The Hackett Group, Inc. Annual Report 2019

← All annual reports

FY2019 Annual Report · The Hackett Group, Inc.

Loading PDF…

“We are very proud of the fact that we

continued to generate strong proﬁtability and

cash ﬂows from operations. This has allowed

us to increase our dividend, buy back stock

and have capital available to fund acquisitions,

while ﬁnishing the year with a strong cash

position and no debt.”

Ted A. Fernandez
Chairman & CEO

Dear Shareholders,

Although we did not grow our revenues or proﬁts as
expected in 2019, I am pleased that we optimized
performance. We reported solid operating results and
strong cash ﬂow from operations and are very well-
positioned going into the new year.

Total U.S. ﬁscal year revenues were up 3%, in spite
of the diminishing impact from the Oracle on-premise
revenue decline. More importantly, it now appears that
the headwinds from the Oracle on-premise decline will
be immaterial by midyear 2020.

Strategy and Business Transformation (S&BT) activity
continued to be solid as companies continue to pursue
enterprise digital transformation initiatives. In our
ERP, EPM and Analytics (EEA) Group, strong growth
in Oracle Cloud ERP multitier deals, which are larger
and broader, as well as strong SAP S/4HANA activity,
continued to build, along with an emerging contribution
from our promising OneStream group.

On the international front, Europe continued to be
challenging. Throughout 2019, the Brexit dispute
and uncertainty affected client decision-making.
Accordingly, we took the appropriate actions prior
to year-end to adjust our costs to be in line with our
current revenue and market demand and protect
our overall results into 2020. With that said, the UK
election results from late 2019 should provide the
clarity needed to allow business demand to return
to a more normalized level as the year progresses.
However, we know we will have challenging European
revenue comparisons impacting our total growth rate
through the second quarter of 2020.

On a longer term-basis, the rapid developments in
digital transformation – along with emerging enterprise
cloud applications, workﬂow automation, process
mining, and artiﬁcial intelligence – are dramatically
inﬂuencing the way businesses compete and deliver
their services. Traditional sequential and linear-based

business models are changing to fully digital and
dynamic automated workﬂows and events with
enhanced intelligence. Digital transformation is
redeﬁning entire industries at an accelerated pace,
forcing organizations to fundamentally change and adopt
these new capabilities in order to remain competitive.

This era is very attractive to our organization since we
believe our clients will increasingly turn to us to provide
them with best practice insight on what technology
can deliver and what changes in business models work
and justify signiﬁcant investments.

As we look forward, the investments we have made in
Quantum Leap, our digital benchmarking-as-a-service
platform, have allowed us to further differentiate The
Hackett Group as the global enterprise benchmarking
leader. This new platform allows us to deliver more
information with signiﬁcantly less client effort. It also
allows clients to leverage our intellectual property
(IP) to frame and track transformation initiatives over
the life of their respective effort. We believe that
there is no comparable platform in the market. We
also released our Digital Transformation Platform,
or DTP, to further differentiate how we deliver our
unique IP and related capabilities. DTP allowed us to
fully digitize our best practices IP and align proven
software conﬁguration and organizational solutions to
help clients drive transformational change. DTP has
been instrumental in many of our recent business
transformation and cloud implementation wins.

• These investments, along with our Oracle ERP,

S/4HANA, Coupa, OneStream and RPA investments,
to name a few, have allowed us to position ourselves
for the digital transformation era. Our focus remains
on the growth opportunities in the year ahead,
which we are very well-positioned for. With that
as a backdrop, excluding any unknown coronavirus
impact, we are excited about our prospects for 2020.
Let me share some of the reasons why: The Oracle

on-premise headwinds should be substantially gone
by the end of the second quarter, and we have
addressed the volatility in Europe. We believe that
both the S&BT and EEA businesses in the U.S. should
continue to grow throughout the year. Additionally, as
the Europe impact fully subsides by midyear, our total
company revenues should achieve a 5%-10% long-
term growth rate.

• Within S&BT, the Benchmarking and Executive
Advisory practices, strengthened by Quantum
Leap and our Digital Transformation Platform,
are considered our “wedge” offerings and good
indicators of the momentum of the business.
In 2019, both of these practices in the U.S. had
revenue or annual contract value growth in excess
of 10%, which we believe bodes well for the rest
of the business.

• Within EEA, our Oracle ERP acquisition on the West
Coast has been fully integrated and grew strongly in
2019, leading the momentum of larger and broader
multi-pillar Oracle deals. Given this success we
are aggressively looking for ways to expand our
Oracle ERP capabilities on the East Coast. Our
SAP business also ﬁnished the year strong and has
momentum into our ﬁrst quarter of the new year.
Additionally, last year we launched our OneStream
EPM practice and within the ﬁrst 12 months we
have already achieved Platinum status consistent
with our growing market success.

• Relative to Europe, we believe the election in the
UK and phase one trade deal with China should
provide the stability for increased business demand,
which should begin to be accretive in the back half
of the year.

Strategically, our focus is to continue to build our brand
with new offerings and capabilities focused on digital
transformation around our fully digitized and unmatched
benchmarking and best practices intellectual capital.
This should allow us to serve our clients strategically
and whenever possible, continuously.

Given the success of our existing partner initiatives
and improved functionality that we continue to add
to our Quantum Leap and DTP platforms, we believe
we will attract other strategic partners to similar
programs. We continue to launch paid pilot initiatives
with new partners that will further demonstrate our
unique capabilities and unmatched credibility, which
our brand brings to any digital transformation business
case assessments.

We are very proud of the fact that we continued to
generate strong proﬁtability and cash ﬂows from
operations. This has allowed us to increase our
dividend, buy back stock and have capital available to
fund acquisitions, while ﬁnishing the year with a strong
cash position and no debt.

Lastly, even though we believe that we have the client
base and offerings to grow our business, we continue
to look for acquisitions and alliances that strategically
leverage our IP and add scope, scale or capability,
which can accelerate our growth.

As always, let me close by thanking our associates
and shareholders for their ongoing support and
commitment to our organization. It is truly appreciated!

Ted A. Fernandez
Chairman & CEO
The Hackett Group, Inc.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(cid:1800)(cid:1800)

(cid:1798)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED December 27, 2019

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

FOR THE TRANSITION PERIOD FROM

COMMISSION FILE NUMBER 333-48123

The Hackett Group, Inc.

(Exact name of registrant as specified in its charter)

FLORIDA
(State or other jurisdiction of
incorporation or organization)

1001 Brickell Bay Drive, Suite 3000
Miami, Florida
(Address of principal executive offices)

65-0750100
(I.R.S. Employer
Identification No.)

33131
(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
Common Stock, par value $.001 per share

Trading Symbol(s)
HCKT

Name of each exchange on which registered
NASDAQ Stock Market

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:1407) No (cid:1409)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange

Act. Yes (cid:1407) No (cid:1409)

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 requirements for the past 90 days. Yes (cid:1409) No (cid:1407)

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 (cid:1409) No (cid:1407)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”, and
“emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer
Non-accelerated Filer
Emerging growth company

(cid:1407)
(cid:1407)
(cid:1407)

Accelerated Filer
Smaller reporting company

(cid:1409)
(cid:1407)

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. (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:1407) No (cid:1409)
The aggregate market value of the common stock held by non-affiliates of the registrant was $364,748,070 on June 28, 2019 based on the last

reported sale price of the registrant’s common stock on the NASDAQ Global Market.

The number of shares of the registrant’s common stock outstanding on March 2, 2020 was 30,033,782.

DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by reference certain portions of the registrant’s proxy statement for its 2019 Annual Meet-
ing of Shareholders to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this report.

Page

4
11
16
16
16
16

16
18
20
28
29
59
59
62

62
62
62
62
62

63
63
64
66

Business

ITEM 1.
ITEM 1A. Risk Factors
ITEM 1B. Unresolved Staff Comments
ITEM 2.
ITEM 3.
ITEM 4. Mine Safety Disclosures

Properties
Legal Proceedings

THE HACKETT GROUP, INC.
TABLE OF CONTENTS

FORM 10-K
PART I

PART II

Selected Financial Data

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
ITEM 6.
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
ITEM 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
ITEM 9.
ITEM 9A. Controls and Procedures
ITEM 9B. Other Information

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance
ITEM 11.
ITEM 12.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
ITEM 14.

Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Principal Accounting Fees and Services

Exhibits and Financial Statement Schedules
Form 10-K Summary

ITEM 15.
ITEM 16.
Index to Exhibits
Signatures

PART IV

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report and the information incorporated by reference in it include “forward-looking statements” within the meaning of Sec-
tion 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend the forward-looking state-
ments to be covered by the safe harbor provisions for forward-looking statements in these sections. All statements regarding our ex-
pected 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 mate-
rially different from the results, performance or achievements expressed or implied by the forward-looking statements. We cannot
promise you that our expectations in such forward-looking statements will turn out to be correct. Factors that could impact such for-
ward-looking statements include, among others, our ability to attract additional business, the timing of projects and the potential for
contract cancellation by our customers, changes in expectations regarding the business 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 Brexit on our
business and changes in general economic conditions, interest rates and our ability to obtain additional debt financing if needed. An
additional description of our risk factors is described in Part I – Item 1A. “Risk Factors”. 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.

ITEM 1. BUSINESS

GENERAL

PART I

In this Annual Report on Form 10-K, unless the context otherwise requires, “The Hackett Group”, “Hackett,” the “Company,”

“we,” “us,” and “our” refer to The Hackett Group, Inc. and its subsidiaries and predecessors. We were originally incorporated on April
23, 1997.

The Hackett Group is an intellectual property-based strategic consultancy and leading enterprise benchmarking and best prac-

tices implementation firm serving global companies. Services include benchmarking, executive advisory, business transformation,
enterprise performance management, training and advisory to global business services. The Hackett Group also provides dedicated
expertise in business strategy, operations, finance, human capital management, strategic sourcing, procurement, and information tech-
nology, including its award-winning Oracle and SAP practices.

The Hackett Group has completed more than 17,850 benchmarking and performance studies with major organizations, including

93% of the Dow Jones Industrials, 90% of the Fortune 100, 80% of the DAX 30 and 57% of the FTSE 100. These studies drive our
Digital Transformation Platform (“DTP” or “Hackett DTP”) which includes the firm's benchmarking metrics, best practices reposi-
tory, and best practice configuration and process flow accelerators, which enable The Hackett Group’s clients and partners to achieve
world-class performance.

The rapid development and move to cloud applications and infrastructure along with improving analytics, mobile functionality

and enhanced user experience is dramatically influencing the way businesses compete and deliver their services. This is redefining
entire industries at an accelerated pace, forcing organizations to fundamentally change and adopt these new capabilities in order to
remain competitive. Traditional sequential and linear-based business models are changing to fully networked and dynamic automated
workflows and events with enhanced analytics. This era is very attractive to our sector since we believe clients will increasingly re-
quire organizational and technology implementation insight on what technology can deliver and what changes in business models are
required to justify significant investments.

We have repositioned all of our offerings to the emerging digital transformation opportunities which started by digitizing all of
our benchmarking and best practices intellectual property (“IP”). We wanted to deliver our proprietary insight in new ways and to do
so efficiently and whenever possible, virtually. This also required us to change the way we go to market and engage clients, as well
as added additional software implementation partners. Specifically,

(cid:120)

Expanded Cloud Capabilities - We expanded our Oracle Cloud applications addressable market from Enterprise
Performance Management (“EPM”) to include Enterprise Resource Planning (“ERP”) and the entire Oracle
Cloud applications suite through the acquisition of Jibe Consulting. This move quadrupled our Oracle Cloud
addressable market and positioned us as a strategic Oracle Cloud applications consultancy. We have also ex-
panded our alliance partners to include Coupa and Ariba in Procurement, as well as OneStream in EPM and
Corporate Performance Management (“CPM”).
In regard to SAP, we were an early provider of S4 HANA
which has allowed us to quickly transition our implementation skills and benefit from the SAP migration to the
Cloud.
Launched Quantum Leap (“QL”) – We launched our next generation benchmarking and continuous improve-
ment software as a service solution. This market leading benchmark solution allows us to improve the client
experience by delivering twice the insight and reducing the client effort by half, thus redefining our benchmark-
ing leadership.
Launched the Hackett Digital Transformation Platform - This required us to further digitize our IP and the way
we shared and delivered our IP with our clients across our benchmarking, advisory, transformation and Cloud
ERP and EPM application solutions. The Hackett DTP improves efficiency by accelerating the speed to value
by helping an organization achieve their performance targets through a combination of benchmark metrics, best
practices and configuration and process flow accelerators in a fully automated platform.
Expanded our IP as a Service Revenue - We believe our DTP platform should allow us to attract new alliance
partners that can leverage our unique benchmarking and best practices IP to help them differentiate and sell
their software or services solutions.
Expanded Smart Automation Capabilities – We expanded our ability to help clients assess and implement the
rapidly emerging Workflow and Robotics Process Automation (“RPA”) and related smart automation technolo-
gies.
Launched the Hackett Institute and acquired the joint venture interest of our CGBS Program - We moved our
training content to a state-of-the-art learning management system, which we believe is better aligned with our
client demands. Given the unique nature of our best practice content and the favorable market reaction to our
Certified Global Business Services (“CGBS”) offerings, we believe that continuing education creates another
way to leverage our IP and grow our organization. In addition, we have added an RPA course to our curriculum.

We continue to expect one of the key drivers for our growth to come from the growing leverage of our so called “wedge” or IP

as a Service offerings, which include our Benchmarking and Best Practices Advisory, as well as our IP as a Service platform offerings.
This has been driven by our new software platforms which include our benchmark solution, Quantum Leap, as well as the launch of
the Hackett DTP.

OUR PROPRIETARY BEST PRACTICE IMPLEMENTATION INTELLECTUAL CAPITAL

Hackett uses its proprietary Benchmarking enterprise performance metrics and best practices repository intellectual capital to

help clients improve their performance. Our benchmark offerings allow clients to empirically quantify their performance improvement
opportunity at an actionable level. It also provides us visibility into how leading global companies deploy technology or organizational
strategies to optimize their performance. This insight results in a proprietary Best Practices Repository, as well as, best practice soft-
ware configuration and organizational strategies which are only available from the unique vantage point provided from our Bench-
marking/Quantum Leap solutions. Utilizing the benchmarking metrics and repository of best practices, combined with the global
strategy and implementation insight of our transformation and technology associates, Hackett has also created a series of organiza-
tional and technology accelerators that allow clients to effect proven sustainable performance improvement.

During 2017, we launched the first version of the Hackett DTP which resulted in our new way to share and leverage our IP in a

single platform. This required us to further digitize much of our intellectual capital and the way we shared it with our clients across
our benchmarking, advisory, transformation and Cloud ERP and EPM application solutions. Our ability to fully digitize our IP and
align proven technology and organizational solutions to help clients drive transformational change allows us to highly differentiate our
offerings. It also allows us to engage and support clients more efficiently, remotely, and where appropriate continuously.

Our Hackett DTP leverages our inventory of Hackett-Certified™ best practices, observed through benchmark and other business

transformation engagements, which correlate best practices with superior performance levels. We utilize Capability Maturity Models
to better understand our clients’ capabilities and organizational maturity so that we can determine the level of performance that they
can realistically pursue. In addition, we utilize Hackett’s intellectual capital in the form of best practice process flows and software
configuration guides to integrate Hackett’s empirically proven best practices directly into business processes and workflows that are
enabled by enterprise software applications. The repository of best practice process flows and software configuration guides now re-
side in the new releases of our DTP. This allows us to utilize our IP on client engagements to ensure that best practices are identified
and implemented, whenever possible. This coordinated approach addresses people, process, information and technology, all within the
framework of our Best Practices.

Because Hackett solutions are based on Hackett-Certified™ best practices, we believe that clients gain significant advantages.

Clients can have confidence that their solutions are based on strategies from the world’s leading companies. More importantly, Hack-
ett’s solutions deliver enhanced efficiency, improved effectiveness and reduced implementation risk.

The Hackett DTP, often begins with an assessment of a client’s performance, which is normally gained through benchmarking
key processes and comparing the results to world-class levels and industry standards captured in the Hackett performance metrics da-
tabase. We then help clients prioritize and select the appropriate best practices to implement through a coordinated performance im-
provement strategy. Without a coordinated strategy that addresses the seven key business components which include organization and
governance, process design, process sourcing, service placement, information, enabling technology and skills and talent, we believe
companies risk losing a significant portion of business case benefits with their investments. We have designed detailed best practice
process flows based on Hackett’s deep knowledge of world-class business performance. This enables clients to streamline and auto-
mate key processes and generate performance improvements quickly and efficiently at both the functional and enterprise levels.

Similarly, we integrate Hackett-Certified™ best practices directly into technology solutions. We believe it is imperative that

companies simplify and automate processes to meet best practice standards before new technology implementations and upgrades are
completed. The automation of inefficient processes only serves to continue to drive up costs, cycle times and error rates. We have
completed detailed fit-gap analyses in most functional areas of major business application packages including Oracle, SAP and other
Enterprise applications to determine their ability to support best practices. Application-specific tools, implementation guides and pro-
cess flows allow us to optimize the configuration of best of breed software. Hackett DTP enables the foundation for improved perfor-
mance.

We believe the combination of optimized processes, best practice-based business applications and enhanced business analytics

environments allow our clients to achieve and sustain significant business performance improvement. The specific client circum-
stances normally dictate how they engage us. Our goal is to be responsive to client needs, and to establish a continuous and trusted
relationship. We have developed a series of offerings that allow us to efficiently help the client without regard to where they are in
their performance improvement lifecycle.

COMPETITION

The strategic business advisory and technology consulting marketplace continues to be extremely competitive. The marketplace
will remain competitive as companies continue to look for ways to improve their organizational effectiveness. Our competitors include
international accounting firms; international, national and regional strategic consulting and systems implementation firms; and the IT
services divisions of application software firms. Mergers and acquisitions throughout our industry have resulted in higher levels of
competition. We believe that the principal competitive factors in the industries in which we compete include: skills and capabilities of
people, innovative services and product offerings, perceived ability to add value, reputation and client references, price, scope of ser-
vices, service delivery approaches, technical and industry expertise, quality of services and solutions, ability to deliver results on a
timely basis, availability of appropriate resources, and global reach and scale. We acknowledge that many of our competitors are
larger, however we believe very few, if any, of our competitors have proprietary intellectual capital similar to the benchmarking-based
performance metrics Quantum Leap delivers and the insight within the Hackett DTP that supports our Transformational Benchmark,
Best Practices Advisory and Business Transformation and Technology offerings.

In spite of our size relative to our competitor group, we believe our competitive position is distinct. With Hackett’s best practice
intellectual capital and our QL and DTP platforms, we believe we can empirically and digitally assist our clients. Our ability to apply
best practices and benchmarking metrics to client operations via proven techniques is at the core of our competitive standing.

Similarly, we believe that Hackett is the definitive source for best practice performance metrics and strategies. Hackett has con-

ducted more than 17,850 benchmark and performance studies over 26 years at over 6,420 clients, generating proprietary data sets
spanning multiple performance metrics and correlating best practices with superior performance. The combination of Hackett bench-
mark data, along with deep expertise and knowledge in evaluating, designing and implementing business transformation strategies
leveraging our proprietary Best Practices Repository and other accelerators within DTP, delivers a powerful and distinct value propo-
sition to our clients.

Our culture of client collaboration leverages the power of our cross-functional and service line teams to increase revenue and

strengthen relationships. We believe that this culture, along with terrific talent and with our intellectual capital-centric approach, gives
us a distinct competitive advantage.

STRATEGY

We remain focused on executing the following strategies:

(cid:120)

Expanding our brand or market permission to our other offerings. We believe that our long-term growth prospects de-
pend on our ability to extend our unique market permission to help clients and strategic partners measure their perfor-
mance improvement opportunity using our proprietary benchmark database into our other offerings. We have started to
extend our permission through the strategic relationship that results from our Best Practices Advisory Programs. However,
our most significant growth opportunity is in our ability to extend our brand and market permission into our enterprise
transformation and other best practice implementation offerings which create more opportunities to grow revenue per cli-
ent.

Continue to position and grow Hackett as an IP-centric strategic advisory organization. We believe that the Hackett
brand is widely recognized for benchmarking metrics and best practice strategies. By building a series of highly comple-
mentary on-site and off-site offerings that allow our clients’ access to our IP which is based on our best practice process
and technology implementation insight, we are able to build trusted strategic relationships with our clients. Depending
upon where our clients are in their assessment or implementation of performance improvement initiatives, we offer them a
combination of offerings that support their efforts.

We believe that clients that leverage our IP are more likely to allow us to serve them more broadly. IP-based services
enhance our opportunities to serve clients remotely, continuously and more profitably. Our goal is to use our unique intel-
lectual capital to establish a strategic relationship with our clients directly or through strategic alliances and channels and
to further use that entry point to introduce our business transformation and technology capabilities.

The launch of Quantum Leap and the Hackett DTP should expand and hopefully attract new alliance partners that can
leverage our unique benchmarking and best practices, software configuration and process flow IP to help them differenti-
ate and sell their software or services solutions. At the end of the fourth quarter of 2019 our Executive and Best Practice
Advisory, including our clients served through strategic partners was approaching 1,000 clients. This includes the hun-
dreds of additional clients that we now serve through our IP as a Service alliances and training solutions.

If our clients need off-site access to our IP and advisors to help them either assess or execute on their own, they can avail
themselves of our Best Practices Advisory Programs or our new IP-as-a-Service offerings. The key is for the client to
know that we can support them strategically by leveraging our unique IP and insight so that we are able to build a strate-
gic relationship which is appropriate for them. We also believe that clients that value our IP will turn to us for other ser-
vices when the need arises, allowing us over time to ascribe a larger amount of our total revenue to our existing client
base, which will improve the predictability of our results. We continue to explore ways to leverage our IP through new
external strategic partners and their channels.

(cid:120)

Introduce New IP–centric Offerings. We are now seeing new opportunities through new strategic alliances and channels
to use our IP to help others sell and deliver their offerings. In recent years we have launched a series of such alliances as
described below:

In 2015, we launched a program with ADP that added a dedicated Hackett Best Practices advisory program to ADP’s
Vantage HCM solution which has now expanded to cover their Workforce Now offering. Given our success with ADP
and our investment in DTP, we are now in a stronger position to attract new alliance partners and to support and acceler-
ate their sales initiatives as well as and their clients’ continuous improvement efforts. We believe this capability is unique
to Hackett given our strong brand permissioning and benchmarking and best practice capability and technology.

In late 2015, we also launched the Association of Certified GBS Professionals Program with the Chartered Institute of
Management Accountants (“CIMA”). This relationship allowed us to build an entirely new professional development
business that provided globally recognized certifications for shared services and global business service professionals. As
a result of the favorable market reaction to the way our IP was used as the core training content for this program, in 2017,
we launched The Hackett Institute and acquired CIMA’s interest in this program. This allowed us to develop our own
certification brand and standard. Additionally, we moved our CGBS program to a new state of the art learning manage-
ment system that will allow us to better meet our large global clients’ requirements. We believe that training and certifi-
cation is a great way to leverage our IP in a high gross margin revenue growth area for our business.

(cid:120)

Given the unique nature of our Best Practice content and the recognized value we have experienced with our CGBS offer-
ings we now believe that continuing education provides an additional way to grow our organization.

Continue to expand our QL/DTP Content and Technology. DTP incorporates intellectual capital from Hackett into our
implementation tools and techniques. For our clients, the end results are tangible cost and performance gains and im-
proved returns on their organizational and technology investments. Many clients attribute their decision to employ us to
our IP and accelerators. Our objective is to help clients make smarter business process and software configuration deci-
sions as a result of our methods and knowledge. We are continuously updating our content and tools through benchmark-
ing, enterprise transformation and research activities. Additional updates are also driven by new software releases that
drive innovation in business process automation. We have invested in the automation and further integration of our vari-
ous metrics, best practices and best practice acceleration tools into DTP. This effort will continue in 2020.

Recruit and develop talent. As we continue to grow and realize the potential of our business model, it has become in-
creasingly evident that the primary limit to our growth will be our ability to attract, retain, develop and motivate associ-
ates. We continue to invest in associate development programs that are specifically targeted to improve our go-to-market
and delivery execution.

Leverage our offshore capabilities. Leveraging an offshore resource capability to support the delivery of our offerings
has been a key strategy for our organization. Our facilities in Hyderabad, India and Montevideo, Uruguay allow us to in-
crease operational efficiencies and build targeted key capabilities that can appropriately support the delivery of our offer-
ings and internal functional teams.

Seek out strategic acquisitions. We will continue to pursue strategic acquisitions that strengthen our ability to compete
and expand our IP. We believe that our unique Hackett access and our QL/DTP approach, coupled with our strong balance
sheet and infrastructure, can be utilized to support a larger organization. We plan to pursue acquisitions that are accretive
or have strong growth prospects, and most importantly, have strong synergies with our best practice intellectual capital
focus.

OUR OFFERINGS

We offer a comprehensive range of services, including executive advisory programs, benchmarking, business transformation
and technology consulting services. With strategic and functional knowledge in finance, human resources, information technology,
procurement, supply chain management, corporate services, customer service, and sales and marketing, our expertise extends across
the enterprise. We have completed successful engagements in a variety of industries, including automotive, consumer goods, financial
services, technology, life sciences, manufacturing, media and entertainment, retail, telecommunications, transportation and utilities.

The Hackett Group

STRATEGY & BUSINESS TRANSFORMATION GROUP

(cid:120)

Executive and Best Practices Advisory Programs

Our Advisory programs provide on-demand access to world-class performance metrics, peer-learning opportunities and best
practice implementation advice. The scope of Hackett’s advisory programs is defined by business function (Executive Advisory), end-
to-end process coverage (Process Advisory) and dedicated partner platforms. Our advisory programs include a mix of the following
deliverables:

(cid:120)

Best Practice Intelligence Center: Online, searchable repository of best practices, performance metrics, conference
presentations and associated research available to Executive and Best Practices Advisory Program Members and their
support teams.

Best Practice Accelerators: Dedicated web-based access to best practices, customized software configuration tools, best
practice process flows used to support the sale, configuration and organizational implementation and post implementation
support efforts of partner software.

Advisor Inquiry: Hackett’s inquiry services are used by clients for quick access to fact-based advice on proven ap-
proaches and methods to increase the efficiency and effectiveness of selling, general and administrative processes.

Best Practice Research: Empirically based research and insight derived from Hackett benchmark, performance and trans-
formation studies. Our research provides detailed insights into the most significant proven approaches in use at world-
class organizations that yield superior business results.

Peer Interaction: Regular member-led webcasts, annual Best Practice Conferences, annual Member Forums, membership
performance surveys and client-submitted content provide ongoing peer learning and networking opportunities.

Introduction of New IP- centric Offerings: We are continuing to seek new opportunities through strategic alliances and
channels to use our IP to help others sell and deliver their products, such as those offered through dedicated partner and
Hackett Institute programs. We continue to look for other potential programs through which to introduce new IP-centric
offerings.

(cid:120)

Benchmarking Services

Our benchmarking group dates back to 1991 and has measured and evaluated the efficiency and effectiveness of enterprise func-

tions for over 6,420 organizations globally. This includes 93% of the Dow Jones Industrials, 90% of the Fortune 100, 80% of the
DAX 30 and 57% of the FTSE 100. Ongoing studies are conducted in a wide range of areas, including selling, general and administra-
tive, finance, human resources, information technology, procurement, enterprise performance management and shared services. Hack-
ett has identified over 2,000 best practices for over 115 processes in these key functional areas and uses proprietary performance
measurement tools and data collection processes that enable companies to complete the performance measurement cycle and identify
and quantify improvement opportunities in as little as four weeks. Benchmarks are used by our clients to objectively establish priori-
ties, generate organizational consensus, align compensation to establish performance goals and develop the required business case for
business and technology investments.

(cid:120)

Business Transformation Practice

Our Business Transformation practices help clients develop a coordinated strategy for achieving performance improvements
across the enterprise. Our experienced teams utilize Hackett performance measurement data to link performance gains to industry best
practices. Our strategic capabilities include operational assessments, process and organization design, change management and the
effective application of technology. We combine best practices knowledge with business expertise and broad technology capabilities,
which we believe enables our programs to optimize return on client investments in people, process, technology and information. We
also maintain our procurement (Coupa) functionally led groups, as well as Workforce Management groups within this practice.

ERP, EPM AND ANALYTICS (EEA) SOLUTIONS

Our EEA practice focuses on helping clients maximize the value of their investments in Enterprise Software and business analytics.

(cid:120)

Oracle Solutions

Our Oracle EEA practice helps clients choose and deploy Oracle applications that best meet their needs and objectives. In 2017,

we acquired Oracle ERP and Cloud implementation capabilities. This allowed us to greatly increase the size of our Oracle addressa-
ble market and strongly positioned us to be a strategic provider of Oracle’s rapidly growing cloud software and services market. The
software market is rapidly moving to cloud-based software, which led us to aggressively transition our Oracle EEA group from being
primarily focused on the implementation of Oracle EPM on-premise software to the entire Oracle Cloud Enterprise Suite. We believe
the actions we took to expand our Oracle Cloud capabilities from EPM on-premise to the entire Oracle Cloud ERP Suite have strongly
positioned us to take advantage of this secular cloud migration growth opportunity. Another significant investment we made was to
digitize all of our IP and to build our proprietary Hackett DTP. By specifically building one of our first versions around the Oracle
Cloud application functionality, we believe we can quickly demonstrate how to optimize the configuration of Oracle Cloud applica-
tions to drive to its fully intended transformative outcome. We believe these moves align our EEA practices with the Oracle go-to-
market strategy and will also allow us to use our unique best-practice implementation IP to demonstrate the value of Oracle Cloud
apps for the Oracle sales channel. These improvements cover many aspects of service delivery, including process improvement, tech-
nology deployment, organizational alignment, information and data definition and skills and competency alignment. Solutions typi-
cally reside in three primary areas: Core Financial Close and Consolidation, Integrated Business Planning, and Reporting / Advanced
Analytics. Solution innovations have taken the practice into areas such as Big Data, cloud technology data management and govern-
ance, and industry-specific analytic templates.

(cid:120)

SAP Solutions

Our SAP Solutions professionals help clients choose and deploy S4 HANA applications that best meet their needs and objec-

tives. Our expertise is focused on SAP ERP (with primary focus on Life Sciences and Consumer Goods). The group offers compre-
hensive services from planning, architecture, and vendor evaluation and selection through implementation, customization, testing and
integration. Comprehensive fit-gap analyses of all major packages against Hackett Best Practices are utilized by our SAP Solutions
teams. Our tools and templates help integrate best practices into business and analytical applications. The group also offers post-im-
plementation support, change management, exception management, process transparency, system documentation and end-user train-
ing, all of which are designed to enhance return on investment. We also provide off-shore application development and Application
Maintenance and Support (“AMS”) services. These services include post-implementation support for select business application and
infrastructure platforms. Our SAP Solutions group also includes a division responsible for the sale of the SAP suite of applications.

CLIENTS

We focus on developing long-term client relationships with Global 2000 firms and other sophisticated buyers of business and IT

consulting services. During 2019, 2018 and 2017, our ten most significant clients accounted for 22%, 22% and 21% of revenue, re-
spectively. In addition, during 2019, 2018 and 2017, our largest client generated 4%, 5% and 4% of total revenue, respectively. We
have achieved a high level of satisfaction across our client base. We receive surveys from a significant number of our engagements
which are utilized in a rigorous process to improve our delivery execution, sales processes, methodologies and training.

BUSINESS DEVELOPMENT AND MARKETING

Our extensive client base and relationships with Global 2000 firms remain our most significant sources of new business. Our

revenue generation strategy is formulated to ensure that we are addressing multiple facets of business development. Our primary goal
is to continue to increase awareness of our brand which we have created around Hackett’s empirical knowledge capital in the extended
enterprise that we now serve. We have a regional sales and market development effort in both North America and Europe, so we can
better coordinate the sales and marketing messages from our various offerings. Our compensation programs for our associates reflect
an emphasis on optimizing our total revenue relationship with our clients. In our technology practice groups, we have continued to
utilize Hackett intellectual capital as a way to differentiate the relationships we have with the software providers and with our clients.
The categories below define our business development resources.

BUSINESS DEVELOPMENT RESOURCES

Although virtually all of our advisors and consultants have the ability to and are expected to contribute to new revenue opportu-

nities, our primary internal business development resources are comprised of the following:

(cid:120)

The Leadership Team, Principals and Senior Directors are comprised of our senior leaders who have a combina-
tion of executive, regional, practice and anchor account responsibilities. In addition to their management responsibil-
ities, this group of associates is responsible for growing the business by fostering executive-level relationships
within accounts and leveraging their existing contacts in the marketplace.
The Sales Organization is comprised of associates who are 100% dedicated to generating sales. They are deployed
geographically in key markets, are primarily focused on developing new relationships and are aligned to our core
practice areas within their target accounts. They also handle opportunities in their geographic territories as they
arise.
The Business Development Associates are comprised of trained groups of telemarketing specialists who are con-
versant with their respective solution areas. Lead generation is coordinated with our marketing and sales groups to
ensure that our inbound and outbound efforts are synchronized with targeted marketing and sales programs.
The Delivery Organization is comprised of our billable associates who work at client locations. We encourage
associates to pursue additional business development opportunities through their normal course of delivering exist-
ing projects thereby helping us expand our business within existing accounts.

In addition to our business development resources, we have a corporate marketing and communications organization responsible

for overseeing our marketing programs, public relations and employee communications activities.

We have organized our market focus into the following categories:

(cid:120)

Strategic Accounts are comprised of large prospects and existing relationships which we believe will have a significant
revenue opportunity within the next 18 months. Strategic account criteria include the size of the company, industry affilia-
tion, propensity to buy external consulting services and contacts within the account. The sales representative working
closely with regional leadership is primarily responsible for identifying business opportunities in the account, acting as the
single point of coordination for the client, and performing the general duties of account manager.

Regional Accounts are accounts within a specified geographic location. These accounts mostly include large prospects,
past clients, existing medium-sized clients and mid-tier market accounts and are handled primarily on an opportunistic
basis, except for active clients where delivery teams are focused on driving additional revenue.

Strategic Alliance Accounts are accounts that allow us to partner with organizations of greater scale or different skill sets
or with software developers enabling all parties to jointly market their products and services to prospective clients.

TALENT MANAGEMENT

We fully believe that our culture fosters intellectual creativity, collaboration and innovation. We believe in building relation-

ships with both our associates and clients. We believe the best solutions come from teams of diverse individuals addressing problems
collectively and from multiple dimensions, including the business, technological and human dimensions. We believe that the most
effective working environment is one where everyone is encouraged to contribute and is rewarded for that contribution. Our core val-
ues are the strongest expression of our working style and represent what we stand for. These core values are:

(cid:120)

Continuous development of our associates, our unique content business model and our knowledge base;

(cid:120)

Diversity of backgrounds, skills and experiences;

Knowledge capture, contribution and utilization; and

Collaboration with one another, our partners and our clients.

Our human resources staff includes seasoned professionals in North America, Europe, India and South America who support

our practices by, among other things, administering our benefit programs, facilitating the hiring process and coordinating training ac-
tivities. Our human resources staff also includes dedicated individuals who recruit consultants with both business and technology ex-
pertise. Our recruiting team supports our hiring process by focusing on the highest demand solution areas of our business to ensure an
adequate pipeline of new associates. We also have an employee referral program, which rewards existing employees who source new
hires.

As of December 27, 2019, we had 1,143 associates, excluding subcontractors, 81% of whom were billable professionals. We do
not have any associates that are subject to collective bargaining arrangements, however, in France, our associates enjoy the benefit of
certain government regulations based on industry classification. We have entered into nondisclosure and non-solicitation agreements
with virtually all of our personnel. We also engage consultants as independent contractors pursuant to written agreements that contain
non-disclosure and non-solicitation provisions.

COMMUNITY INVOLVEMENT

One important way we put our values into action is through our commitment to the communities where we work. The mission of
our Community Councils, which operate in each of the cities where we have offices, is to strive to make the markets, communities and
clients we serve better than how we found them. We do so by building a strong sense of community, with collaboration and personal
interaction from all of our associates, through both volunteer and service programs and social gatherings.

INTELLECTUAL PROPERTY

We have obtained trademark registrations for The Hackett Group and Book of Numbers, and own registrations for certain of our

other trademarks in the United States and abroad. We believe that the protection of these marks is an important part to our strategy of
expanding the brand recognition we have built around our empirical knowledge capital.

AVAILABLE INFORMATION

We make our public filings with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-
K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all exhibits and amendments to these reports, available free of
charge at our website www.thehackettgroup.com as soon as reasonably practicable after we electronically file such material with, or
furnish it to, the SEC. Any material that we file with the SEC or at www.sec.gov.

Also available on our website, free of charge, are copies of our Code of Conduct and Ethics, Corporate Governance Guidelines,

and the charters for the Audit Committee, Compensation Committee and Nominating and Governance Committee of our Board of
Directors. We intend to disclose any amendment to, or waiver from, a provision of our Code of Conduct and Ethics and Corporate
Governance Guidelines applicable to our senior financial officers, including our Chief Executive Officer, Chief Operating Officer,
Chief Financial Officer and Corporate Controller on our website within four business days following the date of the amendment or
waiver.

ITEM 1A. RISK FACTORS

Our business is subject to risks. The following important factors could cause actual results to differ materially from those con-

tained in forward-looking statements made in this Annual Report on Form 10-K or printed elsewhere by management from time to
time.

Our results of operations could be negatively affected by global and regional economic conditions.

Global and regional economic conditions may affect our clients’ businesses and the markets they serve. A substantial or pro-
longed economic downturn, weak or uncertain economic conditions or similar factors could adversely affect our clients’ financial con-
dition which may reduce our clients’ demand for our services, force price reductions, cause project cancellations, or delay consulting
services for which they have engaged us. For example, the recent coronavirus outbreak has created uncertainty in the global economy
and could result in a reduction in spending on our services. In addition, if we are unable to successfully anticipate the changing eco-
nomic conditions, we may be unable to effectively plan for and respond to those changes, and our business could be negatively af-
fected.

Our quarterly operating results may vary.

Our financial results may fluctuate from quarter to quarter in any given year and should not be used to predict future perfor-
mance. In future quarters, our operating results may not meet analysts’ and investors’ expectations. If that happens, the price of our
common stock may fall. Many factors can cause fluctuations in our financial results, including:

(cid:120)

number, size, timing and scope of client engagements;

customer concentration;

long and unpredictable sales cycles;

contract terms of client engagements;

degrees of completion of client engagements;

client engagement delays or cancellations;

competition for and utilization of employees;

how well we estimate the resources and effort we need to complete client engagements;

the integration of acquired businesses;

pricing changes in the industry;

foreign currency changes;

foreign laws and regulatory requirements;

natural disasters, pandemics and other catastrophic events;

economic conditions specific to business and information technology consulting; and

global economic conditions.

A high percentage of our operating expenses, particularly personnel and rent, are fixed in advance of any particular quarter. As a
result, if we experience unanticipated changes in client engagements or in consultant utilization rates, we could experience large varia-
tions in quarterly operating results and losses in any particular quarter. Due to these factors, we believe our quarter-to-quarter operat-
ing results should not be used to predict future performance.

If we are unable to maintain our reputation and expand our brand name recognition, we may have difficulty attracting new busi-
ness and retaining current clients and employees.

We believe that establishing and maintaining a good reputation and name recognition are critical for attracting and retaining
clients and employees in our industry. We also believe that the importance of reputation and name recognition will continue to in-
crease due to the number of providers of business consulting and IT services. If our reputation is damaged or if potential clients are not
familiar with us or with the solutions we provide, we may be unable to attract new, or retain existing, clients and employees. Promo-
tion and enhancement of our name will depend largely on our success in continuing to provide effective solutions. If clients do not
perceive our solutions to be effective or of high quality, our brand name and reputation will suffer. In addition, if solutions we provide
have defects, critical business functions of our clients may fail, and we could suffer adverse publicity as well as economic liability.

We depend heavily on a limited number of clients.

We have derived, and believe that we will continue to derive, a significant portion of our revenue from a limited number of cli-

ents for which we perform large projects. In 2019, our ten largest clients accounted for 22% of our aggregate revenue. In addition,
revenue from a large client may constitute a significant portion of our total revenue in any particular quarter. Our customer contracts
generally can be cancelled for convenience by the customer upon 30 days’ notice. The loss of any of our large clients for any reason,
including as a result of the acquisition of that client by another entity, our failure to meet that client’s expectations, the client’s deci-
sion to reduce spending on projects, or failure to collect amounts owed to us from our client could have a material adverse effect on
our business, financial condition and results of operations.

We have risks associated with potential acquisitions or investments.

Since our inception, we have expanded through acquisitions. In the future, we plan to pursue additional acquisitions as opportu-
nities arise. We may not be able to successfully integrate businesses which we may acquire in the future without substantial expense,
delays or other operational or financial problems. We may not be able to identify, acquire or profitably manage additional businesses.
Also, acquisitions may involve a number of risks, including:

(cid:120)

diversion of management’s attention;

(cid:120)

failure to retain key personnel;

failure to retain existing clients;

unanticipated events or circumstances;

unknown claims or liabilities;

amortization of certain acquired intangible assets; and

operating in new or unfamiliar geographies.

Client dissatisfaction or performance problems at a single acquired business could have a material adverse impact on our reputa-

tion as a whole. Further, we cannot assure you that our future acquired businesses will generate anticipated revenue or earnings.

Difficulties in integrating businesses we acquire in the future may demand time and attention from our senior management.

Integrating businesses that we acquire in the future may involve unanticipated delays, costs and/or other operational and finan-

cial problems. In integrating acquired businesses, we may not achieve expected economies of scale or profitability or realize sufficient
revenue to justify our investment. If we encounter unexpected problems as we try to integrate an acquired firm into our business, our
management may be required to expend time and attention to address the problems, which would divert their time and attention from
other aspects of our business.

Our markets are highly competitive.

We may not be able to compete effectively with current or future competitors. The business consulting and IT services markets
are highly competitive. We expect competition to further intensify as these markets continue to evolve. Some of our competitors have
longer operating histories, larger client bases, longer relationships with their clients, greater brand or name recognition and signifi-
cantly greater financial, technical and marketing resources than we do. As a result, our competitors may be in a stronger position to
respond more quickly to new or emerging technologies and changes in client requirements and to devote greater resources than we can
to the development, promotion and sale of their services. Competitors could lower their prices, potentially forcing us to lower our
prices and suffer reduced operating margins. We face competition from international accounting firms; international, national and
regional strategic consulting and systems implementation firms; and the IT services divisions of application software firms.

In addition, there are relatively low barriers for entry into the business consulting and IT services market. We do not own any

patented technology that would stop competitors from entering this market and providing services similar to ours. As a result, the
emergence of new competitors may pose a threat to our business. Existing or future competitors may develop and offer services that
are superior to, or have greater market acceptance, than ours, which could significantly decrease our revenue and the value of your
investment.

We may not be able to hire, train, motivate, retain and manage professional staff.

To succeed, we must hire, train, motivate, retain and manage highly skilled employees. Competition for skilled employees who

can perform the services we offer is intense. We might not be able to hire enough skilled employees or train, motivate, retain and man-
age the employees we hire. This could hinder our ability to complete existing client engagements and bid for new ones. Hiring, train-
ing, motivating, retaining and managing employees with the skills we need is time-consuming and expensive.

We could lose money on our contracts.

As part of our strategy, from time to time, we enter into capped or fixed-price contracts, in addition to contracts based on pay-
ment for time and materials. Because of the complexity of many of our client engagements, accurately estimating the cost, scope and
duration of a particular engagement can be a difficult task. We maintain an Office of Risk Management (“ORM”) that evaluates and
attempts to mitigate delivery risk associated with complex projects. In connection with their review, ORM analyzes the critical esti-
mates associated with these projects. If we fail to make these estimates accurately, we could be forced to devote additional resources
to these engagements for which we will not receive additional compensation. To the extent that an expenditure of additional resources
is required on an engagement, this could reduce the profitability of, or result in a loss on, the engagement. We may be unsuccessful in
negotiating with clients regarding changes to the cost, scope or duration of specific engagements. To the extent we do not sufficiently
communicate to our clients, or our clients fail to adequately appreciate the nature and extent of any of these types of changes to an
engagement, our reputation may be harmed, and we may suffer losses on an engagement.

Lack of detailed written contracts could impair our ability to recognize revenue for services performed, collect fees, protect our IP
and protect ourselves from liability to others.

We protect ourselves by entering into detailed written contracts with our clients covering the terms and contingencies of the

client engagement. In some cases, however, consistent with what we believe to be industry practice, work is performed for clients on

the basis of a limited statement of work or verbal agreement before a detailed written contract can be finalized. To the extent that we
fail to have detailed written contracts in place, our ability to collect fees, protect our IP and protect ourselves from liability to others
may be impaired.

Our corporate governance provisions may deter a financially attractive takeover attempt.

Provisions of our charter and by-laws may discourage, delay or prevent a merger or acquisition which shareholders may con-
sider favorable, including transactions in which shareholders would receive a premium for their shares. These provisions include the
following:

(cid:120)

shareholders must comply with advance notice requirements before raising a matter at a meeting of shareholders or nomi-
nating a director for election;

our Board of Directors is staggered into three classes and the members may be removed only for cause upon the affirma-
tive vote of holders of at least two-thirds of the shares entitled to vote;

we would not be required to hold a special meeting to consider a takeover proposal unless holders of more than a majority
of the shares entitled to vote on the matter were to submit a written demand or demands for us to do so; and

our Board of Directors may, without obtaining shareholder approval, classify and issue up to 1,250,000 shares of preferred
stock with powers, preferences, designations and rights that may make it more difficult for a third party to acquire us.

We may lose large clients or may not be able to secure targeted follow-on work or achieve expected client retention rates.

Our client engagements are generally short-term arrangements, and most clients can reduce or cancel their contracts for our ser-
vices with a 30 days’ notice and without penalty. As a result, if we lose a major client or large client engagement, our revenue will be
adversely affected. We perform varying amounts of work for specific clients from year to year. A major client in one year may not use
our services in another year. In addition, we may derive revenue from a major client that constitutes a large portion of total revenue for
particular quarters. If we lose any major clients or any of our clients cancel programs or significantly reduce the scope of a large en-
gagement, our business, financial condition, and results of operations could be materially and adversely affected. Also, if we fail to
collect a large accounts receivable balance, we could be subjected to significant financial exposure. Consequently, you should not
predict or anticipate our future revenue based upon the number of clients we currently have or the number and size of our existing
client engagements.

We also derive a portion of our revenue from annual memberships for our Executive Advisory Programs. Our growth prospects
therefore depend on our ability to achieve and sustain renewal rates on programs and to successfully launch new programs. Failure to
achieve expected renewal rate levels or to successfully launch new programs and services could have an adverse effect on our operat-
ing results.

If we are unable to protect our IP rights or infringe on the IP rights of third parties, our business may be harmed.

We rely upon a combination of nondisclosure and other contractual arrangements and trade secrets, copyright and trademark

laws to protect our proprietary rights and the proprietary rights of third parties from whom we license IP. Although we enter into con-
fidentiality agreements with our employees and limit distribution of proprietary information, there can be no assurance that the steps
we have taken in this regard will be adequate to deter misappropriation of our IP, or that we will be able to detect unauthorized use
and take appropriate steps to enforce our IP rights.

Although we believe that our services do not infringe on the IP rights of others and that we have all rights necessary to utilize
the IP employed in our business, we are subject to the risk of claims alleging infringement of third-party IP rights. Any claims could
require us to spend significant sums in litigation, pay damages, develop non-infringing IP or acquire licenses to the IP that is the sub-
ject of asserted infringement.

The market price of our common stock may fluctuate widely.

The market price of our common stock could fluctuate substantially due to:

(cid:120)

future announcements concerning us or our competitors;

quarterly fluctuations in operating results;

announcements of acquisitions or technological innovations;

changes in earnings estimates or recommendations by analysts; or

current market volatility.

In addition, the stock prices of many business and technology services companies fluctuate widely for reasons which may be
unrelated to operating results. Fluctuation in the market price of our common stock may impact our ability to finance our operations
and retain personnel.

We earn revenue, incur costs and maintain cash balances in multiple currencies, and currency fluctuations could adversely affect
our financial results.

We have international operations, where we earn revenue and incur costs in various foreign currencies, primarily the British
Pound, and the Euro. Doing business in these foreign currencies exposes us to foreign currency risks in numerous areas, including
revenue, purchases, payroll and investments. Certain foreign currency exposures are naturally offset within an international business
unit, because revenue and costs are denominated in the same foreign currency, and certain cash balances are held in U.S. Dollar de-
nominated accounts. However, due to the increasing size and importance of our international operations, fluctuations in foreign cur-
rency exchange rates could materially impact our results.

Our cash position includes amounts denominated in foreign currencies. We manage our worldwide cash requirements consider-

ing available funds from our subsidiaries and the cost effectiveness with which these funds can be accessed. The repatriation of cash
balances from certain of our subsidiaries outside the U.S. could have adverse tax consequences and be limited by foreign currency
exchange controls. However, those balances are generally available in the local jurisdiction without legal restrictions to fund ordinary
business operations. Any fluctuations in foreign currency exchange rates could materially impact the availability and amount of these
funds available for transfer.

The U.K.’s departure from the EU could adversely affect us.

We are subject to risks and uncertainties associated with the U.K.’s withdrawal from the E.U. (referred to as “Brexit”), including
implications for the free flow of labor and goods in the U.K. and the E.U. and other financial, legal, tax and trade implications. Brexit
could cause disruptions to and create uncertainty surrounding our business in the U.K, including affecting our relationships with our
existing and future customers, suppliers and employees, which could have an adverse effect on our business, financial results and op-
erations. In addition, developments regarding Brexit may also create global economic uncertainty, which may cause our customers,
particularly those who do business in the U.K., to closely monitor their costs and reduce their spending on our solutions and services.

We rely on information management systems and any damage, interruption or compromise of our information management systems
or data could disrupt and harm our business.

We rely upon information technology systems and networks, some of which are managed by third parties, to process, transmit,
and store electronic information in connection with the operation of our business. Additionally, we collect and store data that is sensitive
to our company. Operating these information technology systems and networks and processing and maintaining this data, in a secure
manner, are critical to our business operations and strategy. Our information management systems and the data contained therein may
be vulnerable to damage, including interruption due to power loss, system and network failures, operator negligence and similar causes.

In addition, our systems and data may be subject to security breaches, viruses, malware, and other cybersecurity attacks. Cyber-
security attacks are increasing in frequency and sophistication. Cybersecurity attacks may range from random attempts to coordinated
and targeted attacks, including sophisticated computer crime and advanced threats. These threats pose a risk to the security of our
information technology systems and networks and the confidentiality, availability and integrity of our data. However, given the unpre-
dictability of the timing, nature and scope of such disruptions, we could potentially be subject to production downtimes, operational
delays, other detrimental impacts on our operations or ability to provide products and services to our customers, the compromising,
misappropriation, destruction or corruption of data, security breaches, other manipulation or improper use of our systems or networks,
financial losses from remedial actions, loss of business or potential liability, and/or damage to our reputation, any of which could have
a material adverse effect on our competitive position, results of operations, cash flows or financial condition. Any significant compro-
mise of our information management systems or data could impede or interrupt our business operations and may result in negative
consequences including loss of revenue, fines, penalties, litigation, reputational damage, inability to accurately and/or timely complete
required filings with government entities including the SEC and the Internal Revenue Service, unavailability or disclosure of confidential
information (including personal information) and negative impact on our stock price.

Data privacy and information security may require significant resources and presents certain risks.

We collect, store, have access to and otherwise process certain confidential or sensitive data, including proprietary business infor-
mation, personal data or other information that is subject to privacy and security laws, regulations and/or customer-imposed controls.
We operate in an environment in which data privacy regulatory and legal framework is evolving quickly and varies by jurisdiction. We
cannot predict the cost of compliance with future data privacy laws, regulations and standards, or future interpretations of current laws,
regulations and standards, related to privacy and cybersecurity or the potential effects on our business.

As a company doing business in Europe, we are also subject to European data protection laws and regulations. The European Union
General Data Protection Regulation, which took effect in May 2018, superseded prior European Union data protection legislation and
imposes more stringent requirements in how we collect and process personal data and provides for significantly greater penalties for
noncompliance; and several other countries have passed laws that require personal data relating to their citizens to be maintained on

local servers and impose additional data transfer restrictions. In addition, we are also subject to and affected by new state privacy and
data security laws such as the recently implemented California Consumer Privacy Act (“CCPA”). The CCPA became effective January
1, 2020 and imposes additional data privacy requirements on many businesses operating in the state, including, potentially, with respect
to employee data. In addition, already in 2020 several states have introduced varying comprehensive privacy laws modeled to some
degree on the CCPA and/or the GDPR. Compliance with multiple country and state laws containing varying requirements could be
complicated and costly. Government enforcement actions can be costly and interrupt the regular operation of our business, and viola-
tions of data privacy laws can result in fines, reputational damage and civil lawsuits, any of which may adversely affect our business,
reputation and financial statements.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our principal executive office is currently located at 1001 Brickell Bay Drive, Floor 30, Miami, Florida 33131. The lease on this
premise covers 10,896 square feet and expires June 30, 2020. We also have offices in Atlanta, Chicago, New York City, Philadelphia,
Portland, Frankfurt, London, Montevideo and Hyderabad. As of December 27, 2019, we had operating leases that expire on various
dates through March 2028. We believe that we will be able to obtain suitable new or replacement space as needed. We do not own real
estate and do not intend to invest in real estate or real estate-related assets.

ITEM 3. LEGAL PROCEEDINGS

We are 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 our consolidated
financial position, cash flows or results of operations.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER

PURCHASES OF EQUITY SECURITIES

Our common stock is traded under the NASDAQ Stock Market symbol, "HCKT". The closing sale price for the common stock

on March 2, 2020, was $15.99.

As of March 2, 2020, there were 234 holders of record of our common stock and 30,033,782 shares of common stock outstand-

ing.

Securities Authorized for Issuance under Equity Compensation Plans

The information required by this section is set forth under Item 12 of this Annual Report on Form 10-K and is herein incorpo-

rated by reference.

Performance Graph

The following graph compares our cumulative total shareholder return since January 2, 2015 with the NASDAQ Composite
Index and a peer group index composed of other companies with similar business models identified below. The graph assumes that the
value of the investment in our common stock and each index (including reinvestment of dividends) was $100 on January 2, 2015.

The Hackett Group, Inc.
NASDAQ Composite Index
Peer Group

$
$
$

100.00
100.00
100.00

$
$
$

187.22
106.96
89.25

$
$
$

209.28
116.45
96.42

$
$
$

189.78
150.96
87.44

$
$
$

196.34
146.67
120.47

1/2/15

1/1/16

12/30/16

12/29/17

12/28/18

12/27/19
200.49
200.49
187.44

$
$
$

The Peer Group includes Alithya Group Inc. (formerly known as Edgewater Technology, Inc.), FTI Consulting, Inc., Huron

Consulting Group, Inc. and Information Services Group, Inc.

Company Dividend Policy

In December 2012, we announced an annual dividend of $0.10 per share, and we have been gradually increasing the dividend
for our shareholders on an annual basis since the announcement. In 2017, we increased the annual dividend to $0.30 per share to be
paid on a semi-annual basis or $4.6 million and $4.7 million to shareholders of record on June 30, 2017 and December 22, 2017, re-
spectively. In 2018, we increased the annual dividend to $0.34 per share to be paid on a semi-annual basis or $5.4 million to share-
holders of record on both June 29, 2018 and December 21, 2018. In 2019, we increased the annual dividend to $0.36 per share to be
paid on a semi-annual basis or $5.8 million to shareholders of record on both June 28, 2019 and December 20, 2019. Subsequent to
year end, we increased the semi-annual dividend to $0.38 per share. Our credit agreement contains restrictions on our ability to declare

dividends and repurchase shares. The declaration of dividends shall at all times be subject to the final determination of our Board of
Directors that a dividend is prudent at that time in consideration of the needs of the business and other factors including the ability to
pay dividends under our credit agreement.

Purchases of Equity Securities

We have an ongoing authorization from our Board of Directors to repurchase shares of our common stock. The repurchase plan

was first announced on July 30, 2002. All repurchases under this program are discretionary and are made in the open market or
through privately negotiated transactions, subject to market conditions and trading restrictions. There is no expiration date on the cur-
rent authorization. The following table summarizes our share repurchases during the year ended December 27, 2019, under this au-
thorization:

Period

Balance as of December 28, 2018
December 29, 2018 to March 29, 2019
March 30, 2019 to June 28, 2019
June 29, 2019 to September 27, 2019
September 28, 2019 to December 27, 2019

Total Number
of Shares Purchased

Maximum Dollar

Value of Shares That

Total Num-
ber
of Shares
Purchased

Average
Price Paid
per Share

as Part of Publicly
Announced
Program

May Yet Be Purchased
Under the
Program

101,064 $
92,354 $
—— $
145,276 $
338,694 $

15.99
15.59

——

15.33
15.60

$
101,064 $
92,354 $
—— $
145,276 $
338,694

6,933,691
5,317,932
3,877,922
3,877,922
1,651,222

As of December 27, 2019, the Company’s Board of Directors had approved a cumulative authorization of $142.2 million with

cumulative purchases under the plan of $140.5 million, leaving $1.7 million available for future purchases. During the year ended
December 27, 2019, we repurchased 28 thousand shares of the Company’s common stock from members of our Board of Directors for
a total of $0.5 million, or $16.25 per share. Subsequent to year end the Company’s Board of Directors approved an additional share
repurchase authorization of $5.0 million for a cumulative authorization of $147.2 million. In addition, subsequent to year end, we re-
purchased 37 thousand shares of the Company’s common stock from members of our Board of Directors for a total of $0.7 million,
$17.43 per share. Including these subsequent purchases, we have approximately $6.0 million available for future purchases under the
plan.

Shares purchased under the repurchase plan do not include shares withheld to satisfy withholding tax obligations. These with-

held shares are never issued and in lieu of issuing the shares, taxes were paid on our employee’s behalf. In 2019, 132 thousand shares
were withheld and not issued for a cost of $2.5 million. In 2018, 205 thousand shares were withheld and not issued for a cost of $3.6
million.

ITEM 6. SELECTED FINANCIAL DATA

The following consolidated financial data sets forth our selected financial information as of and for each of the years in the five-
year period ended December 27, 2019, and has been derived from our audited consolidated financial statements. The selected consoli-
dated financial data should be read together with our consolidated financial statements, related notes thereto and with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”

December 27, December 28, December 29, December 30, January 1,

Year Ended

2019

2018

2017
(in thousands, except per share data)

2016

260,837 $
21,635
282,472

264,523
21,364
285,887

255,131
21,468
276,599

252,096 $
27,691
279,787

222,893
25,042
247,935

Consolidated Statement of Operations Data:
Revenue:

Revenue before reimbursements
Reimbursements

Total revenue(1)

Costs and expenses:
Cost of service:

Personnel costs before reimbursable expenses(2)
Reimbursable expenses
Total cost of service
Selling, general and administrative costs
Contingent consideration liability
Impairment of assets(5)
Restructuring costs

y(4)

Total costs and operating expenses

Operating income
Other expense:

Interest expense, net

Income from continuing operations before income taxes
Income tax expense (6)
Income from continuing operations
Earnings (loss) from discontinued operations(7)(net of taxes)
Net income

Basic net income per common share:

Income per common share from continuing operations
Income (loss) per common share from discontinued operations

Net income per common share

Diluted net income per common share:

Income per common share from continuing operations
Income (loss) per common share from discontinued operations

Net income per common share

Weighted average common shares outstanding:

Basic
Diluted

Consolidated Balance Sheet Data:
Cash
Working capital
Total assets
Long-term debt
Shareholders' equity
Dividends paid/declared per share

164,044
21,635
185,679
62,074
(1,133
(
1,180
3,334
251,134
31,338

) )

164,921
21,364
186,285
64,123
(4,364
(
6,269
——

) )

252,313
33,574

161,863
21,468
183,331
63,271
——
——
1,293

247,895
28,704

158,500
27,691
186,191
60,079
——
——
——
246,270
33,517

(311)
31,027
7,744
23,283
(6)
23,277 $

(638)
32,936
5,577
27,359
(3,450)
23,909 $

(584)
28,120
2,564
25,556
1,798
27,354 $

(387)
33,130
12,455
20,675
866
21,541 $

0.78 $
(0.00)
0.78 $

0.93 $
(0.12)
0.81 $

0.89 $
0.06
0.95 $

0.71 $
0.03
0.74 $

0.72 $
(0.00)
0.72 $

0.85 $
(0.11)
0.74 $

0.79 $
0.06
0.85 $

0.63 $
0.03
0.66 $

140,817
25,042
165,859
62,667

——
——
——
228,526
19,409

(409)
19,000
7,349
11,651
2,158
13,809

0.39
0.07
0.47

0.36
0.07
0.44

29,805
32,453

29,379
32,330

28,852
32,196

29,082
32,815

29,620
31,968

$
$
$
$
$
$

25,954 $
34,944 $
193,735 $
—— $
137,614 $
0.36 $

13,808 $
28,864 $
$
180,752
6,500 $
$
0.34 $

123,590

17,512 $
23,837 $
185,231
$
19,000 $
$
107,275
0.30 $

19,710 $
12,999 $
$
159,299
7,000 $
86,269 $
0.26 $

23,503
17,375
160,379
——
102,144
0.20

(1)

(2)

(3)
(4)

(5)

(6)

In April 2017 and May 2017, we acquired Aecus Limited, a U.K.-based European Outsourcing Advisory and Robotics Process Automation (“RPA”) consulting
firm company and Jibe Consulting, a U.S.-based Oracle E-Business Suite (“EBS”) and Oracle Cloud Business Application implementation firm, respectively.
Our 2017 results of operations included $16.2 million in total revenue from these acquisitions.
Fiscal year 2018 includes an acquisition-related compensation benefit of $0.5 million. Fiscal years 2014 through 2017 include an acquisition-related compensa-
tion expense of $4.1 million in 2017, $1.2 million in 2016, $927 thousand in 2015 and $4.3 million in 2014 from the acquisitions of Jibe Consulting and Aecus
Limited in 2017 and Technolab in 2014.
Fiscal year 2018 includes a benefit related to the adjustment for the contingent consideration liability from the acquisition of Jibe Consulting in 2017.
Fiscal year 2019 includes the asset impairment of the investment in the Hackett Institute’s Enterprise Analytics Program. Fiscal year 2018 includes the asset
impairment of the investment in the Hackett Performance Exchange and Working Capital Course.
Fiscal year 2017 includes the tax benefit for the revaluation of the deferred tax liabilities as a result of tax legislation enacted at the end of 2017 and accounting
on the vesting of share-based awards.
Discontinued operations relate to the discontinuance of the European based REL Working Capital group.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERA-

TIONS

Overview

Hackett, originally incorporated on April 23, 1997, is a leading 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 re-
pository of enterprise business process performance metrics and best practice intellectual capital, our business and technology solu-
tions help clients improve performance and maximize returns on technology investments.

Hackett is a strategic advisory firm and a world leader in best practice research, benchmarking and business transformation ser-
vices which empirically defines and enables world-class enterprise performance. Hackett empirically defines world-class performance
in sales, general and administrative and certain supply chain activities with analysis gained through more than 17,850 benchmark and
performance studies over 26 years at over 6,420 of the world’s leading companies.

Hackett’s combined capabilities include executive advisory programs, benchmarking, business transformation and technology

solutions, with corresponding offshore support. In addition, we are identifying new opportunities for our benchmarking and best prac-
tice intellectual property by leveraging new channels through strategic alliances to introduce new recurring revenue, high margin of-
ferings that could redefine our organizational model that we have started to refer to as “IP as a Service” business.

In the following discussion, Strategy and Business Transformation Group includes the results of our North America IP as-a-
service offerings, which include our Executive Advisory Programs and Benchmarking Services, and our Business Transformation
Practices (S&BT). ERP, EPM and Analytics Solutions includes the results of our North America Oracle EEA and SAP Solutions Prac-
tices (EEA). International includes results of our S&BT and EEA Practices primarily in Europe.

Critical Accounting Policies

In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of opera-
tions and financial position in conformity with generally accepted accounting principles in the United States (“GAAP”). Actual results
could differ significantly from those estimates under different assumptions and conditions. We believe the following discussion ad-
dresses our most critical accounting policies. These policies require management to exercise judgment on issues that are often diffi-
cult, subjective and complex due to the necessity of estimating the effect of matters that are inherently uncertain.

Revenue Recognition

We generate substantially all of our revenue from providing professional services to our clients. We also generate revenue from

software licenses, software support, maintenance and subscriptions to our executive and best practices advisory programs. A single
contract could include one or multiple performance obligations. For those contracts that have multiple performance obligations, we
allocate the total transaction price to each performance obligation based on its relative standalone selling price. We determine the
standalone selling price based on the respective selling price of the individual elements when they are sold separately.

Revenue is recognized when control of the goods and services provided are transferred to our customers, in an amount that re-
flects the consideration we expect 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 perfor-
mance obligations in the contract, and 5) recognize revenue as or when we satisfy the performance obligations.

We typically satisfy our performance obligations for professional services over time as the related services are provided. The
performance obligations related to software support, maintenance and subscriptions to our executive and best practice advisory pro-
grams 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.

We generate our 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, maintenance and support.

In fixed-fee billing arrangements, which would also include contracts with capped fees, we agree to a pre-established fee or fee

cap in exchange for a predetermined set of professional services. We set the fees based on our estimates of the costs and timing for
completing the engagements. We generally recognize revenue under fixed-fee or capped fee arrangements using a proportionate per-
formance 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
our 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 mile-
stone driven, with net thirty-day terms.

Time-and-material billing arrangements require the client to pay based on the number of hours worked by our consultants at

agreed upon hourly rates. We recognize revenue under time-and-material arrangements as the related services or goods are provided,
using the right to invoice practical expedient which allows us 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.

Advisory services contracts are typically in the form of a subscription agreement which allows the customer access to the Com-
pany’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 service 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.

The resale of software and maintenance contracts are in the form of SAP America software license or maintenance agreements
provided by SAP America. SAP is the principal and the Company is the agent in these transactions as the Company does not obtain
title to the software and the maintenance 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. 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.

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.

The payment terms and conditions in our 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 con-
venience with 30 days’ notice. In the event of termination, the client is typically 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 en-
ters into agreements with its clients that limit its ability 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 three to six 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 unbilled services or contract

liabilities in the accompanying consolidated balance sheets. Revenue recognized for services performed but not yet billed to clients are
recorded as unbilled services. Revenue recognized, but for which the Company is not yet entitled to bill because certain events, such
as the completion of the measurement period, are recorded as contract assets and included within unbilled services. Client prepay-
ments are classified as contract liabilities and recognized over future periods as earned in accordance with the applicable engagement
agreement. See Note 3, “Accounts Receivable and Unbilled Revenue, Net” and Note 5 “Accrued Expenses and Other Liabilities” to
our consolidated financial statements included in this Annual Report on Form 10-K. During the 12 months ended December 27, 2019,
the Company recognized $17.7 million of revenue as a result of changes in deferred revenue liability balance, as compared to $19.1
million for the twelve months ended December 28, 2018, respectively.

The following table reflects the Company’s disaggregation of total revenue from continuing operations including reimbursable

expenses for the twelve months ended December 27, 2019, December 28, 2018 and December 29, 2017:

Consulting
Software license sales
Total revenue from continuing operations

Year Ended

December 27, December 28, December 29,

2019

279,043 $
3,429
282,472 $

2018
282,213
3,674
285,887

2017

272,821
3,778
276,599

Capitalized Sales Commissions

Sales commissions earned by our 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. We 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 condensed consolidated statements of operations. As of December 27,
2019 and December 28, 2018, the Company had $1.6 million, and $1.2 million, respectively, of deferred commissions, of which $1.4
million was amortized during both the twelve months ended December 27, 2019 and December 28, 2018. No impairment loss was
recognized relating to the capitalization of deferred commission.

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 con-
tract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the cus-
tomer 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 im-

pact on revenue.

Expense reimbursements that are billable to clients are included in total revenue and are substantially all billed as time-and-

material billing arrangements. Therefore, we recognize all reimbursable expenses as revenue as the related services are provided, us-
ing 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.

Allowances for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses resulting from our clients not making required payments.

Periodically, we review accounts receivable to assess our estimates of collectability. Management critically reviews accounts receiva-
ble and analyzes historical bad debts, past-due accounts, client credit worthiness and current economic trends when evaluating the
adequacy of the allowance for doubtful accounts. If the financial condition of our clients were to deteriorate, resulting in their inability
to make payments, additional allowances may be required.

Long-Lived Assets (excluding Goodwill and Other Intangible Assets)

Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset
may not be fully recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are
compared to the asset’s carrying amount to determine if there has been an impairment. The amount of an impairment is calculated as
the difference between the fair value of the asset and the carrying value. Estimates of future undiscounted cash flows are based on
management’s view of growth rates for the related business, anticipated future economic conditions and estimates of residual values.

Business Combinations

For transactions that are considered business combinations, we utilize fair values in determining the carrying values of the pur-

chased assets and assumed liabilities, which are recorded at fair value at acquisition date, and identifiable intangible assets are rec-
orded at fair value. Costs directly related to the business combinations are recorded as expenses as they are incurred. Fair values are
subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values be-
come available. A bargain purchase gain on an acquisition occurs when the net of the estimated fair value of the assets acquired and
liabilities assumed exceeds the consideration paid.

Goodwill and Other Intangible Assets

Goodwill and intangible assets deemed to have indefinite lives are not amortized, but rather are tested for impairment on an an-

nual basis, or more frequently if events or changes in circumstances indicate potential impairment. Finite-lived intangible assets are
amortized over their useful lives and are subject to impairment evaluations. The excess cost of the acquisition over the fair value of the
net assets acquired is recorded as goodwill.

Goodwill is tested at least annually for impairment at the reporting unit level. The reporting units are The Hackett Group (in-

cluding Benchmarking, Business Transformation, Business Transformation EPM, Strategy and Operations, Executive Advisory Pro-
grams and Robotics Process Automation) and Hackett Technology Solutions (including SAP ERP and AMS, Oracle EPM and EPM
AMS). In assessing the recoverability of goodwill and intangible assets, we make estimates based on assumptions regarding various
factors to determine if impairment tests are met. These estimates contain management’s judgment, using appropriate and customary
assumptions available at the time. We performed our annual step one impairment test of our goodwill in the fourth quarter of fiscal
2018 and determined that goodwill was not impaired.

Other intangible assets are tested for potential impairment whenever events or changes in circumstances suggest that the carry-
ing value of an asset may not be fully recoverable. If an evaluation is required, the estimated future undiscounted cash flows associ-
ated with the asset are compared to the asset’s carrying amount to determine if there has been an impairment. The amount of an im-
pairment is calculated as the difference between the fair value of the asset and the carrying value. Estimates of future undiscounted
cash flows are based on management’s view of growth rates for the related business, anticipated future economic conditions and esti-
mates of residual values. Other intangible assets arise from business combinations and consist of customer relationships, customer
backlog, non-compete agreements and trademarks that are amortized on a straight-line or accelerated basis over periods of up to five
years.

Stock Based Compensation

We recognize compensation expense for awards of equity and liability instruments to employees based on the grant-date fair

value of those awards, over the requisite service period, with limited exceptions.

Income Taxes

Deferred tax assets and liabilities are determined based on differences between the financial reporting carrying values and tax
bases of assets and liabilities and are measured by using enacted tax rates expected to apply to taxable income in the years in which
those differences are expected to reverse. Deferred income taxes also reflect the impact of certain state operating loss and tax credit
carryforwards. A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax
asset will not be realized. An increase or decrease in the valuation allowance, if any, that results from a change in circumstances, and
which causes a change in our judgment about the realizability of the related deferred tax asset, is included in the current tax provision.

We adopted a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or

expected to be taken in a tax return. This interpretation also provides guidance on de-recognition of income tax assets and liabilities,
classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax posi-
tions, accounting for income taxes in interim periods and income tax disclosures. We report penalties and tax-related interest expense
as a component of income tax expense.

Results of Operations

Our fiscal year generally consists of a 52-week period and periodically consists of a 53-week period as each fiscal year ends on
the Friday closest to December 31. Fiscal years 2019, 2018 and 2017, ended on December 27, 2019, December 28, 2018 and Decem-
ber 29, 2017, respectively. References to a year included in this document refer to a fiscal year rather than a calendar year.

The following table sets forth, for the periods indicated, our results of operations and the percentage relationship to revenue be-

fore reimbursements of such results (in thousands, except per share amounts).

Revenue:

Revenue before reimbursements
Reimbursements

Total revenue

Costs and expenses:
Cost of service:

Personnel costs
Non-cash stock compensation expense
Acquisition-related compensation expense (benefit)
Acquisition-related non-cash stock compensation expense
Reimbursable expenses

Total cost of service

Selling, general and administrative costs
Non-cash stock compensation expense
Acquisition-related costs
Amortization of intangible assets

Total selling, general, and administrative expenses

Acquisition-related contingent consideration liability
Impairment of assets
Restructuring costs

Total costs and operating expenses
Income from operations
Other expense:

Interest expense

Income from continuing operations before income taxes
Income tax expense
Income from continuing operations (net of taxes)
Earnings (loss) from discontinued operations
Net income

Diluted net income per common share

Comparison of 2019 to 2018

December 27,
2019

Twelve Months Ended
December 28,
2018

December 29,
2017

260,837
21,635
282,472

100%
8%

264,523
21,364
285,887

100%
8%

255,131
21,468
276,599

100%
8%

61%

159,390
3,831
(131 )
954
21,635
185,679

58,075
2,931
32
1,036
62,074

22%

24%

(1,133 )
1,180
3,334
251,134
31,338

(311 )
31,027
7,744
23,283
(6 )
23,277

0.72

12%

12%
3%

60%

159,614
3,815
(535)
2,027
21,364
186,285

58,516
3,238
-
2,369
64,123

22%

24%

(4,364)
6,269
-
252,313
33,574

(638)
32,936
5,577
27,359
(3,450)
23,909

0.74

13%

12%
2%

60%

23%

25%

11%

11%
1%

11%

153,357
4,409
1,582
2,515
21,468
183,331

57,473
3,330
378
2,090
63,271

-
-
1,293
247,895
28,704

(584)
28,120
2,564
25,556
1,798
27,354

0.85

Overview. For fiscal year 2019, revenue from continuing operations and before reimbursements decreased 1% to $260.8 million,

as compared to fiscal year 2018. Fiscal year 2019 results included restructuring charges and the impairment of an asset related to the
Hackett Institute’s Enterprise Analytic Program. Together, these items negatively impacted dilutive earnings per share by $0.12. Fiscal
year 2018 results included discontinued operations related to the discontinuance of our European REL Working Capital group and the

impairment of assets primarily related to our investments in the Hackett Performance Exchange. Together these items negatively im-
pacted dilutive earnings per share by $0.23. Fiscal 2018 had a more favorable tax rate as a result of the 2017 Tax Cuts and Jobs Act,
which reduced corporate tax rates from 35% to 21%.

Revenue. We are a global company with operations primarily in the United States and Western Europe. Our revenue is denomi-

nated in multiple currencies, primarily the U.S. Dollar, British Pound, Euro and Australian Dollar, and as a result is affected by cur-
rency exchange rate fluctuations. The impact of the currency fluctuation did not have a significant impact on comparisons between
2019 and 2018. Revenue is analyzed based on geographic location of engagement team personnel.

The following table sets forth revenue by group for the periods indicated (in thousands):

S&BT
EEA
International
Revenue from continuing operations before reimbursement

Year Ended

December 27,
2019

December 28,
2018

104,507
119,503
36,827
260,837

101,622
116,494
46,407
264,523

Our total Company revenue from continuing operations and before reimbursements decreased 1%, to $260.8 million in 2019, as

compared to $264.5 million in 2018. Our North American revenue from continuing operations and before reimbursements increased
3% and our international revenue from continuing operations and before reimbursements decreased 21% in 2019, as compared to
2018. Reimbursable expenses are project and travel-related expenses passed through to a client with no margin associated with them.
Reimbursable expenses as a percentage of net revenue were 8% during both 2019 and 2018.

In 2019 and 2018, no customer accounted for more than 5% of our total revenue.

S&BT net revenue from continuing operations increased 3% in 2019, to $104.5 million as compared to 2018, primarily driven

by improved results across most practices.

EEA net revenue from continuing operations increased 3% in 2019, to $119.5 million, as compared to 2018, primarily driven by
strong results in our SAP and OneStream practices, as well as strong cloud revenue growth from our EPM practices, partially offset by
the Oracle EPM On-Premise declines.

Hackett international net revenue from continuing operations decreased 21% in 2019, as compared to 2018. This decrease in
revenue, which is primarily derived in Europe, was largely due to the uncertainties surrounding Brexit which appears to have impacted
client decision making. Total Company international net revenue from continuing operations accounted for 14% of our total revenue
in 2019, as compared to 18% in 2018.

Cost of Service. Cost of service primarily consists of salaries, benefits and incentive compensation for consultants and subcon-

tractor fees; acquisition-related cash and stock compensation costs; non-cash stock compensation expense; and reimbursable expenses
associated with projects.

Personnel costs from continuing operations were $159.4 million in 2019 from $159.6 million in 2018. Personnel costs before

reimbursable expenses, as a percentage of revenue before reimbursements 61% in 2019, as compared to 60% in 2018.

Non-cash stock compensation expense from continuing operations was $3.8 million in both 2019 and 2018.

The acquisition related compensation benefit of $0.1 million and $0.5 million in 2019 and 2018, respectively, related to the lia-
bility for the cash portion of the Aecus contingent consideration that was to be paid to the selling shareholders and key personnel, and
the cash portion of the Jibe contingent consideration that is to be paid to key personnel, all of which are subject to service vesting and
as a result is recorded as compensation expense. See Note 15, “Acquisitions” to our consolidated financial statements included in this
Annual Report on Form 10-K. These liabilities were both settled in 2019.

Acquisition related non-cash stock compensation expense in 2019 and 2018 primarily related to our EPM AMS acquisition of

Technolab in fiscal 2014 and the Jibe and Aecus acquisitions in 2017. See Note 15, “Acquisitions” to our consolidated financial state-
ments included in this Annual Report on Form 10-K.

Selling, General and Administrative (“SG&A”). SG&A costs from continuing operations, excluding non-cash compensation

expense, acquisition related costs and the amortization of intangible assets decreased 1% to $58.1 million in 2019, from $58.5 million
in 2018. SG&A costs as a percentage of revenue before reimbursements were 22% in both 2019 and 2018.

Non-cash compensation expense included in total SG&A decreased to $2.9 million in 2019, as compared to $3.2 million in
2018. See Note 10, “Stock Based Compensation” to our consolidated financial statements included in this Annual Report on Form 10-
K for further information.

Amortization expense was $1.0 million in 2019, as compared to $2.4 million in 2018. The amortization expense in 2019 and

2018 related to the amortization of the intangible assets acquired in our acquisitions of Jibe and Aecus in the second quarter of 2017
and the buyout of our partner’s joint venture interest in the CGBS Training and Certification Programs during the fourth quarter of
2017. The 2018 amortization expense also includes the amortization of the intangible assets acquired in our 2014 EPM AMS acquisi-
tion of Technolab. The intangible assets relate to the customer relationship, trademarks, customer backlog and non-compete agree-
ments. The Jibe and Aecus intangible assets will continue to amortize until 2022. The CGBS Training and Certification intangible
asset will amortize until 2021.

Acquisition-contingent Consideration Liability. During 2019 and 2018, the liabilities related to the cash portion of the Jibe ac-
quisition contingent consideration due to selling shareholders, which is not subject to service vesting, was reduced based on the esti-
mated achievement of the contingent earnout targets, resulting in a benefit. The liability was settled during 2019.

Impairment of Assets. In 2019, we recorded a $1.2 million asset impairment on our investment in the Hackett Institute’s Enter-

prise Analytics Program. In 2018, we recorded a $6.3 million asset impairment on our investments in the Hackett Performance Ex-
change and our Working Capital Course.

Restructuring Costs. In 2019, we recorded restructuring costs primarily related to the continued weakness in our international

operations. These costs primarily related to severance costs as we reduced staff to be commensurate with current demand primarily in
both Europe and Australia.

Interest Expense. In 2019, we recorded interest expense of $311 thousand, as compared to $638 thousand in 2018, primarily due

to the lower average outstanding debt balance. The debt was fully paid off during the fourth quarter of 2019.

Income Taxes. During 2019, we recorded $7.7 million of income tax expense related to certain federal, foreign and state taxes
which reflected an effective tax rate of 25.0% from continuing operations. During 2018, we recorded $5.6 million of income tax ex-
pense related to certain federal, foreign and state taxes which reflected an effective tax rate of 16.9% from continuing operations. In
2018 the effective tax rate reflected a lower federal tax rate of 21% as a result of the 2017 Tax Cuts and Jobs Act.

Discontinued Operations. The discontinued operations related to the discontinuance of our European REL Working Capital

group in 2018. Prior year comparisons have been restated.

Comparison of 2018 to 2017

Overview. For fiscal year 2018, revenue from continuing operations and before reimbursements increased 4% to $264.5 mil-
lion, as compared to fiscal year 2017, and earnings from continuing operations increased 7%. Fiscal 2018 results included discontin-
ued operations related to the discontinuance of our European REL Working Capital group and the impairment of assets primarily re-
lated to our investments in the Hackett Performance Exchange. Together these items negatively impacted dilutive earnings per share
by $0.23. Fiscal year 2017 earnings per share was favorably impacted by $0.23 per share related to the tax benefit for the revaluation
of the deferred tax liabilities as a result of the tax legislation enacted in late 2017 and the change in tax accounting for the vesting of
share-based awards.

Revenue. We are a global company with operations primarily in the United States and Western Europe. Our revenue is denomi-

nated in multiple currencies, primarily the U.S. Dollar, British Pound, Euro and Australian Dollar, and as a result is affected by cur-
rency exchange rate fluctuations. The impact of the currency fluctuation did not have a significant impact on comparisons between
2018 and 2017. Revenue is analyzed based on geographic location of engagement team personnel.

The following table sets forth revenue by group for the periods indicated (in thousands):

S&BT
EEA
International
Revenue from continuing operations before reimbursement

Year Ended

December 28,
2018

December 29,
2017

101,622
116,494
46,407
264,523

87,036
126,289
41,806
255,131

Our total Company revenue from continuing operations and before reimbursements increased 4%, to $264.5 million in 2018, as
compared to $255.1 million in 2017. Our domestic revenue from continuing operations and before reimbursements increased 2% and
our international revenue from continuing operations and before reimbursements increased 11% in 2018, as compared to 2017.

Reimbursable expenses are project and travel-related expenses passed through to a client with no margin associated with them. Reim-
bursable expenses as a percentage of net revenue were 8% during both 2018 and 2017.

In 2018 and 2017, no customer accounted for more than 5% of our total revenue.

SBT net revenue from continuing operations and before reimbursements increased 17% in 2018, as compared to 2017, primarily

due to strong results across most practices.

EEA net revenue from continuing operations and before reimbursements decreased 8% in 2018, as compared to 2017. The de-

crease was primarily due to our Oracle EEA group which was adversely impacted as a result of the transition from on-premise to
cloud application migration and our SAP EEA group which was negatively impacted by the SAP channel transition resulting from
SAP’s decision to emphasize S4 HANA Single Tenant solutions more aggressively over its non-SAP hosted S4 HANA options.

Hackett international revenue from operations and before reimbursements increased 11% in 2018, as compared to 2017. This

increase in revenue, which is primarily derived in Europe, was due to growth in our international Strategy and Business Transfor-
mation groups and from having a full year of revenue from our Robotics Process Automation group acquired in 2017. Our interna-
tional revenue from operations before reimbursements accounted for 18% of our total revenue in 2018, as compared to 16% in 2017.

Cost of Service. Cost of service primarily consists of salaries, benefits and incentive compensation for consultants and subcon-

tractor fees; acquisition-related cash and stock compensation costs; non-cash stock compensation expense; and reimbursable expenses
associated with projects.

Personnel costs from continuing operations increased 4% to $159.6 million in 2018 from $153.4 million in 2017, primarily due
to a full year of costs associated with the acquisitions in 2017 and due to higher incentive compensation accruals for our U.S. Strategy
and Business Transformation group. Personnel costs before reimbursable expenses, as a percentage of revenue before reimbursements
also remained consistent at 60% in both 2018 and 2017.

Non-cash stock compensation expense from continuing operations was $3.8 million in 2018, as compared to $4.4 million in

2017.

The acquisition related compensation benefit of $0.5 million in 2018 and cost of $1.6 million in 2017 related to the liability for

the cash portion of the Aecus contingent consideration to be paid to the selling shareholders and key personnel, and the cash portion of
the Jibe contingent consideration that is to be paid to key personnel, all of which are subject to service vesting and as a result is rec-
orded as compensation expense. See Note 15, “Acquisitions” to our consolidated financial statements included in this Annual Report
on Form 10-K.

Acquisition related non-cash stock compensation expense in 2018 and 2017 primarily related to our EPM AMS acquisition of

Technolab in fiscal 2014 and the Jibe and Aecus acquisitions in 2017. See Note 15, “Acquisitions” to our consolidated financial state-
ments included in this Annual Report on Form 10-K.

Selling, General and Administrative (“SG&A”). SG&A costs from continuing operations, excluding non-cash compensation

expense, acquisition related costs and the amortization of intangible assets increased 2% to $58.5 million in 2018, from $57.5 million
in 2017. SG&A costs as a percentage of revenue before reimbursements were 22% in 2018 and 23% in 2017.

Non-cash compensation expense included in total SG&A decreased slightly to $3.2 million in 2018, as compared to $3.3 million

in 2017. See Note 10, “Stock Based Compensation” to our consolidated financial statements included in this Annual Report on Form
10-K for further information.

Amortization expense was $2.4 million in 2018, as compared to $2.1 million in 2017. The amortization expense in 2018 and

2017 related to the amortization of the intangible assets acquired in our 2014 EPM AMS acquisition of Technolab, our acquisitions of
Jibe and Aecus in the second quarter of 2017 and the buyout of our partner’s joint venture interest in the CGBS Training and Certifi-
cation Programs during the fourth quarter of 2017. The intangible assets relate to the customer relationship, trademarks, customer
backlog and non-compete agreements. The Technolab intangible assets were fully amortized in 2018. The Jibe and Aecus intangible
assets will continue to amortize until 2022. The CGBS Training and Certification intangible asset will amortize until 2021.

Acquisition-contingent Consideration Liability. During 2018, the liabilities related to the cash portion of the Jibe acquisition

contingent consideration due to selling shareholders, which is not subject to service vesting, was reduced based on the estimated
achievement of the contingent earnout targets, resulting in a benefit.

Impairment of Assets. In 2018, we recorded a $6.3 million asset impairment on our investments in the Hackett Performance

Exchange and our Working Capital Course.

Restructuring Costs. In 2017, we recorded restructuring costs primarily related to the transition of resources driven by our mi-
gration from on premise software to cloud-based implementations as well as the Jibe acquisition, and the rationalization of global re-
sources as a result of the emergence of RPA related engagements from our Aecus acquisition.

Interest Expense. In 2018, we recorded interest expense of $638 thousand, as compared to $584 thousand in 2017.

Income Taxes. During 2018, we recorded $5.6 million of income tax expense related to certain federal, foreign and state taxes

which reflected an effective tax rate of 16.9% from continuing operations. In 2018 the effective tax rate also reflected a lower federal
tax rate of 21% as a result of the 2017 Tax Cuts and Jobs Act. During 2017, we recorded $2.6 million of income tax expense related to
certain federal, foreign and state taxes which reflected an effective tax rate of 9.1% from continuing operations. During the first quar-
ter of 2017, the Company recorded a tax benefit as result of the adoption of a new pronouncement relating to the accounting on the
vesting of share-based awards. During the fourth quarter of fiscal 2017 we recorded a tax benefit related to the revaluation of our de-
ferred tax liabilities as a result of the adoption of the 2017 Tax Act on December 22, 2017. Excluding the effect of the tax reform leg-
islation, the 2017 effective tax rate would have been 35.7% for certain federal, foreign and state taxes.

Discontinued Operations. The discontinued operations related to the discontinuance of our European REL Working Capital

group in 2018. Prior year comparisons have been restated.

Liquidity and Capital Resources

As of December 27, 2019 and December 28, 2018, we had $26.0 million and $13.8 million, respectively, of cash and cash
equivalents, respectively. As of December 27, 2019, we had no outstanding debt under our revolving credit facility. We currently be-
lieve that available funds (including the cash on hand and funds available for borrowing under the revolving line), and cash flows gen-
erated by operations will be enough to fund our working capital and capital expenditure requirements for at least the next twelve
months. We may decide to raise additional funds to support expansion, to develop new or enhance products and services, to respond to
competitive pressures or to acquire complementary businesses or technologies. There is no assurance, however, that additional financ-
ing will be available when needed or desired.

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

Year Ended

December 27,
2019

December 28,
2018

$
$
$

42,361
$
(5,578) $
(24,697) $

32,411
(9,637)
(26,556)

Net cash provided by operating activities was $42.4 million in 2019, as compared to $32.4 million in 2018. In 2019, the net cash

provided by operating activities was primarily due to net income adjusted for non-cash items, and decreased account receivables and
unbilled revenue, partially offset by lower accrued expenses and other liabilities due to the payout of 2018 incentive compensation and
state and federal income taxes.
In 2018, the net cash provided by operating activities was primarily due to net income from continu-
ing operations adjusted for non-cash items, partially offset by lower accrued expenses and other liabilities due to the payout of 2017
incentive compensation and state and federal income taxes and an increase in accounts receivable and unbilled revenue.

Cash Flows from Investing Activities

Net cash used in investing activities was $5.6 million in 2019, as compared to $9.6 million in 2018. During 2019 and 2018, cash
flows used in investing activities included investments relating to investments in internal corporate systems, the global rollout of new
laptops which occurs every three to four years, and our investments relating to the development of our Quantum Leap benchmark
technology. In addition, in 2019 the Jibe earnout consideration with the selling shareholders was finalized and settled.

Cash Flows from Financing Activities

Net cash used in financing activities was $24.7 million in 2019, as compared to $26.6 million in 2018. The usage of cash in
2019 was primarily related to the dividend payments of $11.2 million, the net paydown of the revolving line of credit of $6.5 million,
employee net vesting related tax withholding requirements of $2.5 million and for the repurchase of Company common stock under
the Company’s share repurchase program of $5.3 million. The usage of cash in 2018 was primarily related to the dividend payments
of $10.0 million, the net paydown of the revolving line of credit of $12.5 million, employee net vesting related to tax withholding re-
quirements of $3.6 million and for the repurchase of Company common stock under the Company’s share repurchase program of $1.2
million.

Contractual Obligations

There were no material capital commitments as of December 27, 2019. The following table summarizes our future principal
payments under our credit facility (See Note 8 to our consolidated financial statements included in this Annual Report on Form 10-K)
and future lease commitments under our non-cancelable operating leases as of December 27, 2019 (in thousands):

Contractual Obligations
Short-term debt obligations (1)
Long-term debt obligations (1)
Operating lease obligations
Total

Total

Less Than
1 Year

1-3 Years

4-5 Years

More Than
5 Years

— $
—
8,845
8,845

— $
—
2,445
2,445

— $
—
3,727
3,727

— $
—
1,428
1,428

—
—
1,245
1,245

(1)

Excludes the fee on the amount of any unused commitment that we may be obligated to pay under our credit facility, as
such amounts vary and cannot be estimated. See Note 8 to our consolidated financial statements included in this Annual
Report on Form 10-K.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of December 27, 2019.

Recently Issued Accounting Standards

For discussion of recently issued accounting standards, see Note 1 to our consolidated financial statements included in this An-

nual Report on Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of December 27, 2019, our exposure to market risk related primarily to changes in interest rates and foreign currency ex-

change 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 inter-
est rates. The interest rates per annum applicable to loans under the credit facility will be, at our option, equal to either a base rate or a
LIBOR 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 would not have had a material impact on our 2019 results of oper-
ations.

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, the Canadian Dollar and the
Australian Dollar. The Company recognized income related to foreign currency exchange of $0.1 million and $0.6 million in 2019 and
2018, respectively and losses of $0.7 million in 2017. These exposures may change over time as business practices evolve. Currently,
we do not hold any derivative contracts that hedge our foreign currency risk, but we may adopt such strategies in the future.

For a discussion of the risks we face as a result of foreign currency fluctuations, see “Item 1A. Risk Factors” in Part I of this

report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

THE HACKETT GROUP, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 27, 2019 and December 28, 2018
Consolidated Statements of Operations for the Years Ended December 27, 2019, December 28, 2018 and December 29,
2017
Consolidated Statements of Comprehensive Income for the Years Ended December 27, 2019, December 28, 2018, and De-
cember 29, 2017
Consolidated Statements of Shareholder s’ Equity for the Years Ended December 27, 2019, December 28, 2018, and De-
cember 29, 2017
Consolidated Statements of Cash Flows for the Years Ended December 27, 2019, December 28, 2018 and December 29,
2017
Notes to Consolidated Financial Statements
Schedule II – Valuation and Qualifying Accounts and Reserves

Page
30
31

35
36
58

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of The Hackett Group, Inc.

Opinion on The Financial Statements

We have audited the accompanying consolidated balance sheets of The Hackett Group, Inc. and its subsidiaries (the Company) as of
December 27, 2019 and December 28, 2018, the related consolidated statements of operations, comprehensive income, shareholders'
equity and cash flows for each of the three years in the period ended December 27, 2019, and the related notes to the consolidated
financial statements and schedules (collectively, the financial statements). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 27, 2019 and December 28, 2018, and the results of their
operations and their cash flows for each of the three years in the period ended December 27, 2019, in conformity with accounting
principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company's internal control over financial reporting as of December 27, 2019, based on criteria estab-
lished in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commis-
sion in 2013, and our report dated March 5, 2020 expressed an unqualified opinion on the effectiveness of the Company's internal con-
trol over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.

/s/ RSM US LLP

We have served as the Company’s auditor since 2015.

Fort Lauderdale, Florida
March 5, 2020

THE HACKETT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

ASSETS
Current assets:

Cash
Accounts receivable and unbilled revenue, net of allowance of $743 and $1,441

at December 27, 2019 and December 28, 2018, respectively

Prepaid expenses and other current assets
Assets related to discontinued operations

Total current assets
Property and equipment, net
Other assets
Goodwill
Operating lease right-of-use assets

Total assets

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:

Accounts payable
Accrued expenses and other liabilities
Operating lease liabilities
Liabilities related to discontinued operations

Total current liabilities

Non-current deferred tax liability, net
Long-term debt
Operating lease liabilities
Total liabilities

Commitments and contingencies
Shareholders' equity:

Preferred stock, $.001 par value, 1,250,000 shares authorized, none issued and outstanding
Common stock, $.001 par value, 125,000,000 shares authorized; 57,180,616 and 56,607,622

shares issued at December 27, 2019 and December 28, 2018, respectively

Additional paid-in capital
Treasury stock, at cost, 27,425,476 and 27,086,782 shares at December 27, 2019 and

December 28, 2018, respectively

Accumulated deficit
Accumulated other comprehensive loss

Total shareholders' equity
Total liabilities and shareholders' equity

December 27,
2019

December 28,
2018

25,954

13,808

49,778
2,895
—
78,627
19,916
2,652
84,578
7,962
193,735

8,494
32,482
2,707
—
43,683
7,183
—
5,255
56,121

54,807
4,339
137
73,091
19,750
3,704
84,207
—
180,752

7,429
34,498
—
2,300
44,227
6,435
6,500
—
57,162

—

58
303,707

(141,887)
(13,714)
(10,550)
137,614
193,735

57
296,955

(136,604)
(25,424)
(11,394)
123,590
180,752

The accompanying notes are an integral part of the consolidated financial statements.

THE HACKETT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

Revenue:

Revenue before reimbursements
Reimbursements

Total revenue

Costs and expenses:
Cost of service:

Personnel costs before reimbursable expenses

(includes $4,785, $5,842, and $6,924 of stock compensation
expense in 2019, 2018, and 2017, respectively)

Reimbursable expenses

Total cost of service
Selling, general and administrative costs

(includes $2,931, $3,238 and $3,330 of stock compensation
expense in 2019, 2018, and 2017, respectively)

Impairment of assets
Acquisition-related contingent consideration
Restructuring cost

Total costs and operating expenses

Operating income
Other expense:

Interest expense

Income from continuing operations before income taxes
Income tax expense
Income from continuing operations
Gain (loss) from discontinued operations (net of taxes)
Net income
Basic net income per common share:

Income per common share from continuing operations
Income (loss) per common share from discontinued operations

Net income per common share

Diluted net income per common share:

Income per common share from continuing operations
Income (loss) per common share from discontinued operations

Net income per common share

December 27,
2019

Year Ended
December 28,
2018

December 29,
2017

260,837
21,635
282,472

264,523
21,364
285,887

255,131
21,468
276,599

164,044
21,635
185,679

62,074
1,180
(1,133)
3,334
251,134
31,338

(311)
31,027
7,744
23,283
(6)
23,277

$
0.78
(0.00) $
$
0.78

0.72
0.00
0.72

$
$
$

164,921
21,364
186,285

64,123
6,269
(4,364)
—
252,313
33,574

(638)
32,936
5,577
27,359
(3,450)
23,909

$
0.93
(0.12) $
$
0.81

0.85
$
(0.11) $
$
0.74

161,863
21,468
183,331

63,271
—
—
1,293
247,895
28,704

(584)
28,120
2,564
25,556
1,798
27,354

0.89
0.06
0.95

0.79
0.06
0.85

Weighted average common shares outstanding
Weighted average common and common equivalent shares outstanding

29,805
32,453

29,379
32,330

28,852
32,196

The accompanying notes are an integral part of the consolidated financial statements.

THE HACKETT GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

Net income
Foreign currency translation adjustment
Total comprehensive income

December 27,
2019

23,277
844
24,121

Year Ended
December 28,
2018

December 29,
2017

23,909
(2,885)
21,024

27,354
3,040
30,394

The accompanying notes are an integral part of the consolidated financial statements.

THE HACKETT GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)

Additional

Common Stock

54,785
960
—

Amount
55
$
1
—

Paid in
Capital

277,100
(3,211)
—

Treasury Stock

Amount

Shares
(26,197 ) $
—
(748)

Accumulated
Other
Comprehen-
sive
Loss

Total

Shareholders'
Equity

Accumu-
lated
Deficit

(122,756) $
—
(11,298)

(56,581) $
—
—

(11,549) $
—
—

86,269
(3,210)
(11,298 )

—
—
—
—
55,745

863
—

—
—
—
—
56,608

573
—

—
—
—
—
57,181

—
—
—
—
56

1
—

—
—
—
—
57

1
—

—
—
—
—
58

14,408
—
—
—
288,297

(2,798)
1,346

10,110
—
—
—
296,955

(1,717)
—

8,469
—
—
—
303,707

—
—
—
—
(26,945 ) $

—
—
—
—
(134,054) $

—
(9,288)
27,354
—
(38,515) $

—
(141)

—
(2,550)

—
—

—
—
—
—
(27,086 ) $

—
—
—
—
(136,604) $

—
(10,818)
23,909
—
(25,424) $

—
(339)

—
(5,283)

—
—

—
—
—
—
(27,425 ) $

—
—
—
—
(141,887) $

—
(11,567)
23,277
—
(13,714) $

—
—
—
3,040
(8,509) $

—
—

—
—
—
(2,885)
(11,394) $

—
—

—
—
—
844
(10,550) $

14,408
(9,288)
27,354
3,040
107,275

(2,797)
(1,204)

10,110
(10,818 )
23,909
(2,885)
123,590

(1,716)
(5,283)

8,469
(11,567 )
23,277
844
137,614

Balance at December 30, 2016

Issuance of common stock
Treasury stock purchased
Amortization of restricted stock units

and common stock subject to
vesting requirements

Dividends declared
Net income
Foreign currency translation

Balance at December 29, 2017

Issuance of common stock
Treasury stock purchased
Amortization of restricted stock units

and common stock subject to
vesting requirements

Dividends declared
Net income
Foreign currency translation

Balance at December 28, 2018

Issuance of common stock
Treasury stock purchased
Amortization of restricted stock units

and common stock subject to
vesting requirements

Dividends declared
Net income
Foreign currency translation

Balance at December 27, 2019

The accompanying notes are an integral part of the consolidated financial statements.

THE HACKETT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Cash flows from operating activities:
Net income
Less income (loss) from discontinued operations, net of taxes
Net income from continuing operations
Adjustments to reconcile net income to net
cash provided by operating activities:

Depreciation expense
Amortization expense
Impairment of assets
Amortization of debt issuance costs
Provision for doubtful accounts
(Gain) loss on foreign currency transactions
Non-cash stock compensation expense
Deferred income tax expense (benefit)

Changes in assets and liabilities, net of acquisition:

Decrease (increase) in accounts receivable and unbilled revenue
Decrease (increase) in prepaid expenses and other assets
Increase (decrease) in accounts payable
Decrease in accrued expenses and other liabilities

Net cash provided by operating activities of continuing operations
Net cash provided by (used in) operating activities of discontinued opera-
tions
Net cash provided by operating activities

Cash flows from investing activities:

Purchases of property and equipment
Cash consideration paid for acquisitions
Cash acquired in acquisition

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from borrowings
Payment of debt borrowings
Dividends paid
Proceeds from issuance of common stock
Repurchases of common stock

Net cash used in financing activities

Effect of exchange rate on cash

Net increase (decrease) in cash
Cash at beginning of year
Cash at end of year
Supplemental disclosure of cash flow information:
Cash paid for income taxes
Cash paid for interest
Supplemental disclosure of non-cash investing and financing activities:
Shares issued to sellers and key personnel of Jibe Consulting and Aecus Limited

$
$

December 27,
2019

Year Ended
December 28,
2018

December 29,
2017

23,277
(6)
23,283

23,909
(3,450)
27,359

27,354
1,798
25,556

3,206
1,036
1,180
91
1,111
(90)
7,716
999

4,262
1,450
1,065
(2,944)
42,365

(4)
42,361

(4,568)
(1,010)
—
(5,578)

1,000
(7,500)
(11,196)
806
(7,807)
(24,697)
60
12,146
13,808
25,954

5,805
231

973

$
$

2,465
2,369
6,269
91
668
(592)
9,310
223

(2,556)
(1,870)
(1,005)
(11,699)
31,032

1,379
32,411

(9,637)
—
—
(9,637)

5,000
(17,500)
(10,048)
778
(4,786)
(26,556)
78
(3,704)
17,512
13,808

7,962
541

$
$

2,442
2,090
—
90
117
695
10,316
(1,781)

(3,060)
(887)
(1,064)
(7,859)
26,655

(146)
26,509

(6,517)
(11,268)
261
(17,524)

26,000
(14,000)
(8,670)
1,208
(15,716)
(11,178)
(5)
(2,198)
19,710
17,512

3,698
510

3,613

The accompanying notes are an integral part of the consolidated financial statements.

THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information

Nature of Business

The Hackett Group is an intellectual property-based strategic consultancy and leading enterprise benchmarking and best prac-
tices implementation firm to global companies. Services include business transformation, enterprise performance management, and
global business services. The Hackett Group also provides dedicated expertise in business strategy, operations, finance, human capital
management, strategic sourcing, procurement, and information technology, including its award-winning Oracle EPM and SAP prac-
tices. Intercompany transactions and balances are eliminated upon consolidation.

Basis of Presentation and Consolidation

The accompanying consolidated financial statements include the Company’s accounts and those of its wholly-owned subsidiar-

ies which the Company is required to consolidate. The Company consolidates the assets, liabilities, and results of operations of its
entities.

Fiscal Year

The Company’s fiscal year generally consists of a 52-week period and periodically consists of a 53-week period as each fiscal
year ends on the Friday closest to December 31. Fiscal years 2019, 2018 and 2017 ended on December 27, 2019, December 28, 2018
and December 29, 2017, respectively. References to a year included in the consolidated financial statements refer to a fiscal year ra-
ther than a calendar year.

Cash

The Company considers all short-term investments with maturities of three months or less to be cash equivalents to the extent
that it places its temporary cash investments with high credit quality financial institutions. At times, such investments may be in ex-
cess of the F.D.I.C. insurance limits.

Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses resulting from its clients not making required
payments. Management makes estimates of the collectability of accounts receivable and critically reviews accounts receivable and
analyzes historical bad debts, past-due accounts, client credit worthiness and current economic trends when evaluating the adequacy of
the allowance for doubtful accounts. If the financial condition of the Company’s clients were to deteriorate, resulting in their inability
to make payments, additional allowances may be required.

Dividends

In December 2012, the Company’s Board of Directors approved the initiation of an annual cash dividend in the amount of $0.10
In 2017, 2018, and 2019, the

per share. The Company’s Board of Directors has been gradually increasing the dividend over the years.
Company’s Board of Directors approved an increase in the annual dividend to $0.30 per share, $0.34 per share, and $0.36 per share,
respectively. Subsequent to 2019, the Company’s Board of Directors approved the increase in the annual dividend from $0.36 to
$0.38 per share to be paid on a semi-annual basis. The dividend policy is reviewed periodically by the Board of Directors. The amount
and timing of all dividend payments is subject to the discretion of the Board of Directors and will depend upon business conditions,
contractual obligations, legal restrictions, results of operations, financial conditions and other factors.

Property and Equipment, Net

Property and equipment are recorded at cost. Depreciation is calculated to amortize the depreciable assets over their estimated
useful lives using the straight-line method and commences when the asset is placed in service. The range of estimated useful lives is
three to ten years. Leasehold improvements are amortized on a straight-line basis over the term of the lease or the estimated useful life
of the improvement, whichever is shorter. Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures
for betterments and major improvements are capitalized. The carrying amount of assets sold or retired and related accumulated depre-
ciation are removed from the balance sheet in the year of disposal and any resulting gains or losses are included in the consolidated
statements of operations.

THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information (continued)

The Company capitalizes the costs of internal-use software, which generally includes hardware, software, and payroll-related
costs for employees who are directly associated with, and who devote time, to the development of internal-use computer software.

Long-Lived Assets (excluding Goodwill and Indefinite Lived Intangible Assets)

Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset
may not be fully recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are
compared to the asset’s carrying amount to determine if there has been an impairment. The amount of an impairment is calculated
d
the difference between the fair value of the asset and the carrying value. Estimates of future undiscounted cash flows are based on
management’s view of growth rates for the related business, anticipated future economic conditions and estimates of residual values.

Business Combinations

For transactions that are considered business combinations, the purchased assets and assumed liabilities are recorded at fair

value at acquisition date, and identifiable intangible assets are recorded at fair value. Costs directly related to the business combina-
tions are recorded as expenses as they are incurred. Fair values are subject to refinement during the measurement period of up to one
year after the closing date of an acquisition as information relative to closing date fair values become available.

Goodwill and Other Intangible Assets

Goodwill and intangible assets deemed to have indefinite lives are not amortized, but rather are tested for impairment on an an-

nual basis, or more frequently if events or changes in circumstances indicate potential impairment. Finite-lived intangible assets are
amortized over their useful lives. The excess cost of the acquisition over the fair value of the net assets acquired is recorded as good-
will.

Goodwill is tested at least annually for impairment at the reporting unit level utilizing the market approach. The reporting units

consist of The Hackett Group (including global Benchmarking, Business Transformation, Strategy and Operations, Executive Advi-
sory Programs and Robotics Process Automation) and Hackett Technology Solutions (including SAP ERP and SAP AMS, Oracle
EPM and EPM AMS). In assessing the recoverability of goodwill and intangible assets, the Company utilizes the market approach and
a
makes estimates based on assumptions regarding various factors to determine if impairment tests are met. The market approach uti-
lizes valuation multiples based on operating data from publicly traded companies within the same industry. Multiples derived from
guideline companies provide an indication of how much a market participant would be willing to pay for a company. These multiples
are then applied to the Company’s reporting units to arrive at an indication of value. This approach contains management’s judgment,
using appropriate and customary assumptions available at the time.

The Company performed its annual step one impairment test of goodwill in the fourth quarter of fiscal years 2019 and 2018 and

determined that goodwill was not impaired. The carrying amount and activity of goodwill attributable to The Hackett Group and
Hackett Technology Solutions was as follows (in thousands):

Balance at December 29, 2017

Foreign currency translation adjustment

Balance at December 28, 2018

Foreign currency translation adjustment

Balance at December 27, 2019

The Hackett

Hackett
Technology

Group

Solutions

Total

44,402

(867)

43,535

371

40,672

——

40,672

——

43,906

40,672 $

85,074
(867)
84,207
371
84,578

THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information (continued)

Finite lived intangible assets are tested for potential impairment whenever events or changes in circumstances suggest that the
carrying value of an asset may not be fully recoverable. If an evaluation is required, the estimated future undiscounted cash flows as-
sociated with the asset are compared to the asset’s carrying amount to determine if there has been an impairment. The amount of an
impairment is calculated as the difference between the fair value of the asset and the carrying value. Estimates of future undiscounted
cash flows are based on management’s view of growth rates for the related business, anticipated future economic conditions and esti-
mates of residual values. Other intangible assets arise from business combinations and consist of customer relationships, customer
backlog and trademarks that are amortized on a straight-line or accelerated basi

s over periods of up to five years.

Other intangible assets, included in other assets in the accompanying consolidated balance sheets, consist of the following (in

thousands):

Gross carrying amount

Accumulated amortization

Foreign currency translation adjustment

December 27,

2019

December 28,
2018

27,269 $

(25,274)

121

2,116 $

27,269
(24,238)
59
3,090

All of the Company’s intangible assets are expected to be fully amortized by the end of 2022. For the years ended December
27, 2019, December 28, 2018, and December 27, 2017, the Company recorded $1.0 million, $2.4 million and $2.1 million of amorti-
zation expense, respectively. The estimated future amortization expense of intangible assets as of December 27, 2019 is as fol-
lows: $1.0 million in 2020, $0.9 million in 2021, $0.2 million in 2022. See Note 15 for further discussion.

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, 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 perfo
rr
mance 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 pro-

vided. The performance obligations related to software support, maintenance and subscriptions to its executive and best practice advi-
sory 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.

tt
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 arrange-
ments 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 thet
parties, typically bi-weekly, monthly or mile-stone 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 con-

sultants 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.

THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information (continued)

Advisory services contracts are typically in the form of a subscription agreement which allows the customer access to the Com-
pany’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 software license or maintenance agreements
provided by SAP America. SAP is the principal and the Company is the agent in these transactions as the Company does not obtain
title to the software and the maintenance 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. Revenue from maintenance contracts is recognized ratably over thett
life of the agreements. The customer is typically invoiced at contract inception, w
ith net thirty-day terms, however client terms are
yy
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.
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 contrac-
tually 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 gen-
erally limited to six to twelve months and usually apply only to specific employees or the specific project team.

The payment terms and conditions in our 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 con-
venience with 30 days’ notice. In the event of termination, the client is contractually required to pay for all time, materials and ex-
penses 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 spe-
cific employees or the specific project team.

Differences between the timing of billings and the recognition of revenue are recognized as either unbilled services or deferre
d
s are

revenue in the accompanying consolidated balance sheets. Revenue recognized for services performed but not yet billed to client
recorded as unbilled services. Revenue recognized, but for which are not yet entitled to bill because certain events, such as the com-
pletion of the measurement period, are recorded as contract assets and included within unbilled services. Client prepayments are clas-
sified as deferred revenue and recognized over future periods as earned in accordance with the applicable engagement agreement. See
Note 3 for the accounts receivable and unbilled revenue balances and see Note 5 for the deferred revenue balances. During the 12
months ended December 27, 2019, the Company recognized $17.8 million of revenue as a result of changes in deferred revenue liabil-
ity balance, as compared to $19.1 million for the twelve months ended December 28, 2018, respectively.

The following table reflects the Company’s disaggregation of total revenue from continuing operations including reimbursable

expenses for the quarters and twelve months ended December 27, 2019 and December 28, 2018:

Consulting

Software license sales

Total revenue from continuing operations

Capitalized Sales Commissions

December 27,

2019

Year Ended
December 28,
2018

December 29,
2017

279,043 $

282,213 $

272,821

3,429

3,674

3,778

282,472 $

285,887 $

276,599

Sales commissions earned by our 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. We determined the period of amortization by
taking into consideration the customer contract period, which are generally less than 12 months. Commission expense is included ind
Selling, General and Administrative Costs in the accompanying consolidated statements of operations. As of December 27, 2019 and
December 28, 2018, the Company had $1.6 million, and $1.2 million, respectively, of deferred commissions, of which $1.4 million
was amortized during both the 12 months ended December 27, 2019 and December 28, 2018. No impairment loss was recognized
relating to the capitalization of deferred commission.

THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information (continued)

Practical Expedients

Sales tax collected from customers and remitted to the applicable taxing authorities is accounted for on a net basis, with no im-

pact on revenue.

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 recogniz
a
line with the proportionate performance approach.

ed in

Stock Based Compensation

The Company recognizes compensation expense for awards of equity instruments to employees based on the grant-date fair

value of those awards, with limited exceptions, over the requisite service period.

Restructuring Reserves

Restructuring reserves reflect judgments and estimates of the Company’s ultimate costs of severance, closure and consolidation

of facilities and settlement of contractual obligations under its operating leases, including sublease rental rates, absorption period to
sublease space and other related costs. The Company reassesses the reserve requirements to complete each individual plan under the
restructuring programs at the end of each reporting period. If these estimates change in the future or actual results differ from the
Company’s estimates, additional charges may be required.

Income Taxes

Deferred tax assets and liabilities are determined based on differences between the financial reporting carrying values and tax
bases of assets and liabilities and are measured by using enacted tax rates expected to apply to taxable income in the years in which
n
x credit
those differences are expected to reverse. Deferred income taxes also reflect the impact of certain state operating loss and ta
carryforwards. A valuation allowance is provided if the Company believes it is more likely than not that all or some portion of the
deferred tax asset will not be realized. An increase or decrease in the valuation allowance, if any, that results from a change
in circum-
stances, and which causes a change in the Company’s judgment about the realizability of the related deferred tax asset, is included in
the tax provision.

The Company utilized a more-likely-than-not threshold for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. This interpretation also provides guidance on de-recognition of income tax assets and
liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with
tax positions, accounting for income taxes in interim periods and income tax disclosures. The Company reports penalties and tax-re-
lated interest expense as a component of income tax expense.

Discontinued Operations

The Company’s European REL Working Capital group’s sales had been declining over the past several years as European

countries have experienced continued economic recoveries and improved cash balances. Companies are holding high cash reserves
m
which drove working capital project sales of this group down across all of Europe. The REL practice had a limited pipeline of poten-
tial client engagements; therefore, the Company made the strategic decision to exit the business at the end of fiscal year 2018

THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information (continued)

The following table includes the carrying amounts of the major classes of assets and liabilities presented in discontinued

operations in our consolidated balance sheet:

ASSETS

Accounts receivable and unbilled revenue, net of allowance of $0 and $0
y
at December 27, 2019 and December 28, 2018, respectivel
r
Assets related to discontinued operations

LIABILITIES

Accrued expenses and other liabilities (1)
Liabilities related to discontinued operations

December 27,

December 28,

2019

2018

$
$

-
-

$
$

- $
- $

137
137

2,300
2,300

(1) The balance at December 28, 2018, primarily represents the accrued severance related to terminated employees.

The following table presents the gain and loss results for our discontinued operations:

December 27,
2019

Year Ended
December 28,

December 29,

2018

2017

Revenue:

Revenue before reimbursements
Reimbursements

Total revenue

Costs and expenses:
Cost of service:

Personnel costs before reimbursable expenses
Reimbursable expenses
Total cost of service

Selling, general and administrative costs

Total costs and operating expenses
Income from discontinued operations before income taxes
Income tax expense (benefit)
Gain (loss) from discontinued operations

75
17
92

28
17
45
52
97
(5 ))
1
(6 ))

2,519
496
3,015

5,340
496
5,836
1,210
7,046
(4,031 ))
(581 ))
(3,450 )) $

8,121
1,142
9,263

4,449
1,142
5,591
1,554
7,145
2,118
320
1,798

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 regards to common stock subject to vesting requirements and restricted stock units issued to em-
ployees, the calculation includes only the vested portion of such stock.

The potential issuance of common shares upon the exercise, conversion or vesting of unvested restricted stock units, common
stock subject to vesting, stock options and stock appreciation right units ("SARs"), as calculated under the treasury stock method, may
be dilutive. Diluted net income per share is computed by dividing the net income by the weighted average number of common shares
outstanding and will increase by the assumed conversion of other potentially dilutive securities during the period.

THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information (continued)

The following table reconciles basic and diluted weighted average shares:

Basic weighted average common shares outstanding
Effect of dilutive securities:

Unvested restricted stock units and common stock subject to
vesting requirements issued to employees
Common stock issuable upon the exercise of stock options
and SARs

Dilutive weighted average common shares outstanding

Year Ended
December 27, December 28, December 29,
2018
29,378,643

2017
28,852,251

2019
29,804,721

307,422

565,950

1,002,380

2,340,450
32,452,593

2,385,813
32,330,406

2,341,501
32,196,132

There were 12 thousand, 1 thousand and 19 thousand shares of underlying awards granted excluded from the above reconcilia-

tion for the years ended 2019, 2018 and 2017, respectively, as their inclusion would have had an anti-dilutive effect on diluted net
income per share.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable and unbilled revenue, accounts

payable, accrued expenses and other liabilities and debt. As of December 27, 2019 and December 28, 2018, the carrying amount of
each financial instrument, with the exception of debt, approximated the instrument’s fair value due to the short-term nature and ma-
turity 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 its carrying amount using Level
2 inputs, due to the short-term variable interest rates based on market rates utilizing the market approach.

Concentration of Credit Risk

The Company provides services primarily to Global 2000 companies and other sophisticated buyers of business consulting and

information technology services. The Company performs ongoing credit evaluations of its major customers and maintains reserves for
potential credit losses. In 2019, 2018 and 2017, no customer accounted for more than 5% of total revenue.

Management’s Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those esti-
mates.

Other Comprehensive Income

The Company reports its comprehensive income in accordance with FASB ASC Topic 220, Comprehensive Income, which es-
tablishes standards for reporting and presenting comprehensive income and its components in a full set of financial statements. Other
comprehensive income consists of net income and currency translation adjustments.

Segment Reporting

The Company engages in business activities in one operating segment, which provides business and technology consulting ser-

vices.

THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information (continued)

Recent Accounting Pronouncements

In February 2016, the FASB issued new guidance on leases. The new standard establishes a right-of-use model (ROU) that
requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.
Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in
the income statement.

The Company adopted the new standard on December 29, 2018 using the effective date as the date of initial application. Conse-

quently, financial information will not be restated and the disclosures required under the new standard will not be provided for dates
and periods before December 29, 2018.

On adoption, the Company recognized additional operating liabilities of approximately $9.0 million, with corresponding ROU
assets of approximately the same amount based on the present value of the remaining minimum rental payments under current leasing
standards for existing operating leases.

In July 2018, the FASB issued ASU 2018-09, which affects a wide variety of Topics in the Codification and applies to all re-
porting entities within the scope of the affected accounting guidance. The amendments in the ASU represent changes that clarify,
correct errors in, or make minor improvements to the Codification. Ultimately, the amendments make the Codification easier to un-
derstand and apply by eliminating inconsistencies and providing clarifications. Some of the amendments in this ASU do not require
transition guidance and are effective upon issuance of the ASU, while many of the amendments have transition guidance with effec-
tive dates for annual periods beginning after December 15, 2018. The adoption of the amendments in this ASU are not expected to
have a material impact on the Company’s consolidated financial statements and related disclosures.

Accounting Pronouncements Not Yet Adopted

In January 2017, the FASB issued ASU 2017-04, which eliminates Step 2 from the goodwill impairment test. For public com-
panies, this update will be effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted
for interim and annual goodwill impairment test with a measurement date after January 1, 2017. The Company does not expect the
guidance to have a material impact on the Company's consolidated financial statements.

Reclassifications

Certain prior period amounts in the consolidated financial statements, and notes thereto, have been reclassified to conform to

current year presentation.

2. Fair Value Measurement

The Company records its assets and liabilities in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclo-
sures (“ASC 820”). ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability
(exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes the following three levels of inputs
that may be used to measure fair value:

Level 1: Quoted market prices in active markets for identical assets or liabilities

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data

Level 3: Unobservable inputs that are not corroborated by market data

THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Accounts Receivable and Unbilled Revenue, Net

Accounts receivable and unbilled revenue, net, consists of the following (in thousands):

Accounts receivable
Unbilled revenue
Allowance for doubtful accounts

December 27,
2019

December 28,
2018

35,884
14,637
(743)
49,778

35,794
20,454
(1,441)
54,807

Accounts receivable as of December 27, 2019 and December 28, 2018, is net of uncollected advanced billings. Unbilled revenue

as of December 27, 2019 and December 28, 2018, includes recognized recoverable costs and accrued profits on contracts for which
billings had not been presented to clients.

4. Property and Equipment, net

Equipment
Software
Leasehold improvements
Furniture and fixtures

Less accumulated depreciation

December 27,
2019

December 28,
2018

9,211
31,631
980
555
42,377
(22,461)
19,916

9,048
28,791
962
540
39,341
(19,591)
19,750

Depreciation expense for the years ended December 27, 2019, December 28, 2018 and December 29, 2017, was $3.2 million,

$2.5 million, and $2.4 million, respectively, and is included in selling, general and administrative costs in the accompanying consoli-
dated statements of operations.

As a result of the current decline in the Europe market and management’s efforts to focus on resources within the markets that
provide the Company with the strongest growth opportunity, in 2019 the Company made the determination that the remaining invest-
ment in its Hackett Institute Enterprise Analytics Program was impaired. The remaining investment as of December 27, 2019 was $1.2
million.

As a result of the emergence of strict cyber-security requirements, the release of the General Data Protection Regulation
(“GDPR”) in Europe, and well publicized data breaches that have occurred with U.S. companies throughout 2018, clients have made
significant procedural and process changes that have made the implementation of the Company’s Hackett Performance Exchange data
extraction offering extremely difficult. Clients prefer to input or upload spreadsheets to our data collection systems rather than allow
for direct data extraction. Therefore in 2018, the Company determined that the remaining investment of $5.9 million was impaired. In
addition, as part of the discontinuance of our REL Working Capital practice, the Company decided to eliminate the Working Capital
Course that was developed.

THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following (in thousands):

Accrued compensation and benefits
Accrued bonuses
Accrued dividend payable
Restructuring liability
Acquisition earnout accruals
Deferred revenue
Accrued sales, use, franchise and VAT tax
Non-cash stock compensation accrual
Income tax payable
Other accrued expenses

Total accrued expenses and other liabilities

December 27,
2019

December 28,
2018

3,987
3,932
5,791
1,584
—
9,583
2,460
339
2,611
2,195
32,482

5,012
5,064
5,407
—
2,559
8,259
3,077
872
1,769
2,479
34,498

6. Restructuring Costs

During 2019, the Company recorded restructuring costs of $3.3 million, which was primarily related to the reduction of staff

in Europe and Australia. As of December 29, 2019, the Company had $1.6 million of remaining commitments related to the restructur-
ing charge. During 2017, the Company recorded restructuring costs of $1.3 million, which was primarily related to the transition of
resources driven by our migration from on-premise software to cloud-based implementations, as well as the Jibe acquisition, and the
rationalization of global resources as a result of the emergence of RPA (“Robotic Process Automation”) related engagements from the
Aecus acquisition. As of December 29, 2017, the Company did not have any remaining commitments related to restructuring.

The following table sets forth the activity in the restructuring expense accruals in fiscal 2017, 2018 and 2019 (in thousands):

Severance and Other
Employee Costs

Exit, Closure and
Consolidation
of Facilities

Total

Accrual balance at December 29, 2017
Additions
Expenditures
Accrual balance at December 28, 2018
Additions
Expenditures

Accrual balance at December 27, 2019

—
—
—
—
2,912
(1,665)
1,247

— $
—
—
— $
422
(85)
337

—
—
—
—
3,334
(1,750)
1,584

7. Lease Commitments

As described in Note 1 “Recent Accounting Pronouncements”, effective December 29, 2018, the Company adopted the new

lease accounting standard. The Company has operating leases for office space and, to a much lesser extent, operating leases for equip-
ment. The Company’s office leases are between terms of 1 and 10 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 or clauses: 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 our lease liability nor our
right of use asset.

THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Lease Commitments (continued)

The weighted average remaining lease term is 5.0 years. Assuming the Company exercises the opt-out option in year 5 for its

London office lease, the weighted average remaining lease term would be 3.2 years. The weighted average discount rate utilized is
4%. The discount rates applied to each lease, reflects the Company’s estimated incremental borrowing rate. This includes an assess-
ment of the Company’s credit rating to determine the rate that the Company would have to pay to borrow, on a collateralized basis for
a similar term, an amount equal to our lease payments in a similar economic environment. For the twelve months ended December 27,
2019, the Company paid $2.5 million from operating cash flows for operating leases.

The Company has operating lease agreements for its premises that expire on various dates through March 2028. Lease expense
for the years ended December 27, 2019, December 28, 2018 and December 29, 2017, was $2.8 million, $2.8 million and $2.4 million,
respectively. The components of lease expense during the fiscal years ended December 27, 2019, December 28, 2018 and December
29, 2017 all related to operating lease costs.

Future minimum lease commitments under non-cancelable operating leases as of December 27, 2019, are as follows (in thou-

sands):

2020
2021
2022
2023
2024
Thereafter
Total

Rental
Payments

2,446
2,011
1,716
772
656
1,244
8,845

As of December 27, 2019, the Company does not have any additional operating leases that have not yet commenced that create

significant rights and obligations for the Company(cid:17)

8. Credit Facility

The Company entered into a credit agreement with Bank of America, N.A. ("Bank of America"), pursuant to which Bank of

America agreed to lend the Company up to $20.0 million pursuant to a revolving line of credit (the “Revolver”) and up to $47.0 mil-
lion pursuant to a term loan (“the Term Loan”, and together with the Revolver, the “Credit Facility”). As of the end of January 1,
2016, the Company had fully utilized and paid off its Term Loan. As of the end of 2019, the Company had paid off the Revolver in
total. As of the end of 2018, the Company had a $6.5 million outstanding balance on the Revolver.

On May 9, 2016, the Company amended and restated the credit agreement with Bank of America to:

(cid:120)

Provide for up to an additional $25.0 million of borrowing under the Revolver for a total borrowing capacity of $45.0
million; and to

Extend the maturity date on the Revolver to May 9, 2021.

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, a 100% pledge of the capital stock of the U.S. Subsidiaries, and a 66% pledge of the capital stock of Hackett’s di-
rect foreign subsidiaries (subject to certain exceptions).

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 LIBOR base rate, plus an applicable margin percentage. The applicable margin percentage is based on the consolidated lever-
age ratio, as defined in the Credit Agreement. As of December 27, 2019, the applicable margin percentage was 1.25% per annum
based on the consolidated leverage ratio, in the case of LIBOR rate advances, and 0.75% per annum, in the case of base rate advances.
The interest rate as of December 27, 2019 was 4.00%.

The Company is subject to certain covenants, including total consolidated leverage, fixed cost coverage, adjusted fixed cost
coverage and liquidity requirements, each as set forth in the Credit Agreement, subject to certain exceptions. As of December 27,
2019, the Company was in compliance with all covenants.

THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. Credit Facility (continued)

The Company did not incur any incremental debt issuance costs in 2019 and 2018. These costs are amortized over the remaining

life of the Credit Facility and are included in Other Assets in the accompanying consolidated balance sheet.

As of December 27, 2019, the Company did not have any outstanding debt balance on the Revolver, excluding debt issuance
costs of $0.1 million. During fiscal 2019, the Company borrowed $1.0 million and paid down $7.5 million, leaving no outstanding
balance. During fiscal 2018, the Company borrowed $5.0 million and paid down $17.5 million, leaving $6.5 million outstanding
under the Revolver, excluding the debt issuance costs of $0.2 million as of December 28, 2018.

9. Income Taxes

The Company files federal income tax returns, as well as multiple state, local and foreign jurisdiction tax returns. A number of

years may elapse before an uncertain tax position is audited and finally resolved. While it is often difficult to predict the final outcome
or the timing of resolution on any particular uncertain tax position, the Company believes that its reserves for income taxes reflect the
most probable outcome. The Company adjusts these reserves, as well as the related interest, in light of changing facts and circum-
stances. The resolution of a matter would be recognized as an adjustment to the provision for income taxes and the effective tax rate in
the period of resolution. The Company is no longer subject to examinations of its federal income tax returns by the Internal Revenue
Service for years through 2014 and all significant state, local and foreign matters have been concluded for years through 2014. In the
first quarter of 2017, the IRS commenced an examination of the Company’s U.S. income tax return for fiscal year 2014. The examina-
tion was finalized in 2019 with no changes to the Company’s reported tax.

The components of income before income taxes from continuing operations are as follows (in thousands):

Domestic
Foreign
Income from operations before income taxes

December 27,
2019

Year Ended
December 28,
2018

December 29,
2017

33,072
(2,045)
31,027

26,040
6,896
32,936

22,038
6,082
28,120

THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Income Taxes (continued)

The components of income tax expense (benefit) from continuing operations are as follows (in thousands):

Current tax expense
Federal
State
Foreign

Deferred tax expense (benefit)

Federal
State
Foreign

Income tax expense from continuing operations

December 27,
2019

Year Ended
December 28,
2018

December 29,
2017

5,451
1,032
262
6,745

425
670
(96)
999
7,744

3,068
721
1,565
5,354

220
365
(362)
223
5,577

3,231
445
669
4,345

(2,915)
209
925
(1,781)
2,564

A reconciliation of the federal statutory tax rate with the effective tax rate from continuing operations is as follows:

U.S statutory income tax expense rate
State income taxes, net of federal income tax expense
Valuation reduction
Tax reform impact on deferred taxes
Meals and entertainment
Foreign rate differential
Share based compensation
Purchase accounting
Foreign exchange loss
Other, net
Effective tax rate

Year Ended
December 27, December 28, December 29,
2018
21.0 %
2.6
—
—
1.0
0.2
(3.6)
(3.1)
(0.3)
(0.9)
16.9 %

2017
35.0 %
1.5
0.2
(14.4)
1.0
(3.0)
(12.2)
1.2
0.4
(0.6)
9.1 %

2019
21.0 %
4.3
1.2
—
0.5
—
(1.3)
(0.8)
0.2
(0.1)
25.0 %

The components of the net deferred income tax asset (liability) are as follows (in thousands):

Year Ended

December 27,
2019

December 28,
2018

Deferred income tax assets:

Allowance for doubtful accounts
Net operating loss and tax credits carryforward
Accrued expenses and other liabilities

Valuation allowance

Deferred income tax liabilities:

Depreciation
Tax over book amortization on goodwill and intangibles
Other items

185
2,912
4,987
8,084
(1,571)
6,513

(5,161)
(8,274)
(261)
(13,696)

Net deferred income tax liability

(7,183) $

237
2,662
5,020
7,919
(1,191)
6,728

(5,271)
(7,656)
(236)
(13,163)
(6,435)

THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Income Taxes (continued)

The 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”) was signed into law on December 22, 2017. The 2017 Tax Act made a
significant number of changes to existing U.S. Internal Revenue Code, including a permanent reduction of the U.S. corporate income
tax rate from 35% to 21% for tax years beginning after December 31, 2017, and it also provides for a one-time transition tax on certain
unremitted foreign earnings (the “Transition Tax”). As a result, the Company recorded a provisional income tax benefit of $4.0 mil-
lion related to the re-measurement of deferred tax assets and liabilities resulting from the reduction of the federal corporate tax rate.
The Company performed a preliminary analysis of its post-1986 earnings and profits of its foreign subsidiaries and estimated an over-
all accumulated net deficit, therefore no amounts were recorded relative to the Transition Tax. In accordance with Staff Accounting
Bulletin (“SAB”) No. 118, the Company finalized the deferred tax and Transition Tax calculations during the allowed measurement
period in 2018. As a result, the Company did not make any changes to the provisional tax amounts recorded in 2017.

The SEC staff issued Staff Accounting Bulletin ("SAB") No. 118 in December 2017. The SAB provides guidance on account-
ing for the tax effects of the 2017 Tax Act where uncertainty exists, it provides a measurement period that should not extend beyond
one year from the 2017 Tax Act enactment date for companies to complete the related accounting under U.S. GAAP. In accordance
with this guidance, the Company recorded provisional amounts for those specific income tax effects of the 2017 Tax Act for which a
reasonable estimate could be determined.

As of December 27, 2019, the Company had $1.1 million of U.S. state net operating loss carryforwards. Additionally, at Decem-
ber 27, 2019, the Company had $8.9 million of foreign net operating loss carryforwards, of which $2.9 million related to operations in
the United Kingdom, $0.9 million related to operations in France and $1.7 million related to operations in Australia. A significant
amount of the foreign net operating losses may be carried forward indefinitely.

The liability method of accounting for deferred income taxes requires a valuation allowance against deferred tax assets if, based

on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In deter-
mining the need for valuation allowances the Company considers evidence such as history of losses and general economic conditions.
At December 27, 2019 and December 28, 2018, the Company had a valuation allowance of $1.6 million and $1.2 million, respec-
tively, to reduce deferred income tax assets, primarily related to foreign net operating loss carryforwards, to the amounts expected to
be realized.

The undistributed earnings in foreign subsidiaries at December 31, 2019 was approximately $3.8 million. The Company has

historically reinvested its foreign earnings abroad indefinitely and continues to reinvest future earnings abroad.

The 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”) was signed into law on December 22, 2017. The 2017 Tax Act made a
significant number of changes to existing U.S. Internal Revenue Code, including a one-time transition tax on certain unremitted for-
eign earnings (the “Transition Tax”). The 2017 Tax Act also implements a territorial system, whereby certain foreign subsidiary earn-
ings can be repatriated to the U.S with no federal tax.

The company finalized its Transition Tax calculation during the allowed measurement period in 2018 and computed an overall

accumulated net deficit, thus no amounts were recorded relative to the Transition Tax.

Penalties and tax-related interest expense are reported as a component of income tax expense. For the years ended December 27,

2019 and December 28, 2018, the total amount of accrued income tax-related interest and penalties was $155 thousand and $ 144
thousand, respectively.

The Company prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position

taken or expected to be taken in a tax return. This interpretation also provides guidance on de-recognition of income tax assets and
liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with
tax positions, accounting for income taxes in interim periods and income tax disclosures.

The following table sets forth the detail and activity of the ASC 740-10 liability during the years ended December 27, 2019 and

December 28, 2018, (in thousands):

Beginning balance

Additions based on tax positions
Reduction for prior year tax deductions

Ending balance

Year Ended

December 27,
2019

December 28,
2018

402
11
—
413

766
10
(374)
402

THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Income Taxes (continued)

As of December 27, 2019 and December 28, 2018, the ASC 740-10, “Accounting for Uncertainty in Income Taxes”, liability of
$0.4 million for both periods was classified as a current liability and included in accrued expenses and other liabilities in the accompa-
nying consolidated balance sheets.

The Company does not believe there will be any material changes in its unrecognized tax positions over the next twelve months.

The reversal of ASC 740-10 tax liabilities as of December 27, 2019 and December 28, 2018, would have a favorable impact on the
effective tax rate in future period.

10. Stock Based Compensation

Stock Plans

Total share-based compensation included in net income for the years ended December 27, 2019, December 28, 2018 and De-

cember 29, 2017, is as follows:

Restricted stock units
Stock options and stock appreciation rights
Common stock subject to vesting requirements

December 27,

Year Ended
December 28,

December 29,

2019

2018

2017

6,762
—
954
7,716

7,283
—
2,027
9,310

7,801
—
2,515
10,316

The number of shares available for future issuance under the Company's stock plans as of December 27, 2019 were 1,466,084.

The Company issues new shares as they are required to be delivered under the plan.

Stock Options and SARs

The Company has granted stock options to employees and directors of the Company at exercise prices equal to the fair value of

the stock at the date of grant. The options generally vest ratably over four years, based on continued employment, with a maximum
term of ten years. Stock option activity under the Company’s stock option plans for the year ended December 27, 2019 is summarized
as follows:

Option Shares

Weighted Average
Exercise Price

Weighted Average
Remaining
Contractual Term

Aggregate
Intrinsic Value

Outstanding as of December 28, 2018

Exercised
Forfeited or expired

Outstanding as of December 27, 2019
Exercisable at December 27, 2019

180,167
—
(167)
180,000
180,000

$
$

4.00
—
3.63
4.00
4.00

2.23
2.23

$
$

2,142,000
2,142,000

A summary of the Company’s stock option activity for the years ended December 28, 2018 and December 29, 2017, was as

follows:

Outstanding at beginning of year

Exercised
Forfeited or expired

Outstanding at end of year
Exercisable at end of year

December 28, 2018

December 29, 2017

Option Shares

Weighted Average
Exercise Price

Option Shares

Weighted Average
Exercise Price

180,167
—
—
180,167
180,167

$
$

4.00
—
—
4.00
4.00

230,167
(50,000)
—
180,167
180,167

$
$

4.00
4.00
—
4.00
4.00

THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Stock Based Compensation (continued)

The fair value of the SARs and stock options is estimated using the Black-Scholes option pricing valuation model. The determi-
nation of fair value is affected by the Company's stock price, expected stock price volatility, expected term of the award and the risk-
free rate of interest.

Other information pertaining to stock option activity during the years ended December 27, 2019, December 28, 2018 and De-

cember 29, 2017, was as follows (in thousands):

Total intrinsic value of stock options exercised

—— $

803

December 27,
2019

Year Ended
December 28,
2018

December 29,
2017

SAR activity for the year ended December 27, 2019 was as follows:

Outstanding as of Decembe

r 28, 2018

Expired

Outstanding as of December 27, 2019

Exercisable at December 27, 2019

Number of
SARs

Weighted
Average

Exercise Price

Weighted
Average
Fair Value

2,916,563 $

—

2,916,563 $

4.00

—

4.00

1.31

——

1.31

As of December 27, 2019, no SARs had been exercised and all of the outstanding options and SARs were performance-based.

Restricted Stock Units

Under the stock plans, participants may be granted restricted stock units, each of which represents a conditional right to receive

a common share in the future. The restricted stock units granted under this plan generally vest over one of the following vesting sched-
ules: (1) a four -year period, with 50% vesting on the second anniversary and 25% of the shares vesting on the third and fourth anni-
versaries of the grant date, (2) a four -year period, with 25% vesting on the first, second, third and fourth anniversary, or (3) a three -
year period with 33% vesting on the first, second and third anniversary. Upon vesting, the restricted stock units will convert into an
equivalent number of shares of common stock. The amount of expense relating to the restricted stock units is based on the closing
market price of the Company’s common stock on the date of grant and is amortized on a straight-line basis over the applicable requi-
site service period. Restricted stock unit activity for the year ended December 27, 2019, was as follows:

Nonvested balance as of December 28, 2018

Granted

Vested

Forfeited

Nonvested balance as of December 27, 2019

Number of
Restricted
Stock Units

Weighted
Average
Grant-Date
Fair Value

1,146,691

542,455

(436,671)

(209,932)

1,042,543

15.93

18.05

14.91

15.13

17.34

The Company recorded restricted stock units based compensation expense of $6.8 million, $7.3 million and $7.8 million in
2019, 2018 and 2017, respectively, which is included in stock compensation expense, based on the vesting provisions of the restricted
stock units and the fair value of the stock on the grant date. As of December 27, 2019, there was $10.4 million of total restricted stock
unit compensation expense related to the unvested awards not yet recognized, which is expected to be recognized over a weighted
average period of 2.4 years. The Company accounts for certain restricted stock units under liability accounting as a result of
monetary amount and a variable number of shares that will be issued.

the fixed

THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Stock Based Compensation (continued)

Common Stock Subject to Vesting Requirements

Shares of common stock subject to vesting requirements were issued to employees of acquired companies. These shares vest

over a period of up to four years. Compensation expense was based on the fair value of the Company’s common stock at the time of
grant and is recognized on a straight-line basis. The activity for common stock subject to vesting requirements for the year ended De-
cember 27, 2019 was as follows:

Nonvested balance as of December 28, 2018

Granted
Vested
Forfeited

Nonvested balance as of December 27, 2019

Number of
Shares
of Common
Stock
Subject to Vest-
ing
Requirements

Weighted Average
Grant-Date
Fair Value

289,507
81,423
(211,567)
(30,572)
128,791

16.03
15.94
14.31
16.67
18.64

Common stock subject to vesting requirements of $1.0 million and $0.1 million was issued in 2019 and 2018, respectively, in

relation to the equity portion of the Jibe, Aecus and Technolab acquisitions. These shares are subject to a four-year vesting period.

The Company recorded compensation expense of $1.0 million, $2.0 million and $2.5 million, during the years ended December

27, 2019, December 28, 2018 and December 29, 2017, respectively, related to common stock subject to vesting requirements.

As of December 27, 2019, there was $1.6 million of total stock-based compensation expense related to common stock granted
subject to vesting requirements not yet recognized, which is expected to be recognized over a weighted average period of 1.7 years.

11. Shareholders’ Equity

Employee Stock Purchase Plan

Effective July 1, 1998, the Company adopted an Employee Stock Purchase Plan to provide substantially all employees who have

completed three months of service as of the beginning of an offering period an opportunity to purchase shares of its common stock
through payroll deductions. Purchases on any one grant are limited to 10% of eligible compensation. Shares of the Company’s com-
mon stock may be purchased by employees at six -month intervals at 95% of the fair value on the last trading day of each six-month
period. The aggregate fair value, determined as of the first trading date of the offering period, of shares purchased by an employee
may not exceed $25,000 annually. In 2017, subject to shareholder approval, the Company’s Board of Directors agreed to extend the
Employee Stock Purchase Plan to July 1, 2023 from July 1, 2018 and added an additional 250,000 shares of common stock which
increased the total available shares of common stock to 279,606 at that time. As of 2019, a total of 105,252 shares of common stock
were available for purchase under the plan. For plan years 2019, 2018 and 2017, 51,548 shares, 55,045 shares and 67,761 shares, re-
spectively, were issued for total proceeds of $0.8 million, $0.8 million, and $1.0 million, respectively.

Treasury Stock

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. Since the inception of the repurchase plan, the Board of Directors approved the repurchase of an addi-
tional $137.2 million of the Company’s common stock, thereby increasing the total program size to $142.2 million as of December 27,
2019. As of December 27, 2019, the Company had affected cumulative purchases under the plan of $140.5 million, leaving $1.7 mil-
lion available for future purchases. There is no expiration of the 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, excluding the tender offers mentioned above. Subsequent to December 27, 2019, the Board
of Directors approved an additional $5.0 million authorization under the Company’s repurchase program, thereby increasing the total
program size to $147.2 million.

THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Shareholders’ Equity (continued)

During 2019 and 2018, the Company repurchased 339 thousand and 68 thousand shares of its common stock, respectively, at an

average price per share of $15.60 and $17.82, respectively, for a total cost of $5.3 million and $1.2 million, respectively. As of De-
cember 27, 2019 and December 28, 2018, the Company had repurchased 27.4 million and 27.0 million shares of its common stock,
respectively, at an average price of $5.1 per share. During 2019, the Company repurchased 28 thousand shares of its common stock
from members of its Board of Directors for $0.5 million or $16.25 per share. The proceeds from the sale of these shares were used in
part to cover estimated tax liabilities associated with previously vested restricted stock units. During 2018, the Company purchased
73 thousand shares, or $1.3 million, from its executives to cover withholding taxes on the gross value of shares that vested. These
shares are not included in the repurchase plan.

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 with-
held shares are never issued and in lieu of issuing the shares, taxes were paid on the employee’s behalf. In 2019 and 2018, 132 thou-
sand shares were withheld and not issued for a cost of $2.5 million and 205 thousand shares were withheld and not issued for a cost of
$3.6 million, respectively, which are included under issuance of common stock in the accompanying consolidated statements of share-
holders’ equity.

Dividends

In December 2012, the Company announced an annual dividend of $0.10 per share to be paid semi-annually. The Company has

steadily increased the annual dividend since 2012. Most recently, from 2017 to 2018 the dividend increased from $0.30 per share to
$0.34 per share. In 2017, the Company increased the annual dividend to $0.30 per share to be paid on a semi-annual basis which re-
sulted in aggregate dividends of $4.6 million and $4.7 million paid to shareholders of record on June 30, 2017 and December 22,
2017, respectively. In 2018, the Company increased the annual dividend to $0.34 per share to be paid on a semi-annual basis which
resulted in aggregate dividends of $5.4 million each paid to shareholders of record on June 29, 2018 and December 21, 2018, respec-
tively. In 2019, the Company increased the annual dividend to $0.36 per share to be paid on a semi-annual basis which resulted in
aggregate dividends of $5.8 million each paid to shareholders of record on July 10, 2019 and December 20, 2019, respectively. These
dividends were paid from U.S. domestic sources and are accounted for as an increase to accumulated deficit. The dividend declared in
December 2019 was paid in January 2020. Subsequent to December 27, 2019, the Company increased its annual dividend to $0.38 per
share to be paid on a semi-annual basis.

12. 401(k) Plan

The Company maintains a 401(k) plan covering all eligible employees. Subject to certain dollar limits, eligible employees may
contribute up to 15% of their pre-tax annual compensation to the plan. The Company may make discretionary contributions on an an-
nual basis. Effective April 1, 2018, the Company made matching contributions of 40% of employee eligible contributions up to 6% of
their gross salaries. During fiscal year 2017, the Company made matching contributions of 25% of employee contributions up to 6%
of their gross salaries. The Company’s matching contributions were $0.8 million, $1.1 million and $0.5 million for the fiscal years
ended December 27, 2019, December 28, 2018 and December 29, 2017.

13. Transactions with Related Parties

During the year ended December 27, 2019, the Company repurchased 28 thousand shares of the Company’s stock from mem-
bers of its Board of Directors for a total cost of $0.5 million, or $16.25 per share. During the year ended 2018, the Company repur-
chased 53 thousand shares of the Company’s stock from members of its Board of Directors and Chief Financial Officer for a total cost
of $1.0 million or $18.33 per share. In addition, during 2018, the Company utilized 73 thousand tendered shares from the Company’s
Chief Executive Officer, Chief Operating Officer and Chief Financial Officer to cover withholding taxes of $1.3 million on the Febru-
ary 2018 vesting of RSUs. Subsequent to the year ended December 27, 2019, the Company repurchased 37 thousand shares of the
Company’s stock from members of its Board of Directors for a total of $0.7 million, or $17.43 per share. The proceeds from the sale
of these shares were used primarily to cover estimated tax liabilities associated with previously vested restricted stock units. See Note
11 for further details.

14. 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 consolidated financial position, cash flows or results of operations.

THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. Acquisitions

Jibe Consulting

Effective May 1, 2017, the Company acquired certain assets and liabilities of Jibe Consulting, Inc. (“Jibe”), a U.S.- based Oracle

E-Business Suite (“EBS”) and Oracle Cloud Business Application implementation firm. The acquisition of Jibe enhanced the Com-
pany’s Cloud Application capabilities and strongly complemented its market leading EPM transformation and technology implemen-
tation group.

The Sellers’ purchase consideration was $5.4 million in cash, not subject to vesting, and $3.6 million in shares of the Com-

pany’s common stock, subject to vesting. The initial cash consideration was funded from borrowings under the Revolver. The equity
that was issued has a four-year vesting term and will be recorded as compensation expense over the respective vesting period. In addi-
tion, the Sellers earned contingent consideration of $0.7 million of cash and $1.0 million of equity based on the achievement of perfor-
mance targets over the 18 months following the closing. The cash related to the contingent consideration which was paid to the
Sellers is not subject to service vesting and has been accounted for as part of the purchase consideration. The cash related to the con-
tingent consideration, which was paid to the key employees, is subject to service vesting and was accounted for as compensation ex-
pense. This contingent liability was recorded in the consolidated balance sheet as current accrued expenses and other liabilities. The
equity related to the contingent consideration is subject to service vesting and is being recorded as compensation expense over the
respective vesting period. During the year ended December 27, 2019, and December 28, 2018, the Company had recorded $0.6 mil-
lion and $0.9 million, respectively, of acquisition-related non-cash stock compensation related to the equity portion of the closing con-
sideration and the equity portion of the contingent consideration.

The purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on their fair val-
ues. The following table presents the purchase price allocation of the assets acquired and liabilities assumed, based on the fair values
(in thousands):

Total consideration
Accounts receivable
Other current assets
Total current assets acquired
Intangible assets
Goodwill
Total assets acquired
Accrued expenses and other liabilities
Total liabilities acquired
Purchase consideration on acquisition

Purchase Price
Allocation

11,293
1,932
59
1,991
931
9,538
12,460
1,167
1,167
11,293

The recognized goodwill is primarily attributable to the benefits the Company expects to derive from enhanced market opportu-

nities. The acquired intangible assets with definite lives are amortized over periods ranging from 2 to 5 years. The following table
presents the intangible assets acquired from Jibe: