, related primarily to an increase in previously established restructuring reserves for the consolidation of facilities. Pro forma diluted earnings per share were $0.12, compared to $0.09 in the same period of the previous year.
The Company's cash balances, including restricted cash and marketable investments, were $21.1 million at the end of the third quarter of 2006. During the quarter, the Company spent $1.7 million to repurchase 623,500 shares of the Company's common stock. As of the end of the third quarter of 2006, $6.1 million remained available under the Company's share repurchase program authorization.
"Notwithstanding the recent events involving our United Kingdom operations, we continue to make progress to transform our business model around our unique best practice intellectual capital," said Ted A. Fernandez, Chairman and CEO of Answerthink. "This was most evident in the strong growth in revenue and annualized contract value we reported in our membership advisory business which has been our strategic emphasis throughout 2006."
Based on the current economic outlook, the Company estimates total revenues for the fourth quarter of 2006 to be in the range of $39 million to $41 million. The Company also estimates pro forma diluted earnings per share to be in the range of $0.00 to $0.02. Those projections exclude the Lawson business applications implementation practice operations post October 30, 2006 as well as any charges and expenses incurred as a result of the ongoing UK investigation. On October 30, 2006, the Company completed the transfer of the majority of its Lawson practice employees to Lawson Software Americas, Inc.
On or about October 26, 2006, the Company learned of a misappropriation by its former UK disbursement agent which relates to funds earmarked for payroll taxes due to the United Kingdom Inland Revenue. The disbursement agent had been utilized by the Company from early 2003 to January 2006 to make payroll, payroll tax and vendor disbursements in the United Kingdom.
After further investigation, the agent has admitted to the misappropriation of the funds. A suit was commenced against the agent in the United Kingdom on October 27, 2006, and certain assets of the former agent have been frozen. The former disbursement agent has offered to pledge, as security, assets equal to a significant portion of the Company's claim. We cannot predict the outcome of this suit or whether our efforts to recover the misappropriated funds will be successful, notwithstanding the offer to pledge these assets. The Company has commenced an internal review to assure that the full extent of the misappropriation is confirmed. The Audit Committee will also conduct its own review of this matter, with the assistance of outside professionals.
The Company estimates the total payroll taxes that should have been paid to the UK Inland Revenue and which were remitted to the disbursement agent for payment for the period in question to be approximately $2 million. There can be no assurance that the Company's actual exposure is limited to these matters or the actual exposure for these tax matters will not increase materially from the estimate provided above or that these amounts will not need to be recorded in prior periods, namely 2003, 2004 and 2005.
The Company indicated that it will likely delay the filing of its Quarterly Report on Form 10-Q for the third quarter, which is due on November 8, 2006 in order to allow for the Audit Committee's independent review and the Company's review of these issues to be concluded and for the required quarterly review procedures to be completed by its independent public accountants BDO Seidman. The Company is unable to predict the ultimate outcome of the review, or the timing of its conclusion. The Company will also consider, in consultation with BDO Seidman, and its former independent public accountants prior to August 2005 as to whether any restatement of prior-period financial statements would be required under generally accepted accounting principles with respect to the matters described above. In addition, the Company has commenced a review of the Company's internal control over financial reporting, including, in particular, its controls over foreign cash disbursements, and whether there has been any material weakness in the Company's internal controls in 2006 and prior periods.
The Company expects to incur expenses in the fourth quarter of 2006 as a result of these matters, including increased legal and accounting costs in the quarter and the fees and expenses in connection with the reviews referenced above. At this time, we cannot predict the amount of such expenses. The actual amount of these expenses will have an impact on the Company's actual fourth quarter results.
Total Working Capital Research - Hackett-REL announced research findings showing that the top 1,000 U.S. companies liberated $72 billion of cash in 2005 by enhancing the way they collect bills from customers, pay suppliers, and manage inventory. In stark contrast, after several years of consistent improvement, the 1,000 largest companies in Europe have now virtually stalled in their working capital improvement efforts, potentially leaving as much as §500 billion in excess working capital untapped. Findings from these research efforts were featured in CFO Magazine and CFO Europe.
Enterprise Performance Management Research - Hackett Book of Numbers analysis found that executives can more than double their company's equity market returns and drive higher stock price, larger dividends, and significantly lower operating profit volatility by improving enterprise performance management (EPM) capabilities, including planning, budgeting, forecasting and reporting, to world-class levels. At the same time, Hackett found that typical companies are to a large extent "flying blind" due to poor EPM performance, despite the fact that they spend more than twice as much as world-class companies on planning and performance management processes and operate with more than twice the staff.
Supplier Diversity Research - A Hackett study found that increasing the reliance on women- and minority-owned businesses as suppliers does not cost leading procurement organizations more. In fact, some cutting-edge companies find quite the opposite is true, and are finding ways to use supplier diversity to drive new sources of revenue.
Precimed Go-Live - Answerthink announced that Precimed, Inc. has gone live with EzMed, a mySAP All-in-One solution from Answerthink that is preconfigured with best practices and functionality specifically for growing medical device manufacturers. The solution is being hosted for Precimed by SAP Managed Solutions under a 36-month contract.
IT Transformation for International Mining Conglomerate - This client selected the Company for an IT benchmarking and transformation engagement designed to establish a template for broader performance management improvements. Hackett will help the client evaluate existing quality management processes, and assist in the development of a balanced scorecard integrating efficiency and effectiveness metrics and also comparisons with other companies. In support of this effort, the client has also become a member of Hackett's IT Executive Advisory Program to provide continuing and consistent access to performance metrics and detailed information on proven best practices.
World-Class G&A Program for Global Chemical Company - This client selected the combination of a worldwide G&A benchmark and three years of our membership Enterprise Advisory Program in Finance, IT, procurement and HR. The initiative is being driven by a mandate from their new CEO to reduce overhead costs to further profitability, in part to address competition and some commoditization in segments within their markets and to protect margins.
Hyperion Implementation for Multinational Insurance Provider - This client selected the Company for a comprehensive implementation of Hyperion Financial Management, as an upgrade from their existing Hyperion Enterprise system. The new system will improve the company's consolidated financial reporting processes.
G&A Benchmark & Advisory for Networking Software Company - This client selected the Company to perform a G&A benchmark and develop a high-level future state roadmap for back-office operations. The client also became a member of our Executive Advisory Programs in Finance, IT, Procurement, and HR. The client's goal is to address flat revenue growth by reducing G&A expenses as part of a larger effort to dramatically increase profit margins.
EzMed mySAP Implementation for Medical Products Distributor - This client purchased EzMed, a mySAP All-in One solution from Answerthink preconfigured with best practices and functionality specifically for medical device companies. The solution is replacing the client's custom software application.
At 5:00 P.M. ET on Wednesday, November 1, 2006, the senior management of Answerthink will host a conference call to discuss third quarter earnings results for the period ending September 29, 2006.
The number for the conference call is (888) 324-2912, (Passcode: Third Quarter, Leader: Ted A. Fernandez). For International callers, please dial (210) 234-0003.
Please dial in at least 5-10 minutes prior to start time. If you are unable to participate on the conference call, a rebroadcast will be available beginning at 8:00 P.M. ET on Wednesday, November 1, 2006 and will run through 5:00 P.M. ET on Wednesday, November 15, 2006. To access the rebroadcast, please dial (866) 360-8717. For International callers, please dial (203) 369-0181.
In addition, Answerthink will also be webcasting this conference call live through the StreetEvents.com service. To participate, simply visit http://www.answerthink.com approximately 10 minutes prior to the start of the call and click on the conference call link provided. An online replay of the call will be available after 8:00 P.M. ET on Wednesday, November 1, 2006 and will run through 5:00 P.M. ET on Wednesday, November 15, 2006. To access the call, visit http://www.answerthink.com or http://www.streetevents.com
Answerthink, Inc. (www.answerthink.com) is a leading business and technology consulting firm that enables companies to achieve world-class business performance. By leveraging the comprehensive database of The Hackett Group, Answerthink's business and technology solutions help clients significantly improve performance and maximize returns on technology investments. Answerthink's capabilities include benchmarking, business transformation, business applications, business intelligence, and offshore application development and support. Founded in 1997, Answerthink has offices throughout the United States and in Europe and India.
The Hackett Group, a strategic advisory firm, is a global leader in best practice research, benchmarking, and business transformation services that enable world-class performance across selling, general & administrative (SG&A) and supply chain activities. Through the acquisition of REL Consultancy Group, we offer Hackett-REL Total Working Capital services to liberate cash flow from operations. Hackett provides strategic insight, best practice advice and implementation services grounded in performance metrics obtained through 14 years and 3,500 benchmark studies at 2,100 of the world's leading companies.
This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and involve known and unknown risks, uncertainties and other factors that may cause The Hackett Group's actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. Factors that impact such forward-looking statements include, among others, the ability of our products, services, or practices mentioned in this release to deliver the desired effect, 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 cancellations by our customers, changes in expectations regarding the information technology industry, our ability to attract and retain skilled employees, possible changes in collections of accounts receivable, risks of competition, price and margin trends, foreign currency fluctuations, changes in general economic conditions and interest rates as well as other risks detailed in our Company's Annual Report on Form 10-K for the most recent fiscal year filed with the Securities and Exchange Commission. 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.