The Hackett Group Annual Report 2022

Plain-text annual report

ANNUAL REPORT2022 I n n o v a t o r s D i g it a l W o r l d C l a s s ™ I n c u m b e n t s Hackett Excelleration MatrixTM E m e r g i n g C h a l l e n g e r “ In spite of the increasing macro- economic headwinds we experienced during the second half of the year, we reported strong annual operating results with operating income up 19% for the year. We achieved our results while continuing to increase our investments in program development and sales resources for our expanding IP as-a- Service, research advisory and market intelligence offerings, which were up over 20% for the year. ” ANNUAL MEETING The Hackett Group shareholders are invited to attend our Annual Meeting on Thursday, May 4, 2023 at 11:00 am at The Hackett Group’s Corporate Headquarters, 1001 Brickell Bay Drive, 30th Floor, Miami, Florida 33131. Ted A. Fernandez Chairman & CEO The Hackett Group, Inc. CORPORATE HEADQUARTERS The Hackett Group, Inc. 1001 Brickell Bay Drive 30th Floor Miami, Florida 33131 United States TEL: +1 305 375 8005 FAX: +1 786 772 2048 www.thehackettgroup.com Dear Shareholders, Before I move to our results, let me start by congratulating our associates for our strong 2022 performance. Although the second half of 2022 was clearly more challenging as the fed rate increases started weighing on our clients’ spending decisions, our total revenue was up 5% and our adjusted EPS was $1.50, which strongly exceeded our prior year results when you exclude the tax beneﬁt of the SARs exercise in 2021. For 2022, our global Strategy & Business Transformation (S&BT) group which represents 58% of total revenue and 69% of total segment proﬁts before corporate overhead were up strongly with 16% year-over-year segment revenue growth while also delivering strong gross margin gains for the year. In addition to solid performance from our transformation consulting groups our IP-based, higher-margin executive advisory offerings and IP-as-a-Service (IPaaS) offerings grew more than 20%. Our annualized contract value from the segment recurring revenues also grew over 20%. The success and market opportunity for our intellectual property (IP) offerings highlight the reasons why we have accelerated our sales and product development investments in this area. Our Oracle Solutions segment revenue was ﬂat for the year as the group struggled to maintain its early year momentum. Although client activity remains strong, this was the segment where we experienced the most volatility in clients’ decisions in the second half of the year. On the operating side, we continued to expand this segment’s offshore leverage throughout the year, and also added senior sales and practice leaders in the latter part of the year to strengthen our team. Our SAP Solutions segment revenue decreased 17% (9% excluding the large non-recurring software sale) for the year after coming off a very strong 2021, which beneﬁted from several large, global engagements with larger than normal subcontractor levels. Although revenues suffered, the segment reported solid proﬁts for the year aided by increasing software activity. Our SAP Solutions segment revenue leveled off earlier than expected in the fourth quarter, with ﬂat revenue before reimbursements. Despite the increasing macro-economic headwinds that we experienced in the second half of the year, we continue to see high client engagement across all three segments. Additionally, increasing leverage of our high-margin IP-based benchmarking executive advisory and IPaaS offerings, as well as the efﬁciencies from our virtual sales and delivery business model are expected to favorably contribute to our 2023 performance. Our annual results beneﬁted from the growth of our IPaaS revenue, as the meaningful contract we signed toward the end of the second quarter continued to ramp. We also continue to be actively engaged in contract and/or pilot discussions with several large software and services companies to help them bolster their value selling and value realization efforts. Our results also beneﬁted from the growth of our research advisory business. In the fourth quarter, we launched our ﬁrst two market intelligence programs, and we plan to launch additional programs throughout 2023. These programs allow us to compare the capabilities of software and service providers which are valuable to our large benchmarking and consulting end-user client base when considering purchasing their capabilities. The programs also allow us to work with solution providers to strategically support their sales and marketing efforts. We have also added new content and IP to our existing functionally focused executive advisory programs. Improvements in our existing programs, along with new market intelligence programs, the expected launch of our new member platform, “Hackett Connect,” in the ﬁrst half of 2023 along with our aggressive sales hiring, should enable us to continue to grow our higher-margin recurring revenue and related annual contract value during 2023. The investments we made to fully digitize our IP and development of our digital platforms, which include Quantum Leap®, our state-of-the-art global benchmarking platform, and our proprietary Hackett Digital Transformation Platform (DTP) are starting to pay off. These platforms enable us to highly differentiate all of our offerings, and also develop new licensing and research relationships with software and services providers across the enterprise. Additionally, our new member platform Hackett Connect will signiﬁcantly improve our research and IPaaS member clients’ ability to avail themselves to all of Hackett’s IP and expertise. On the balance sheet side, our ability to generate strong cash ﬂow from operations has allowed us to increase our dividend, and in December we successfully settled our $120 million Dutch tender offer to acquire over 5 million shares of the Company’s common stock. The tender offer resulted in the buyback of nearly 4.9 million shares and return nearly $115 million to our shareholders. This tender offer is accretive, and when you consider the after-tax impact of the interest expense we will incur and the elimination of over $2 million on existing dividends, this makes it even more appealing on a cash basis. As we have discussed on our last few earnings calls, we wanted to be more aggressive with our balance sheet by expanding our current credit facility to fund acquisitions and to buy back stock while continuing to invest in our business. As we look forward, let me share our thoughts on the near- and long-term demand environment and on the growth opportunity it offers our organization. The demand for digital transformation may be impacted by economic headwinds in 2023, but it continues to be a clear strategic priority. Digital innovation in enterprise cloud applications, analytics and artiﬁcial intelligence, cloud infrastructure, and workﬂow automation are dramatically inﬂuencing the way businesses compete and deliver their services. Digital transformation is redeﬁning all activities at an accelerated pace, forcing organizations to fundamentally change and adopt these new capabilities to remain competitive. With that said, digital transformation is being impacted by extended decision making as organizations assess competing priorities created by the increasing interest rate and the demand disruption which it is intended to affect. We believe clients used the year-end planning process to reassess their market risks, make headcount and spend reductions, and rebalance their spend with productivity and strategic cost reduction efforts, which are also core to our offerings. We believe that clients will become more comfortable with the headwinds they are experiencing, and we will see their behavior improve throughout the year. Similar to us, many of our clients did not experience the demand disruption until late in the second quarter of last year and will be more challenged by the strong year-over-year comps of the ﬁrst half of this year, but most will face more favorable comps in the second half of this year. If we are correct, this will further support the behavioral improvement that we expect from the ﬁrst to the second half of 2023. On the talent side, competition for experienced executives continues, but we saw moderate turnover during the fourth quarter of 2022 and expect that trend to continue. Longer term, we have transitioned to a hybrid sales and delivery model which provides us with effective access to our clients and their respective teams. This hybrid model provides our associates with greater personal ﬂexibility to perform their deﬁned responsibilities remotely, which is very valuable to them. This should enable us to attract and retain talent that we have struggled to retain because of the demanding historical travel requirements of our industry. Strategically, we are accelerating our focus on our recurring high-margin IP-related services by increasing the program development, and sales and marketing resources dedicated to this area. Additionally, we have continued our investments in our new Hackett Connect member platform. As I previously mentioned, we have launched a series of new market intelligence programs that will help assess and highlight the unique capabilities of software and services providers across selected categories. We are absorbing these investments, but believe they will result in incremental high-margin recurring revenue, which are very important to our long-term value creation strategy. It is also important to note that we continue to see increasing downstream revenue from our benchmarking and research advisory clients to our business transformation and technology consulting services. This “halo effect” has been in excess of 40% over the last several years. Simply put, organizations who rely on our IP, research and benchmarking services are also more likely to utilize our consulting services. We are also exploring strategic partnerships that will allow us to syndicate our IP through new channels that will enable us to reach beyond our current Global 1000 focus in a very efﬁcient manner. We signed the ﬁrst of these agreements and expect our new partner to announce and launch the syndication of our IP and content starting on April 1. Similar to our other licensing efforts, we expect new recurring high- margin revenue to slowly build from this relationship as new markets and segments are offered our IP. We also continue to redeﬁne our global benchmarking leadership through enhancements in Quantum Leap®, our digital benchmarking software-as-a-service solution. Along with our DTP, these platforms enable us to deliver more information with signiﬁcantly less client effort. They also enable clients to leverage our IP to create compelling beneﬁt case assessments, accelerate process ﬂow and software conﬁguration decisions, and track the value realization of transformation initiatives over the life of their respective efforts. We believe that there are no comparable IP-led platforms in the market. As I have mentioned previously, we have added a 20-minute demo to our Investor Relations page of our website so that investors can become more familiar with the capabilities of our platforms. We will also be updating our demo with our newly launched Hackett Connect platform in the next few months. Lastly, although we believe that we have the client base and the offerings to grow our business, we continue to look for acquisitions and alliances that strategically leverage our IP, and add scope, scale or capability that can accelerate our growth. As always, thank you to our associates for their tireless efforts and their contributions to our performance. I also extend my gratitude to our clients and shareholders for their loyalty and continued support. It is incredibly valuable to our organization and highly appreciated. Ted A. Fernandez Chairman & CEO The Hackett Group, Inc. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (cid:1409)(cid:1409) (cid:1407)(cid:1407) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED December 30, 2022 OR TRAR NSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRARR NSITION PERIOD FROM TO COMMISSION FILE NUMBER 333-48123 The Hackett Group, Inc. (Exact name of registrant as specififf ed in its charter) FLORIDA (State or other jurisdiction of incorporation or organization) 1001 Brickell Bay Drive, Suite 3000 Miami, Florida (Address of principal executive offff iff ces) 65-0750100 (I.R.S. Employer Identififf cation No.) 33131 (Zip Code) (305) 375-8005 (Registrant’s telephone number, including area code) Securities registered pursuanaa t 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 Markrr et Indicate by check mark if the registrtt ant is a well-knkk ownww seasoned issuer, as defiff ned in RuRR le 405 of tht e Securities Act. Yes (cid:1407) No (cid:1409) Indicate by check mark if the registrtt ant is not required to fiff le reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes (cid:1407) No (cid:1409) Indicate by check mark whw ether tht e registrant: (1) has fiff led all reportrr s requqq ired to be fiff led by Section 13 or 15(d) of tht e Securities Exchange Act of 1934 dudd ring tht e preceding 12 montht s (or foff r such shorter period tht at tht e registrtt ant was requqq ired to fiff le such reportrr s), and (2) has been subu jb ect to such fiff ling requirements foff r the past 90 days. Yes (cid:1409) No (cid:1407) Indicate by check mark whw ether tht e registrant has subu mitted electrtt onically every Interactive Data File requqq ired to be subu mitted pursuant to RuRR le 405 of Regulation S-T (§ 232.405 of tht is chapaa ter) dudd ring tht e preceding 12 months (or foff r such shorter period tht at the registrtt ant was requqq ired to subu mit such fiff les). Yes (cid:1409) No (cid:1407) Indicate by check mark whw ether tht e registrant is a large accelerated fiff ler, an accelerated fiff ler, or a non-accelerated fiff ler, or a smaller reporting compmm any, or an emerging growtht compm any. See the defiff nitions of “large accelerated fiff ler,” “accelerated fiff ler” and “smaller reporting compmm any”, and “emerging growtht compmm any” in RuRR le 12b-2 of tht e Exchange Act. Large Accelerated Filer Non-accelerated Filer Emerging growth compm any (cid:1407) (cid:1407) (cid:1407) Accelerated Filer Smaller reportrr ing compm any (cid:1409) (cid:1407) If an emerging growtht compm any, indicate by check mark if the registrant has elected not to use tht e extended trtt ansition period foff r compm lying with any new or revised fiff nancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:133) Indicate by check markrr whw ether tht e registrant has fiff led a reportrr on anaa d atttt estation to its management’s assessment of the effff eff ctiveness of its internal control over fiff nancial reporting under Section 404(b) of tht e Sarbr anes-Oxley Act (15 U.S.C. 7262(b)) by the registered pubu lic accounuu ting fiff rm tht at prepared or issued its auaa dit report. (cid:1409) If securities are registered pursuant to Section 12(b) of tht e Act, indicate by check mark whw ether the fiff nancial statements of the registrant included in the fiff ling reflff ect tht e corrrr ection of anaa error to previously issued fiff nanaa cial statements. (cid:1407) Indicate by check mark whw ether ana y of tht ose error corrrr ections are restatements tht at required a recovery ana alysis of incentive-based compmm ensation received by any of the registrant’s executive o(cid:3446)cers during the relevana t recoveryrr period pursuant to §240.10D-1(b). (cid:1407) Indicate by check mark whw etht er tht e registrtt ant is a shell compm any (as defiff ned in RuRR le 12b-2 of tht e Exchange Act). Yes (cid:1407) No (cid:1409) The aggregate markrr et value of tht e common stock held by non-affff iff liates of the registrant was $473,965,505 on July 1, 2022 based on tht e last reported sale price of tht e registrant’s common stock on tht e NASDAQ Global Markrr et. The numbm er of shares of tht e registrtt ant’s common stock outstanding on Februrr ary 28, 2023 was 27,175,505. DOCUMENTS INCORPORARR TED BY REFERENCE Part III of tht is Annun al Report on Form 10-K incorpr orates by refeff rence certain portions of tht e registrtt ant’s proxy statement foff r its 2022 Annun al Meeting of tht e Commission not later tht an 120 daya s aftff er the end of tht e fiff scal year covered by this report. Shareholders to be fiff led witht Page 4 11 17 17 18 18 19 21 2 28 29 59 59 61 61 61 61 61 61 61 2 62 63 65 Business ITEM 1. ITEM 1A. Risk Factors ITEM 1B. Unresolved Staff Comments ITEM 2. ITEM 3. ITEM 4. Properties Legal Proceedings Mine Safety Disclosures THE HACKETT GROUP, INC. TABLE OF CONTENTS FORM 10-K PART I PART II Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities [Reserved] Management’s Discussion and Analysis of Financial Condition and Results of Operations ITEM 5. ITEM 6. ITEM 7. ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data ITEM 8. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ITEM 9A. Controls and Procedures ITEM 9B. Other Information ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection. 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 2 CAUTIONARY NOTE REGARDING FORWR ARD-LOOKING STATEMENTS This Annual Report on Form 10-K and the infoff rmation incorpr orated by refeff rence in it include “foff rward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchanaa ge Act of 1934, as amended. We intend the foff rward-looking statements to be covered by the safeff harbr or provisions foff r foff rward-looking statements in these sections. All statements regarding our expected fiff nancial position and operating results, our business strategy, our fiff nancing plans and foff recasted demographic ana d economic trends relating to our industry ara e foff rward-looking statements. These statements can sometimes be identififf ed by our use of foff rwara d-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect,” or “intend” and similar expressions. These statements involve known ana d unknkk own risks, uncertainties and other faff ctors that may cause our actutt al results, perfoff rmrr ance or achievements to be materially diffff eff rent frff om the results, perfoff rmance or achievements expressed or impm lied by the foff rward-looking statements. We cannot promise you that our expectations reflff ected in such foff rward- looking statements will tut rn out to be correct. Factors that could impact such foff rward-looking statements include, among others, changes in worldwide and U.S. economic conditions that impm act business confiff dence and the demand foff r our products and services, our aba ility to effff eff ctively integrate acquisitions into our operations, our aba ility to retain existing business, our aba ility to attract additional business, our aba ility to effff eff ctively market ana d sell our produdd ct offff eff rings and other services, the timing of projo ects and the potential foff r contract cana cellation by our customers, chana ges in expectations regarding the business consulting and infoff rmrr ation technology indudd stries, our aba ility to attract and retain skilled employees, possible changes in collections of accounts receivaba le due to the bankrkk urr ptcy or fiff nancial diffff iff culties of our customers, risks of competition, price ana d mara gin trends, foff reign currency flff uctuations, the impact of thtt e geopolitical conflff ict involving RuRR ssia and Ukraine on our business and changes in general economic conditions, interest rates and our aba ility to obtain additional debt fiff nancing if needed. An additional description of our risk faff ctors is described in Part I – Item 1A. “Risk Factors”. We undertake no obligation to update or revise pubu licly any foff rward-looking statements, whether as a result of new infoff rmation, fuff tut re events or otherwise, except as required by law. 3 ITEM 1. BUSINESS GENERAL PART I In tht is Annual Report on Form 10-K, unless the context otherwise requires, “The Hackett Group,” “Hackett,” the “Company,” “we,” “us,” and “our” refeff r to The Hackett Groupuu , Inc. and its subsidiaries and predecessors. We were originally incorpr orated on April 23, 1997. The Hackett Group is anaa intellectual property-based executive advisory, IP as-a-Servrr ice Revenue ("IPaaS"), maraa ket intelligence, digital transfoff rmation consultana cy and leading enterpr rise benchmarking and best practices implementation fiff rm serving global companies. Services include benchmarking, executive advisory, IPaaS, mara ket intelligence, business transfoff rmation and cloud enterpr rise apa plication implementation. The Hackett Groupuu also provides dedicated expertise in business strategy, operations, fiff nance, human capaa ital management, strategic sourcing, procurement, and infoff rmation technology, including its highly recognized Oracle, SAP, OneStream and Coupa implementation offff eff rings. The Hackett Group has completed over 25,000 benchmarking ana d perfoff rmance stut dies with maja or organaa izations, including 97% of the Dow Jones Industrials, 93% of the Fortune 100, 73% of the DAX 30 and 52% of the FTSE 100. These stut dies drive our Digital Transfoff rmation Platfoff rm (“DTP” or “Hackett DTP”) which includes the fiff rm's benchmara krr ing metrics, best practices repository, and best practice confiff guration and process flff ow accelerators, which enables our clients and partners to achieve digital world-class perfoff rmrr ance. The rapid development and move to cloud apaa plications and infrff astrur ctut re along with improving analytics, mobile fuff nctionality and enhanced user experience is dramatically inflff uencing the way businesses compete and deliver their services. This was fuff rther accelerated by tht e necessity to work remotely as a direct result of the COVID-19 pandemic. This is redefiff ning entire indudd stries at an accelerated pace, foff rcing organa izations to fuff ndamentally change and adopt new capa aba ilities in order to remain competitive. Traditional sequential and linear-based business models are changing to fuff lly networkrr ed ana d dydd namic automated workrr flff ows and events with enhanced analytics. This digital transfoff rmation era is very attractive to our sector since we believe our clients will increasingly requqq ire organizational ana d technology market intelligence ana d impm lementation insight on how to digitize their businesses and what changes in business models are required to justifyff signififf cant investments. We have repositioned all of our offff eff rings to tht e emerging digital transfoff rmation opportut nities which started by digitizing all of our benchmara king and best practices intellectut al property (“IP”). We wanted to deliver our proprietary insights in new ways and to do so effff iff ciently and whenever possible, virtutt ally. This also required us to change the way we go to market and engage clients, as well as added softff ware impm lementation and market intelligence offff eff rings and partners. For exampm le, we have: (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) Launched Quantutt m Leap® (“QL”) – Our next generation benchmarking and continuous improvement softff ware as a service solution. This markrr et leading benchmarkrr solution allowsww us to improve the client experience by delivering twice the insight and reducing the client effff off rt by half,ff thus redefiff ning our benchmarkrr ing leadership. It covers over 100 enterpr rise process areas, across 20 industry groups on an end-to-end, fuff nctional or individual process basis. Launched the Hackett DTP – We have digitized our IP and changed the way we share and deliver our IP with our clients across our benchmarkrr ing, executive advisoryrr , IPaaS, markrr et intelligence, business transfoff rmrr ation and cloud enterprr rise application solutions. The Hackett DTP accelerates the speed to value realization by helping organa izations achieve thtt eir perfoff rmrr ance targets through a combination of benchmara k metrics, best practices and softff ware confiff guration and process flff ow accelerators delivered in a fuff lly automated platfoff rm. Launched in early 2023 our new Hackett Connect platfoff rm that will support all of our Executive and Mara ket Intelligence offff eff rings including our syndicated research chana nel relationships. Expanded our IPaaS – leveraging our QL and DTP platfoff rms we are attracting new alliance partners that can leverage our unique enterpr rise perfoff rmrr ance benchmara king and best practices solutioning IP to help them diffff eff rentiate and sell their softff ware or services solutions. This is a critical component of our desire to emphasize the growth of high margin annualized recurring revenues. Expanded executive research advisory and markrr et intelligence programs and dedicated sales expertise to grow high margin annualized recurring revenues. These relationships are also currently responsible foff r over 40% of the downstream Hackett’s business transfoff rmation and technology consulting revenues. 4 (cid:120) (cid:120) (cid:120) Expanded Cloud Capa abilities - We expanded our Oracle Cloud applications addressable market frff om Enterprr rise Perfoff rmance Mana agement (“EPM”) to include Enterpr rise Resource Planning (“ERP”) and tht e entire Oracle Cloud applications suite through the acquisition of Jibe Consulting in 2017. This move quqq adrurr pled our Oracle Cloud addressaba le market anaa d positioned us as a strategic Oracle Cloud apa plications consultancy. We have also expanded our alliance partners to include Coupa and Ariba in Procurement, as well as OneStream in EPM and Corpr orate Perfoff rmance Management (“CPM”). our implementation skills and benefiff t frff om the SAP migration to the Cloud. In regard to SAP, we were an early provider of S4 HANA A which allowed us to quickly transition Expanded Smart Automation Capa abilities – We expanded our aba ility to help clients assess and implement the rapaa idly emerging Workrr flff ow Automation, Process Mining ana d related smart automation technologies. Launched the Hackett Institute and acquqq ired the joint ventut re interest of our Certififf ed Global Business Services (“CGBS”) Program – and moved our training content to a state-of-ff the-araa t learning management platfoff rm. We continue to expect one of the key drivers foff r our growth to come frff om the growing leverage of our “wedge” or IP-as-a- Service offff eff rings, which includes our Benchmara king, Executive Advisory and markrr et intelligence, and our IP led offff eff rings which are enabled by our QL and DTP platfoff rms. OUR IP ENABLED QUANTUM LEAP, DIGITAL TRANSFORMATION AND HACKETT CONNECT PLATFORMS Our Quana tut m Leapaa , DTP, and Hackett Connect platfoff rms resulted in a new way to share and leverage our IP across our offff eff rings. This required us to digitize our intellectut al capaa ital and the wayaa we share it with our clients across our benchmarking, executive research advisory, business transfoff rmation and Cloud Enterprr rise application impm lementation solutions. Our aba ility to fuff lly digitize our IP and align proven technology ana d organizational solutions to help clients drive transfoff rmrr ational chana ge allows us to highly diffff eff rentiate our offff eff rings. It also allows us to engage and support clients more effff iff ciently, remotely, and where appropriate, continuously. Hackett uses its proprietary benchmarkrr ing enterprr rise perfoff rmana ce metrics and best practices repositoryrr thtt eir perfoff rmana ce impm rovement opportutt nity at an actionable level. It also provides us visibility into how leading global intellectual capa ital to help clients accelerate the value realization frff om technology investments. Our benchmarkrr offff eff rings allow our clients to empirically quantifyff companies deploy technology or organizational strategies to optimize their perfoff rmrr ance. This insight results in a proprietary Best Practices Repositoryrr , as well as, best practice softff ware confiff gurations, process flff ows and organizational strategies. Utilizing the benchmarkrr ing metrics and repository of best practices, combined with the global strategy ana d implementation insight of our transfoff rmation and technology associates, Hackett has also created a series of organizational and technology accelerators that allow our clients to effff eff ct proven sustainable perfoff rmrr ance improvements. Our Hackett DTP leverages our inventoryrr of Hackett-Certififf ed best practices, observrr ed through benchmarkrr and otht er business transfoff rmation engagements, which correlate best practices with superior perfoff rmrr ance levels. We utilize Capa ability Maturity Models to better understand our clients’ capa aba ilities and organa izational maturity so that we cana determine the level of perfoff rmrr ance that they can realistically pursue. In addition, we utilize Hackett’s intellectual capa ital in the foff rmrr of best practice process flff ows and softff ware confiff guration guides to integrate Hackett’s empirically proven best practices directly into business processes and workflff ows that are enabled by enterprr rise softff ware applications. The repository of best practice processes and softff ware confiff guration guides now reside in the new releases of our DTP. This allows us to utilize our IP on client engagements to ensure that best practices are identififf ed and implemented, whenever possible. This coordinated apaa proach addresses people, processes, infoff rmation, and technology, all within the frff amework of our Hackett-Certififf ed best practices. Because our solutions are based on Hackett-Certififf ed best practices, we believe that clients gain signififf cant advana tages. Clients can have confiff dence that their solutions are based on strategies frff om the world’s leading companies. More impm ortantly, Hackett’s solutions deliver enhanced effff iff ciency, improved effff eff ctiveness, reduced implementation risk and accelerated and optimized value realization. Leveraging our Quantut m Leap and Hackett Digital Transfoff rmation Platfoff rms, and soon to launch Hackett Connect, our engagements oftff en begin with an assessment of a client’s perfoff rmance, which is normally gained through benchmarking key processes and compm aring the results to world-class levels and industryrr standards capa tured in the Hackett perfoff rmance metrics databa ase. We then help clients prioritize and select the appropriate best practices to implement through a coordinated workrr flff ow automation and organizational design improvement strategy. Without a coordinated strategy that addresses the seven key business components which include organization and governance, process design, process sourcing, service placement, infoff rmation, enaba ling technology and skills and talent, we believe compana ies risk losing a signififf cant portion of business case benefiff ts with their investments. We have designed detailed best practice process flff ows based on Hackett’s deep knowledge of world-class business perfoff rmana ce. This enaba les clients to 5 streamline and automate key processes and generate perfoff rmance improvements quqq ickly and effff iff ciently at both the fuff nctional and enterprr rise levels. Similarly, we integrate Hackett-Certififf ed best practices directly into technology solutions. We believe it is imperatitt ve that companies simplifyff and automate workflff ows and processes to meet best practice standards befoff re new technology impm lementations and upgrades are completed. The automation of ineffff iff cient processes only serves to continue to drive upuu costs, cycle times and error rates. We have completed detailed fiff t-gap ana alyses in most fuff nctional areas of maja or business application packages including Oracle, SAP and other leading enterprr rise apa plications to determine thtt eir aba ility to support best practices. Application-specififf c tools, implementation guides and process flff ows allow us to optimize the confiff guration of enterpr rise softff ware applications. Hackett DTP enables the foff undation foff r improved perfoff rmance. We believe the combination of mara ket intelligence, optimized processes and workrr flff ows, best practice-based business applications and enhanced business analytics environments allows our clients to achieve ana d sustain signififf cant business perfoff rmrr ance improvement. The specififf c client circumstances normrr ally dictate how they engage us. Our goal is to be responsive to client needs, and to establish a continuous and trtt ur sted relationship. We have developed a series of offff eff rings that allow us to effff iff ciently help our clients without regard to where they ara e in their respective perfoff rmana ce improvement lifeff cycle. COMPETITION The strategic executive advisory and technology consulting marketptt lace continun es to be extremely compm etitive. The marketpt lace will remain competitive as companies continue to look foff r ways to improve their organa izational effff eff ctiveness. Our competitors include leading research advisories, international accounting fiff rms; international, national and regional strategic consulting and systems implementation fiff rms; and the IT services divisions of application softff ware fiff rms. Mergers and acquisitions throughout our industry have resulted in higher levels of competition. We believe that the principal competitive faff ctors in the industries in which we compm ete include: skills and capa aba ilities of people, innovative services and product offff eff rings, perceived aba ility to add value, reputation ana d client refeff rences, price, scope of services, service delivery apaa proaches, technical ana d industryrr expertise, quality of servrr ices and solutions, aba ility to deliver results on a timely basis, availaba ility of apa propriate resources, ana d global reach and scale. We acknowledge that many of our competitors are larger, however we believe veryrr intellectut al capital similar to the benchmarking-based perfoff rmance metrics QL delivers and tht e insight within the Hackett proprietaryrr DTP that supports our Transfoff rmational Benchmarkrr , Best Practices Advisory and Business Transfoff rmation and Technology offff eff rings. Despite our size relative to our competitor group, we believe our competitive position is distinct. With Hackett’s best practice intellectual capa ital and our QL and DTP platfoff rms, we believe we can empirically ana d digitally assist our clients. Our aba ility to apa ply best practices and benchmarkrr ing metrics to client operations via proven techniques is at the core of our compm etitive standing. Similarly, we believe that Hackett is the defiff nitive source foff r best practice perfoff rmance metrics and strategies. Hackett has conducted over 25,000 benchmara k and perfoff rmana ce stut dies over 29 years at over 8,800 clients, generating proprietary data sets spanning multiple perfoff rmance metrics and corrrr elating best practices with superior perfoff rmrr ance. The combination of Hackett benchmark data, along with deep expertise and knowledge in evaluating, designing ana d impm lementing business transfoff rmation strategies leveraging our proprietaryrr Best Practices Repository and other accelerators within DTP, delivers a powerfuff l and distinct value proposition to our clients. feff w, if any, of our competitors have Our culture of client collaboration leverages the power of our cross-fuff nctional ana d service line teams to increase revenue ana d strengthen relationships. We believe that this cultut re, along with terrififf c talent and with our intellectut al capital-centric approach, gives us a distinct competitive advanaa tage. STRARR TEGY The COVID-19 pandemic signififf cantly impacted the way we sell and deliver our services, as we quickly anaa d successfuff lly transitioned to a virtut al and remote delivery model. Our effff off rts in the last feff w years to fuff lly digitize our IP and go to mara ket through our QL and DTP platfoff rms proved to be critical to our success. Correspondingly, we remain foff cused on executing the foff llowing strategies: (cid:120) (cid:120) ExEE pxx andidd nii gn our IPII ,PP brand markrr et permrr our ability to extend our unique objb ective and actionable value realization markrr et permrr strategic partners leverage our IP and proprietary platfoff rms to defiff ne anaa d enable our clients to achieve digital world class perfoff rmrr ance. Our new platfoff rmrr s allow us to deliver objb ective and actionable insight ana d expertise in an effff iff cient and continuous way. isii sion tott our ofo fff eff rinii gsgg . We believe that our long-term growth prospects depend on ission to help our clients and CoCC ntitt nii ue tott positii itt on and grow HaHH cketttt as an IPII -PP centrtt ic strtt atett ge ic advdd isii oryr orgr anizii atitt on. We believe that the Hackett brand is widely recognized foff r its benchmarking metrics and best practice strategies. By building a series of highly 6 complementaryrr markrr et intelligence and implementation offff eff rings that allow our clients access to our IP, which is based on our perfoff rmrr ance metrics, best practice process and technology value realization insight, we are able to build trurr sted strategic relationships with our clients. Depending upon where our clients are in their assessment or implementation of perfoff rmrr ance improvement initiatives, we provide tht em a combination of actionaba le offff eff rings that support their effff off rts. We believe that clients that leverage our IP are more likely to allow us to servrr e them more broadly. IP-based services enhance our opportut nities to serve clients remotely, continuously and more profiff taba ly. Our goal is to expana d and accelerate the growth of our IPaaS, executive advisoryrr and market intelligence offff eff rings to estaba lish strategic relationships with our clients directly or thtt rough strategic alliances and syndicated channels and to fuff rther use that entry point to introdudd ce our business transfoff rmation and technology consulting capa aba ilities. The launch of QL, DTP and Hackett Connect should expand and attract new clients and alliance partntt ers that can leverage our unique benchmarking and best practices, softff ware confiff guration and process flff ow IP to help them diffff eff rentiate and sell their softff ware or services solutions. If our clients need access to our IP ana d advisors to help them either assess or execute transfoff rmation initiatives on their own, they can avail themselves of our Executive Advisoryrr and Market Intelligence Programs or our new IPaaS offff eff rings. The key is foff r our clients to know that we can supuu port them strategically by leveraging our uniquqq e IP and insights so that we are able to build a strategic relationship which is apa propriate foff r them. We also believe tht at our clients that value our IP will turn to us foff r other services when the need arises, allowing us over time to ascribe a larger amount of our total revenue to our existing client base, which will also improve the predictability of our results. We continue to explore ways to leverage our IP through new external strategic partners and chana nels. (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) InII trtt oduce NeNN w IPII -PP as-a-S- eSS rvice OfO fff eff rinii gn sgg . We are now seeing new opportunities through new strategic alliances and channels to use our IP, research and brand to help others sell and deliver their offff eff rings. We have signed several multi- year relationships and continue to pursue and lauaa nch pilots with maja or softff ware and services providers. CoCC ntitt nii ue tott exee pxx and our QLQQ /LL D// TPTT CoCC ntett nt and TeTT chnololl go ygg . DTP incorpr orates Hackett's intellectut al capa ital into our implementation tools and techniques. For our clients, the end results are tangible cost, perfoff rmance gains and impm roved retut rns on their organizational and technology investments. Many clients attribute their decision to employ us to our IP and accelerators. Our objb ective is to help our clients make smarter business process and softff ware confiff guration decisions as a result of our methods and knowledge. We are continuously updating our content ana d tools through benchmaraa king, enterpr rise transfoff rmrr ation and research activities. Additional updates are also drd iven by new softff ware releases that drive innovation in business process automation. We continue to invest in the digitization and integration of our various metrics, best practices and best practice acceleration tools into our QL and DTP platfoff rms. Recruitii and dedd veloll po tatt lell nt.tt As we continue to grow and realize the potential of our business model, it is important to attract, retain, develop and motivate associates. We continue to invest in associate development programs that are specififf cally targeted to impm rove our go-to-market ana d deliveryrr execution. Leveraga e our ofo fff sff hore capa abilii ill tii itt es. Leveraging an offff sff hore resource capa aba ility to support the delivery of our offff eff rings has been a key strategy foff r our organization. Our faff cilities in Hyderabad, India and Montevideo, Ururr guay allow us to increase operational effff iff ciencies and build tara geted key capaba ilities that can appropriately support the delivery of our offff eff rings and internrr al fuff nctional teams. We continue to see our offff sff hore capa abilities increase as a percentage of our total deliveryrr resources. This increase has resulted in improved margins and competitiveness. SeSS ek out strtt atett ge ic acquisii itii itt ons. We will continue to pursue strategic acquisitions that strengthen our aba ility to compm ete and expand our IP. We believe that our uniquqq e Hackett access and our QL/DTP approach, coupled with our strong balance sheet and infrff astrurr ctutt re, cana 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 intellectut al capital leverage and foff cus. OUR OFFERINGS We offff eff r a compm rehensive range of services, including IPaaS, executive advisory ana d markrr et intelligence programs, benchmarkrr ing, business transfoff rmation ana d technology consulting services. With strategic and fuff nctional knkk owledge in fiff nance, human resources, infoff rmation technology, procurement, supply chain management, corpr orate services, customer service, and sales and marketing, our expertise extends across the enterpr rise. We have completed successfuff l engagements in a vara iety of industries, including automotive, consumer goods, fiff nancial services, technology, lifeff sciences, manufaff ctut ring, media and entertainment, retail, telecommunications, trana sportation and utilities. 7 The Hackett Group GLOBAL STRARR TEGY & BUSINESS TRARR NSFORMATION SEGMENT ("GLOBAL S&BT" SEGMENT) (cid:120) Executive Advisory, IPaaS and Market Intelligence Programs Our Executive Advisory, IPaaS and Market Intelligence programs provide on-demand access to world-class perfoff rmrr ance metrics, peer-learning opportut nities and best practice implementation advd ice. The scope of Hackett’s Advisory programs is defiff ned by business fuff nction (Executive Advisoryrr ), end-to-end process coverage (Process Advisoryrr ) and Softff ware and Services Intelligence (Market Intelligence). Our programs include a mix of the foff llowing deliveraba les: (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) HaHH cketttt CoCC nnect: Online, searchable repository of best practices, perfoff rmana ce metrics, confeff rence presentations and associated research availaba le to Executive Advisoryrr , IPaaS and Market Intelligence Program Executives and their respective teams. Best PrPP actitt ce Accelell ratott rsrr : Dedicated web-based access to best practices, customized softff ware confiff guration tools, best practice process flff ows used to support the sale, confiff guration and organizational implementation and post implementation support effff off rts of partner softff ware. Advdd isii or InII quirii yr : Hackett’s inquiry services are used by clients foff r quqq ick access to faff ct-based advice on proven approaches and metht ods to increase the effff iff ciency ana d effff eff ctiveness of selling, general ana d administrative, fiff nana ce, human resources, infoff rmation technology, procurement, enterpr rise perfoff rmance management and shared services processes. Best PrPP actitt ce Research: Empirically based research ana d insight derived frff om our Hackett benchmarkrr , perfoff rmance and transfoff rmation stut dies. Our research provides detailed insights into the most signififf cana t proven approaches in use at world-class organizations that yield superior business results. PePP er InII tett ractitt on: Regular member-led webcasts, annual Best Practice Confeff rences, annual Member Forur ms, membership perfoff rmance survrr eys and client-submitted content provide ongoing peer learning and networkrr ing opportunities. InII trtt oductitt on ofo NeNN w VeVV ndodd r IPII -PP centrtt ic OfO fff eff rinii gs: We are continuing to seek new opportrr ut nities through strategic alliances and channels to use our IP to help otht ers sell and deliver their products, such as our IP-as-a-Service offff eff rings and Hackett Institute programs. We continue to look foff r other potential programs through which to introduce new IP-centric offff eff rings and expand the power and reach of our brand. (cid:120) Benchmarking Services Our benchmarkrr ing groupuu has measured ana d evaluated the effff iff ciency ana d effff eff ctiveness of enterpr rise fuff nctions foff r over 8,800 organizations globally. This includes 97% of tht e Dow Jones Industrials, 93% of the Fortune 100, 73% of the DAX 30 ana d 52% of the FTSE 100. Ongoing stut dies are condudd cted in a wide range of areas, including selling, general and administrative, fiff nance, human resources, infoff rmation technology, procurement, enterpr rise perfoff rmana ce management anaa d shared services. Hackett has identififf ed approximately 2,000 best practices foff r over 140 processes in these key fuff nctional areas ana d uses proprietary perfoff rmrr ance measurement tools and data collection processes that enaba le companies to complete the perfoff rmanaa ce measurement cycle and identifyff and quantifyff priorities, generate organa izational consensus, align compensation to estaba lish perfoff rmance goals and develop tht e requqq ired business case foff r business and technology investments. impm rovement opportut nities in as little as foff ur weeks. Benchmarks are used by our clients to objb ectively establish (cid:120) Business Transfoff rmation Group Our Business Transfoff rmrr ation group help our clients develop a coordinated digital transfoff rmation strategy that allows our clients to achieve meana ingfuff l perfoff rmrr ance improvements across the enterpr rise. Our experienced teams utilize the Hackett perfoff rmance measurement data to link perfoff rmance gains to indudd stry best practices. Our strategic capa abilities include operational assessments, process and organization design, chana ge mana agement and thtt e effff eff ctive apaa plication of technology. We combm ine 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 infoff rmation. We also maintain our awaa ard winning procurement (Coupa ana d Ariba) fuff nctionally led groups and our OneStream CPM teams within this group. 8 ORARR CLE SOLUTIONS SEGMENT Our Oracle Solutions Segment helps clients choose and deploy Oracle apaa plications that best meet their needs and objb ectives. In 2017, we acquired Oracle ERPRR and Cloud implementation capabilities. This allowed us to greatly increase the size of our Oracle addressable market ana d strongly positioned us to be a strategic provider of Oracle’s rapidly growing cloud softff ware and services market. The softff ware markrr et is rapidly moving to cloud-based softff ware, which led us to aggressively transition our Oracle Solutions segment frff om being primarily foff cused on the impm lementation of Oracle EPM on-premise softff ware to the entire Oracle Cloud Enterprr rise Suite. We believe tht e actions we took to expand our Oracle Cloud capa abilities frff om 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 signififf cant investment we made was to digitize all of our IP ana d to build our proprietary Hackett DTP. By specififf cally building one of our fiff rst versions around the Oracle Cloud apa plication fuff nctionality, we believe we cana quqq ickly demonstrate how to optimize the confiff guration of Oracle Cloud apa plications to drd ive to its fuff lly intended transfoff rmative outcome. We believe these moves align our Oracle Solutions segment with the Oracle go-to-mara ket strategy and will also allow us to use our unique best-practice implementation IP to demonstrate the value of Oracle Cloud apps foff r the Oracle sales channel. These improvements cover many aspects of service delivery, including process improvement, technology deployment, organizational alignment, infoff rmation and data defiff nition and skills and compm etency alignment. Solutions typically reside in three primary areas: Core Financial Close and Consolidation, Integrated Business Planning, and Reporting / Advanced Analytics. Solution innovations have taken the group into areas such as big data, cloud technology data mana agement and governana ce, and indudd stry-specififf c analytic templates. SAP SOLUTIONS SEGMENT Our SAP Solutions segment helps clients choose and deploy S4 HANA Cloud applications that best meet their needs and objb ectives. Our expertise is foff cused on SAP ERP, with primary foff cus on Lifeff Sciences and Consumer Goods. The groupuu offff eff rs comprehensive services frff om planning, architectut re, and vendor evaluation ana d selection tht rough implementation, customization, testing and integration. Comprehensive fiff t-gap analyses of all maja or packages against Hackett Best Practices are utilized by ouruu SAP Solutions teams. Our tools and templates help integrate best practices into business and anaa alytical applications. The groupuu also offff eff rs post-implementation supuu port, change manaa agement, exception management, process transparency, system documentation and end-user training, all of which are designed to enhance retut rn on investment. We also provide offff -ff shore application development ana d Application Maintenance and Support (“AMS”) services. These services include post-implementation support foff r select business application and infrff astrur ctutt re platfoff rms. Our SAP Solutions groupuu also includes a division responsible foff r the sale of the SAP suite of apa plications. CLIENTS We foff cus on developing long-termrr client relationships with Global 2000 fiff rms and otht er sophisticated buyu ers of business and IT consulting services. During 2022, our ten most signififf cant clients accounted foff r 24% of total revenue anaa d during 2021 ana d 2020, our ten most signififf cant clients accounted foff r 22% of total revenue in each year. In addition, dudd ring 2022, 2021 ana d 2020, our largest client generated 7%, 4% and 5% of total revenun e, respectively. We have achieved a high level of satisfaff ction across our client base. We receive surveys frff om a signififf cant numbm er of our engagements which are utilized in a rigorous process to improve our deliveryrr execution, sales processes, methodologies and training. BUSINESS DEVELOPMENT AND MARKETING Our extensive client base and relationships with Global 2000 fiff rms remain our most signififf cant sources of new business. Our revenue generation strategy is foff rmulated to ensure that we ara e addressing multiple faff cets of business development. Our primaryrr goal is to continue to increase awareness of our brand which we have created around our Hacketttt empirical knowledge capa ital in the extended enterpr rise that we now serve. We have a regional sales and market development effff off rt in both North America ana d Europe, so we can better coordinate tht e sales and marketing messages frff om our vara ious offff eff rings. Our compensation programs foff r our associates reflff ect an emphasis on optimizing our total revenue relationship with our clients. In our technology groupuu s, we have continued to utilize our Hackett intellectual capa ital as a way to diffff eff rentiate the relationships we have with the softff ware providers anaa d with our clients. The categories below defiff ne our business development resources. 9 BUSINESS DEVELOPMENT RESOURCES Although virtut ally all of our advisors ana d consultants are expected to contribute to new revenun e opportunities, our primaryrr internal business development resources are comprised of the foff llowing: (cid:120) (cid:120) (cid:120) (cid:120) The Leadership Team, Principals and Senior Directors are comprised of our senior leaders who have a combination of executive, regional ana d anchor account responsibilities. In addition to their management responsibilities, this group of associates is responsible foff r growing the business by foff stering executive-level relationships within accounts and leveraging tht eir existing contacts in the marketptt lace. The Sales Organization is comprised of associates who are 100% dedicated to generating sales. They are deployed geograpaa hically in key mara kets, primarily foff cused on developing new relationships and they are aligned to our core group areas within their target accounts. They also hana dle opportunities in their geographic terrrr itories as they arise. We are currently making incremental investments in dedicated sales resources foff r our Benchmarkrr ing, IPaaS, Executive Advisoryrr and Market Intelligence offff eff rings. The Business Development Associates are comprised of trained groups of telemarketing specialists who are conversant with their respective solution areas. Lead generation is coordinated with our markrr eting ana d sales groups to ensure that our inbound and outbt ound effff off rts are synchronized with targeted marketing and sales programs. The Delivery Organization is comprised of our billaba le associates. We encourage associates to pursue additional business development opportunities through their normal course of delivering existing projo ects thereby helping us expand our business within existing accounts. In addition to our business development resources, we have a corpr orate markrr eting and communications organization responsible foff r overseeing our mara keting programs, pubu lic relations and employee communications activities. We have organa ized our markrr et foff cus into the foff llowing categories: (cid:120) (cid:120) (cid:120) Strategic Accounts are compm rised of large prospects and existing relationships which we believe will have a signififf cant revenue opportut nity within the next 18 months. Strategic account criteria include the size of the company, indudd stry affff iff liation, propensity to buy external consulting services and contacts within the account. The sales representative working closely with regional leadership is primarily responsible foff r identifyff ing business opportunities in the account, acting as the single point of coordination foff r the client, ana d perfoff rming the general duties of account manager. Regional Accounts are accounts within a specififf ed geographic location. These accounts mostly include large prospects, past clients, existing medium-sized clients and mid-tier maraa krr et accounts and are handled primarily on an opportutt nistic basis, except foff r active clients where deliveryrr teams are foff cused on driving additional revenue. Strategic Alliance Accounts are accounts that allow us to partner with organizations of greater scale or diffff eff rent skill sets or with softff ware developers enabling all paraa ties to jointly market their produdd cts and services to prospective clients. HUMAN CAPITAL MANAGEMENT We fuff lly believe that our culture foff sters intellectual creativity, collaba oration and innovation. We believe in building relationships with both our associates and clients. We believe the best solutions come frff om teams of diverse individuals addressing problems collectively ana d frff om multiple dimensions, including the business, technological and human dimensions. We believe that the most effff eff ctive workrr ing environment is one where everyrr one is encouraged to contribute anaa d is rewarded foff r that contribution. Our core values are the strongest expression of our workrr ing style and represent what we stand foff r. These core values are: (cid:120) (cid:120) (cid:120) (cid:120) Continuous development of our associates, our unique content business model and our knowledge base; Diversity of backgrounds, skills and experiences; KnK owledge capa tutt re, contribution and utilization; and Collaboration with one anotht er, our partners and our clients. 10 Our human resources staffff includes seasoned profeff ssionals in North America, Europe, India and South America who support our groupuu s by, among other things, administering our benefiff t programs, faff cilitating the hiring process and coordinating training activities. Our human resources staffff also includes dedicated individuals who recruit consultants with both business and technology expertise. Our recrur iting team supports our hiring process by foff cusing on the highest demanaa d solution ara eas of our business to ensure an adequqq ate pipeline of new associates. We also have an empm loyee refeff rral program, which rewards existing empm loyees who source new hires. As of December 30, 2022, we had 1,175 associates, excluding subcontrtt actors, 81% of whom were billable profeff ssionals. We do not have any associates that are subjb ect to collective bargaining arrana gements, however, in France, our associates enjn oy the benefiff t of certain government regulations based on indudd stry classififf cation. We have entered into nondisclosure and non-solicitation agreements with virtut ally 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. We do so by encouraging ana d supporting our associate’s communities and personal volunteer and service programs and social gatherings. INTELLECTUAL PROPERTY We have obtained trademark registrations foff r The Hackett Group, Hackett Best Practices, World Class Defiff ned and Enaba led, Quantut m Leap, Digital Excelleration, Intellectut al Property-As-A-Service and Book of Numbers, and own registrations foff r certain of our othtt er trademarks in the United States and abroad that we use in our business and believe are important to protect. We believe that the protection of tht ese marks is an important part of our strategy of increasing the brana d recognition we have built around our empirical knowledge capital anaa d the growing numbm er of servrr ices we provide. AVAILABLE INFORMATION We make our public fiff lings with the Securities and Exchange Commission (“SEC”), including our Form 10-K, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all exhibits and amendments to tht ese reports, available frff ee of charge at our website www.thehackettgroup.com as soon as reasonably practicable aftff er we electronically fiff le such material with, or fuff rnish it to, the SEC. Any material that we fiff le with the SEC or at www.sec.gov. Also available on our website, frff ee of charge, are copies of our Code of Conduct ana d Etht ics, Corprr orate Governance Guidelines, and the charters foff r the Audit Committee, Compensation Committee and Nominating and Governance Committee of our Board of Directors. We intend to disclose any amendment to, or waiver frff om, a provision of our Code of Conduct and Ethics and Corpr orate Governance Guidelines apa plicaba le to our senior fiff nancial offff iff cers, including our Chief Executive Offff iff cer, Chief Operating Offff iff cer, Chief Financial Offff iff cer and Corpr orate Controller on our website within foff ur business days foff llowing the date of the amendment or waiver. ITEM 1A. RISK FACTORS Our business is subjb ect to risks. The foff llowing important faff ctors could cauaa se actut al results to diffff eff r materially frff om those contained in foff rward-looking statements made in this Annual Report on Formrr 10-K or our other publicly fiff led documents. Business, Market and Strategy Risks Our resultll stt ofo opo eratitt ons couldll be nege atitt velyll afa fff eff ctett d byb gloll bal and rege ioii nal economic condidd ti itt ons. Global and regional economic conditions mayaa affff eff ct our clients’ businesses and the markets they serve. A substantial or prolonged economic downturn, weak or uncertain economic conditions or similar faff ctors could adversely affff eff ct our clients’ fiff nancial condition which may reduce our clients’ demand foff r our servrr ices, foff rce price redudd ctions, cause projo ect cancellations, or delay consulting services foff r which tht ey have engaged us. For example, COVID-19 panaa demic has created uncertaintytt and could result in a reduction in spending on our services and the geopolitical disrur ption resulting frff om the RuRR ssian and Ukraine conflff ict. In addition, if we are unable to successfuff lly ana ticipate the changing economic conditions, we may be unaba le to effff eff ctively plan foff r and respond to those changes, and our business could be negatively affff eff cted. in the global economy 11 Our resultll stt ofo opo eratitt ons have been advdd ersrr elyll afa fff eff ctett d and couldll condidd tii itt ons on our business. inii thtt e fuff ture be matett riallll yll imii pm actett d byb macroeconomic The level of revenue we achieve is based on our ability to deliver market leading servrr ices and solutions and to deployoo skilled teams of profeff ssionals quickly. Our results of operations are affff eff cted by economic conditions, including macroeconomic conditions and levels of business confiff dence. Any prolonged economic downtut rnrr as a result of weak or uncertain economic conditions or similar faff ctors could adversely affff eff ct our clients' fiff nancial condition which may fuff rther redudd ce the clients' demand foff r our services. These include: (cid:120) (cid:120) (cid:120) (cid:120) general economic and business conditions; interest rate and inflff ation rate trends and flff uctuations; overall demana d foff r services; ana d currency exchana ge rate flff uctuations. Our resultll stt ofo opo eratitt ons have been advdd ersrr elyll afa fff eff ctett d and couldll pandedd mic.c inii thtt e fuff ture be matett riallll yll advdd ersrr elyll imii pm actett d byb thtt e COC VIVV DII -19 The global spread of the COVID-19 pana demic created signififf cant volatility, uncertainty and economic disrurr ption. Our clients, and therefoff re our business and revenues, araa e sensitive to negative changes in general economic conditions and business confiff dence arising frff om pandemics. We continue to work with our clients and employees to responsibly address the COVID-19 pana demic. The extent to which the COVD-19 pandemic or another pandemic impacts our business, operations and fiff nancial results will depend on numerous evolving faff ctors that we may not be aba le to accurately predict, including: the dudd ration, severity and scope of the pandemic; governmental, business and individudd als’ actions that have been ana d continue to be taken in response to tht e pandemic; the impact of the pandemic on economic activity ana d actions taken in response; the effff eff ct on our clients and client demand foff r our services and solutions; the aba ility of our clients to pay foff r our services and solutions; and any closures of our clients’ offff iff ces and faff cilities. Clients may also slow down decision making, delay planned work or seek to terminate existing agreements. Any of these events could cauaa se or contribute to the risks and uncertainties enumerated in “Item 1A. Risk Factors” and elsewhere in tht is Annual Report and could materially adversely affff eff ct our business, fiff nancial condition, results of operations and/or stock price. Our quartett rlrr yll opo eratitt nii gn resultll stt maya varyr .yy Our fiff nancial results may flff uctutt ate frff om quarter to quqq arter in any given yeara and should not be used to predict fuff tutt re perfoff rmrr ance. In fuff tut re quarters, our operating results may not meet analysts’ and investors’ expectations. If tht at happens, the price of our common stock may faff ll. Many faff ctors cana cause flff uctut ations in our fiff nancial results, including: (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) number, size, timing and scope of client engagements; customer concentration; long and unpn redictable sales cycles; contract terms of client engagements; degrees of completion of client engagements; client engagement delays or cancellations; competition foff r and utilization of employees; how well we estimate the resources and effff off rt we need to complete client engagements; the integration of acquired businesses; pricing chana ges in the industryrr ; foff reign currency changes; foff reign laws and regulatory requirements; natut ral disasters, pandemics ana d other catastrophic events; economic conditions specififf c to business and infoff rmation technology consulting; and global economic conditions. 12 A high percentage of our operating expenses, particularly personnel and rent, ara e fiff xed in advance of any particular quara ter. As a result, if we experience unanaa ticipated changes in client engagements or in consultant utilization rates, we could experience large variations in quqq arterly operating results and losses in any para ticular quarter. Due to these faff ctors, we believe our quqq arter-to-quarter operating results should not be used to predict fuff tut re perfoff rmance. IfII we are unablell businii ess and retatt inii inii gn current clill entstt and empm loll yo ees. tott mainii tatt inii our repee utatt titt on and exee pxx and our brarr nd name recogo ngg ititt on, we maya have didd fi fff iff cultll ytt atttt rtt actitt nii g new We believe that establishing and maintaining a good reputation and name recognition are critical foff r attracting ana d retaining clients and employees in our industry. We also believe that tht e importana ce of reputation and name recognition will continue to increase due to tht e number of providers of business consulting and IT services. If our reputation is damaged or if potential clients are not faff miliar with us or with the solutions we provide, we mayaa be unaba le to attract new, or retain existing, clients and empm loyees. Promotion ana d enhancement of our name will depend largely on our success in continuing to provide effff eff ctive solutions. If clients do not perceive our solutions to be effff eff ctive or of high quality, our brand name anaa d reputation will suffff eff r. In addition, if solutions we provide have defeff cts, critical business fuff nctions of our clients may faff il, and we could suffff eff r adverse publicity as well as economic liaba ility. WeWW dedd pee end heavilii yll on a lill mii itii ett d number ofo clill entstt . We have derived, and believe that we will continue to derive, a signififf cant portion of our revenue frff om a limited numbm er of clients foff r which we perfoff rm large projo ects. In 2022, our ten largest clients accounted foff r 24% of our aggregate revenue. In addition, revenue frff om a large client mayaa constitute a signififf cant portion of our total revenue in ana y particular quqq arter. Our customer contracts generally can be cancelled foff r convenience by the customer upon 30 days’ notice. The loss of any of our large clients foff r any reason, including as a result of the acquqq isition of that client by another entity, our faff ilure to meet that client’s expectations, the client’s decision to redudd ce spending on projo ects, or faff ilure to collect amounts owed to us frff om our client could have a material advd erse effff eff ct on our business, fiff nancial condition and results of operations. Our markrr etstt are higi hlyll compm etitt tii itt ve.ee We may not be aba le to compete effff eff ctively with current or fuff ture competitors. The business consulting and IT servrr ices markets are highly competitive. We expect competition to fuff rther intensifyff 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 ana d signififf cantly greater fiff nancial, technical and maraa keting resources than we do. As a result, our compm etitors may be in a stronger position to respond more quqq ickly to new or emerging technologies and chana ges in client requirements and to devote greater resources than we can to the development, promotion anaa d sale of their services. Competitors could lower their prices, potentially foff rcing us to lower our prices and suffff eff r reduced operating margins. We faff ce competition frff om international accounting fiff rmrr s; international, national and regional strategic consulting and systems implementation fiff rms; and the IT services divisions of application softff ware fiff rms. In addition, there are relatively low barriers foff r entry into the business consulting and IT services market. We do not own any patented technology that would stop compm etitors frff om entering this market ana d providing services similar to ours. As a result, the emergence of new competitors may pose a threat to our business. Existing or fuff tutt re competitors may develop and offff eff r services thtt at are superior to, or have greater market acceptana ce, than ours, which could signififf cantly decrease our revenue and tht e value of your investment. WeWW couldll loll se moneye on our contrtt actstt . As part of our strategy, frff om time to time, we enter into capped or fiff xed-price contracts, in addition to contracts based on payment foff r time ana d materials. Because of the complexity of many of our client engagements, accurately estimating the cost, scope and duration of a particular engagement cana be a diffff iff cult task. We maintain an Offff iff ce of Risk Management (“ORM”) that evaluates and attempts to mitigate deliveryrr their review, ORM analyzes the critical risk associated with complex projo ects. In connection witht estimates associated with these projo ects. If we faff il to make tht ese estimates accurately, we could be foff rced to devote additional resources to these engagements foff r which we will not receive additional compensation. To the extent that ana expenditure of additional resources is required on ana engagement, tht is could reduce the profiff taba ility of,ff or result in a loss on, the engagement. We may be unsuccessfuff l in negotiating with clients regarding changes to the cost, scope or duration of specififf c engagements. To the extent we do not suffff iff ciently communicate to our clients, or our clients faff il to adequately appreciate the natut re and extent of any of these types of changes to an engagement, our reputation may be harmrr ed, ana d we may suffff eff r losses on ana engagement. 13 Lack ofo dedd tatt ilii ell d writii ttt ett n contrtt actstt couldll and protett ct oursrr elvll es frff om lill abilii ill tii ytt tott othtt ersrr . imii pm airi our abilii ill tii ytt tott recogo nizii e revenue foff r services perfr off rmrr ed,dd collll ell ct feff es,s prorr tett ct our IPII We protect ourselves by entering into detailed written contracts with our clients covering tht e terms and contingencies of the client engagement. In some cases, however, consistent with what we believe to be industry practice, workrr is perfoff rmed foff r clients on the basis of a limited statement of work or verbr al agreement befoff re a detailed written contract can be fiff nalized. To thtt e extent that we faff il to have detailed written contracts in place, our ability to collect feff es, protect our IP and protect ourselves frff om liaba ility to others may be impm aired. WeWW maya loll se lall rgr e clill entstt or maya not be ablell tott secure tatt rgr etett d foff llll oll w-on workrr or achieve exee pxx ectett d clill ent retett ntitt on ratett s. Our client engagements are generally short-termrr arranaa gements, and most clients can redudd ce or cancel their contracts foff r our services with a 30 days’ notice and without penalty. As a result, if we lose a maja or client or large client engagement, our revenue will be adversely affff eff cted. We perfoff rm vara ying amounts of workrr foff r specififf c clients frff om year to year. A maja or client in one year may not use our services in ana other year. In addition, we may derive revenue frff om a maja or client that constitutes a large portion of total revenue foff r particular quarters. If we lose any maja or clients or any of our clients cancel programs or signififf cantly reduce the scope of a large engagement, our business, fiff nancial condition, and results of operations could be materially and adversely affff eff cted. Also, if we faff il to collect a large accounts receivable balance, we could be subjb ected to signififf cana t fiff nanaa cial exposure. Consequently, you should not predict or ana ticipate our fuff tut re revenue based upon the nun mber of clients we currently have or the number and size of our existing client engagements. We also derive a portion of our revenue frff om annual membm erships foff r our Executive Advd isory Programs. Our growth prospects to achieve and sustain renewal rates on programs and to successfuff lly launch new programs. Failure to therefoff re depend on our abilitytt achieve expected renewal rate levels or to successfuff lly launch new programs ana d services could have an adverse effff eff ct on our operating results. ThTT e markrr et price ofo our common stott ck maya flff uctuatett widedd lyll .yy The market price of our common stock could flff uctut ate substantially due to: (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) fuff ture ana nouncements concerning us or our competitors; quarterly flff uctut ations in operating results; announcements of acquisitions or technological innovations; changes in earnrr ings estimates or recommendations by ana alysts; or current mara ket volatility. In addition, the stock prices of many business and technology services companies flff uctutt ate widely foff r reasons which mayaa be unrelated to operating results. Fluctuation in the mara ket price of our common stock may impact our aba ility to fiff nance our operataa ions and retain personnel. Operational Risks WeWW have risii kskk associatett d witii htt potett ntitt al acquisii itii itt ons or inii vestmtt entstt . Since our inception, we have expanded through acquisitions. In the fuff ture, we plan to pursue additional acquqq isitions as opportunities arise. We may not be able to successfuff lly integrate businesses which we mayaa acquire in the fuff ture without substantial expense, delays or other operational or fiff nancial problems. We may not be aba le to identifyff , acquire or profiff tably manage additional businesses. Also, acquisitions may involve a nun mber of risks, including: (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) diversion of management’s attention; faff ilure to retain key personnel; faff ilure to retain existing clients; unanticipated events or circumstances; unknown claims or liaba ilities; amortization of certain acquired intangible assets; and 14 (cid:120) operating in new or unfaff miliar geograpaa hies. Client dissatisfaff ction or perfoff rmrr ance problems at a single acquired business could have a material adverse impact on our reputation as a whole. Further, we cannot assure you that our fuff tut re acquired businesses will generate anticipated revenun e or earnrr ings. Difi fff iff cultll itt es in inii tett ge ratitt nii g businii esses we acquirii e in thtt e fuff ture maya dedd mand titt mii e and atttt ett ntitt on frff om our senior managa ement.tt Integrating businesses that we acquire in the fuff ture may involve unanticipated delays, costs and/or other operational and fiff nancial problems. In integrating acquired businesses, we may not achieve expected economies of scale or profiff tability or realize suffff iff cient revenue to justifyff our investment. If we encounter unexpected problems as we tryrr to integrate ana acquqq ired fiff rm into our business, our management mayaa be required to expend time ana d attention to addrd ess the problems, which would divert tht eir time and attention frff om other aspects of our business. WeWW maya not be ablell tott hirii e,e trtt ainii , motitt vatett ,e retatt inii and managa e profo eff ssional statt fa fffff To succeed, we must hire, train, motivate, retain and manage highly skilled empm loyees. Competition foff r skilled employees who can perfoff rm the services we offff eff r is intense. We might not be aba le to hire enough skilled employees or train, motivate, retain and manage the employees we hire. This could hinder our ability to compm lete existing client engagements and bid foff r new ones. Hiring, training, motivating, retaining and managing employees with the skills we need is time-consuming and expensive. WeWW relyll on inii fn off rmrr atitt on tett chnololl go ygg and securitii ytt sys stett ms and anyn dadd maga e,e inii tett rrupu titt on or compm romisii e ofo our inii fn off rmrr atitt on tett chnololl go ygg and securitii ytt sys stett ms or dadd tatt couldll didd sii rupu t and harmrr our businii ess. We use infoff rmation technology and securitytt systems to process, transmit, and store electronic infoff rmrr ation in connection with the operation of our business. We also use such systems to protect proprietary and confiff dential infoff rmation, including tht at of our customers, suppliers and employees. We faff ce risks associated with cybersecurity incidents and other signififf cant disrur puu tions of such systems, including denial of service or other similar attacks, to our faff cilities or systems; unauthorized access to or acquisition of personal infoff rmation, confiff dential infoff rmation or other data we process or maintain; or virurr ses, loggers, or other malfeff asant code, including ransomware, in our data or softff ware. These cybersecurity incidents or other signififf cant disrur ptions could be caused by persons inside our organization, persons outside our organization with authorized access to systems inside our organization, or by individuals outside our organa ization. The risk of a cybersecurity incident or disrur puu tion, partrr icularly through cyber-attack or cyber- intrur sion, has generally increased as the number, intensity anaa d sophistication of attempted attacks and intrur sions frff om ara ound tht e world have increased. Although the cyby ersecurity incidents that we have experienced to date, as well as those reported to us by our third-partytt partntt ers, have not had a material effff eff ct on our business, fiff nancial condition or results of operations, such incidents could have a material adverse effff eff ct on us in the fuff ture. We also rely on a number of tht ird-para ty service providers to host, store or otherwise process infoff rmation foff r us, or to provide other faff cilities or infrff astrur cture that we make use of,ff including “cloud-based” providers of corprr orate infrff astrur cture services relating to, among other things, human resources, communication services, and some fiff nana cial fuff nctions, and we araa e therefoff re dependent on the security systems of these providers. These third-party entities are subjb ect to similar risks as it relates to cybersecurity, business interrur ption, and systems. Employee faff ilures and a cybersecurity incident or other signififf cant disrur ption affff eff cting such tht ird para ties could have a material adverse effff eff ct on our business. Because the techniques used to obtain unautht orized access to or sabotage security systems change frff equqq ently and are oftff en not recognized until aftff er an attack, we and our third-party service providers may be unaba le to anticipate the techniquqq es or impm lement adequate preventative measures, thereby exposing us to material adverse effff eff cts on our business, fiff nancial condition, results of operations and growth prospects. In order to address risks to our infoff rmation systems, we continue to make investments in personnel, technologies and training. Data protection laws and regulations around the world oftff en require “reasonaba le,” “appropriate” or “adequate” technical and organaa izational security measures, ana d the interprr retation ana d apaa plication of those laws and regulations are oftff en uncertain and evolving; tht ere can be no assurance that our security measures will be deemed adequate, apaa propriate or reasonaba le by a regulator or court. Moreover, even security measures that are deemed apaa propriate, reasonable, and/or in accordanaa ce with applicable legal requirements may not be able to protect tht e infoff rmation we maintain. A cybersecurity incident or other signififf cant disrurr ption impm acting us or our third-para ty service providers could require a subu stantial level of fiff nana cial resources to rectifyff and otherwise respond to, may be diffff iff cult to identifyff or addrdd ess in a timely manner, ana d mayaa divert management’s attention and requqq ire the expenditut re of signififf cant time and resources. Such cybersecurity incidents or other signififf cant disrur ptions could result in claims, increased regulatory scrur tiny, or investigations, and may cause us to incur substantial fiff nes, penalties, or otht er liaba ility andn related legal and othtt er costs. Any actutt al or perceived cybersecurity incident or signififf cant disrur puu tion may also interfeff re with our ability to comply with fiff nancial reporting requirements and harm our reputation and markrr et position, especially given that we handle sensitive customer infoff rmation. Any of the foff regoing matters could hara m our operating results and fiff nancial condition. 15 While we have purchased cybersecurity insurance, there are no assurances that the coverage would be adequate in relation to any incurred losses. Moreover, as cyber-attacks increase in frff equqq ency and magnitut de, we mayaa be unaba le to obtain cybersecurity insurance in amounts and on terms we view as adequate foff r our operations. A breach ofo our inii fn off rmrr atitt on tett chnololl go ygg and securitii ytt sys stett ms couldll matett riai llll yll advdd ersrr elyll afa fff eff ct our businii ess. We use infoff rmation technology and security systems to protect proprietary and confiff dential infoff rmation, including that of our customers, suppliers and employees. Denial of service or other attacks on, or accidental or willfuff l security breaches or other unauthorized access to our faff cilities or infoff rmrr ation systems, unauthorized access to or acquisition of personal infoff rmation, confiff dential infoff rmation or other data we process or maintain, or virurr ses, loggers, or other malfeff asant code, including ransomware, in our data or softff ware, could compromise this infoff rmation and otherwise disrur pt our operations. The consequences of such loss, possible misuse of our proprietary and confiff dential infoff rmation, or operational disrur puu tions could include, among otht er things, unfaff vorable pubu licity, damage to our reputation, diffff iff culty maraa keting our products, customer allegations of breach-of-ff contract, claims and litigation by affff eff cted paraa ties, investigations by ana d otht er proceedings involving governmental authorities and possible fiff nancial liaba ilities foff r damages, any of which could materially adversely affff eff ct our business, fiff nancial condition, reputation anaa d relationships with customers and para tners. We also rely on a numbm er of tht ird-partytt service providers to host, store or otherwise process infoff rmrr ation foff r us, or to provide othtt er faff cilities or infrff astrur ctut re tht at we make use of,ff including "cloud-based" providers of corpr orate infrff astrurr cture services relating to, among otht er things, human resources, electronic communication services and some fiff nancial fuff nctions, and we are therefoff re dependent on the security systems of these providers. Any security breaches or incidents or other unautht orized access to, or disrur ptions of,ff our servrr ice-providers' systems or virur ses, loggers, rana somware or other malfeff asant code in their data or softff ware, or unauthorized access to or acquisition of any data tht ey process or otherwise maintain foff r us could expose us to infoff rmation loss, corrur puu tion ana d unavailability, operational disrur ptions, ana d misappropriation of confiff dential infoff rmation, and could have similar consequences to us as ana y incidents affff eff cting our own systems or the data we process or maintain. We and our third para ties faff ce these threats frff om a variety of sources, including attacks frff om hackers, phishing and otht er foff rms of social engineering, and human error or empm loyee or contrtt actor malfeff asance. Because the techniques used to obtain unauthorized access to or sabotage security systems change frff equently and araa e oftff en not recognized until aftff er an attack, we and our third-party service providers may be unable to anticipate the techniques or implement adequate preventative measures, thereby exposing us to material adverse effff eff cts on our business, fiff nancial condition, results of operations and growtht prospects. A security breach or other security incident impacting us or our third-paraa tytt service providers could require a subu stantial level of fiff nana cial resources to rectifyff and otherwise respond to, may be diffff iff cult to identifyff or address in a timely manner, ana d could result in claims, investigations, and inquqq ires by private parties or governmental entities that mayaa divert management’s attention ana d require the expenditut re of signififf cant time and resources, and which mayaa cause us to incur substantial fiff nes, penalties, or other liaba ility and related legal and other costs. Any actut al or perceived security breach or other security incident may also hara m our reputation and market position. Any of the foff regoing matters could hara m our operating results and fiff nana cial condition. Global Operational Risks WeWW earnrr our fiff nii anciai l resultll stt . revenue,e inii cur coststt and mainii tatt inii cash balall nces inii multll itt pii lell currencies,s and currencyc flff uctuatitt ons couldll advdd ersrr elyll afa fff eff ct We have international operations, where we earnrr revenue ana d incur costs in various foff reign currrr encies, primara ily the British Pound, ana d the Euro. Doing business in these foff reign currencies exposes us to foff reign currrr ency risks in numerous areas, including revenue, purchases, payroll and investments. Certain foff reign currency exposures are naturally offff sff et within an international business unit, because revenue and costs are denominated in the same foff reign currrr ency, and certain cash balances are held in U.S. Dollar denominated accounts. However, dudd e to the increasing size and importance of our internrr ational operations, flff uctuations in foff reign currency exchana ge rates could materially impact our results. Our cash position includes amounts denominated in foff reign currencies. We manage our worldwide cash requirements considering available fuff nds frff om our subsidiaries and the cost effff eff ctiveness with which these fuff nds can be accessed. The repatriation of cash balances frff om certain of our subsidiaries outside the U.S. could have adverse tax consequences and be limited by foff reign currency exchana ge controls. However, those balances are generally available in the local jurisdiction without legal restrictions to fuff nd ordinaryrr business operations. Any flff uctut ations in foff reign currency exchange rates could materially impact the availaba ilitytt and amount of these fuff nds available foff r trana sfeff r. Legal, Regulatory and Compliance Risks Our corprr oratett governrr ance provisii ions maya dedd tett r a fiff nii anciallll yll atttt rtt actitt ve tatt keover atttt ett mpm t.tt Provisions of our charaa ter and by-laws may discourage, delayaa or prevent a merger or acquisition which shareholders may consider faff vorable, including trtt ansactions in which shareholders would receive a premium foff r their shares. These provisions include the foff llowing: 16 (cid:120) (cid:120) (cid:120) (cid:120) shareholders must comply witht advana ce notice requirements befoff re raising a matter at a meeting of shareholders or nominating a director foff r election; our Board of Directors is staggered into three classes and the members may be removed only foff r cause upon the affff iff rmative 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 maja ority of the shares entitled to vote on the matter were to submit a written demand or demands foff r us to do so; and our Board of Directors may, without obtaining shareholder apaa proval, classifyff and issue up to 1,250,000 shares of prefeff rred stock with powers, prefeff rences, designations and rights that may make it more diffff iff cult foff r a third paraa ty to acquire us. IfII we are unablell tott protett ct our IPII rigi hgg tstt or inii fn rff ingn e on thtt e IPII rigi hgg tstt ofo thtt ird partitt es,s our businii ess maya be harmrr ed.dd We rely upon a combm ination of nondisclosure and other contrtt actutt al arrangements and trade secrets, copyright and trademark laws to protect our proprietary rights and thtt e proprietary rights of third para ties frff om whom we license IP. Although we enter into confiff dentiality agreements with our employees and limit distributuu ion of proprietaryrr steps we have taken in thtt is regard will be adequqq ate to deter misapa propriation of our IP, or that we will be able to detect unautuu horized use and take apaa propriate steps to enfoff rce our IP rights. infoff rmation, there cana be no assurance that the Although we believe that our services do not infrff inge on tht e IP rights of others and that we have all rights necessary to utilize IP rights. Any claims could the IP employed in our business, we are subjb ect to the risk of claims alleging infrff ingement of third-partytt require us to spend signififf cana t sums in litigation, pay damages, develop non-infrff inging IP or acquire licenses to the IP that is the subjb ect of asserted infrff ingement. Datatt privacyc and inii fn off rmrr atitt on securitii ytt maya require sigi nifi iff cant resources and presentstt certatt inii risii kskk . We collect, store, have access to and otherwise process certain confiff dential or sensitive data, including proprietaryrr business infoff rmation, personal data or other infoff rmation that is subjb ect to privacy and security laws, regulations ana d/or customer-imposed controls. We operate in an environment in which data privacy regulatory ana d legal frff amework is evolving quqq ickly anaa d vara ies by jurisdiction. We cannot predict the cost of compliance with fuff tut re data privacy laws, regulations and standards, or fuff tutt re interpr retations of current laws, regulations and standards, related to privacy and cybersecurity or the potential effff eff cts on ouruu business. As a company doing business in Europe, we are also subu jb ect to European data protection lawaa s and regulations. The European Union General Data Protection Regulation (“GDPR”), imposes stringent requirements in how we collect and process personal data and provides foff r signififf cantly greater penalties foff r noncompm liance; and several othtt er countries have passed laws that require personal data relating to tht eir citizens to be maintained on local servers and impose additional data trtt ansfeff r restrictions. In addition, we are also subjb ect to and affff eff cted by new state privacy and data securitytt laws such as the recently impm lemented Califoff rnia Consumer Privacy Act (“CCPA”). The CCPA became effff eff ctive Januaryrr 1, 2020 and imposes additional data privacy requirements on many businesses operating in the state, including, potentially, with respect to employee data. In addition, in 2020 several states introduced varying comprehensive privacy laws modeled to some degree on the CCPA and/or the GDPR. Compliance with multiple countryrr and state laws containing varyrr ing requirements could be complicated and costly. Government enfoff rcement actions can be costly anaa d interrurr pu t the regular operation of our business, and violations of data privacy laws can result in fiff nes, reputational damage ana d civil lawsuits, any of which mayaa adversely affff eff ct our business, reputation and fiff nana cial statements. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES Our principal executive offff iff ce is currently located at 1001 Brickell Bay Drive, Floor 30, Miami, Florida 33131. As of December 30, 2022, we had operating leases that expire on various dates through June 2024. During the foff urth quqq arter of 2020, as a result of and in consideration of the COVID-19 pana demic, ana d the changing natutt re of tht e Company’s use of offff iff ce space foff r its workrr foff rce, the Company evaluated its existing offff iff ce space leases as part of its transfoff rmation initiatives related to real estate. This evaluation resulted in the complete and partial abandonment of certain leased offff iff ce spaces and ana asset impairment chara ge foff r certain lease right- of-ff use assets and certain property, equipment and leasehold improvements foff r impairment. We do not own real estate and do not intend to invest in real estate or real estate-related assets. 17 ITEM 3. LEGAL PROCEEDINGS We are involved in legal proceedings, claims, and litigation arising in the ordinaryrr course of business not specififf cally discussed herein. In the opinion of management, the fiff nal disposition of such matters will not have a material adverse effff eff ct on our consolidated fiff nancial position, cash flff ows or results of operations. ITEM 4. MINE SAFETY DISCLOSURES Not apa plicaba le. 18 PART II ITEM 5. MARKET FOR REGISTRARR NT’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 foff r the common stock on Februr ary 28, 2023, was $18.64. As of Februr ary 28, 2023, there were 262 holders of record of our common stock ana d 27,175,505 shares of common stock outstanding. Securities Authorized foff r Issuance under Equity Compensation Plans The infoff rmation required by this section is set foff rth under Item 12 of this Annual Report on Form 10-K and is herein incorpr orated by refeff rence. Perfoff rmance Graph The foff llowing grapaa h compares our cumulative total shareholder returnrr since December 29, 2017, with the RuRR ssell 2000 and a peer group index composed of other companies with similar business models identififf ed below. The graph assumes that the value of the investment in our common stock and each index (including reinvestment of dividends) was $100 on Decembm er 29, 2017. COMPAPP RISON OF 5 YEAR CUMULATAA IVE TOTATT L RETURN* Among The Hackett Group, Inc., the Russell 2000 Index, and a Peer Group $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 12/29/17 12/28/18 12/27/19 1/1/21 12/31/21 12/30/22 The Hackett Group, Inc. Russell 2000 Peer Group *$100 invested on 12/29/17 in stock or index, including reinvestment of dividends. Index calculated on month-end basis. Copyright© 2023 Russell Investment Group. All rights reservrr ed. The Hackett Group, Inc. Russell 2000 2022 Peer Group 12/28/18 12/27/19 1/1/21 12/31/21 12/30/22 $ $ $ 103.45 88.99 117.67 $ $ $ 105.64 111.70 145.05 $ $ $ 97.72 134.00 128.63 $ $ $ 142.50 153.85 131.00 $ $ $ 144.59 122.41 151.76 The 2022 Peer Group includes Alithya Group Inc., Huron Consulting Group, Inc. ana d Infoff rmation Services Group, Inc. 19 Company Dividend Policy In December 2012, we announced an ana nual dividend of $0.10 per share. In 2020, 2021 ana d 2022, thtt e Board of Directors approved an increase in the ana nual dividend to $0.38 per shara e, $0.40 per share, ana d $0.44 per share, respectively. During 2020, the Board of Directors approved tht e increase in the frff equqq ency of dividend payaa ments frff om semi-annual to quarterly. During fiff scal 2022, we paid the quqq arterly dividend to shareholders of record on March 25, 2022, June 24, 2022, September 23, 2022, and December 23, 2022, totaling $13.4 million, which includes the foff urtht quara trr er of 2022 dividend paid in Jana uary 2023, of $3.0 million. Our credit agreement contains restrictions on our ability to declare dividends and repurchase shares. Subsequent to fiff scal yeara end, the Board of Directors declared the fiff rst quarterly dividend of 2023 foff r shareholders of record as of March 24, 2023, to be paid on ApA ril 7, 2023. The declaration of dividends shall at all times be subjb ect to the fiff nal determrr and lawfuff l at that time in consideration of the needs of the business and other faff ctors including the aba ility to payaa dividends under our credit agreement. ination of our Board of Directors that a dividend is prur dent Purchases of Equity Securities We have an ongoing authorization frff om our Board of Directors to repurchase shares of our common stock. The repurchase plan was fiff rst announced on July 30, 2002. Repurchases under tht is program are discretionary and are made in the open markrr et or through privately negotiated transactions, subjb ect to market conditions and trading restrictions. There is no expiration date on the current authorization. The foff llowing table summarizes our share repurchases during the year ended December 30, 2022 under this authorization: Period Balance as of December 31, 2021 January 1, 2022 to ApA ril 1, 2022 April 2, 2022 to July 1, 2022 July 2, 2022 to September 30, 2022 October 1, 2022 to Decembm er 30, 2022 otal Number of Shares Purchased Maximum Dollar Value of Shares That Average Price Paid per Share as Part of Publicly Announced Program May Yet Be Purchased Under the Program 30,999 $ $ — $ — $ $ 4,889,315 4,920,314 11,244,241 10,608,761 10,608,761 10,608,761 14,672,248 * Total Number of Shares Purchased 30,999 — $ — $ $ 20.50 — — $ 23.71 $ 23.69 4,889,315 4,920,314 * During 2022, the Company’s Board of Directors apa proved an additional share repurchase authorization of $120.0 million. As of December 30, 2022, the Company’s Board of Directors had apa proved a cumulative auaa thorization of $287.2 million with cumulative purchases under the plan of $272.5 million, leaving $14.7 million available foff r fuff ture purchases. Subsequent to fiff scal year end, we repurchased 37 tht ousand shares of tht e Company’s common stock frff om membm ers of our Board of Directors foff r a total of $0.7 million, or $18.96 per share. Including these subsequent purchases, we have approximately $14.0 million available foff r fuff ture purchases under the plan. During the year ended Decembm er 30, 2022, tht e Company repurchased 4.9 million shares of its common stock under the repurchase plan apa proved by thtt e Company's Board of Directors, inclusive of trtt ansaction related feff es, foff r $115.9 million at an avaa erage share price of $23.71, under its tender offff eff r transaction. In addition, the Company repurchased 31 thousand shares of the Compana y’s common stock frff om membm ers of its Board of Directors foff r a total of $0.6 million, or $20.50 per share. During the year ended Decembm er 31, 2021, tht e Company repurchased 749 tht ousand shares of its common stock under tht e repurchase plan approved by tht e Company's Board of Directors foff r $13.0 million at anaa average share price of $17.41, which included 24 thousand shares of the Company’s common stock frff om members of our Board of Directors foff r a total of $0.4 million, or $16.05 per share. All shares repurchased frff om members of the Board of Directors were approved by tht e Audit Committee. Shares purchased under the repurchase plana do not include shares withheld to satisfyff withholding tax obligations. These withheld shares are never issued and in lieu of issuing the shares, taxes were paid on our employee’s behalf.ff In 2022, 164 thousand shares were withheld and not issued foff r a cost of $3.2 million, bringing tht e total cumulative cash used to repurchase stock in 2022 to $119.8 million, which includes the tender offff eff r trana saction. In 2021, 1.1 million shares were withheld and not issued foff r a cost of $21.6 million, bringing the total cumulative cash used to repurchase stock in 2021 to $34.6 million, which includes the net setttt lement of 2.9 million SARs, foff r a cost of $19.7 million. 20 ITEM 6. [RESERVRR ED] 21 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERAR TIONS Overview The foff llowing Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations and fiff nana cial condition of Hackett. MD&A is provided as a supplement to, ana d should be read in conjn unction with, our consolidated fiff nana cial statements and the accompanying Notes to our consolidated fiff nancial statements included in this Annual Report on Form 10-K. We have omitted discussion of fiff scal 2020 items and year-to-yeara compm arisons between fiff scal years 2021 and 2020 where it would be redudd ndana t with the discussion previously included in Part II, Item 7 (MD&A) of the Compm any’s Annun al Report on Form 10-K foff r thtt e fiff scal year ended Decembm er 31, 2021. Hackett, originally incorpr orated on April 23, 1997, is a leading IP-based strategic advisoryrr and technology consulting fiff rm that enables companies to achieve world-class business perfoff rmana ce. By leveraging the comprehensive Hackett database, the world’s leading repository of enterprr rise business process perfoff rmance metrics and best practice intellectual capa ital, our business and technology solutions help clients improve perfoff rmance ana d maximize retut rnrr s on technology investments. Only Hackett empirically defiff nes world-class perfoff rmance in sales, general and administrative and certain supply chain activities with analysis gained thtt rough over 25,000 benchmara k and perfoff rmana ce stut dies over 29 years at over 8,800 of tht e world’s leading compana ies. Hackett’s combined capaa abilities include executive advisoryrr programs, IPaaS, market intelligence, benchmarkrr ing, business transfoff rmation and technology solutions, with corresponding offff sff hore support. In addition, we are identifyff ing new opportutt nities foff r our benchmara king and best practice intellectual propertytt by leveraging new channels through strategic alliances to introdudd ce new recurring revenue, high margin offff eff rings that could redefiff ne our organizational model that we have started to refeff r to as “IP-as-a- Service” business. Critical Accounting Policies and Estimates In the ordinaryrr course of business, we make a numbm er of estimates and assumptions relating to the reporting of results of operations and fiff nana cial position in confoff rmity with generally accepted accounting principles in the United States (“GAAP”). Actut al results could diffff eff r frff om those estimates under diffff eff rent assumptions and conditions. We believe the foff llowing discussion addresses our most critical accounting policies that have had or are reasonably likely to have a material impact on our fiff nancial condition or results of operations. These policies require management to exercise judgment on issues that are oftff en diffff iff cult, subjb ective and complex due to tht e necessity of estimating the effff eff ct of matters that are inherently uncertain. Revenue Recognition Determining revenue recognition requqq ires management to exercise judgment on the interpr retation of service contracts which may include one or multiple perfoff rmanaa ce obligations. The judgement management must make include determining whether the control of the goods and services provided are trana sfeff rred to our customers at a point in time or over the course of the service period utilizing a proportionate perfoff rmance approach. In fiff xed-feff e billing arrana gements, which would also include contracts with capped feff es, we set the feff es based on our estimates of the costs and timing foff r completing the engagements. We generally recognize revenue under fiff xed-feff e or capped feff e arrrr anaa gements using a proportionate perfoff rmrr ance approach, which is based on workrr compm leted to-date as compared to estimates of the total services to be provided under the engagement. Estimates of total engagement revenue anaa d cost of services are monitored regularly during the term of the engagement based on the best available infoff rmrr ation. If our estimates indicate a potential loss, such loss is recognized in the period in which the loss fiff rst becomes probable and reasonaba ly estimable. Allowances foff r Doubtft uff l Accountstt Periodically, we review accounts receivable to assess our estimates of collectability. When establishing allowances foff r doubtfuff l accounts, management must base their judgment on tht e infoff rmation available at tht at point in time, which mayaa include historical experiences, current economic trends and client credit wortht iness, to determine the likelihood of collectability. SeSS ge ment Repe orting Segments are defiff ned as components of a compana y that engage in business activities frff om which tht ey mayaa earn revenues ana d incur expenses, and foff r which separate fiff nancial infoff rmation is available and is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing perfoff rmana ce. Effff eff ctive in the thtt ird quarter of 2022, the Compana y re-assessed its operating segments under the management approach in accordance with ASC 280, Segment Reporting (ASC 280) and has determined that effff eff ctive in the third quqq arter of 2022, it has three operating segments: Global Strategy & 22 Business Transfoff rmation ("Global S&BT"), Oracle Solutions and SAP Solutions. Global S&BT includes S&BT Consulting, Benchmarking, Executive Advdd isory Services, IPaaS and OneStream. Oracle Solutions and SAP Solutions support the two fuff ndamentally distinct ERP systems: Oracle and SAP. See Note 15 “Segment Infoff rmation and Geographic Data” foff r detailed segment infoff rmation. Goodwdd ill and Othtt er InII tatt ngiblell Assetstt For acquisitions accounted foff r as a business combinataa ion, goodwill represents the excess of the cost over tht e faff ir value of the net assets acquired. Effff eff ctive in the third quqq arter of fiff scal year 2022, the Companynn reorganized its operating ana d internrr al reporting strur ctut re to better align with its primary mara ket solutions. Due to the reorgana ization and in accordance with ASC 280, management made the determrr ination to present three operating segments, three reportaba le segments and three reporting units as foff llows: (1) Global S&BT, (2) Oracle Solutions, ana d (3) SAP Solutions. Global S&BT includes the results of the Company’s strategic business consulting groupuu s; Oracle Solutions includes the results of the Compana y’s Oracle EPM/ERP and AMS groups; SAP Solutions includes the Company’s SAP applications and related SAP service offff eff rings. A reporting unit is an operating segment or one level below an operating segment to which goodwill is assigned. With the new reporting unit strur ctut re, tht e goodwill previously assigned to Hackett Technology Solutions and The Hackett Group has now been allocated based on the reporting unit's relative faff ir value. The carrying amount of goodwill by the new reporting units are as foff llows (in thousands): December 31, 2021 Additions/ Adjd ustments $ $ 58,378 16,699 9,993 85,070 $ $ Foreign Currency Translation December 30, 2022 - — — - $ $ (1,568) — — (1,568) $ $ 56,810 16,699 9,993 83,502 Global S&BT Oracle Solutions SAP Solutions Goodwill InII come TaTT xaa es Management’s judgement is required in the calculation of the income tax provision. Defeff rred tax assets and liaba ilities are measured by using enacted tax rates expected to apaa ply to taxable income in the yeara s in which those diffff eff rences are expected to reverse. A valuation allowance is provided if management believes it is more likely than not that all or some portion of the defeff rrrr ed tax asset will not be realized. An increase or decrease in the valuation allowance may result frff om a change in circumstances, ana d therefoff re a change in manaa agement’s judgment about the realizability of the related defeff rrrr ed tax asset. Management adopted a more-likely-than-not threshold foff r fiff nancial statement recognition and measurement of a tax position taken or expected to be taken in a tax return in regards to the de-recognition of income tax assets and liaba ilities, classififf cataa ion of current ana d defeff rred income tax assets and liabilities, accounting foff r interest and penalties associated with tax positions, accounting foff r income taxes in interim periods and income tax disclosures. Please refeff r to Note 1 “Basis of Presentation and General Infoff rmation” to our consolidated fiff nancial statements included in our Annual Report on Form 10-K foff r the discussion of all of our critical accounting policies. Results of Operations Our fiff scal year generally consists of a 52-week period and periodically consists of a 53-week period as each fiff scal year ends on the Friday closest to December 31. Fiscal years 2022 ana d 2021 ended on December 30, 2022 and December 31, 2021, respectively. Refeff rences to a year included in this document refeff r to a fiff scal year rather than a calendar year. 23 The foff llowing table sets foff rth, foff r the periods indicated, our results of operations (in thousands): Revenue: evenue befoff re reimbm ursements Reimbursements Total revenun e Costs and expenses: Cost of service: Personnel costs befoff re reimbursable expenses (includes $6,201 and $6,766 of stock compensation expense in 2022 and 2021, respectively) Reimbursable expenses Total cost of service Selling, general and administrative costs (includes $4,066 ana d $3,356 of stock compensation expense in 2022 ana d 2021, respectively) Restrur ctut ring and asset impairmrr ent settlement Total costs and operating expenses Operating income Other expense, net: Interest expense, net Income frff om continuing operations befoff re income taxes Income tax expense Income frff om continuing operations Loss frff om discontinued operations (net of taxes) Net income Comparison of 2022 to 2021 Year Ended December 30, 2022 December 31, 2021 $ $ 289,688 4,054 293,742 277,583 1,226 278,809 174,112 4,054 178,166 60,979 (651) 238,494 55,248 (144) 55,104 14,302 40,802 — 40,802 $ 171,920 1,226 173,146 59,187 — 232,333 46,476 (95) 46,381 4,829 41,552 (7) 41,545 $ Overview. For fiff scal year 2022, total revenue increased 5% to $293.7 million, as comparaa ed to fiff scal year 2021, primarily driven by increased total revenue frff om our Global S&BT segment of 16%, or $23.4 million, as compared to 2021. Diluted earnings per share increased to $1.28 in 2022 frff om $1.26 in 2021. Fiscal year 2021 results included a $5.3 million softff ware sale transaction which was recorded in the second quqq arter of 2021 ana d a tax benefiff t of $7.7 million foff r thtt e exercise of 2.9 million SARs which was recorded in the foff urth quqq arter of 2021. Together, these items positively impacted net income foff r 2021 by $13.0 million and dilutive earnings per share by $0.33. Revenue. We are a global compm any with operations primarily in the United States and Western Europe. Our revenue is denominated in multiple currencies, primarily the U.S. Dollar, British Pound and Euro, and as a result is affff eff cted by currency exchange rate flff uctut ations. The impact of the currency flff uctutt ation did not have a signififf cana t impact on comparaa isons betwtt een 2022 and 2021. Revenue is analyzed based on geographic location of engagement team personnel. Our total revenue frff om continuing operations increased 5%, to $293.7 million in 2022, as compared to $278.8 million in 2021. The 2021 revenue included a $5.3 million softff ware sale transaction which was recorded in the second quarter of 2021 as mentioned above. In 2022 one customer accounted foff r 7% of our total revenun e and in 2021 no customer accounted foff r more than 5% of our total revenue. SeSS ge mgg ent revenue. Effff eff ctive in the third quqq arter of 2022, the Company reorganaa ized its operating and internal reporting strur ctutt re to better align with its primara y market solutions. Due to the reorganization, management made the determination to present three reportable segments: Global S&BT, Oracle Solutions and SAP Solutions. Global S&BT includes S&BT Consulting, Benchmarking, Advisory Services, Intellectut al Property as-a-Service (IPASS) and OneStream. Oracle Solutions and SAP Solutions support the two fuff ndamentally distinct ERP systems: Oracle and SAP. 24 The foff llowing table sets foff rth total revenue by reportaba le operating segment, which includes reimbursable expenses related to projo ect travel-related expenses passed through to a client with no associated operating margin (in thousands): Global S&BT Oracle Solutions SAP Solutions Total revenue Year Ended December 30, 2022 December 31, 2021 $ $ 169,660 76,320 47,762 293,742 $ $ 146,224 74,886 57,699 278,809 Global S&BT total revenue increased 16% in 2022, to $169.7 million, as compm ared to $146.2 million in 2021 reflff ecting tht e continued sequential growth since the second quaraa ter of 2020 and continuing demand foff r digital transfoff rmation investments. Global S&BT represented 58% of the Company's total revenue. In addition to solid perfoff rmance frff om our transfoff rmation consulting groups, our IP-based higher-margin Executive Advisoryrr , IPaaS and Market Intelligence offff eff rings grew more tht an 20%. Our ana nualized contract value frff om the segment recurring revenues also grew over 20%. The success and market opportutt nity foff r our IP offff eff rings highlight the reasons why we have accelerated our sales and produdd ct development investments in this area. Oracle Solutions total revenue increased to $76.3 million in 2022, as compared to $74.9 million in 2021. Our Oracle Solutions segment revenues were slightly up foff r the year as the group strur ggled to maintain its early year momentutt m. Although client activity remains strong this was the segment where we experienced tht e most volatility in client decision in the second half of the year. SAP Solutions total revenue decreased to $47.8 million in 2022, frff om $57.7 million in 2021. Total SAP Solutions revenun e in 2021 included a $5.3 million softff ware sale transaction which was recorded in the second quqq arter of 2021. The decrease in revenue in 2022 as compared to 2021, excluding the softff ware sale transaction, was primarily the result of strong 2021 results which benefiff tted frff om several large global engagements with larger thana normal subcontractor levels, partially offff sff et by strong softff ware transaction activity in the third and foff urth quarters of 2022. Reimbursements as a percentage of total revenue were 1.4% in 2022 ana d 0.4% in 2021. Reimbursements are projo ect travel- related expenses passed through to a client with no associated operating margin. We have experienced increased client-related travel since the transition to a remote delivery model, however we do not expect reimbursements to returnrr to pre-panaa demic levels. CoCC st ofo SeSS rvice. Cost of service consists of personnel costs befoff re reimbm ursable expenses, which includes salaries, benefiff ts and incentive compm ensation foff r consultants and subcontractor feff es, acquisition-related cash and stock compm ensation costs, non-cash stock compensation expense, ana d reimbursable expenses which are travel and other expenses passed through to a client and ara e associated with projo ects. Personnel costs befoff re reimbursable expenses, increased slightly to $174.1 million in 2022, as compared to $171.9 million in 2021. The higher costs in 2022 were primara ily a result of hiring activities to support business growth. Personnel costs as a percentage of total revenue decreased to 59% in 2022 frff om 62% in 2021. Non-cash stock-based compm ensation expense, included in personnel costs befoff re reimbm ursable expenses, was $6.2 million in 2022, as compared to $6.4 million in 2021. Acquisition related non-cash stock-based compm ensation expense, included in personnel costs befoff re reimbursaba le expenses, was $15 thousand in 2022, as compm ared to $406 thousand in 2021. This cost was related to equqq ity issued in relation to acquisitions which has vested over thtt e years resulting in lower compensation expense. SeSS lling,gg General and Admdd inisii trt ative CoCC ststt (“SG&A”)” . SG&A primarily consists of salaries, benefiff ts and incentive compensation foff r the selling, marketing, administrative and executive empm loyees, non-cash compensation expense, amortization of intangible assets, acquisition related costs and various other overhr ead expenses. SG&A costs increased 3%, to $61.0 million in 2022, as compared to $59.2 million in 2021. This increase in tht e costs was primarily dudd e to increased non-client billaba le expenses and increased investments in sales and markrr eting and infoff rmation technology. SG&A costs as a percentage of total revenue were 21% during botht 2022 ana d 2021. Non-cash stock-based compensation expense, included in SG&A, was $4.1 million in 2022, as compared to $3.4 million in 2021. The increase in the compensation expense in 2022 is due to higher incentive compm ensation expense commensurate with Company perfoff rmrr ance. 25 Amortization expense, included in SG&A, was $0.2 million in 2022, as compm ared to $1.0 million in 2021. The amortization expense related to the amortization of the intangible asset acquired in our acquisitions and the buyout of our partntt er’s joint ventut re interest in the CGBS Training and Certififf cation Programs in 2017. The intana gible assets related to the acquqq isitions have been fuff lly amortized as of tht e second quarter of 2022. SeSS ge ment Profo iff t. Segment profiff t consists of the revenue generated by the segment, less the direct costs of revenue and selling, general and administrative expenses that are incurrrr ed directly by the segment. Items not allocated to the segment level include corpr orate costs related to administrative fuff nctions that are perfoff rmed in a centralized manner that are not attributable to a particular segment. These administrative fuff nction costs include corpr orate general and administrative expenses, non-cash compm ensation, depreciation ana d amortization expense, interest expense and the restrur ctutt ring charges and reversals. Global S&BT segment profiff t increased to $61.3 million in 2022, as compm ared to $49.3 million in 2021. This increase was primarily a result of increased revenue frff om our higher margin executive advisory, IPaaS and markrr et intelligence offff eff rings, which grew more tht an 20%, as discussed above. Oracle Solutions segment profiff t decreased slightly to $15.3 million in 2022, as compared to $15.7 million in 2021. On the operating side, we continued to expana d the segment offff sff hore leverage throughout the year and also added senior sales and practice leaders in the latter part of the year to strengtht en our team. SAP Solutions segment profiff t decreased to $12.8 million in 2022, as compm ared to $18.8 million in 2021. SAP Solutions segmg ent profiff t in 2021 included a $5.3 million softff ware sales transaction. Although total revenue was down, the segment reported solid segment profiff ts foff r the year aided by increasing softff ware activity. InII come TaTT xaa es. During 2022, we recorded $14.3 million of income tax expense related to certain feff deral, state and foff reign taxes which reflff ected ana effff eff ctive tax rate of 26%. During 2021, we recorded $4.8 million of income tax expense related to certrr ain feff deral, state and foff reign taxes which reflff ected an effff eff ctive tax rate of 10%. The lower tax rate in 2021 was primara ily due to a $7.7 million tax benefiff t resulting frff om tht e exercise of 2.9 million SARs. Liquidity and Capital Resources As of December 30, 2022 and December 31, 2021, we had $30.3 million and $45.8 million, respectively, of cash, and as of December 30, 2022 we had $59.7 million outstanding debt under our credit faff cility, net of defeff rred debt costs, and no balance outstanding in the prior yeara . We currently believe tht at available fuff nds, including the cash on hana d and fuff nds available foff r borrowing under our credit faff cility, ana d cash flff ows generated by operations will be enough to fuff nd our cash requirements, including working capital, debt payaa ments, lease obligations and capaa ital expenditut res foff r at least the next twelve months and beyond. We may decide to raise additional fuff nds in order to fuff nd expana sion, to develop new or fuff rther enhance products and services, to respond to competitive pressures, or to acquire complementary businesses or technologies. There is no assurance tht at additional fiff nancing would be available when needed or desired. The foff llowing table summarizes our cash flff ow activity (in thousands): Cash flff ows provided by operating activities Cash flff ows used in investing activities Cash flff ows used in fiff nancing activities CaCC sh FlFF owsww frff om OpO erating Activities Year Ended December 30, 2022 December 31, 2021 $ $ $ 58,904 $ (4,656) $ (69,736) $ 46,353 (3,242) (46,739) Net cash provided by operating activities was $58.9 million in 2022, as compm ared to $46.4 million in 2021. In 2022, the net cash provided by operating activities was primarily due to net income adjd usted foff r non-cash items, a decrease in the income tax receivaba le and an increase in income tax liabilities, partially offff sff et by thtt e decrease in accrurr ed liabilities and other accrurr als primara ily due to payments to vendors and the 2021 incentive compm ensation payments. In 2021, the net cash provided by operating activities was primarily dudd e to net income adjd usted foff r non-cash items, and an increase in contract liaba ilities and incentive compm ensation, paraa tially offff sff et by increased accounts receivable and contract assets. CaCC sh FlFF owsww frff om InII vesting Activities Net cash used in investing activities was $4.7 million in 2022, as comparaa ed to $3.2 million in 2021. During both periods, cash flff ows used in investing activities primarily related to investments foff r the development of our Hackett Connect Executive Advisory 26 Member Platfoff rm, Market Intelligence Programs, IPaaS and continued development of our Quantum Leapaa benchmarkrr and Digital Transfoff rmation technologies. The investing activities in 2022 also included purchases of computer equipment. CaCC sh FlFF owsww frff om FiFF nancing Activities Net cash used in fiff nancing activities was $69.7 million in 2022, as compm ared to $46.7 million in 2021. The usage of cash in 2022 was primarily related to the repurchase of Compm any common stock under our share repurchase program of $116.6 million, inclusive of the trana saction related costs, employee net vesting related tax withholding requqq irements of $3.2 million, and dividend payments of $10.4 million, para tially offff sff et by tht e $60.0 million drawdown of our credit faff cility. The usage of cash in 2021 was primarily related to the repurchase of Company common stock under our share repurchase program of $13.0 million, empm loyee net vesting related tax withholding requirements of $21.6 million, including the exercise of 2.9 million SARs, and dividend payments of $12.9 million. Material Cash Requirements Debt Paya mentstt and Lease Obligi ations On November 7, 2022, we amended ana d restated our credit agreement in order to extend the maturity date of our Credit Facility and provide tht e Company with an additional $55 million in borrowing capa acity, foff r an aggregate amount of upuu to $100 million. See Note 8, “Credit Facility,” to our consolidated fiff nancial statements included in this Annual Report on Formrr As of December 30, 2022, we had $59.7 million of outstanding borrowings, net of defeff rrrr ed debt costs, under our revolving line of credit, leaving us with borrrr owing capacity of approximately $40.0 million. See Note 8 foff r more infoff rmation. 10-K foff r more infoff rmation. There were no material capa ital commitments as of December 30, 2022. The foff llowing taba le summarizes our fuff ture principal payments under our fuff ture Credit Facility and lease commitmtt ents under our non-cancelable operating leases as of December 30, 2022 (in thousands): Contractual Obligations Operating lease obligations ong-termrr debt obligations (1) Total Total 1,600 — 1,600 $ $ $ $ Less Than 1 Year More Than 1 Year 4-5 Years More Than 5 Years 1,037 — 1,037 $ $ 563 — 563 $ $ — $ 60,000 60,000 $ — — — (1) Excludes interest charges on borrowings, the feff e on the amount of any unun sed commitment that we may be obligated to payaa under our revolving credit faff cility as such amounts vary ana d the defeff rred debt costs. See Note 8, in the notes to consolidated fiff nancial statements foff r additional infoff rmrr ation. CaCC pa ital ExEE px enditures There were no material commitments foff r capital expenditures as of December 30, 2022. Our capital expenditures primarily consist of investments related to the continued development of our Quantut m Leap benchmark technologies and laptop purchases. During the years ended December 30, 2022, and Decembm er 31, 2021, our capital expenditutt res were $4.7 million ana d $3.2 million, respectively. We expect capital expenditut res foff r tht e year ended December 29, 2023, to approximate the capital expenditutt res in 2022. TaTT xaa es Cash paid foff r income taxes was $4.6 million ana d $9.1 million foff r the years ended Decembm er 30, 2022, ana d Decembm er 31, 2021, respectively. As a result of a tax dedudd ction related to the exercise of 2.9 million SARs in 2021, we recorded an income tax receivable 27 as of December 31, 2021, of $3.4 million, as compared to ana income tax liability as of December 30, 2022 of $5.8 million. See Note 9, “Income Taxes” to our consolidated fiff nancial statements included in this Annual Report on Form 10-K foff r fuff rtht er infoff rmation. Dividedd ndsdd and ShSS are Repe urchases During the fiff scal year 2022, our Board of Directors approved foff ur quara terly dividends payments of $0.11 per share totaling $13.4 million. Subu sequent to our compm letion of the tender offff eff r transaction, we expect dividend payments in 2023 to be apaa proximately $12.0 million. We have an ongoing authorization frff om our Board of Directors to repurchase shares of our common stock. During 2022, we repurchased 4.9 million shares of common stock at an average price per share of $23.69, foff r a total cost of $116.6 million, including the shares repurchased under tht e tender offff eff r transaction ana d transaction feff es. As of Decembm er 30, 2022, we had $14.7 million share repurchase authorization remaining. Subsequqq ent to fiff scal yeara end, we repurchased 37 thousand shares of the Compm any’s common stock frff om members of our Board of Directors foff r a total of $0.7 million, or $18.96 per share. Including tht ese repurchases, we had approximately $14.0 million available foff r fuff ture repurchases under the plan as of March 3, 2023. Shares purchased under the repurchase planaa do not include shares withheld to satisfyff withholding tax obligations. These withheld shares are never issued and in lieu of issuing the shares, taxes were paid on our employee’s behalf.ff In 2022, 0.2 million shares were withheld and not issued foff r a cost of $3.2 million, bringing tht e total cumulative cash used to repurchase stock in 2022 to $119.8 million, including the tender offff eff r trana saction and related transaction feff es. In 2021, 1.1 million shara es were withheld and not issued foff r a cost of $21.6 million, bringing the total cumulative cash used to repurchase stock in 2021 to $34.6 million, which included the net settlement of the 2.9 million SARs foff r a cost of $19.7 million. Recently Issued Accounting Standards For discussion of recently issued accounting standards, see Note 1 to our consolidated fiff nancial statements included in tht is Annual Report on Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of December 30, 2022, our exposure to markrr et risk related primarily to chana ges in interest rates and foff reign currrr ency exchange rate risks. Interest Rate Risk Our exposure to mara ket risk foff r changes in interest rates relates primarily to the credit faff cility, which is subjb ect to variaba le interest rates. The interest rates per annum apa plicaba le to loans under the credit faff cility will be, at our option, equqq al to eithtt er a base rate or a Bloomberg short-term bana k yield index rate ("BSBY rate") foff r one-, two-, three- or nine-montht each case, plus an apaa plicable margin percentage. A 100-basis point increase in our interest rate under our credit faff cility would not have had a material impact on our 2022 results of operations. interest periods chosen by us in Exchange Rate Sensitivity We faff ce exposure to adverse movements in foff reign currrr ency exchana ge rates, as a portion of our revenue, expenses, assets and liabilities are denominated in currencies other than tht e U.S. Dollar, primarily tht e British Pound, the Euro, tht e Canadian Dollar and the Australian Dollar. We recognized income related to foff reign currency exchanaa ge of $1.4 million, $130 thousand, and $49 thousand in 2022, 2021 and 2020, respectively. These exposures may change over time as business practices evolve. Currently, we do not hold ana y derivative contracts that hedge our foff reign currrr ency risk, but we may adopt such strategies in the fuff tutt re. For a discussion of the risks we faff ce as a result of foff reign currency flff uctuations, see “Item 1A. Risk Factors” in Part I of thit s report. 28 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA THE HACKETT GROUP, INC. INDEX TO FINANCIAL STATEMENTS AND SCHEDULE Report of Independent Registered Public Accounting Firm (PCAOB ID:49) Consolidated Balance Sheets as of December 30, 2022 and December 31, 2021 Consolidated Statements of Operations for the Years Ended December 30, 2022, December 31, 2021, and January 1, 2021 Consolidated Statements of Comprehensive Income for the Years Ended December 30, 2022, December 31, 2021, and January 1, 2021 Consolidated Statements of Shareholders’ Equity for the Years Ended December 30, 2022, December 31, 2021, and January 1, 2021 Consolidated Statements of Cash Flows for the Years Ended December 30, 2022, December 31, 2021, and January 1, 2021 Notes to Consolidated Financial Statements Schedule II – Valuation and Qualifying Accounts and Reserves Page 30 32 33 34 35 36 37 58 29 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 accompana ying consolidated balance sheets of The Hackett Group, Inc. and its subsidiaries (the Company) as of December 30, 2022 anaa d December 31, 2021, the related consolidated statements of operations, comprehensive income, shareholders' equity and cash flff ows foff r each of the three years in the period ended December 30, 2022, ana d the related notes to the consolidated fiff nancial statements and schedudd le (collectively, the fiff nancial statements). In our opinion, the fiff nancial statements present faff irly, in all material respects, the fiff nancial position of tht e Company as of December 30, 2022 and December 31, 2021, and tht e results of its operations and its cash flff ows foff r each of the tht ree yeara s in the period ended December 30, 2022, in confoff rmrr ity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standara ds of tht e Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over fiff nana cial reporting as of December 30, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organa izations of the Treadway Commission in 2013, and our report dated March 3, 2023 expressed an unqualififf ed opinion on the effff eff ctiveness of the Company's internal control over fiff nancial reporting. Basis foff r Opinion These fiff nancial statements are the responsibility of the Compm any’s management. Our responsibility is to express an opinion on tht e Company’s fiff nana cial statements based on our audits. We are a public accounting fiff rm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. feff deral securities laws and the apa plicable rurr les and regulations of the Securities and Exchana ge Commission and the PCAOB. We conducted our auaa dits in accordance with tht e standards of the PCAOB. Those standards require that we plan and perfoff rm the audits to obtain reasonable assurance about whetht er the fiff nancial statements are frff ee of material misstatement, whether due to error or frff auaa d. Our audits included perfoff rming procedures to assess the risks of material misstatement of tht e fiff nancial statements, whether due to error or frff auaa d, ana d perfoff rming procedudd res that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the fiff nana cial statements. Our audits also included evaluating the accounting principles used and signififf cant estimates made by mana agement, as well as evaluating the overall presentation of tht e fiff nana cial statements. We believe that our auaa dits provide a reasonable basis foff r our opinion. Critical Audit Matter The critical audit matter communicated below is a matter araa ising frff om tht e currrr ent period audit of the consolidated fiff nancial statements that was communicated or requqq ired to be communicated to tht e audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated fiff nancial statements and (2) involved our especially challenging, subjb ective or complex judgments. The communication of tht e critical audit matter does not alter in ana y way our opinion on the consolidated fiff nancial statements, taken as a whole, and we ara e not, by communicating the critical audit matter below, providing a separate opinion on thtt e critical audit matttt er or on the accounts or disclosures to which it relates. Revenue Recognition foff r Fixed-Fee Billing Arrangements As described in Note 1 to the consolidated fiff nana cial statements, the Company generates subu stantially all of its revenue frff om providing profeff ssional services to its clients. In fiff xed-feff e billing arrana gements, the Company agrees to a pre-established feff e or feff e cap in exchange foff r a predetermined set of profeff ssional services. The Company sets the feff es based on its estimates of the costs and timing foff r completing the engagements. The Company generally recognizes revenue under these arranaa gements using anaa input method approach, which is a subjb ective process based on work completed to-date as compared to estimates of the total services to be provided under the engagement. Estimates of total engagement revenun e and cost of services are monitored regularly during tht e term of the engagement. We identififf ed the measurement of progress foff r the purpr ose of revenue recognition under fiff xed-feff e billing arrana gements as a critical audit matter. Auditing management’s assumptions to estimate total engagement revenue ana d cost of services foff r the contract perfoff rmrr ance obligations used to recognize revenue foff r fiff xed-feff e billing arrrr angements, involved a high degree of subjb ectivity and increased audit effff off rt. 30 Our audit procedudd res related to the Company’s revenue recognition foff r fiff xed-feff e billing arrrr angements included the foff llowing, among others: (cid:120) (cid:120) (cid:120) We obtained an understanding of the relevant controls related to fiff xed-feff e billing arrana gements and tested such controls foff r design and operating effff eff ctiveness, including controls over management’s estimation of the amount of revenue to recognize foff r customer contracts where revenue is recognized over time as work progresses. We evaluated management’s aba ility to estimate progress towards completion by perfoff rming a historical review of completed contracts to determine the accuracy and precision of the Compm any’s estimation process. During tht is analysis we evaluated compm leted contracts in order to determine if previous estimates to complete were consistent with actual hours incurred to compm lete the contract. We tested a sample of fiff xed-feff e billing arrana gements as foff llows: (cid:82) (cid:82) (cid:82) (cid:82) (cid:82) Evaluated whether the contracts were properly included in management’s calculation of estimated contract revenue based on the terms and conditions of each contract, including whether continuous transfeff r of contrtt ol to the customer occurred as progress was made toward compm letion of the perfoff rmana ce obligations. Compared the trana saction prices to the consideration expected to be received based on current rights and obligations under tht e contrtt acts and any modififf cations or change orders that were agreed upon with the customers. Assessed the terms in the customer agreement and evaluated the appropriateness of management’s identififf cation of perfoff rmrr ance obligations based on the underlying goods and services included in the contract. Tested the completeness and accuracy of management’s calculation of progress toward completion to date foff r the perfoff rmrr ance obligations by comparing actutt al costs incurred to date to source documents ana d recalculating revenue recognized based on actual costs incurred to date as a percentage of total estimated costs. Evaluated management’s estimates of costs to complete the perfoff rmance obligations by comparing the inpn uts to source documents. /s/ RSM US LLP We have served as the Compana y's auditor since 2015. Miami, Florida March 3, 2023 31 THE HACKETT GROUP, INC. CONSOLIDATED BALANCE SHEETS (i(( n thtt ousandsdd , exee cepe t share dadd ta)a ASSETS urrent assets: Cash Accounts receivable ana d contract assets, net of allowance of $856 ana d $2,702 at December 30, 2022 and December 31, 2021, respectively Prepaid expenses and other current assets Total current assets Property and equqq ipment, net Other assets Goodwill Operating lease right-of-ff use assets Total assets LIABILITIES AND SHAREHOLDERS' EQUITY Current liaba ilities: Accounts payable Accrurr ed expenses and otht er liabilities Contract liaba ilities Income tax payaba le Operating lease liaba ilities Total current liaba ilities Long-termrr Long-termrr Operating lease liaba ilities defeff rred tax liability, net debt, net Total liaba ilities Commitments and contingencies hareholders' equity: Prefeff rred stock, $.001 par value, 1,250,000 shara es authorized, none issued and outstanding Common stock, $.001 para value, 125,000,000 shares authtt orized; 60,147,720 and 59,631,003 shares issued at December 30, 2022 ana d Decembm er 31, 2021, respectively Additional paid-in capa ital Treasury stock, at cost, 33,277,459 ana d 28,357,145 shares at December 30, 2022 ana d December 31, 2021, respectively Retained earnings Accumulated other compm rehensive loss Total shareholders' equity Total liaba ilities and shareholders' equity December 30, 2022 December 31, 2021 $ 30,255 $ 45,794 $ $ 48,376 2,535 81,166 19,359 268 83,502 698 184,993 8,741 30,953 13,278 5,759 870 59,601 6,877 59,653 584 126,715 50,616 5,766 102,176 18,026 620 85,070 1,649 207,541 7,677 30,297 14,616 — 2,299 54,889 7,325 — 1,474 63,688 — — 60 308,325 (273,866) 38,640 (14,881) 58,278 184,993 $ 60 300,288 (157,294) 11,272 (10,473) 143,853 207,541 $ $ $ The accompana ying notes are ana integral para t of tht e consolidated fiff nancial statements. 32 THE HACKETT GROUP, INC. CONSOLIDATED STATEMENTS OF OPERARR TIONS (i(( n thtt ousandsdd , exee cepe t per share dadd ta)a Revenue: Revenue befoff re reimbm ursements Reimbursements Total revenue Costs and expenses: ost of service: ersonnel costs befoff re reimbursable expenses (includes $6,201, $6,766 ana d $7,319 of stock compensation expense in 2022, 2021 and 2020, respectively) Reimbursable expenses Total cost of service Selling, general and administrative costs (includes $4,066, $3,356 ana d $2,421 of stock compm ensation expense in 2022, 2021 and 2020, respectively) Restrurr cturing and asset impairmrr ent (settlement) charge Total costs and operating expenses Operating income Other expense, net: nterest expense, net Income frff om continuing operations befoff re income taxes Income tax expense Income frff om continuing operations Loss frff om discontinued operations (net of taxes) Net income Basic net income per common share: Income per common share frff om continuing operations Loss per common share frff om discontinued operations Basic net income per common share Diluted net income per common share: ncome per common share frff om continuing operations Loss per common share frff om discontinued operations Diluted net income per common share Weighted average common shares outstanding Weighted average common and common equqq ivalent shares outstanding December 30, 2022 Year Ended December 31, 2021 January 1, 2021 $ $ 289,688 4,054 293,742 $ 277,583 1,226 278,809 234,810 4,672 239,482 174,112 4,054 178,166 60,979 (651) 238,494 55,248 (144) 55,104 14,302 40,802 — 40,802 1.30 0.00 1.30 1.28 0.00 1.28 31,400 31,962 $ $ $ $ $ 171,920 1,226 173,146 59,187 — 232,333 46,476 (95) 46,381 4,829 41,552 (7) 41,545 1.38 0.00 1.38 1.26 (0.00) 1.26 30,021 32,883 $ $ $ $ $ 161,696 4,672 166,368 53,984 10,488 230,840 8,642 (126) 8,516 2,871 5,645 (172) 5,473 0.19 (0.01) 0.18 0.17 (0.00) 0.17 29,988 32,405 $ $ $ $ $ The accompanaa ying notes are anaa integral paraa t of thtt e consolidated fiff nancial statements. 33 THE HACKETT GROUP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (i(( n thtt ousandsdd )s Net income Foreign currrr ency translation adjd ustment, net of income taxes Total comprehensive income December 30, 2022 Year Ended December 31, 2021 January 1, 2021 $ $ 40,802 (4,408) 36,394 $ $ 41,545 (905) 40,640 $ $ 5,473 982 6,455 The accompanaa ying notes are anaa integral paraa t of thtt e consolidated fiff nancial statements. 34 THE HACKETT GROUP, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (i(( n thtt ousandsdd )s Balance at Decembm er 27, 2019 Issuance of common stock, net Treasuryrr stock purchased Amortrr ization of restricted stock unu its and common stock subu jb ect to vesting requirements Dividends declared Net income Foreign currrr ency translation Balance at Jana un aryrr 1, 2021 Issuance of common stock, net Treasuryrr stock purchased Amortrr ization of restricted stock unu its and common stock subu jb ect to vesting requirements Dividends declared Net income Foreign currrr ency translation Balance at Decembm er 31, 2021 Issuance of common stock, net Treasuryrr stock purchased Amortrr ization of restricted stock unu its and common stock subu jb ect to vesting requirements Dividends declared Net income Foreign currrr ency translation Balance at Decembm er 30, 2022 Common Stock Shares 57,181 415 — Amount 58 $ — — — — — — 57,596 2,035 — — — — — 59,631 517 — — — — — 60,148 $ $ $ — — — — 58 2 — — — — — 60 — — — — — — 60 Additional Paid in Capital $ $ $ $ 303,707 (1,451) — 9,783 — — — 312,039 (20,812) — 9,061 — — — 300,288 (2,347) — 10,384 — — — 308,325 Treasury Stock Amount Shares (27,425) $ — (184) Retained Earnings (Defiff cit) Accumulated Other Comprehensive Loss Total Shareholders' Equity (141,887) $ — (2,367) $ (13,714) — — (10,550) $ — — 137,614 (1,451) (2,367) — — — — (27,609) $ — (749) — — — — (144,254) $ — (13,040) — — — — (28,358) $ — (4,919) — — — — (157,294) $ — (116,572) — — — — (33,277) $ — — — — (273,866) $ — (9,147) 5,473 — (17,388) — — — (12,885) 41,545 — 11,272 — — — (13,434) 40,802 — 38,640 $ $ $ — — — 982 (9,568) $ — — — — — (905) (10,473) $ — — — — — (4,408) (14,881) $ 9,783 (9,147) 5,473 982 140,887 (20,810) (13,040) 9,061 (12,885) 41,545 (905) 143,853 (2,347) (116,572) 10,384 (13,434) 40,802 (4,408) 58,278 The accompanaa ying notes are anaa integral paraa t of thtt e consolidated fiff nancial statements. 35 THE HACKETT GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (i(( n thtt ousandsdd )s Cash flff ows frff om operating activities: Net income Plus loss frff om discontinued operations, net of taxes Net income frff om continuing operations Adjd ustments to reconcile net income frff om continuing operations to net ash provided by operating activities frff om continuing operations: epreciation expense Amortization expense Impairment of assets Amortization of debt issuance costs Provision foff r doubtfuff l accounts Gain on foff reign currency trana sactions Non-cash stock compensation expense Defeff rred income tax (benefiff t) expense Changes in assets and liaba ilities: ecrease (increase) in accounts receivable and contract assets Decrease (increase) in prepaid expenses and other assets Increase (decrease) in accounts payable (Decrease) increase in accrurr ed expenses and other liabilities (Decrease) increase in contract liabilities Increase (decrease) in income taxes payable Net cash provided by operating activities frff om continuing operations Net cash used in operating activities frff om discontinued operations Net cash provided by operating activities Cash flff ows frff om investing activities: urchases of property anaa d equipment Net cash used in investing activities Cash flff ows frff om fiff nancing activities: roceeds frff om long-term debt Debt issuance costs Dividends paid Proceeds frff om issuance of common stock Taxes paid to satisfyff employee withholding tax obligations Repurchases of common stock Net cash used in fiff nancing activities Effff eff ct of exchange rate on cash Net (decrease) increase in cash Cash at beginning of yearaa Cash at end of yeara Supplemental disclosure of cash flff ow infoff rmrr ation: Cash paid foff r income taxes Cash paid foff r interest Supplemental disclosure of non-cash investing ana d fiff nancing activities: ividend declared dudd ring the year and paid the foff llowing year December 30, 2022 Year Ended December 31, 2021 January 1, 2021 $ $ 40,802 — 40,802 $ 41,545 7 41,552 5,473 172 5,645 3,283 154 — 82 91 (1,353) 10,267 (480) 2,603 4,414 1,063 (6,443) (1,338) 5,759 58,904 — 58,904 (4,656) (4,656) 60,000 (381) (10,437) 876 (3,225) (116,569) (69,736) (51) (15,539) 45,794 30,255 4,550 78 2,997 $ $ $ $ $ $ $ $ 3,361 1,016 — 45 374 (130) 10,122 1,469 (18,241) (2,153) 1,580 3,554 5,851 (2,040) 46,360 (7) 46,353 (3,242) (3,242) — (4) (12,885) 755 (21,566) (13,039) (46,739) (33) (3,661) 49,455 45,794 9,103 57 - $ $ $ $ 3,502 977 3,885 69 342 (49) 9,740 (1,438) 16,876 261 (2,397) 8,101 (818) (463) 44,233 (172) 44,061 (1,893) (1,893) — (21) (14,937) 751 (2,141) (2,367) (18,715) 48 23,501 25,954 49,455 4,651 57 - The accompanaa ying notes are anaa integral paraa t of thtt e consolidated fiff nancial statements. 36 THE HACKETT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation and General Infoff rmation NaNN ture ofo Business The Hackett Groupuu is an intellectual property-based strategic consultancy ana d leading enterprr rise benchmara king and best practices implementation fiff rmrr to global compana ies. Services include business transfoff rmation, enterprr rise perfoff rmana ce mana agement, and global business services. The Hackett Groupuu also provides dedicated expertise in business strategy, operations, fiff nana ce, human capital management, strategic sourcing, procurement, and infoff rmation technology, including its award-winning Oracle EPM and SAP practices. Basisii ofo Presentation and CoCC nsolidadd tion The accompana ying consolidated fiff nancial statements include the Company’s accounts and those of its wholly owned subsidiaries which the Compana y is required to consolidate. The Company consolidates the assets, liabilities, and results of operations of its entities. Intercompana y transactions and balances are eliminated upon consolidation. FiFF si cal YeYY ar The Company’s fiff scal year generally consists of a 52-week period ana d periodically consists of a 53-week period as each fiff scal year ends on the Fridayaa closest to December 31. Fiscal years 2022, 2021, ana d 2020 ended on December 30, 2022, December 31, 2021, and Januaryrr 1, 2021, respectively. Refeff rences to a yeara included in the consolidated fiff nancial statements refeff r to a fiff scal year rather than a calendara year. CaCC sh The Company considers depository accounts and all short-term investments with maturities of three months or less to be cash equivalents to the extent that it places its temporaryrr cash investments with high credit quqq ality fiff nancial institut tions. At times, such balances may be in excess of tht e F.D.I.C. insurance limits. Allowance foff r Doubtft uff l Accountstt The Company maintains allowances foff r doubtfuff l accounts foff r estimated losses resulting frff om its clients not making requqq ired payments. Management makes estimates of the collectaba ility of accounts receivaba le and critically reviews accounts receivable and analyzes historical bad debts, past-due accounts, client credit worthiness and currrr ent economic trends when evaluating tht e adequacy of the allowance foff r doubtfuff l accounts. If tht e fiff nana cial condition of the Company’s clients were to deteriorate, resulting in tht eir inaba ility to make payaa ments, additional allowances may be required. Dividedd ndsdd In December 2012, the Company’s Board of Directors approved the initiation of an annual cash dividend in the amount of $0.10 In 2020, 2021 and 2022, the per share. The Company’s Board of Directors has been gradudd ally increasing the dividend over the years. Company’s Board of Directors approved an increase in the ana nual dividend to $0.38 per share, $0.40 per share, and to $0.44 per share, respectively. During 2022, the Company declared foff ur quartrr erly dividend payaa ments, the foff urth of which was paid in January 2023. The dividend policy is reviewed periodically by tht e Board of Directors. The amount ana d timing of all dividend payaa ments is subjb ect to the discretion of the Board of Directors and will depend upuu on business conditions, contractutt al obligations, legal restrictions, results of operations, fiff nancial conditions and other faff ctors. Propo ertytt and Equipi ment,t NeNN t Property and equqq ipment araa e recorded at cost. Depreciation is calculated to amortize the depreciable assets over their estimated usefuff l lives using the straight-line method ana d commences when the asset is placed in servrr ice. The ranaa ge of estimated usefuff l lives is three to ten years. Leasehold improvements are amortized on a straight-line basis over the term of the lease or the estimated usefuff l lifeff of the improvement, whichever is shorter. Expenditut res foff r repairs and maintenance are charged to expense as incurred. Expenditutt res foff r betterments and maja or improvements are capaa italized. The carrying amount of assets sold or retired and related accumulated depreciation ara e removed frff om the balance sheet in the yeara of disposal and any resulting gains or losses are included in the consolidated statements of operations. 37 THE HACKETT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation and General Infoff rmation (continued) The Compana y capaa italizes the costs of internal-use softff wtt are, which generally includes hardware, softff ware, ana d payroll-related costs foff r employees who are directly associated with, and who devote time, to tht e development of internal-use computer softff ware. Long-Lived Assetstt (e(( xee cluding Goodwdd ill and InII dedd fe iff nite Lived InII tangible Assetstt )s Long-lived assets are reviewed foff r impairment whenever events or circumstances indicate that the carrying amount of an asset may not be fuff lly recoverable. If an evaluation is requqq ired, tht e estimated fuff ture undiscounted cash flff ows 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 diffff eff rence between the faff ir value of the asset and the cara ryrr ing value. Estimates of fuff tutt re undiscounted cash flff ows are based on management’s view of growth rates foff r the related business, anticipated fuff ture economic conditions and estimates of residual values. Business CoCC mbinations For transactions that are considered business combinations, tht e purchased assets and assumed liaba ilities are recorded at faff ir value at acquisition date, and identififf aba le intangible assets are recorded at faff ir value. Costs directly related to thtt e business combinations are recorded as expenses as they are incurred. Fair values are subjb ect to refiff nement during the measurement period of upuu to one year aftff er tht e closing date of an acquisition as infoff rmrr ation relative to closing date faff ir values become available. Goodwdd ill and Other InII tatt ngiblell Assetstt Goodwill and intana gible assets deemed to have indefiff nite lives are not amortized, but rather are tested foff r impairment on an annual basis, or more frff equqq ently if events or changes in circumstances indicate potential impm airment. Finite-lived intangible assets are amortized over their usefuff l lives. The excess cost of the acquqq isition over the faff ir value of tht e net assets acquired is recorded as goodwill. For acquqq isitions accounted foff r as a business combination, goodwill represents the excess of the cost over thtt e faff ir value of the net assets acquired. Effff eff ctive in the third quqq arter of fiff scal year 2022, the Company reorganized its operating ana d internrr al reporting strur ctut re to better align with its primary mara ket solutions. Due to the reorgana ization and in accordance with ASC 280, management made the determrr ination to present three operating segments, three reportable segments and three reporting units as foff llows: (1) Global S&BT, (2) Oracle Solutions, ana d (3) SAP Solutions. Global S&BT includes the results of the Company’s strategic business consulting practices; Oracle Solutions includes the results of the Compm ana y’s Oracle EPM/ERPR and AMS practices; SAP Solutions includes the Company’s SAP applications and related SAP service offff eff rings. A reporting unit is an operating segment or one level below an operating segment to which goodwill is assigned. With the new reporting unit strur ctut re, tht e goodwill previously assigned to Hackett Technology Solutions and The Hackett Group has now been allocated based on the reporting unit's relative faff ir value. The carrying amount ana d activity of goodwill by new reporting units are as foff llows (in thousands): Global S&BT Oracle Solutions SAP Solutions Goodwill December 31, 2021 Additions/ Adjd ustments $ $ 58,378 16,699 9,993 85,070 $ $ Foreign Currency Translation December 30, 2022 - — — - $ $ (1,568) — — (1,568) $ $ 56,810 16,699 9,993 83,502 Goodwill is tested at least annually foff r impairment at the reporting unit level utilizing the market approach. In assessing the recoveraba ility of goodwill and intangible assets, the Company utilizes the market approach and makes estimates based on assumptions regarding various faff ctors to determine if impairmrr ent tests are met. The maraa ket approach utilizes valuation multiples based on operating data frff om publicly traded compm anies within the same industry. Multiples derived frff om guideline compm anies provide an indication of how much a markrr et participant would be willing to payaa foff r a compm any. These multiples are then apaa plied to thtt e Company’s reporting units to arrive at an indication of value. This approach contains management’s judgment, using appropriate and customary assumptions availaba le at the time. 38 THE HACKETT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation and General Infoff rmation (continued) The Company perfoff rmed its annual impairmrr ent test of goodwdd ill in the foff urtht quara ter of fiff scal years 2022, 2021 and 2020 and determined that goodwill was not impaired. Finite lived intangible assets are tested foff r potential impairment whenever events or changes in circumstances suggestss that the carrying value of an asset may not be fuff lly recoveraba le. If ana evaluation is requqq ired, tht e estimated fuff tut re undiscounted cash flff ows associated with the asset are compared to the asset’s carrying amount to determrr ine if there has been an impairment. The amount of an impairment is calculated as the diffff eff rence between the faff ir value of the asset and tht e carryrr ing value. Estimates of fuff ture undiscounted cash flff ows are based on management’s view of growth rates foff r the related business, anticipated fuff ture economic conditions and estimates of residual values. Other intangible assets arise frff om business combinations ana d consist of customer relationships, customer backlog ana d trademarks that ara e amortized on a straight-line or accelerated basis over periods of upuu to fiff ve years. Other intangible assets, included in other assets in the accompm anaa ying consolidated balance sheets, consist of the foff llowing (in thousands): Gross carrying amount Accumulated amortization Foreign currrr ency translation adjd ustments December 30, 2022 December 31, 2021 $ $ $ 27,269 (27,269) — — $ 27,269 (27,110) — 159 All of the Company’s intangible assets have been fuff lly amortrr ized in 2022. For the yeara s ended Decembm er 30, 2022, December 31, 2021 anaa d January 1, 2021 the Company recorded $0.2 million, $1.0 million and $1.0 million of fiff nite-lived intangible assets amortization expense in each year, respectively. Revenue Recognition The Company generates substantially all of its revenue frff om providing profeff ssional services to its clients. The Company also generates revenue frff om softff ware licenses, softff ware support and maintenanaa ce and subscriptions to its executive and best practices advisory programs. A single contract could include one or multiple perfoff rmance obligations. For those contracts that have multiple perfoff rmrr ance obligations, the Company allocates the total transaction price to each perfoff rmrr ance obligation based on its relative standalone selling price. The Company determines the standalone selling price based on tht e respective selling price of tht e individudd al elements when sold separately. Revenue is recognized when control of the goods and services provided are trana sfeff rred to tht e Company’s customers, in ana amount that reflff ects the consideration it expects to be entitled to in exchange foff r tht ose goods and services using the foff llowing steps: 1) identifyff ine the trana saction price, 4) allocate the transaction price to tht e perfoff rmrr ance obligations in the contract, and 5) recognize revenue as or when the Compm any satisfiff es the perfoff rmance obligations. the perfoff rmana ce obligations, 3) determrr the contract, 2) identifyff The Company typically satisfiff es its perfoff rmance obligations foff r profeff ssional services over time as the related services are provided. The perfoff rmana ce obligations related to softff ware supuu port, maintenance ana d subu scriptions to its executive and best practice advisory programs are typically satisfiff ed evenly over the course of the service period. Other perfoff rmance obligations, such as softff ware licenses, are satisfiff ed at a point in time. The Company generates revenue under foff ur typyy es of billing arrangements: fiff xed-feff e (including softff ware license revenue); time- and-materials; executive anaa d best practice advisory services; and softff ware sales and softff ware maintenance ana d support. In fiff xed-feff e billing arrana gements, which would also include contracts with capped feff es, the Company agrees to a pre-established feff e or feff e cap in exchange foff r a predetermined set of profeff ssional services. The Compana y sets the feff es based on its estimates of the costs and timing foff r compm leting the engagements. The Company generally recognizes revenue under fiff xed-feff e or capaa ped feff e arrangements using a proportionate perfoff rmanaa ce approach, which is based on work completed to-date as compm ared to estimates of tht e total services to be provided under the engagement. Estimates of total engagement revenue and cost of services are monitored regularly during the termrr in which the loss fiff rst becomes probable ana d reasonably estimable. The customer is invoiced based on the contractut al agreement between the parties, typyy ically bi-weekly, monthly or milestone driven, with net thirty-dayaa terms, however client terms are subjb ect to change. of tht e engagement. If the Company’s estimates indicate a potential loss, such loss is recognized in the period 39 THE HACKETT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation and General Infoff rmation (continued) Time-and-material billing arrana gements requqq ire the client to pay based on the numbm er of hours worked by the Compana y’s consultants at agreed upon hourly rates. The Company recognizes revenue under time-ana d-material arrana gements as the related services or goods are provided, using the right to invoice practical expedient which allows it to recognize revenun e in the amount based on the number of hours worked and tht e agreed upon hourly rates. The customer is invoiced based on the contractut al agreement between the parties, typyy ically bi-weekly, monthly or milestone driven, with net thirty-dayaa terms, however client terms are subjb ect to change. Advisory services contracts are typically in the foff rm of a subscription agreement which allows the customer access to the Company’s executive and best practice advisoryrr programs. There is typically a single perfoff rmance obligation ana d the trana saction price is the contractut al amount of the subscription agreement. Revenue frff om advisory servrr ices contracts is recognized ratably over the lifeff of the agreements. Customers are typically invoiced at the inception of the contract, with net thirty-dayaa terms, however client terms are subjb ect to chana ge. The resale of softff ware and maintenance contracts are in the foff rmrr of SAP America softff wtt are license or maintenana ce agreements provided by SAP America. SAP is the principal and thtt e Company is the agent in these tranaa sactions as the Company does not obtain title to the softff ware and maintenance which is sold simultaneously. The transaction price is the Company’s agreed-upuu on percentage of the softff ware license or maintenance amount in tht e contract with the vendor. Revenue foff r the resale of softff ware licenses is recognized upon contract execution ana d customer’s receipt of the softff ware. Revenue frff om maintenance contracts is recognized ratably over thtt e lifeff of the agreements. The customer is typically invoiced at contract inception, with net thirty-day termrr s, however client terms are subjb ect to change. Revenue befoff re reimbm ursements excludes reimbursable expenses charged to clients. Reimbursements, which include travel and out-of-ff pocket expenses, are included in revenue, and an equivalent amount of reimbursable expenses is included in cost of service. The payment terms and conditions in the Compana y’s customer contracts varyrr . The agreements entered into in connection with a projo ect, whether time and materials-based or fiff xed-feff e or capaa ped-feff e based, typyy ically allow clients to terminate early dudd e to breach or foff r convenience with 30 days’ notice. In the event of termrr ination, the client is contractutt ally required to pay foff r all time, materials and expenses incurred by the Compm any through the effff eff ctive date of the termrr into agreements with its clients that limit its right to enter intnn o business relationships with specififf c competitors of that client foff r a specififf c time period. These provisions typically prohibit the Company frff om perfoff rming a defiff ned rana ge of services which it might otherwise be willing to perfoff rmrr only to specififf c employees or the specififf c projo ect team. foff r potential clients. These provisions are generally limited to six to twelve months and usually apply ination. In addition, frff om time to time the Company enters Diffff eff rences between the timing of billings and the recognition of revenue are recognized as either contract assets or contract liabilities in the accompanying consolidated balance sheets. Revenue recognized foff r servrr ices perfoff rmed but not yet billed to clients are recorded as contract assets. Revenue recognized, but foff r which are not yet entitled to bill because certain events, such as tht e completion of the measurement period, are recorded as contrtt act assets and included within contract assets. Client prepayments are classififf ed as contract liaba ilities and recognized over fuff ture periods as earned in accordance with the apa plicable engagement agreement. See Note 3 foff r tht e accounts receivable and contract asset balances. During the 12 montht s ended Decembm er 30, 2022, the Company recognized $13.1 million of revenue as a result of chanaa ges in the contract liability balance, as compared to $8.3 million foff r thtt e twelve months ended December 31, 2021. 40 THE HACKETT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation and General Infoff rmation (continued) Based on the infoff rmrr ation tht at management reviews internrr ally foff r evaluating operating segment perfoff rmance and natutt re, amount, timing, and uncertaintytt of revenue and cash flff ows affff eff cted by economic faff ctors, the Compm any disaggregates revenue as foff llows foff r the years ended December 30, 2022, December 31, 2021 and January 1, 2021 (in thousands): Global S&BT: North America Consulting Internrr ational Consulting Total Global S&BT Oracle Solutions: Consulting and softff ware supuu port ana d maintenance Total Oracle Solutions SAP Solutions: Consulting and softff ware supuu port ana d maintenance Softff ware license sales Total SAP Solutions Total segment revenue CaCC pa italizii ed SaSS les CoCC mmisii sions December 30, 2022 Year Ended December 31, 2021 January 1, 2021 $ $ $ $ $ $ $ 143,956 25,704 169,660 76,320 76,320 40,729 7,033 47,762 293,742 $ $ $ $ $ $ $ 122,607 23,617 146,224 74,886 74,886 47,391 10,308 57,699 278,809 $ $ $ $ $ $ $ 96,175 21,645 117,820 73,095 73,095 41,828 6,739 48,567 239,482 Sales commissions earned by thtt e Company’s sales foff rce are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are defeff rred ana d then amortized as projo ect revenue is recognized. The Compm any determined the period of amortization by taking into consideration the customer contract period, which is generally less than 12 months. Commission expense is included in Selling, General and Administrative Costs in the accompanying consolidated statements of operations. As of December 30, 2022 anaa d December 31, 2021, the Compana y had $1.5 million, and $1.6 million, respectively, of defeff rred commissions, of which $1.1 million and $1.0 million was amortized during the 12 months ended Decembm er 30, 2022 ana d December 31, 2021, respectively. Practical ExEE px edientstt The Company does not disclose the value of unsatisfiff ed perfoff rmance obligations foff r contracts with an original expected length of one year or less. The Compm any does not assess whether a contract has a signififf cana t fiff nancing component if the expectation at contract inception is such that the period between payaa ment by the customer and tht e transfeff r of the promised goods or servrr ices to the customer will be less than one year. Sales tax collected frff om customers and remitted to the apaa plicable taxing auaa thorities is accounted foff r on a net basis, with no impact on revenue. Expense reimbursements that are billaba le to clients are included in total revenue and ara e subu stantially all billed as time-and- material billing arrana gements. Therefoff re, the Compm any recognizes all reimbursaba le 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 tht e expense is incurred. Any expense reimbursements that are billable to clients under fiff xed-feff e billing arranaa gements are recognized in line with the proportionate perfoff rmance approach. Stock Based CoCC mpm ensation The Company recognizes compm ensation expense foff r awards of equity instrur ments to empm loyees based on the grana t-date faff ir value of thtt ose awards, with limited exceptions, over tht e requqq isite service period. 41 THE HACKETT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation and General Infoff rmation (continued) Restrt ucturing Reserves Restrur ctut ring reserves reflff ect judgments and estimates of the Company’s ultimate costs of severance, closure and consolidation of faff cilities and settlement of contractut al obligations under its operating leases, including sublease rental rates, aba sorprr tion period to sublease space and other related costs. The Company reassesses the reserve requirements to complete each individual plana under the restrur ctut ring programs at the end of each reporting period. If these estimates change in the fuff tutt re or actutt al results diffff eff r frff om the Company’s estimates, additional charges mayaa be required. InII come TaTT xaa es Defeff rred tax assets and liabilities are determined based on diffff eff rences between tht e fiff nancial reporting carryrr ing values and tax bases of assets and liaba ilities and are measured by using enacted tax rates expected to apa ply to taxable income in the yeara s in which those diffff eff rences are expected to reverse. Defeff rred income taxes also reflff ect the impact of certain state operating loss and tax credit carryfoff rwards. A valuation allowance is provided if tht e Company believes it is more likely than not that all or some portion of the defeff rred tax asset will not be realized. An increase or decrease in the valuation allowance, if any, that results frff om a change in circumstances, and which causes a change in the Compm any’s judgment aba out the realizaba ility of the related defeff rrrr ed tax asset, is included in the tax provision. The Company utilized a more-likely-than-not threshold foff r fiff nancial statement recognition and measurement of a tax position taken or expected to be taken in a tax retutt rn. This interpr retation also provides guidance on de-recognition of income tax assets and liaba ilities, classififf cation of currrr ent and defeff rrrr ed income tax assets and liaba ilities, accounting foff r interest and penalties associated with tax positions, accounting foff r income taxes in interim periods and income tax disclosures. The Company reports penalties and tax- related interest expense as a component of income tax expense. Disii continued OpO erations The Company made tht e strategic decision to exit Compm any’s European REL Working Capital business at the end of fiff scal year 2018. The sales of this business had been declining over several years prior to this decision as European countries experienced continued economic recoveries and improved cash balances. Companies were holding high cash reserves which drove working capital projo ect sales of this group down across all of Europe. As of December 30, 2022, and December 31, 2021, the Compm any did not have ana y carrrr ying amounu ts of the maja or classes of assets and liaba ilities presented in discontinued operations in its consolidated balance sheets. NeNN t InII come per CoCC mmon ShSS are 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 subjb ect to vesting requirements and restricted stock units issued to employees, the calculation includes only the vested portion of such stock. The potential issuance of common shares upuu on tht e exercise, conversion or vesting of unvested restricted stock units, common stock subjb ect to vesting, stock options and stock appreciation right units ("SARs"), as calculated under the treasuryrr stock method, may be dilutive. Diluted net income per share is compm uted by dividing the net income by the weighted average number of common shares outstanding ana d will increase by the assumed conversion of other potentially dilutive securities during the period. 42 THE HACKETT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation and General Infoff rmation (continued) The foff llowing table reconciles basic and diluted weighted average shares: Basic weighted average common shares outstanding Effff eff ct of dilutive securities: Unvested restricted stock units and common stock subjb ect to vesting requqq irements issued to employees Common stock issuable upon the exercise of stock options and SARs Dilutive weighted average common shares outstanding December 30, December 30, 2022 31,399,813 Year Ended Year Ended December 31, December 31, 2021 30,021,097 January 1, January 1, 2021 29,988,244 555,483 529,535 212,496 6,445 31,961,741 2,331,976 32,882,608 2,203,796 32,404,536 Approximately 2 thousand shares of common stock equivalents were excluded frff om the compm utations of diluted net income per common share foff r botht of the years ended December 30, 2022 and December 31, 2021, as inclusion would have had ana anti-dilutive effff eff ct on diluted net income per common share. FaFF ir VaVV lue ofo FiFF nancial InII strtt umentstt The Company’s fiff nancial instrurr ments consist of cash, accounts receivable and contract assets, accounts payable ana d accrurr ed expenses and otht er liabilities. As of December 30, 2022 and Decembm er 31, 2021, tht e carryrr ing amount of each fiff nancial instrur ment, with the exception of debt, apa proximated the instrur ment’s faff ir value dudd e to the short-term nature and maturity of tht ese instrur ments. The Company uses signififf cant other observable mara ket data or assumptions (Level 2 inpn uts as defiff ned in accounting guidance) that it believes market para ticipants would use in pricing debt. The faff ir value of the debt approximated the carrying amount using Level 2 inputs, dudd e to the short-term variable interest rates based on market rates utilizing the mara ket approach. CoCC ncentrtt ation ofo CrCC edit Risii k The Company provides services primarily to Global 2000 companies and other sophisticated buyers of business consulting and infoff rmation technology services. The Company perfoff rms ongoing credit evaluations of its maja or customers and maintains reserves foff r potential credit losses. In 2022 one customer accounted foff r 7% of total revenun e, all of which was included in the Global S&BT segment, and in 2021 ana d 2020 no customer accounted foff r more than 5% of total revenue. MaMM nagement’s EsEE timates The preparation of fiff nanaa cial statements in confoff rmity with U.S. GAAP requires management to make estimates and assumptions that affff eff ct the reported amounts of assets and liaba ilities and disclosure of contingent assets and liaba ilities as of the date of the fiff nana cial statements and the reported amounts of revenun e and expenses during the reporting period. Actut al results could diffff eff r frff om those estimates. Othtt er CoCC mpm rehensive InII come The Company reports its comprehensive income in accordana ce with FASB ASC Topic 220, CoCC mpm rehensive InII come, which establishes standards foff r reportrr ing and presenting comprehensive income and its components in a fuff ll set of fiff nancial statements. Other comprehensive income consists of net income ana d currrr ency tranaa slation adjd ustments. SeSS ge ment Repe orting Segments are defiff ned as components of a compana y that engage in business activities frff om which they mayaa earn revenues and incur expenses, and foff r which separate fiff nancial infoff rmation is available and is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing perfoff rmana ce. Effff eff ctive in the tht ird quarter of 2022, the Compana y re-assessed its operating segments under the management approach in accordance with ASC 280, Segment Reporting (ASC 280) and has determined that effff eff ctive in the third quqq arter of 2022, it has three operating segments: Global S&BT, Oracle Solutions and SAP Solutions which are also its reportrr able segments. See Note 15 “Segment Infoff rmation and Geographic Data” foff r detailed segment infoff rmation. 43 THE HACKETT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation and General Infoff rmation (continued) Recent Accounting Pronouncementstt The Company did not identifyff any new accounting pronouncements. Reclassifi iff cations Certain prior period amounts in the consolidated fiff nana cial statements, and notes thereto, have been reclassififf ed to confoff rmrr to current year presentation with no effff eff ct on net income or sharaa eholder’s equity. 2. Fair Value Measurement The Company’s fiff nancial instrur ments consist of cash, accounts receivable ana d contract assets, accounts payable, accrurr ed expenses debt. As of December 30, 2022 and December 31, 2021, the carryrr ing amount of and other liabilities, contract liabilities and long-termrr each fiff nancial instrur ment approximated the instrurr ment’s respective faff ir value due to the short-term natutt re and matut ritytt of these instrur ments. The Company uses signififf cant other observable market data or assumptions (Level 2 inputs as defiff ned in accounting guidance) that it believes market participana ts would use in pricing debt. The faff ir value of the debt approximated the carryrr ing amount, using Level 2 inputs, due to the short-term variable interest rates based on market rates. 3. Accounts Receivable and Contract Assets, Net Accounts receivable ana d contract assets, net, consists of the foff llowing (in thtt ousands): Accounts receivable Contract assets (unbilled revenue) Allowance foff r doubtfuff l accounts December 30, 2022 December 30, 2021 $ $ 28,913 $ 20,319 (856) 48,376 $ 30,732 22,586 (2,702) 50,616 Accounts receivable as of December 30, 2022 ana d Decembm er 31, 2021, is net of uncollected advana ced billings. Contract assets as of December 30, 2022 and December 31, 2021 includes recognized recoverable costs and accrur ed profiff ts on contracts foff r which billings had not been presented to clients. 4. Property and Equipment, net Equipment Softff ware Leasehold improvements Furniture and fiff xtures Less accumulated depreciation December 30, 2022 December 31, 2021 $ $ 10,916 $ 39,751 997 559 52,223 (32,864) 19,359 $ 9,867 36,187 997 556 47,607 (29,581) 18,026 Depreciation expense foff r the years ended Decembm er 30, 2022, December 31, 2021, and January 1, 2021 was $3.3 million, $3.4 million, and $3.5 million, respectively, and is included in selling, general and administrative costs in the accompana ying consolidated statements of operations. 44 THE HACKETT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. Accrued Expenses and Other Liabilities Accrur ed expenses and otht er liabilities consist of the foff llowing (in tht ousands): Accrur ed compm ensation ana d benefiff ts Defeff rred empm loyer's payroll taxes Accrur ed bonuses Dividend payaa able Restrur ctut ring liaba ility Accrurr ed sales, use, frff anchise and VAT tax Non-cash stock compensation accrur al Other accrur ed expenses Total accrurr ed expenses and otht er liabilities December 30, 2022 December 31, 2021 $ $ 9,320 $ — 12,171 2,997 106 2,572 1,241 2,546 30,953 $ 7,730 1,780 13,753 — 740 1,783 1,357 3,154 30,297 The dividend declara ed in November 2021 was paid in December 2021, as compared the dividend declared in November 2022, which was paid in Januara y 2023. 6. Restructuring and Asset Impairment Charge and Settlements During 2020, the Compana y recorded restrur cturing charges of $10.5 million, of which $5.7 million was primarily related to the reduction of staffff in the U.S. and Europe due to tht e impact of the COVID-19 pandemic and $4.8 million of which primarily related to real estate leases. In consideration of the COVID-19 pana demic and the changing natutt re of the Compana y’s use of offff iff ce space foff r its workfoff rce, the Company evaluated its existing offff iff ce space utilization and made the decision to completely or partially aba andon certain leased offff iff ce spaces. As a result, the Company recorded restrurr ctutt ring charges of $4.8 million, primarily relating to the impairment of certain lease right-of-ff use assets, property, equipment and leasehold improvements and other real estate related costs. See Note 7 foff r fuff rther discussion. The Company recorded tht e settlement of the restrur cturing charge in 2022 of $0.3 million ana d $0.4 million related to tht e settlement of the impairment of lease right-of use assets. The foff llowing table summarizes the costs incurred in connection with the 2020 restrur ctut ring and asset impairment charge (in thousands): Employee related costs ease right-of-ff use asset impairment charges Property, equipment and lease improvement impairmrr ent chara ges Other lease related restrur cturing costs Total January 1, 021 5,710 3,545 340 893 10,488 $ $ 45 THE HACKETT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Restructuring and Asset Impairment Charge and Settlements (continued) The foff llowing taba le summarizes the Company’s restrur cturing activities recorded in accrur ed expenses and other liaba ilities (in thousands): Employee Related Costs Exit, Closure and Consolidation of Facilities Total Accrurr al balance at Januara y 1, 2021 Restrur ctut ring charge Cash paid Accrur al balance at Decembm er 31, 2021 Restrur ctut ring settlement Cash paid Accrur al balance at Decembm er 30, 2022 . Lease Commitments $ $ $ $ 1,083 — (1,013) 70 (70) - — $ $ 1,209 — (539) 670 (238) (326) 106 $ $ $ 2,292 — (1,552) 740 (308) (326) 106 The Company has operating leases foff r offff iff ce space ana d, to a much lesser extent, operating leases foff r equipment. The Company’s offff iff ce leases are between terms of 1 ana d 4 years. Rents usually increase annually in accordance with defiff ned rent steps or are based on currrr ent year consumer price index adjd ustments. Some of the lease agreements contain one or more of the foff llowing provisions or clauses: tenant allowances, rent holidayaa s, lease premiums, ana d rent escalation clauses. There are typyy ically no purchase options, residual value guarantees or restrictive covenana ts. When renewal options exist, the Company generally does not deem them to be reasonably certain to be exercised, and therefoff re the amounts are not recognized as part of our lease liability nor our righthh -of use- asset. The weighted average remaining lease term is less than one year. The weighted average discount rate utilized is 4%. The discount rates applied to each lease, reflff ects the Company’s estimated incremental borrowing rate. This includes an assessment of the Company’s credit rating to determine the rate tht at the Company would have to payaa to borrow, on a collateralized basis foff r a similar term, an amount equal to tht e Company’s lease payments in a similar economic environment. For the twelve months ended December 30, 2022, the Compana y paid $1.5 million frff om operating cash flff ows foff r operating leases. The Company has operating lease agreements foff r its premises that expire on various dates through December 2024. Lease expense foff r the yeara s ended December 30, 2022, December 31, 2021, and January 1, 2021 was $1.2 million, $1.0 million and $2.5 million, respectively. The compm onents of lease expense dudd ring the fiff scal years ended December 30, 2022, December 31, 2021, and January 1, 2021, all related to operating lease costs. Future minimum lease commitments under non-cancelable operating leases as of December 30, 2022, are as foff llows (in thousands): 2023 2024 Total lease payments Less imputed interest Total Rental Payments $ $ 1,037 563 1,600 (51) 1,549 As of December 30, 2022, the Company does not have any additional operating leases that have not yet commenced tht at create signififf cant rights and obligations foff r the Compm any. 46 THE HACKETT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Credit Facility On April 3, 2020, the Compana y amended its Credit agreement with Bank of America, N.A. to extend the maturity date to November 30, 2022. The amendment also increased the interest payable on outstanding loans in respect toa revolving line of credit by an additional per annum rate of 0.50% and provided foff r a LIBOR flff oor of 75 basis points. The borrowing capacity remained at $45.0 million until matut rity and no draws were made. On Novembm er 7, 2022, the Company entered into a third amended and restated credit agreement (the “Credit Agreement”) with Bank of America, N.A., as administrative agent, and the lenders party thereto, pursuant to which the lenders agreed to amend and restate its existing credit agreement, in order to extend the maturuu ity date of the revolving line of credit and provide the Compm any with an additional $55.0 million in borrowing capa acity, foff r an aggregate amount of upuu to $100.0 million frff om time to time pursuant tott a revolving line of credit (tht e “Credit Facility”). The Credit Facility matures on Novembm er 7, 2027. The obligations of Hackett under the Credit Facility are guara anteed by active existing ana d fuff ture material U.S. subu sidiaries of Hackett (the “U.S. Subsidiaries”) and are secured by substantially all of the existing and fuff tut re property ana d assets of Hackett and the U.S. Subsidiaries. The interest rates per annum apaa plicable to loana s under the Credit Facility will be, at the Company’s option, equal to either a base rate or a BSBY rate, plus an apaa plicable margin percentage. The applicable margin percentage is based on thtt e consolidated leverage ratio, as defiff ned in the Credit Agreement, however as of December 30, 2022 tht e applicable margin percentage was based on the pricing level 2 until the fiff rst compliance certififf cate under the Credit Agreement is delivered. As of December 30, 2022, tht e applicaba le margin percentage was 1.75% per annum based on tht e consolidated leverage ratio, in the case of the BSBY rate advances, and 1.00% per annum, in the case of base rate advances. The interest rate of the commitment feff e as of December 30, 2022 was 0.250%. Interest payments are made on a montht ly basis. The Company is subjb ect to certrr ain covenana ts, including total consolidated leverage, fiff xed cost coverage, adjd usted fiff xed cost coverage ana d liquqq idity requirements, each as set foff rth in the Credit Agreement, subjb ect to certain exceptions. As of December 30, 2022, the Compana y was in compliance with all covenants. The Company incurrrr ed $0.4 million and $4 thousand of incremental debt issuance costs in 2022 and 2021, respectively, as a result of the Credit Agreement. As of December 30, 2022, the Company had $0.3 million of debt issuance costs remaining which will be amortized over the remaining lifeff of the Credit Facility. As of December 30, 2022, the Company had $60.0 million of outstanding debt, excluding $0.3 million of defeff rrrr ed debt costs, and as of Decembm er 31, 2021, the Company did not have any outstanding debt. 47 THE HACKETT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. Income Taxes The Company fiff les feff deral income tax retut rns, as well as multiple state, local and foff reign jurisdiction tax retut rns. A nun mbm er of years may elapse befoff re ana uncertain tax position is audited and fiff nally resolved. While it is oftff en diffff iff cult to predict the fiff nal outcome or the timing of resolution on any particulara uncertain tax position, the Company believes that its reserves foff r income taxes reflff ect the most probaba le outcome. The Company adjd usts these reserves, as well as the related interest, in the light of changing faff cts and circumstances. The resolution of a matter would be recognized as an adjd ustment to the provision foff r income taxes ana d the effff eff ctive tax rate in the period of resolution. The Compana y is no longer subjb ect to examinations of its feff deral income tax retutt rns by tht e Internrr al Revenue Service foff r years through 2018 and all signififf cant state, local and foff reign matters have been concluded foff r yearaa s through 2017. The components of income befoff re income taxes frff om continun ing operations are as foff llows (in thousands): Domestic Foreign Income frff om continuing operations befoff re income taxes $ $ December 30, 2022 Year Ended December 31, 2021 January 1, 2021 48,020 $ 7,084 41,641 $ 4,740 10,046 (1,530) 55,104 $ 46,381 $ 8,516 As a result of the tax deduction related to the exercise of the 2.9 million SARs in 2021, the Company had recorded an income tax benefiff t of $7.7 million, which resulted in a receivable balance of $3.4 million in prepaid expenses and other current assets on the consolidated balance sheet as of December 31, 2021. The components of income tax expense frff om continuing operations are as foff llows (in thousands): Current tax expense Federal State Foreign Defeff rred tax expense (benefiff t) Federal State Foreign $ Income tax expense frff om continuing operations $ December 30, 2022 Year Ended December 31, 2021 January 1, 2021 9,782 $ 3,416 1,584 14,782 49 (99) (430) (480) 14,302 $ 2,043 $ 663 654 3,360 765 303 401 1,469 4,829 $ 3,125 810 374 4,309 (769) (81) (588) (1,438) 2,871 48 THE HACKETT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. Income Taxes (continued) A reconciliation of the feff deral statutory tax rate with the effff eff ctive tax rate frff om continuing operations is as foff llows: U.S. statut tory income tax expense rate State income taxes, net of feff deral income tax expense Valuation reduction Meals and entertainment Foreign rate diffff eff rential Share based compm ensation Foreign exchange loss Other, net Effff eff ctive tax rate December 30, 2022 Year Ended December 31, 2021 January 1, 2021 21.0 % 21.0 % 21.0 % 4.8 (0.3) — 0.1 (1.0) (0.2) 1.6 1.6 0.1 — 0.3 (13.2) (0.1) 0.7 26.0 % 10.4 % 6.8 (0.6) 0.6 0.9 2.4 0.2 2.4 33.7 % The components of the net defeff rred income tax asset (liaba ility) are as foff llows (in thousands): Year Ended December 30, 2022 December 31, 2021 Defeff rred income tax assets: Allowance foff r doubtfuff l accounts Net operating loss and tax credits carryfoff rward Accrurr ed expenses and otht er liabilities $ Valuation allowance Defeff rred income tax liaba ilities: Depreciation Tax over book amortization on goodwill and intana gibles Other items $ 224 2,902 5,804 8,930 (1,463) 7,467 (3,847) (10,316) (181) (14,344) Net defeff rred income tax liaba ility $ (6,877) $ 681 2,562 5,014 8,257 (1,602) 6,655 (4,015) (9,548) (417) (13,980) (7,325) As of December 30, 2022, the Company had $1.0 million of U.S. state net operating loss carryfoff rwards. Additionally, as of December 30, 2022, tht e Company had $7.9 million of foff reign net operating loss carryrr foff rwards primarily frff om operations in the United Kingdom, Germany, France ana d Australia. A portion of the foff reign net operating losses may be carrrr ied foff rward indefiff nitely. The liability method of accounting foff r defeff rred income taxes requires a valuation allowance against defeff rred tax assets if,ff based on the weight of availaba le evidence, it is more likely than not that some or all of the defeff rrrr ed tax assets will not be realized. In determining tht e need foff r valuation allowances the Company considers evidence such as history of losses and general economic conditions. As of Decembm er 30, 2022 and December 31, 2021 the Compana y had a valuation allowance of $1.5 million ana d $1.6 million, respectively, to redudd ce defeff rred income tax assets, primarily related to foff reign net operating loss carryfoff rwards, to the amounts expected to be realized. The undistributed earnrr ings in foff reign subsidiaries as of December 30, 2022, was approximately $11.4 million. The Company has historically reinvested its foff reign eara nings abroad indefiff nitely and continues to reinvest fuff ture earnrr ings aba road. Penalties and tax-related interest expense are reported as a component of income tax expense. For the yeara s ended December 30, 2022, December 31, 2021, and January 1, 2021 the total amount of accrur ed income tax-related interest and penalties was $192 thousand, $179 thousand and $167 tht ousand, respectively. The Company prescribes a more-likely-than-not tht reshold foff r fiff nancial statement recognition and measurement of a tax position taken or expected to be taken in a tax retut rn. This interpr retation also provides guidance on de-recognition of income tax assets and liaba ilities, classififf cation of currrr ent and defeff rrrr ed income tax assets and liaba ilities, accounting foff r interest and penalties associated with tax positions, accounting foff r income taxes in interim periods and income tax disclosures. 49 THE HACKETT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. Income Taxes (continued) The foff llowing table sets foff rth the detail and activity of the ASC 740 liability during the years ended Decembm er 30, 2022 and December 31, 2021 (in thousands): Beginning balance Additions based on tax positions Ending balance Year Ended December 30, 2022 December 31, 2021 $ $ 437 $ 13 450 $ 425 12 437 As of December 30, 2022 and December 31, 2021 the ASC 740-10, “Accounting foff r Uncertrr ainty in Income Taxes”, liability of $0.5 million and $0.4 million, respectively, was classififf ed as a current liability ana d included in accrur ed expenses and other liaba ilities in the accompanaa ying 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 30, 2022 and December 31, 2021 would have a faff vorable impm act on the effff eff ctive tax rate in fuff ture period. 10. Stock Based Compensation Stock Plans Total share-based compensation included in net income foff r the years ended December 30, 2022, December 31, 2021, ana d January 1, 2021 is as foff llows: Restricted stock units Common stock subjb ect to vesting requqq irements December 30, Year Ended December 31, 2022 2021 January 1, 2021 $ $ 10,252 15 10,267 $ $ 9,716 406 10,122 $ $ 8,676 1,064 9,740 The numbm er of shares available foff r fuff tut re issuance under the Company's stock plans as of December 30, 2022 were 2,853,757. The Company issues new shares as they are requqq ired to be delivered under the plan. Stock OpO tions and SASS Rs The Company has grana ted stock options to employees and directors of the Compm any at exercise prices equal to the faff ir value of the stock at the date of grant. The options generally vest rataba ly over foff ur yeara s, based on continued employment, with a maximum term of ten years. Stock option activity under the Compm any’s stock option plana s foff r tht e years ended Decembm er 30, 2022, December 31, 2021 anaa d Janun ary 1, 2021, are summarized as foff llows: December 30, 2022 December 31, 2021 January 1, 2021 Outstanding at beginning of year Exercised Outstanding at end of year Exercisable at end of yeara Weighted Average Weighted Average Option Shares 30,000 (30,000) Exercise Price Option Shares 180,000 $ (150,000) 30,000 30,000 4.00 4.00 - - Exercise Price Option Shares 180,000 $ — 180,000 180,000 4.00 — 4.00 4.00 $ $ — $ — $ Weighted Average Exercise Price 4.00 $ — 4.00 4.00 $ $ The intrinsic value of the options that were exercised in 2022 and 2021 was $0.6 million ana d $2.4 million, respectively. 50 THE HACKETT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Stock Based Compensation (continued) All of the outstanding SARs as of January 1, 2021 were exercised in December 2021. There are no outstanding SARs as of December 30, 2022. As a result of the tax deduction related to the exercise of the 2.9 million SARs in 2021, the Compm any had recorded an income tax benefiff t of $7.7 million, which resulted in a receivaba le balance of $3.4 million in prepaid expenses and other current assets on the consolidated balance sheet as of Decembm er 31, 2021. The activity foff r the year ended December 31, 2021 was as foff llows: Outstanding as of Januara y 1, 2021 Exercised Outstanding as of Decembm er 31, 2021 Number of SARs Weighted Average Exercise Price 2,916,563 $ (2,916,563) $ — 4.00 4.00 — The intrinsic value of the SARs that were exercised in 2021 was $46.1 million. The faff ir value of the SARs and stock options was estimated using the Black-Scholes option pricing valuation model. The determination of faff ir value is affff eff cted by the Compana y's stock price, expected stock price volatility, expected term of the awaraa d and the risk-frff ee rate of interest. Restrt icted Stock UnUU itstt Under the stock plans, participants may be granted restricted stock units, each of which represents a conditional right to receive a common share in thtt e fuff tutt re. The restricted stock units granted under this plan generally vest over one of the foff llowing vesting schedules: (1) a foff ur -year period, with 50% vesting on tht e second ana niversary and 25% of the shares vesting on the third and foff urth anniversaries of the grana t date, (2) a foff ur -yeara period, with 25% vesting on the fiff rst, second, third and foff urth anniversaryrr , (3) a three - year period with 33% vesting on the fiff rst, second and third anaa niversary, or (4) a one-year period with 100% vest on tht e fiff rst anniversaryrr . 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 requisite service period. Restricted stock unit activity foff r tht e year ended December 30, 2022, was as foff llows: Nonvested balance as of December 31, 2021 Granted Vested Forfeff ited Nonvested balance as of December 30, 2022 Number of Restricted Stock Units Weighted Average Grant-Date Fair Value 1,175,166 734,464 (609,358) (87,370) 1,212,902 $ 15.89 19.44 16.16 16.70 17.85 The Company recorded restricted stock units-based compensation expense of $10.3 million, $9.7 million and $8.7 million in 2022, 2021, ana d 2020 respectively, which is included in stock compensation expense, based on the vesting provisions of the restricted stock units and the faff ir value of the stock on the grant date. As of December 30, 2022, there was $11.7 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 2.3 yeara s. The Company accounts foff r certain restricted stock units under liability accounting as a result of the fiff xed monetaryrr amount and a variaba le number of shara es that will be issued. 51 THE HACKETT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Stock Based Compensation (continued) CoCC mmon Stock SuSS bjb ect to VeVV sting Requirementstt Shares of common stock subu jb ect to vesting requqq irements were issued to employees of acquqq ired compm anies. These shares vest over a period of up to foff ur yeara s. Compensation expense was based on tht e faff ir value of the Company’s common stock at tht e time of grant and is recognized on a straight-line basis. The activity foff r common stock subjb ect to vesting requirements foff r the year ended December 30, 2022 was as foff llows: Nonvested balance as of December 31, 2021 Vested Forfeff ited Nonvested balance as of December 30, 2022 Number of Shares of Common Stock Subject to Vesting Requirements Weigghted Averagge Grant-Date Fair Value 2,945 $ (1,473) (154) 1,318 $ 16.17 16.17 16.17 16.17 Common stock subjb ect to vesting requqq irements of $1.0 million was issued in 2019 in relation to acquisitions. These shares are subjb ect to up to a foff ur-year vesting period. The Company recorded compensation expense of $15 thousand, $0.4 million and $1.1 million, during the years ended December 30, 2022, Decembm er 31, 2021, and Januaryrr 1, 2021 respectively, related to common stock subjb ect to vesting requirements. As of December 30, 2022, there was $10 thousand of total stock-based compensation expense related to common stock granted subjb ect to vesting requqq irements not yet recognized, which is expected to be recognized over a weighted average period of 0.8 years. 11. Shareholders’ Equity EmE pm loyo ee Stock Purchase Plan Effff eff ctive July 1, 1998, tht e Company adopted an Empm loyee Stock Purchase Plan to provide substantially all employees who have completed three montht s of servrr ice as of the beginning of an offff eff ring period an opportut nity to purchase shares of its common stock through payaa roll deductions. Purchases on any one granaa t are limited to 10% of eligible compm ensation. Shares of the Company’s common stock may be purchased by employees at six-month intervals at 95% of the faff ir value on the last trading dayaa of each six- month period. The aggregate faff ir value, determined as of the fiff rst trading date of the offff eff ring period, of shares purchased by an employee mayaa not exceed $25,000 ana nually. On Februrr ary 17, 2022, the Company’s Board of Directors and the Compana y’s shareholders approved an extension of the Employee Stock Purchase Plan to July 1, 2028 and added an additional 250,000 shares of common stock which increased the total available shares of common stock to 282,069 at tht at time. As of the year end 2022, a total of 241,447 shares of common stock were available foff r purchase under the plan. For plana years 2022, 2021 ana d 2020, 40,622 shares, 41,504 shares and 56,679 shares, respectively, were issued foff r total proceeds of $0.8 million in each year. TrTT easuryrr Stock and TeTT ndedd r OfO fff eff r On July 30, 2002, the Company announced that its Board of Directors approved the repurchase of up to 5.0 million of the Company’s common stock through its share repurchase program. Since the inception of the repurchase plan, the Board of Directors has apa proved the repurchase of $287.2 million of the Compana y’s common stock, $120.0 million of which was apa proved in 2022. As of December 30, 2022, the Company had affff eff cted cumulative purchases under the plan of $272.5 million, leaving $14.7 million available foff r fuff tut re purchases. In December 2022 the Compm ana y compm leted the tender offff eff r through which 4.9 million sharaa es were accepted foff r purchase foff r a total cost, inclusive of trana saction related feff es, of $115.9 million, or $23.71 per share, which represented 15% of the Compm any's issued and outstanding stock at tht e time. The Compana y used $60.0 million in borrowings frff om its Credit Facility and cash on hana d to fuff nuu d the tender offff eff r as discussed in Note 8. 52 THE HACKETT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. Shareholders’ Equity (continued) During 2022 and 2021, the Company repurchased 4.9 million and 749 tht ousand shares of its common stock, respectively, at an average price per sharaa e of $23.69 and $17.42, respectively, foff r a total cost of $116.7 million and $13.0 million, respectively. As of December 30, 2022 ana d December 31, 2021 tht e Company had repurchased under the plan inception to date 33.2 million and 28.3 million shares of its common stock, respectively, at an average price of $8.21 per share and $5.51 per share, respectively. In addition to the shares tendered under the tender offff eff r, during 2022, the Company repurchased 31 thousand shares of its common stock frff om members of its Board of Directors foff r $0.6 million or $20.50 per share. The proceeds frff om the sale of these shares were used in part to cover estimated tax liaba ilities associated with previously vested restricted stock units. There is no expiration of the auaa thorization. Under the repurchase plan, the Compm any may buy back shares of its outstanding stock frff om time to time either on the open market or through privately negotiated trana sactions, subjb ect to markrr et conditions and trading restrictions. The Company holds repurchased shares of its common stock as treasuryrr stock and accounts foff r treasury stock under tht e cost method. Shares purchased under the repurchase planaa do not include shares withheld to satisfyff withholding tax obligations. These withheld shares are never issued and in lieu of issuing the shares, taxes were paid on the employee’s behalf.ff In 2022, 0.2 million shares were withheld and not issued foff r a cost of $3.2 million bringing the total cumulative cash used to repurchase stock in 2022 to $119.8 million. In 2021, 1.1 million shares were withheld and not issued foff r a cost of $21.6 million bringing the total cumulative cash used to repurchase stock in 2021 to $34.6 million, which includes the net exercise of the SARs and options as discussed in Note 10. The shares withheld foff r taxes are included under issuance of common stock in the accompanying consolidated statements of shareholders’ equity. Dividedd ndsdd In December 2012, the Company announced an annual dividend of $0.10 per share to be paid semi-annually. In 2020, thtt e Company increased the annual dividend to $0.38 per share to be paid on a quara terly basis which resulted in aggregate dividends of $9.1 million paid to shareholders of record on June 30, 2020, September 25, 2020, and December 18, 2020, all of which were paid in 2020. In 2021, the Compm any increased the annual dividend to $0.40 per share to be paid on a quara terly basis which resulted in aggregate dividends of $12.9 million paid to shara eholders of record on March 26, 2021, June 25, 2021, September 24, 2021, and December 17, 2021, all of which were paid in 2021. In 2022, the Company increased the ana nual dividend to $0.44 per share to be paid on a quara terly basis which resulted in aggregate dividends of $13.4 million paid to shareholders of record on April 5, 2022, July 6, 2022, October 5, 2022, ana d December 17, 2022. The December 17, 2022 dividend was paid January 6, 2023. These dividends were paid frff om U.S. domestic sources and are accounted foff r as an increase to accumulated defiff cit. Subsequent to Decembm er 30, 2022, the Company declara ed its fiff rst quara terly dividend foff r 2023 of $0.12 per share foff r shareholders on March 24, 2023, to be paid on April 7, 2023. 12. 401(k) Plan The Company maintains a 401(k) plana covering all eligible employees. Subjb ect to certain dollar limits, eligible employees may contribute up to 15% of their pre-tax ana nual compensation to the plan. The Compm any may make discretionaryrr contributions on ana annual basis. The Compm any makes matching contributions of 40% of employee eligible contributions upuu to 6% of their gross salaries. The Company’s matching contributions were $0.9 million foff r 2022 and $0.8 million in botht 2021 and 2020. 13. Transactions with Related Parties During the year ended Decembm er 30, 2022, tht e Company repurchased 31 thousand sharaa es of the Compana y’s stock frff om members of its Board of Directors foff r a total cost of $0.6 million, or $20.50 per share. During the year ended December 31, 2021, the Company repurchased 24 tht ousand shares of the Compm any’s stock frff om members of its Board of Directors foff r a total cost of $0.4 million, or $16.05 per share. Subsequent to the yeara ended December 30, 2022, the Compana y repurchased 37 thousand shares of the Company’s stock frff om members of its Board of Directors foff r a total of $0.7 million, or $18.96 per share. The proceeds frff om the sale of these shares were used primarily to cover estimated tax liabilities associated with previously vested restricted stock units. See Note 11 foff r fuff rther details. 53 THE HACKETT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. Litigation The Company is involved in legal proceedings, claims, and litigation arising in the ordinara yrr course of business not specififf cally discussed herein. In the opinion of manaa agement, the fiff nal disposition of such matters will not have a material adverse effff eff ct on the Company’s consolidated fiff nana cial position, cash flff ows or results of operations. 15. Segment Infoff rmation and Geographical Data Effff eff ctive in the third quara ter of fiff scal year 2022, tht e Company has reorganized its operating and internal reporting strurr cture to better align with its primaryrr market solutions. As a result of tht e reorganization anaa d in accordance with ASC 280, mana agement has made the determrr ination to present three operating segments and three reportaba le segments: (1) Global S&BT, (2) Oracle Solutions, and (3) SAP Solutions. Global S&BT includes the results of the Company’s strategic business consulting practices; Oracle Solutions includes the results of the Company’s Oracle EPM/ERP and AMS practices; SAP Solutions includes the Company’s SAP applications and related SAP service offff eff rings. Due to the change in reportable segments, the Compm any has presented tht e segment infoff rmation foff r the twelve montht s ended December 30, 2022, Decembm er 31, 2021, and Januaryrr 1, 2021, respectively. While our consolidated results were not impacted by this change, we recast the historical segment infoff rmrr ation below foff r compm araba ility. The SAP Solutions reportaba le segment is the only segment that contains softff ware license sales. The measurement criteria foff r segment profiff t or loss are substantially the same foff r each reportable segment, excluding any unusual or infrff equent items, if any. Segment profiff t consists of the revenues generated by a segment, less operating expenses that are incurred directly by the segment. Unallocated costs include corprr orate costs related to administrative fuff nctions that are perfoff rmed in a centralized manner that are not attributaba le to a particular segment. Segment infoff rmation related to assets has been omitted as the CODM does not receive discrete fiff nancial infoff rmation regarding assets at the segment level. 54 THE HACKETT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. Segment Infoff rmation and Geographical Data (continued) The tables below set foff rth infoff rmation about the Compm any’s operating segments foff r tht e yeara s ended Decembm er 30, 2022, December 31, 2021 ana d Januara y 1, 2021 along with the items necessaraa y to reconcile the segment infoff rmation to the totals reported in the accompana ying consolidated fiff nancial statements (in thousands): Global S&BT: Total revenue* Segment profiff t Oracle Solutions: otal revenue* Segment profiff t SAP Solutions: otal revenue* Segment profiff t Total Company: otal revenue* Total segment profiff t Items not allocated to segment level: orpr orate general and administrative expenses** Non-cash stock based compensation expense Acquisition-related compm ensation expense Depreciation and amortization Restrurr cturing and asset impairmrr ent (settlement) charge Interest expense, net Income frff om continuing operations befoff re taxes December 30, 2022 Year Ended December 31, 2021 January 1, 2021 $ $ $ $ $ $ 169,660 61,319 76,320 15,335 47,762 12,827 293,742 89,481 21,180 10,267 - 3,437 (651) 144 55,104 $ $ $ $ $ $ 146,224 49,321 74,886 15,662 57,699 18,843 278,809 83,826 22,840 10,122 11 4,377 - 95 46,381 $ $ $ $ $ $ 117,820 27,307 73,095 11,676 48,567 13,453 239,482 52,436 19,038 9,740 50 4,478 10,488 126 8,516 *Total revenue includes reimbursable expenses, which are projo ect travel-related expenses passed through to a client with no associated operating margin. **Corpr orate general and administrative expenses primarily include costs related to business support fuff nctions including accounting and fiff nana ce, human resources, legal, infoff rmation technology and offff iff ce administration. Corpr orate general and administrative expenses exclude one-time, non-recurring expenses and benefiff ts. The taba les below set foff rtht infoff rmation on the Compana y's geograpa hical data. Total revenue, which is primarily based on the country of tht e contracting entity, was attributed to the foff llowing geographical areas (in thousands): Revenue: United States Europe Other (Australia, Canada, India and Urur guay) Total Revenue December 30, 2022 Year Ended December 31, 2021 January 1, 2021 $ $ 253,935 $ 23,866 15,941 293,742 $ 244,499 $ 20,627 13,683 278,809 $ 205,203 23,764 10,515 239,482 55 THE HACKETT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. Segment Infoff rmation and Geographical Data (continued) Long-lived assets are attributed to geographic areas as foff llows (in thousands): Long-lived assets: orth America Europe Other (Australia, Canada, India and Urur guay) Total long-lived assets December 30, 2022 December 31, 2021 $ $ 89,705 13,640 482 103,827 $ $ 89,199 15,583 583 105,365 As of December 30, 2022 and December 31, 2021 foff reign assets included $13.5 million ana d $15.1 million, respectively, of goodwill related to acquisitions. 56 THE HACKETT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 16. Quarterly Financial Infoff rmation (unaudited) The foff llowing tables present unaudited supplemental quqq arterly fiff nancial infoff rmation foff r the years ended December 30, 2022 and December 31, 2021 (in thousands, except per share data): Total revenue Operating income Income frff om continuing operations befoff re income taxes Net income Basic net income per common share April 1, 2022 $ 75,664 $ 13,409 $ 13,381 $ 10,505 0.33 $ July 1, 2022 $ 75,928 $ 14,181 $ 14,153 $ 10,215 0.32 $ Diluted net income per common share $ 0.33 $ 0.32 September 30, 2022 December 30, 2022 $ $ $ $ $ $ 72,033 14,035 14,021 10,366 0.33 0.32 $ $ $ $ $ $ 70,117 13,623 13,549 9,716 0.32 0.31 Quarter Ended Total revenue Operating income (1) Income frff om continuing operations befoff re income taxes (1) Loss frff om discontinued operations (2) Net income (1) Basic net income per common share (3): Income per common share frff om continuing operations Loss per common share frff om discontinued operations (2) Basic net income per common share Diluted net income (loss) per common share (3): Income per common share frff om continuing operations Loss per common share frff om discontinued operations (2) Diluted net income per common share $ $ $ $ $ $ $ $ $ $ $ April 2, 2021 63,486 8,853 8,828 $ $ $ (7) $ $ 6,361 0.21 - 0.21 0.19 - 0.19 $ $ $ $ $ $ Quarter Ended July 2, 2021 73,197 14,217 14,192 - 10,532 0.35 - 0.35 0.32 - 0.32 $ $ $ $ $ $ $ $ $ $ $ October 1, 2021 December 31, 2021 71,894 11,405 11,379 - 8,131 0.27 - 0.27 0.25 - 0.25 $ $ $ $ $ $ $ $ $ $ $ 70,232 12,001 11,982 - 16,521 0.55 - 0.55 0.50 - 0.50 (1) (2) (3) The second quarter of 2021 included a $5.3 million softff ware sale transaction. Discontinued operations relate to the discontinuance of the Europeana based REL Working Capa ital group in 2018. The foff urth quqq arter of 2021 included a tax benefiff t of $7.7 million related to the exercise of 2.9 million SARs. Quarterly basic and diluted net income per common share were compm uted independently foff r each quara ter and do not necessarily total to the year to date basic and diluted net income per common shara e. 57 THE HACKETT GROUP, INC. SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVR ES YEARS ENDED DECEMBER 30, 2022, DECEMBER 31, 2021, AND JANUARY 1, 2021 (i(( n thtt ousandsdd )s Allowance foff r Doubtfuff l Accounts Year Ended December 30, 2022 Year Ended December 31, 2021 Year Ended January 1, 2021 Balance at eginning of Year Charge to Revenue/ Expense Write-offff sff / (Reversals) Balance at End of Year 856 2,702 605 (2,811) $ 29 $ (436) $ $ $ $ 2,702 605 743 965 2,068 298 58 ITEM 9. CHANGES IN AND DISAGREMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures The Company maintains disclosure controls and procedudd res that are designed to ensure that infoff rmation requqq ired to be disclosed by us in reports that we fiff le or submit under the Securities Exchange Act of 1934, as amended (“the Exchange Act”), is recorded, processed, summarized, and reported within tht e time periods specififf ed in the SEC rur les and foff rms, ana d that such infoff rmation is accumulated and communicated to the Compana y’s manaa agement, including its Chief Executive Offff iff cer (principal executive offff iff cer) and Chief Financial Offff iff cer (principal fiff nancial offff iff cer), as apaa propriate, to allow foff r timely decisions regarding required disclosure. The Company, under the supervision and with tht e participation of the Compana y’s management, including the Chief Executive Offff iff cer and Chief Finana cial Offff iff cer, evaluated the effff eff ctiveness of the design and operation of the Company’s disclosure controls and procedudd res as of the end of the period covered by this report. Based on this evaluation, thtt e Chief Executive Offff iff cer and tht e Chief Financial Offff iff cer concluded that our disclosure controls and procedudd res were effff eff ctive as of the end of tht e period covered by the Annual Report on Form 10-K. Changes in Internal Control Over Financial Reporting As disclosed in our Explana atory Note in our Annun al Report on Form 10-K/KK A foff r the year ended December 31, 2021, the Company concluded that its prior determination that the Company had one operating segment and one reportaba le segment under ASC 280, Segment Reporting, was an immaterial error resulting in the omission of the required segment disclosures. In connection with its reconsideration of ASC 280, dudd ring the third quarter of 2022, the Company reviewed and considered its internal processes and implemented chana ges in its organizational strur cture and ultimate reporting strur cture to betttt er align to its core service offff eff rings. As a result, the Company’s new segment reporting strur ctut re and disclosure was reflff ected prospectively beginning in the Formrr third quaraa ter of 2022 (with comparable periods recast, as applicable). 10-Q foff r the Manaa agement impm lemented remediation steps to address the material weakness and to improve our internal control over fiff nana cial reporting. Specififf cally, we impm roved our review process including the documentation of tht e evaluation of segment reporting under ASC 280. In addition, the Company will engage outside consultants to review management’s accounting analysis when the Company has signififf cant organaa izational strurr ctut re or reporting strur ctut re changes that mayaa impact the Company’s analysis under ASC 280. As a result, the material weakness was considered fuff lly remediated as of December 30, 2022. Other than tht e remediation actions described aba ove, during the foff urth quarter of fiff scal 2022, there were no changes in our internal control over fiff nancial reporting that have materially affff eff cted, or are reasonably likely to materially affff eff ct, our internrr al control over fiff nancial reporting. Management’s Report on Internal Control Over Financial Reporting Our management is responsible foff r establishing and maintaining adequqq ate internal control over fiff nancial reporting, as such term is defiff ned in Exchana ge Act RuRR le 13a-15(f)ff . Under the supervision and with the participation of our management, including our Chief Executive Offff iff cer and Chief Financial Offff iff cer, we conducted an evaluation of the effff eff ctiveness of our internal control over fiff nana cial reporting based on the frff amework in “Internal Control – Integrated Frameworkrr Organizations of tht e Treadwayaa Commission (COSO) as of and foff r the year ended December 30, 2022. (2013)” issued by the Committee of Sponsoring Based on our evaluation, utilizing the criteria set foff rth in “Internal Control – Integrated Framework issued by COSO in 2013,” our management concluded that our internal control over fiff nancial reporting was effff eff ctive as of the end of tht e period covered by this Annual Report on Form 10-K. The Company’s independent registered certififf ed public accounting fiff rm has audited our internal contrtt ol over fiff nana cial reporting as of December 30, 2022, and has expressed an unqualififf ed opinion thereon. 59 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of The Hackett Group, Inc. Opinion on the Internal Control Over Financial Reporting We have audited The Hackett Group, Inc.'s (the Company) internal contrtt ol over fiff nana cial reporting as of December 30, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organaa izations of the Treadway Commission in 2013. In our opinion, the Compm any maintained, in all material respects, effff eff ctive internal control over fiff nancial reporting as of December 30, 2022, based on criteria established in Internal Contrtt ol — Integrated Frameworkrr Committee of Sponsoring Organizations of the Treadway Commission in 2013. issued by the We have also audited, in accordance with the standara ds of tht e Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of the Companaa y and our report dated March 3, 2023 expressed an unqualififf ed opinion. Basis foff r Opinion The Company’s management is responsible foff r maintaining effff eff ctive internal control over fiff nancial reporting ana d foff r its assessment of the effff eff ctiveness of internal control over fiff nana cial reporting in the accompm anying Management’s Report on Internrr al Control Over Financial Reporting. Our responsibility is to express an opinion on thtt e Company’s internal control over fiff nancial reporting based on our audit. We are a public accounting fiff rm registered with the PCAOB and are requqq ired to be independent with respect to the Company in accordana ce with U.S. feff deral securities laws and the apa plicaba le rur les and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our auaa dit in accordance with tht e standards of the PCAOB. Those standards require that we plan and perfoff rm the audit to obtain reasonable assurance about whetht er effff eff ctive internal control over fiff nancial reporting was maintained in all material respects. Our audit included obtaining ana understanding of internal control over fiff nana cial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effff eff ctiveness of internal control based on the assessed risk. Our audit also included perfoff rming such other procedures as we considered necessary in the circumstances. We believe that our auaa dit provides a reasonable basis foff r our opinion. Defiff nition and Limitations of Internal Control Over Financial Reporting A company's internal control over fiff nancial reporting is a process designed to provide reasonable assurance regarding the reliability of fiff nancial reporting ana d the preparation of fiff nana cial statements foff r external purprr oses in accordance with generally accepted accounting principles. A compm any's internal control over fiff nancial reporting includes those policies and procedudd res that (1) pertain to the maintenance of records that, in reasonable detail, accurately and faff irly reflff ect the trtt ansactions and dispositions of the assets of the company; (2) provide reasonaba le assurance that transactions are recorded as necessaryrr to permit preparation of fiff nancial statements in accordance with generally accepted accounting principles, anaa d that receipts and expx enditures of the company are being made only in accordance with auaa thorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquqq isition, use or disposition of the compm ana y's assets that could have a material effff eff ct on the fiff nancial statements. Because of its inherent limitations, internal control over fiff nana cial reporting may not prevent or detect misstatements. Also, projo ections of any evaluation of effff eff ctiveness to fuff tut re periods are subjb ect to the risk that controls may become inadequate because of changes in conditions, or that the degree of compm liance with the policies or procedures mayaa deteriorate. /s/ RSM US LLP Miami, Florida March 3, 2023 60 ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVEN INSPECTIONS None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORAR TE GOVERNANCE Infoff rmrr ation responsive to this Item is incorprr orated herein by refeff rence to the Compana y’s defiff nitive proxy statement foff r tht e 2023 Annual Meeting of Shareholders. ITEM 11. EXECUTIVE COMPENSATION Infoff rmrr ation responsive to this Item is incorprr orated herein by refeff rence to the Compana y’s defiff nitive proxy statement foff r tht e 2023 Annual Meeting of Shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Infoff rmrr ation responsive to this Item is incorprr orated herein by refeff rence to the Compana y’s defiff nitive proxy statement foff r thtt e 2023 Annual Meeting of Shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Infoff rmrr ation responsive to this Item is incorprr orated herein by refeff rence to the Companaa y’s defiff nitive proxy statement foff r tht e 2023 Annual Meeting of Shareholders. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Infoff rmrr ation appearing under tht e caption “Fees Paid to Independent Accountants” in the proxy statement foff r the 2023 Annual Meeting of Shareholders is hereby incorpr orated by refeff rence. 61 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The foff llowing documents are fiff led as a part of this Form: 1. Financial Statements The consolidated fiff nancial statements fiff led as part of this report are listed and indexed on page 29. Schedules other than thtt ose listed in the index have been omitted because they araa e not apaa plicable or the required infoff rmation has been included elsewhere in this report. 2. Financial Statement Schedules Schedule II — Valuation and Qualifyff ing Accounts and Reserves is included in tht is report. Schedules other thana those listed in the index have been omitted because they are not apa plicable or the infoff rmation requqq ired to be set foff rth therein is contained, or incorpr orated by refeff rence, in the consolidated fiff nancial statements of The Hackett Groupuu , Inc. or notes thereto. 3. Exhibits: See Index to Exhibits on page 63. The Exhibits listed in the accompanying Index to Exhibits are fiff led or incorprr orated by refeff rence as part of this report. ITEM 16. FORM 10-K SUMMARYR None. 62 Exhibit No. Exhibit Description INDEX TO EXHIBITS 3.1 3.2 3.3 3.4 3.5 4.1 10.1** 10.2** 10.3** 10.4** 10.5** 10.6** 10.7** 10.8** 10.9** 10.10** 10.11** 10.12** 10.13** 10.14** 0.15** Second Amended and Restated Articles of Incorporation of the Registrant, as amended (incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 29, 2000). Articles of Amendment of the Articles of Incorporation of the Registrant (incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 28, 2007). Amended and Restated Bylaws of the Registrant, as amended (incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 29, 2000). Amendment to Amended and Restated Bylaws of the Registrant (incorporated herein by reference to the Registrant’s Form 8-K dated March 31, 2008). Amendment to Amended and Restated Bylaws of the Registrant (incorporated herein by reference to the Registrant’s Form 8-K dated January 21, 2015). Description of the Registrant’s Securities Registered under Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to the Registrant’s Form 10-K for the year ended December 27, 2019). Registrant’s 1998 Stock Option and Incentive Plan (Amended and Restated as of February 17, 2022) (incorporated herein by reference to the Registrant’s Registration Statement on Form S-8 filed on December 23, 2022). Employee Stock Purchase Plan, as amended (incorporated herein by reference to the Registrant’s Registration Statement on Form S-8 (File No. 333-108640)). Amendment No. 2 to Registrant’s Employee Stock Purchase Plan (incorporated herein by reference to the Registrant’s Form 10-K/A for the year ended December 30, 2005). Amendment No. 3 to Registrant’s Employee Stock Purchase Plan (incorporated herein by reference to the Registrant’s Registration Statement on Form S-8 filed on September 6, 2018). Amendment No. 4 to Registrant’s Employee Stock Purchase Plan (incorporated herein by reference to the Registrant’s Registration Statement on Form S-8 filed on December 23, 2022). Form of Employment Agreement entered into between the Registrant and Mr. Dungan (incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 28, 2001). Form of Employment Agreement entered into between tht e Registrant and each of Messrs. Fernandez, Frank and KnK otts (incorpr orated herein by refeff rence to the Registrant’s Registration Statement on Formrr S-1 (File No. 333- 48123)). (P) Amendment to Employment Agreement between the Registrant and Ted A. Fernandez (incorporated herein by reference to the Registrant’s Form 10-Q for the quarter ended October 1, 2004). Amendment to Employment Agreement between the Registrant and David N. Dungan (incorporated herein by reference to the Registrant’s Form 10-Q for the quarter ended October 1, 2004). Second Amendment to Employment Agreement between the Registrant and Ted A. Fernandez (incorporated herein by reference to the Registrant’s Form 8-K dated June 16, 2005). Employment Agreement dated August 1, 2007 between the Registrant and Robert A. Ramirez (incorporated herein by reference to the Registrant’s Form 10-Q for the quarter ended June 29, 2007). Third Amendment to Employment Agreement between the Registrant and Ted A. Fernandez (incorporated herein by reference to the Registrant’s Form 8-K dated January 2, 2009). Third Amendment to Employment Agreement between the Registrant and David N. Dungan (incorporated herein by reference to the Registrant’s Form 8-K dated January 2, 2009). Fourth Amendment to Employment Agreement between the Registrant and Ted A. Fernandez (incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 30, 2016). Fourth Amendment to Employment Agreement between the Registrant and David N. Dungan. (incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 30, 2016). 63 10.16 21.1* 23.1* 31.1* 31.2* 32* Third Amended and Restated Credit Agreement, dated November 7, 2022, among The Hackett Group, Inc., the material domestic subsidiaries of The Hackett, Inc. named on the signature pages there to and Bank of America, N.A., as administrative agent (incorporated herein by reference to the Registrant’s Form 8-K dated November 8, 2022). Subsidiaries of the Registrant. Consent of RSM US LLP. Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS*** Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH*** Inline XBRL Taxonomy Extension Schema Document. 101.CAL*** Inline XBRL Taxonomy Extension Calculation Linkbk ase 101.DEF*** Inline XBRL Taxonomy Extension Defiff nition Linkbk ase 101.LAB*** Inline XBRL Taxonomy Extension Label Linkbk ase 101.PRE*** Inline XBRL Taxonomy Extension Presentation Linkbkk ase 104*** Cover Page Interactive Data File (foff rmatted as Inline XBRL and contained in Exhibit 101) * Filed herewith ** Compensatory plan requqq ired to be fiff led as an exhibit pursuant to Item 15(b) of Form 10-K. *** Pursuant to RuRR le 406T of Regulation S-T, these interactive data fiff les are deemed not fiff led or paraa t of a registration statement or prospectus foff r purprr oses of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of thtt e Securities Exchange Act of 1934 and otherwise are not subjb ect to liaba ility. (P) Paper exhibits. 64 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly cauaa sed this report to be signed on its behalf by the undersigned, tht ereunto duly authorized, in tht e City of Miami, State of Florida, on March 3, 2023. SIGNATURES THE HACKETT GROUP, INC. By: /s/ Ted A. Fernandez Ted A. Fernandez Chief Executive Offff iff cer and Chairman of the Board Pursuant to the requirements of the Securities Act of 1934, this Form 10-K has been signed by the foff llowing persons on behalf of the Registrant in the capaa acities and on the date indicated. Signatures /s/ Ted A. Fernandez Ted A. Fernandez /s/ Robert A. Ramirez Robert A. Ramirez /s/ David N. Dungan David N. Dunganaa /s/ Maria Bofiff ll Maria Bofiff ll /s/ Richard Hamlin Richard Hamlin /s/ John R. Harris John R. Harris /s/ Robert A. Rivero Robert A. Rivero /s/ Alan T. G. Wix Alan T. G. Wix Title Chief Executive Offff iff cer and Chairman (Principal Executive Offff iff cer) Date March 3, 2023 Executive Vice President, Finance and Chief Finana cial Offff iff cer (Principal Financial and Accounting Offff iff cer) March 3, 2023 Chief Operating Offff iff cer and Director March 3, 2023 Director Director Director Director Director March 3, 2023 March 3, 2023 March 3, 2023 March 3, 2023 March 3, 2023 65 [THIS PAGE INTENTIONALLY LEFT BLANK] BOARD OF DIRECTORS Ted A. Fernandez David N. Dungan Maria A. Boﬁll Richard N. Hamlin Chairman & Chief Executive Ofﬁcer The Hackett Group, Inc. Vice Chairman & Chief Operating Ofﬁcer, The Hackett Group, Inc. Former Senior Financial Executive Produce Industry Retired Partner KPMG LLP John R. Harris Robert A. Rivero Alan T.G. Wix Former Chief Executive Ofﬁcer eTelecare Global Services Chief Executive Ofﬁcer RAR International Management Services, LLC International Business Advisor Former Managing Director of Core IT Services Lloyds TSB Bank TRANSFER AGENT Computershare Investor Services First-Class/Registered/ Certiﬁed Mail Computershare Investor Services P.O. Box 43006 Providence, RI 02940-3006 Courier Services Website: Computershare Investor Services 150 Royall Street Suite 101 Canton, MA 02021 www.computershare.com/investor Shareholder Services 877-373-6374 (U.S. Canada, Puerto Rico) 781-575-2879 (non-US) INDEPENDENT AUDITORS RSM US LLP Miami, Fl 1001 BRICKELL BAY DRIVE, 30TH FLOOR MIAMI, FLORIDA 33131, UNITED STATES WWW.THEHACKETTGROUP.COM

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