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

Overview

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Hackett. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying Notes to our consolidated financial statements included in this Annual Report on Form 10-K. We have omitted discussion of fiscal 2019 items and year-to-year comparisons between fiscal years 2020 and 2019 where it would be redundant with the discussion previously included in Part II, Item 7 (MD&A) of the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2021.

Hackett, originally incorporated on April 23, 1997, is a leading strategic advisory and technology consulting firm that enables companies to achieve world-class business performance. By leveraging the comprehensive Hackett database, the world’s leading repository of enterprise business process performance metrics and best practice intellectual capital, our business and technology solutions help clients improve performance and maximize returns on technology investments.

Hackett is a strategic advisory firm and a world leader in best practice research, benchmarking and business transformation services which empirically defines and enables world-class enterprise performance. Hackett empirically defines world-class performance in sales, general and administrative and certain supply chain activities with analysis gained through nearly 20,000 benchmark and performance studies over 28 years at over 7,000 of the world’s leading companies.

Hackett’s combined capabilities include executive advisory programs, benchmarking, business transformation and technology solutions, with corresponding offshore support. In addition, we are identifying new opportunities for our benchmarking and best practice intellectual property by leveraging new channels through strategic alliances to introduce new recurring revenue, high margin offerings that could redefine our organizational model that we have started to refer to as “IP as a Service” business.

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

COVID-19 Pandemic Impact on Our Business

The level of revenue we achieve is based on our ability to deliver market leading services and solutions and to deploy skilled teams of professionals quickly. Our results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence. Despite the disruption beginning in March 2020, the COVID-19 pandemic did not have a significant impact on our consolidated results of operations during the first quarter of 2020. However, our net revenue and diluted earnings per share were negatively impacted for the remainder of 2020, due to adverse economic conditions as a result of the COVID-19 pandemic. In each of the four quarters of 2021, our net revenue and diluted earnings per share grew when compared to the fourth quarter of 2020 reflecting a continuation of improved economic conditions. However, any reversal of these trends or a prolonged economic downturn as a result of the impact of COVID-19 variants, or otherwise, weak or uncertain economic conditions or similar factors could adversely affect our clients' financial condition which may further reduce our clients' demand for our services.

We continue to actively manage our business to respond to the impact of the COVID-19 pandemic. At the onset of the pandemic, we reduced employee headcount and restricted employee travel to only essential business needs. While headcount has increased and some select non-essential travel is being allowed, most of our employees continue to work remotely from home. We are generally following the requirements, recommendation and protocols published by the U.S. Centers for Disease Control and the World Health Organization, and state and local governments.

As a response to the COVID-19 pandemic, we implemented plans to manage our costs and preserve cash at the onset of the COVID-19 pandemic. We significantly limited the addition of new employees and third party contracted services, eliminated all travel except where necessary to meet customer needs, and limited discretionary spending. At the end of June 2020, we reduced our global workforce by approximately 10% and recorded a $5.0 million restructuring charge. During the fourth quarter of 2020, as a result of and in consideration of the COVID-19 pandemic, and the changing nature of our use of office space for its workforce, we evaluated our existing office leases as part of our transformation initiatives related to real estate. This evaluation resulted in the complete and partial abandonment of certain leased office spaces and an asset impairment charge of $3.9 million for certain lease right-of-use assets and certain property, equipment and leasehold improvements. All client concessions and accounts receivable allowances have been appropriately reflected in our financial statements. To the extent that economic conditions do not continue to improve and our business is again disrupted the reinstatement of cost management actions will be considered. Future asset impairment charges, increases in allowance for doubtful accounts, or restructuring charges will be dependent on the severity and duration of the COVID-19 pandemic.

In light of the evolving health, social, economic and business environment, governmental regulations or mandates, and business disruptions that could occur, the potential impact that the COVID-19 pandemic could have on our financial condition and operating results in the future remains uncertain.

For more information, see “Our results of operations have been adversely affected and could in the future be materially adversely impacted by the coronavirus pandemic (COVID-19),” under Item 1A, “Risk Factors.”

Critical Accounting Policies and Estimates

In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations and financial position in conformity with generally accepted accounting principles in the United States (“GAAP”). Actual results could differ from those estimates under different assumptions and conditions. We believe the following discussion addresses our most critical accounting policies that have had or are reasonably likely to have a material impact on our financial condition or results of operations. These policies require management to exercise judgment on issues that are often difficult, subjective and complex due to the necessity of estimating the effect of matters that are inherently uncertain.

Revenue Recognition

Determining revenue recognition requires management to exercise judgment on the interpretation of service contracts which may include one or multiple performance obligations. The judgement management must make include determining whether the control of the goods and services provided are transferred to our customers at a point in time or over the course of the service period utilizing a proportionate performance approach.

In fixed-fee billing arrangements, which would also include contracts with capped fees, we set the fees based on our estimates of the costs and timing for completing the engagements. We generally recognize revenue under fixed-fee or capped fee arrangements using a proportionate performance approach, which is based on work completed to-date as compared to estimates of the total services to be provided under the engagement. Estimates of total engagement revenue and cost of services are monitored regularly during the term of the engagement based on the best available information. If our estimates indicate a potential loss, such loss is recognized in the period in which the loss first becomes probable and reasonably estimable.

Allowances for Doubtful Accounts

Periodically, we review accounts receivable to assess our estimates of collectability. When establishing allowances for doubtful accounts, management must base their judgment on the information available at that point in time, which may include historical experiences, current economic trends and client credit worthiness, to determine the likelihood of collectability.

Goodwill and Other Intangible Assets

Goodwill is tested at least annually for impairment. In assessing the recoverability of goodwill management makes estimates regarding market assumptions based on assumptions regarding various factors to determine if impairment tests are met. These estimates contain management’s judgment, using appropriate and customary assumptions available at the time. We performed our annual step one impairment test of our goodwill in the fourth quarter of fiscal 2021 and determined that goodwill was not impaired.

Other intangible assets are tested for potential impairment whenever events or changes in circumstances suggest that the carrying value of an asset may not be fully recoverable. If an evaluation is required, management estimates future undiscounted cash flows associated with the asset and compares this to the asset’s carrying amount to determine if there has been an impairment. Estimates of future undiscounted cash flows are based on management’s view of growth rates for the related business, anticipated future economic conditions and estimates of residual values.

Income Taxes

Management’s judgement is required in the calculation of the income tax provision. Deferred tax assets and liabilities are measured by using enacted tax rates expected to apply to taxable income in the years in which those differences 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 deferred tax asset will not be realized. An increase or decrease in the valuation allowance may result from a change in circumstances, and therefore a change in management’s judgment about the realizability of the related deferred tax asset.

Management adopted a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return in regards to the de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures.

Please refer to Note 1 “Basis of Presentation and General Information” to our consolidated financial statements included in our Annual Report on Form 10-K for the discussion of all of our critical accounting policies.

Results of Operations

Our fiscal year generally consists of a 52-week period and periodically consists of a 53-week period as each fiscal year ends on the Friday closest to December 31. Fiscal years 2021 and 2020 ended on December 31, 2021 and January 1, 2021, respectively. References to a year included in this document refer to a fiscal year rather than a calendar year.

The following table sets forth, for the periods indicated, our results of operations and the percentage relationship to revenue before reimbursements of such results (in thousands, except per share amounts).

Twelve Months Ended

December 31, January 1,

Revenue:

Costs and expenses:

Cost of service:

Non-cash stock compensation expense 6,360 6,255

Acquisition-related compensation expense (benefit) 11 50

Acquisition-related non-cash stock compensation expense 406 1,064

Non-cash stock compensation expense 3,356 2,421

Amortization of intangible assets 1,016 977

Total selling, general, and administrative expenses 59,187 21% 53,984 23%

Restructuring charges and asset impairments - 10,488

Other expense:

Interest expense (95 ) (126 )

Income from continuing operations before income taxes 46,381 17% 8,516 4%

Income from continuing operations (net of taxes) 41,552 5,645

Loss from discontinued operations (7 ) (172 )

Diluted net income per common share $ 1.26 $ 0.17

Comparison of 2021 to 2020

Overview. For fiscal year 2021, revenue before reimbursements increased 18% to $277.6 million, as compared to fiscal year 2020. Fiscal year 2021 results included a $5.3 million software sale transaction which was recorded in the second quarter of 2021 and a tax benefit for the exercise of 2.9 million SARs which was recorded in the fourth quarter of 2021. Together, these items positively impacted dilutive earnings per share by $0.33.

Fiscal 2020 results included restructuring charges for the reduction of staff in the U.S. and Europe and the impairment of our operating lease right-of-use assets and certain property, equipment and leasehold improvements relating to the reduction in office space as we have transitioned towards a remote work environment. Together, these items negatively impacted dilutive earnings per share by $0.24.

Revenue. We are a global company 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 affected by currency exchange rate fluctuations. The impact of the currency fluctuation did not have a significant impact on comparisons between 2021 and 2020. Revenue is analyzed based on geographic location of engagement team personnel.

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

Year Ended

December 31, January 1,

Revenue from continuing operations before reimbursement $ 277,583 $ 234,810

Our total Company revenue from continuing operations and before reimbursements increased 18%, to $277.6 million in 2021, as compared to $234.8 million in 2020. The 2021 revenue growth includes a $5.3 million software sale transaction which was recorded in the second quarter of 2021. Net revenue in 2020 were affected from the economic disruption of the COVID-19 pandemic. In addition, in each of the four quarters of 2021, our net revenue and diluted earnings per share grew when compared to the fourth quarter of 2020 reflecting a continuation of improved economic conditions.

In 2021 and 2020, no customer accounted for more than 5% of our total revenue.

S&BT net revenue from continuing operations increased 22% in 2021, to $108.2 million, as compared to $88.7 million in 2020 due to increased rates and increased utilization driven by the improved demand for enterprise digital transformation initiatives experienced since the end of third quarter of 2020.

EEA net revenue from continuing operations increased 19% in 2021, to $145.6 million, as compared to $122.6 million in 2020, primarily driven by strong growth across all practices driven by increased demand. In addition, net revenue in 2021 included a $5.3 million software sale transaction which was recorded in the second quarter of 2021. EEA excluding the software sale transaction was $140.4 million.

Hackett international net revenue from continuing operations increased1% in 2021, as compared to 2020. Europe continues to be impacted by lengthened client decision-making from economic uncertainty, which has been further impacted by the COVID-19 pandemic. Total Company international net revenue from continuing operations accounted for 9% of our total revenue in 2021, as compared to 10% in 2020.

Reimbursable expenses are project and travel-related expenses passed through to a client with no margin associated with them. Reimbursable expenses as a percentage of net revenue were 0% in 2021, as compared to 2% in 2020. The low percentage of reimbursements to net revenue in 2021 and 2020 is running lower than historical rates and is directly attributable to the decreases in travel requirements resulting from the COVID-19 pandemic and the transition to a more remote service-based delivery model during 2021 and 2020. Reimbursements are project travel-related expenses passed through to a client with no associated impact to gross margins or profitability.

Cost of Service. Cost of service primarily consists of salaries, benefits and incentive compensation for consultants and subcontractor fees; acquisition-related cash and stock compensation costs; non-cash stock compensation expense; and reimbursable expenses associated with projects.

Personnel costs from continuing operations increased 7%, to $165.1 million in 2021, from $154.3 million in 2020. The higher costs were primarily a result of increased hiring and utilization of subcontractors to support revenue growth in 2021, as well as increases in incentive compensation accruals commensurate with Company performance. Personnel costs before reimbursable expenses and as a percentage of revenue before reimbursements was 59% in 2021, as compared to 66% in 2020.

Non-cash stock compensation expense from continuing operations was $6.4 million in 2021 and $6.3 million in 2020. See Note 10, “Stock Based Compensation” to our consolidated financial statements included in this Annual Report on Form 10-K for further information.

Acquisition related non-cash stock compensation expense in 2021 and 2020 related to equity awards issued in relation to acquisitions.

Selling, General and Administrative(“SG&A”). SG&A costs from continuing operations, excluding non-cash compensation expense, acquisition related costs and the amortization of intangible assets increased 8% to $54.8 million in 2021, from $50.6 million in 2020. This increase was primarily due to higher sales commissions and incentive compensation accruals associated with increased Company performance. SG&A costs as a percentage of revenue before reimbursements were 20% in 2021 and 22% in 2020.

Non-cash compensation expense included in total SG&A increased to $3.4 million in 2021, as compared to $2.4 million in 2020 due to increased Company performance. See Note 10, “Stock Based Compensation” to our consolidated financial statements included in this Annual Report on Form 10-K for further information.

Amortization expense was $1.0 million in both 2021 and 2020. The amortization expense in both periods related to the amortization of the intangible assets acquired in our acquisitions and joint venture in 2017. The intangible assets related to the acquisitions will continue to amortize until 2022 and the intangible asset related to the joint venture completed amortizing in 2021.

Restructuring Charges and Asset Impairments. During 2020,we recorded restructuring costs of $6.6 million, which were primarily related to the reduction of staff in the U.S. and Europe as a result of the impact of the COVID-19 pandemic. In addition, during the fourth quarter of 2020, as a result of and in consideration of the COVID-19 pandemic, and the changing nature of our use of office space for our workforce, we evaluated our existing office space utilization as part of our transformation initiatives related to real estate. This evaluation resulted in the complete and partial abandonment of certain leased office spaces and a $3.9 million restructuring charge related to the asset impairment for certain lease right-of-use assets and certain property, equipment and leasehold improvements and other real estate related costs.

Interest Expense. In 2021 and 2020, we recorded interest expense of $95 thousand and $126 thousand, respectively. There was no outstanding debt in 2021 or 2020.

Income Taxes. During 2021, we recorded $4.8 million of income tax expense related to certain federal, foreign and state taxes which reflected an effective tax rate of 10.4% from continuing operations. During 2020, we recorded $2.9 million of income tax expense related to certain federal, foreign and state taxes which reflected an effective tax rate of 33.7% from continuing operations. The decrease in the tax rate for 2021 was primarily due to a tax benefit resulting from the exercise of 2.9 million SARs. The tax rate in 2020 included restructuring charges impacting countries with lower statutory income tax rates and changes in our overall profitability due to the impact of the COVID-19 pandemic.

Discontinued Operations. The discontinued operations related to the discontinuance of our European REL Working Capital group in 2018.

Liquidity and Capital Resources

As of December 31, 2021 and January 1, 2021, we had $45.8 million and $49.5 million, respectively, of cash and no outstanding debt under our credit facility. We currently believe that available funds (including the cash on hand and funds available for borrowing under our credit facility), and cash flows generated by operations will be enough to fund our cash requirements, including working capital, debt payments, lease obligations and capital expenditure for at least the next twelve months and beyond. We may decide to raise additional funds to support expansion, to develop new or enhance products and services, to respond to competitive pressures to return capital to shareholders or to acquire complementary businesses or technologies. There is no assurance, however, that additional financing will be available when needed or desired.

The following table summarizes our cash flow activity (in thousands):

Year Ended

December 31, January 1,

Cash flows provided by operating activities $ 46,353 $ 44,061

Cash flows used in investing activities $ (3,242 ) $ (1,893 )

Cash flows used in financing activities $ (46,739 ) $ (18,715 )

Cash Flows from Operating Activities

Net cash provided by operating activities was $46.4 million in 2021, as compared to $44.1 million in 2020. In 2021, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items, and an increase in contract liabilities and incentive compensation, partially offset by increased accounts receivable and contract assets. In 2020, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items, and decreased account receivables and contract assets, partially offset by lower accrued expenses and other liabilities.

Cash Flows from Investing Activities

Net cash used in investing activities was $3.2 million in 2021, as compared to $1.9 million in 2020. During 2021 and 2020, cash flows from investing activities included investments related to the continued development of our Quantum Leap benchmark technologies.

Cash Flows from Financing Activities

Net cash used in financing activities was $46.7 million in 2021, as compared to $18.7 million in 2020. 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, employee 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. The usage of cash in 2020 was primarily related to dividend payments of $14.9 million, the repurchase of Company common stock under our share repurchase program of $2.4 million and employee net vesting related tax withholding requirements of $2.1 million.

Material Cash Requirements

Debt Payments and Lease Obligations

As of December 31, 2021, we did not have any outstanding borrowings under our revolving line of credit, leaving us with borrowing capacity of approximately $45.0 million. See Note 8, “Credit Facility,” to our consolidated financial statements included in this Annual Report on Form 10-K for more information.

There were no material capital commitments as of December 31, 2021. The following table summarizes our future principal payments under our future lease commitments under our non-cancelable operating leases as of December 31, 2021 (in thousands):

Contractual Obligations Total Less Than 1 Year More Than 1 Year

Capital Expenditures

There were no material commitments for capital expenditures as of December 31, 2021. Our capital expenditures primarily consist of investments related to the continued development of our Quantum Leap benchmark technologies and laptop purchases. During the years ended December 31, 2021, and January 1, 2021, our capital expenditures were $3.2 million and $1.9 million, respectively. We expect capital expenditures for the year ended December 30, 2022, to approximate the capital expenditures in 2021.

Taxes

Cash paid for income taxes was $9.1 million and $4.7 million for the years ended December 31, 2021, and January 1, 2021, respectively. As a result of a tax deduction related to the exercise of 2.9 million SARs in 2021, we recorded an income tax receivable as of December 31, 2021, of $3.4 million, as compared to an income tax liability as of January 1, 2021 of $2.3 million. See Note 9, “Income Taxes” to our consolidated financial statements included in this Annual Report on Form 10-K for further information.

Dividends and Share Repurchases

During the fiscal year 2021, our Board of Directors approved four quarterly dividends payments of $0.10 per share totaling $12.9 million. Subsequent to year end, the Board of Directors approved a 10% increase in the quarterly dividend payments from $0.10 per share to $0.11 per share. We expect dividend payments in 2022 to be approximately $14.0 million.

We have an ongoing authorization from our Board of Directors to repurchase shares of our common stock. During 2021, we repurchased 749 thousand shares of common stock at an average price per share of $17.41, for a total cost of $13.0 million. As of December 31, 2021, we had $11.2 million share repurchase authorization remaining. Subsequent to fiscal year end, we repurchased 31 thousand shares of the Company’s common stock from members of our Board of Directors for a total of $0.6 million, or $20.50 per share. Including these repurchases, we had approximately $10.6 million available for future repurchases under the plan as of March 4, 2022.

Shares purchased under the repurchase plan do not include shares withheld to satisfy withholding tax obligations. These withheld shares are never issued and in lieu of issuing the shares, taxes were paid on our employee’s behalf. In 2021, 1.1 million shares were withheld and not issued for 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 settlement of the 2.9 million SARs for a cost of $19.7 million. In 2020, 139 thousand shares were withheld and not issued for a cost of $2.1 million, bringing the total cumulative cash used to repurchase stock in 2020 to $4.5 million.

Recently Issued Accounting Standards

For discussion of recently issued accounting standards, see Note 1 to our consolidated financial statements included in this Annual Report on Form 10-K.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of December 31, 2021, our exposure to market risk related primarily to changes in interest rates and foreign currency exchange rate risks.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to the credit facility, which is subject to variable interest rates. The interest rates per annum applicable to loans under the credit facility will be, at our option, equal to either a base rate or a LIBOR rate for one-, two-, three- or nine-month interest periods chosen by us in each case, plus an applicable margin percentage. A 100-basis point increase in our interest rate under our credit facility would not have had a material impact on our 2021 results of operations.

Exchange Rate Sensitivity

We face exposure to adverse movements in foreign currency exchange rates, as a portion of our revenue, expenses, assets and liabilities are denominated in currencies other than the U.S. Dollar, primarily the British Pound, the Euro, the Canadian Dollar and the Australian Dollar. We recognized income related to foreign currency exchange of $0.1 million, $49 thousand, and $0.1 million in 2021, 2020 and 2019, respectively. These exposures may change over time as business practices evolve. Currently, we do not hold any derivative contracts that hedge our foreign currency risk, but we may adopt such strategies in the future.

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

THE HACKETT GROUP, INC.

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID:49) 29

Consolidated Balance Sheets as of December 31, 2021 and January 1, 2021 31

Notes to Consolidated Financial Statements 36

Schedule II – Valuation and Qualifying Accounts and Reserves 54

Report of Independent Registered Public Accounting Firm

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

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of The Hackett Group, Inc. and its subsidiaries (the Company) as of December 31, 2021, and January 1, 2021, the related consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes to the consolidated financial statements and schedule (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and January 1, 2021, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 4, 2022 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion

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

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

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (i) relates to accounts or disclosures that are material to the financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition for Fixed-fee Billing Arrangements

As described in Note 1 to the financial statements, the Company generates substantially all of its revenue from providing professional services to its clients. In fixed-fee billing arrangements, the Company agrees to a pre-established fee or fee cap in exchange for a predetermined set of professional services. The Company sets the fees based on its estimates of the costs and timing for completing the engagements. The Company generally recognizes revenue under these arrangements using an input method approach, which is a subjective 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 revenue and cost of services are monitored regularly during the term of the engagement.

We identified the measurement of progress for the purpose of revenue recognition under fixed-fee billing arrangements as a critical audit matter. Auditing management’s assumptions to estimate total engagement revenue and cost of services for the contract performance obligations used to recognize revenue for fixed-fee billing arrangements, involved a high degree of subjectivity and increased audit effort.

Our audit procedures related to the Company’s revenue recognition for fixed-fee billing arrangements included the following, among others:

• We tested a sample of fixed-fee billing arrangements as follows:

/s/ RSM US LLP

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

Miami, Florida

March 4, 2022

THE HACKETT GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

December 31, January 1,

ASSETS

Current assets:

Prepaid expenses and other current assets 5,766 2,599

Operating lease right-of-use assets 1,649 2,578

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accrued expenses and other liabilities 30,297 25,084

Commitments and contingencies

Shareholders' equity:

Retained earnings (accumulated deficit) 11,272 (17,388 )

Accumulated other comprehensive loss (10,473 ) (9,568 )

Total liabilities and shareholders' equity $ 207,541 $ 192,545

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

THE HACKETT GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

Year Ended

December 31, January 1, December 27,

Revenue:

Costs and expenses:

Cost of service:

Restructuring charges and asset impairments — 10,488 4,514

Acquisition-related contingent consideration liability — — (1,133 )

Other expense:

Income from continuing operations before income taxes 46,381 8,516 31,027

Loss from discontinued operations (net of taxes) (7 ) (172 ) (6 )

Basic net income per common share:

Income per common share from continuing operations $ 1.38 $ 0.19 $ 0.78

Loss per common share from discontinued operations (0.00 ) $ (0.01 ) $ (0.00 )

Basic net income per common share $ 1.38 $ 0.18 $ 0.78

Diluted net income per common share:

Income per common share from continuing operations $ 1.26 $ 0.17 $ 0.72

Loss per common share from discontinued operations (0.00 ) $ (0.00 ) $ (0.00 )

Diluted net income per common share $ 1.26 $ 0.17 $ 0.72

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

THE HACKETT GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

Year Ended

December 31, January 1, December 27,

Foreign currency translation adjustment, net of income taxes (905 ) 982 844

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

THE HACKETT GROUP, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

Additional Accumulated

Common Stock Paid in Treasury Stock Retained Other Total

Earnings Comprehensive Shareholders'

Shares Amount Capital Shares Amount (Deficit) Loss Equity

Issuance of common stock, net 573 1 (1,717 ) — — — — (1,716 )

Treasury stock purchased — — — (339 ) (5,283 ) — — (5,283 )

Amortization of restricted stock units

and common stock subject to

vesting requirements — — 8,469 — — — — 8,469

Foreign currency translation — — — — — — 844 844

Issuance of common stock, net 415 — (1,451 ) — — — — (1,451 )

Treasury stock purchased — — — (184 ) (2,367 ) — — (2,367 )

Amortization of restricted stock units

and common stock subject to

vesting requirements — — 9,783 — — — — 9,783

Dividends declared — — — — — (9,147 ) — (9,147 )

Foreign currency translation — — — — — — 982 982

Amortization of restricted stock units

and common stock subject to

vesting requirements — — 9,061 — — — — 9,061

Foreign currency translation — — — — — — (905 ) (905 )

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

THE HACKETT GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Year Ended

December 31, January 1, December 27,

Cash flows from operating activities:

Plus loss from discontinued operations, net of taxes (7 ) (172 ) (6 )

Adjustments to reconcile net income from continuing operations to net

cash provided by operating activities from continuing operations:

Amortization of debt issuance costs 45 69 91

Gain on foreign currency transactions (130 ) (49 ) (90 )

Deferred income tax (benefit) expense 1,469 (1,438 ) 999

Changes in assets and liabilities, net of acquisition:

(Increase) decrease in prepaid expenses and other assets (2,153 ) 261 1,450

Cash flows from investing activities:

Purchases of property and equipment (3,242 ) (1,893 ) (4,568 )

Cash consideration paid for acquisitions — — (1,010 )

Net cash used in investing activities (3,242 ) (1,893 ) (5,578 )

Cash flows from financing activities:

Proceeds from borrowings — — 1,000

Payment of debt borrowings — — (7,500 )

Debt issuance costs (4 ) (21 ) —

Proceeds from issuance of common stock 755 751 806

Effect of exchange rate on cash (33 ) 48 60

Supplemental disclosure of cash flow information:

Cash paid for interest $ 57 $ 57 $ 231

Supplemental disclosure of non-cash investing and financing activities:

Dividend declared during the year and paid the following year $ - $ - $ 5,791

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

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information

Nature of Business

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

Basis of Presentation and Consolidation

The accompanying consolidated financial statements include the Company’s accounts and those of its wholly owned subsidiaries which the Company is required to consolidate. The Company consolidates the assets, liabilities, and results of operations of its entities. Intercompany transactions and balances are eliminated upon consolidation.

Fiscal Year

The Company’s fiscal year generally consists of a 52-week period and periodically consists of a 53-week period as each fiscal year ends on the Friday closest to December 31. Fiscal years 2021, 2020, and 2019 ended on December 31, 2021, January 1, 2021, and December 27, 2019, respectively. References to a year included in the consolidated financial statements refer to a fiscal year rather than a calendar year.

Cash

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 temporary cash investments with high credit quality financial institutions. At times, such balances may be in excess of the F.D.I.C. insurance limits.

Allowance for Doubtful Accounts

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

Dividends

In December 2012, the Company’s Board of Directors approved the initiation of an annual cash dividend in the amount of $0.10 per share. The Company’s Board of Directors has been gradually increasing the dividend over the years. In 2019, 2020 and 2021, the Company’s Board of Directors approved an increase in the annual dividend to $0.36 per share, $0.38 per share, and to $0.40 per share, respectively. During 2021, the Company funded four quarterly dividend payments. Subsequent to 2021, the Company’s Board of Directors approved the increase in the annual dividend from $0.40 to $0.44 per share to be paid on a quarterly basis and declared the first quarterly dividend of 2022. The dividend policy is reviewed periodically by the Board of Directors. The amount and timing of all dividend payments is subject to the discretion of the Board of Directors and will depend upon business conditions, contractual obligations, legal restrictions, results of operations, financial conditions and other factors.

Property and Equipment, Net

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

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information (continued)

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

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

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

Business Combinations

For transactions that are considered business combinations, the purchased assets and assumed liabilities are recorded at fair value at acquisition date, and identifiable intangible assets are recorded at fair value. Costs directly related to the business combinations are recorded as expenses as they are incurred. Fair values are subject to refinement during the measurement period of up to one year after the closing date of an acquisition as information relative to closing date fair values become available.

Goodwill and Other Intangible Assets

Goodwill and intangible assets deemed to have indefinite lives are not amortized, but rather are tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate potential impairment. Finite-lived intangible assets are amortized over their useful lives. The excess cost of the acquisition over the fair value of the net assets acquired is recorded as goodwill.

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

The Company performed its annual step one impairment test of goodwill in the fourth quarter of fiscal years 2021 and 2020 and determined that goodwill was not impaired. The carrying amount and activity of goodwill attributable to The Hackett Group and Hackett Technology Solutions was as follows (in thousands):

Hackett

The Hackett Technology

Group Solutions Total

Foreign currency translation adjustment 719 — 719

Foreign currency translation adjustment (227 ) — (227 )

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

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information (continued)

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

December 31, January 1,

Foreign currency translation adjustment — (7 )

All of the Company’s intangible assets are expected to be fully amortized in 2022. For the years ended December 31, 2021, January 1, 2021 and December 27, 2019, the Company recorded $1.0 million of amortization expense in each year. The estimated future amortization expense of intangible assets as of December 31, 2021 is $0.2 million in 2022.

Revenue Recognition

The Company generates substantially all of its revenue from providing professional services to its clients. The Company also generates revenue from software licenses, software support and maintenance and subscriptions to its executive and best practices advisory programs. A single contract could include one or multiple performance obligations. For those contracts that have multiple performance obligations, the Company allocates the total transaction price to each performance obligation based on its relative standalone selling price. The Company determines the standalone selling price based on the respective selling price of the individual elements when sold separately.

Revenue is recognized when control of the goods and services provided are transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those goods and services using the following steps: 1) identify the contract, 2) identify the performance obligations, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue as or when the Company satisfies the performance obligations.

The Company typically satisfies its performance obligations for professional services over time as the related services are provided. The performance obligations related to software support, maintenance and subscriptions to its executive and best practice advisory programs are typically satisfied evenly over the course of the service period. Other performance obligations, such as software licenses, are satisfied at a point in time.

The Company generates revenue under four types of billing arrangements: fixed-fee (including software license revenue); time-and-materials; executive and best practice advisory services; and software sales and software maintenance and support.

In fixed-fee billing arrangements, which would also include contracts with capped fees, the Company agrees to a pre-established fee or fee cap in exchange for a predetermined set of professional services. The Company sets the fees based on its estimates of the costs and timing for completing the engagements. The Company generally recognizes revenue under fixed-fee or capped fee arrangements using a proportionate performance approach, which is based on work completed to-date as compared to estimates of the total services to be provided under the engagement. Estimates of total engagement revenue and cost of services are monitored regularly during the term of the engagement. If the Company’s estimates indicate a potential loss, such loss is recognized in the period in which the loss first becomes probable and reasonably estimable. The customer is invoiced based on the contractual agreement between the parties, typically bi-weekly, monthly or milestone driven, with net thirty-day terms, however client terms are subject to change.

Time-and-material billing arrangements require the client to pay based on the number of hours worked by the Company’s consultants at agreed upon hourly rates. The Company recognizes revenue under time-and-material arrangements as the related services or goods are provided, using the right to invoice practical expedient which allows it to recognize revenue in the amount based on the number of hours worked and the agreed upon hourly rates. The customer is invoiced based on the contractual agreement between the parties, typically bi-weekly, monthly or milestone driven, with net thirty-day terms, however client terms are subject to change.

Advisory services contracts are typically in the form of a subscription agreement which allows the customer access to the Company’s executive and best practice advisory programs. There is typically a single performance obligation and the transaction price is the contractual amount of the subscription agreement. Revenue from advisory services contracts is recognized ratably over the life of the agreements. Customers are typically invoiced at the inception of the contract, with net thirty-day terms, however client terms are subject to change.

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information (continued)

The resale of software and maintenance contracts are in the form of SAP America software license or maintenance agreements provided by SAP America. SAP is the principal and the Company is the agent in these transactions as the Company does not obtain title to the software and maintenance which is sold simultaneously. The transaction price is the Company’s agreed-upon percentage of the software license or maintenance amount in the contract with the vendor. Revenue for the resale of software licenses is recognized upon contract execution and customer’s receipt of the software. Revenue from maintenance contracts is recognized ratably over the life of the agreements. The customer is typically invoiced at contract inception, with net thirty-day terms, however client terms are subject to change.

Revenue before reimbursements excludes reimbursable expenses charged to clients. Reimbursements, which include travel and out-of-pocket expenses, are included in revenue, and an equivalent amount of reimbursable expenses is included in cost of service.

The payment terms and conditions in the Company’s customer contracts vary. The agreements entered into in connection with a project, whether time and materials-based or fixed-fee or capped-fee based, typically allow clients to terminate early due to breach or for convenience with 30 days’ notice. In the event of termination, the client is contractually required to pay for all time, materials and expenses incurred by the Company through the effective date of the termination. In addition, from time to time the Company enters into agreements with its clients that limit its right to enter into business relationships with specific competitors of that client for a specific time period. These provisions typically prohibit the Company from performing a defined range of services which it might otherwise be willing to perform for potential clients. These provisions are generally limited to six to twelve months and usually apply only to specific employees or the specific project team.

Differences 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 for services performed but not yet billed to clients are recorded as contract assets. Revenue recognized, but for which are not yet entitled to bill because certain events, such as the completion of the measurement period, are recorded as contract assets and included within contract assets. Client prepayments are classified as contract liabilities and recognized over future periods as earned in accordance with the applicable engagement agreement. See Note 3 for the accounts receivable and contract asset balances. During the 12 months ended December 31, 2021, the Company recognized $8.3 million of revenue as a result of changes in the contract liability balance, as compared to $9.2 million for the twelve months ended January 1, 2021.

The following table reflects the Company’s disaggregation of revenue before reimbursements from continuing operations for the twelve months ended December 31, 2021, and January 1, 2021:

Year Ended

December 31, January 1, December 27,

Capitalized Sales Commissions

Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized as project revenue is recognized. The Company 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 31, 2021, and January 1, 2021, the Company had $1.6 million, and $1.5 million, respectively, of deferred commissions, of which $1.0 million and $1.5 million was amortized during the 12 months ended December 31, 2021 and January 1, 2021, respectively.

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information (continued)

Practical Expedients

The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be less than one year.

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

Expense reimbursements that are billable to clients are included in total revenue and are substantially all billed as time-and-material billing arrangements. Therefore, the Company recognizes all reimbursable expenses as revenue as the related services are provided, using the right to invoice practical expedient. Reimbursable expenses are recognized as expenses in the period in which the expense is incurred. Any expense reimbursements that are billable to clients under fixed-fee billing arrangements are recognized in line with the proportionate performance approach.

Stock Based Compensation

The Company recognizes compensation expense for awards of equity instruments to employees based on the grant-date fair value of those awards, with limited exceptions, over the requisite service period.

Restructuring Reserves

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

Income Taxes

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

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

Discontinued Operations

The Company made the strategic decision to exit Company’s European REL Working Capital business at the end of fiscal 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 project sales of this group down across all of Europe.

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information (continued)

As of December 31, 2021, and January 1, 2021, the Company did not have any carrying amounts of the major classes of assets and liabilities presented in discontinued operations in its consolidated balance sheet.

The following table presents the gain and loss results for the Company’s discontinued operations (in thousands):

Year Ended

December 31, January 1, December 27,

Revenue:

Revenue before reimbursements $ - $ - $ 75

Reimbursements — — 17

Total revenue — — 92

Costs and expenses:

Cost of service:

Personnel costs before reimbursable expenses 7 8 28

Reimbursable expenses — — 17

Total cost of service 7 8 45

Selling, general and administrative costs — 165 52

Total costs and operating expenses 7 173 97

Loss from discontinued operations before income taxes (7 ) (173 ) (5 )

Income tax (benefit) expense — (1 ) 1

Loss from discontinued operations $ (7 ) $ (172 ) $ (6 )

Net Income per Common Share

Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. With regards to common stock subject to vesting requirements and restricted stock units issued to employees, the calculation includes only the vested portion of such stock.

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

The following table reconciles basic and diluted weighted average shares:

Year Ended

December 31, January 1, December 27,

Effect of dilutive securities:

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, accounts receivable and contract assets, accounts payable and accrued expenses and other liabilities. As of December 31, 2021 and January 1, 2021, the carrying amount of each financial instrument, with the exception of debt, approximated the instrument’s fair value due to the short-term nature and maturity of these instruments.

The Company uses significant other observable market data or assumptions (Level 2 inputs as defined in accounting guidance) that it believes market participants would use in pricing debt. The fair value of the debt approximated its carrying amount using Level 2 inputs, due to the short-term variable interest rates based on market rates utilizing the market approach.

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information (continued)

Concentration of Credit Risk

The Company provides services primarily to Global 2000 companies and other sophisticated buyers of business consulting and information technology services. The Company performs ongoing credit evaluations of its major customers and maintains reserves for potential credit losses. In 2021, 2020, and 2019 no customer accounted for more than 5% of total revenue.

Management’s Estimates

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

Other Comprehensive Income

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

Segment Reporting

The Company engages in business activities in one operating segment, which provides business and technology consulting services.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12 providing guidance to reduce complexity in certain areas of accounting for income taxes. The new guidance is effective fiscal years beginning after December 15, 2020. The adoption did not have a material impact on the Company’s consolidated financial statements.

Reclassifications

Certain prior period amounts in the consolidated financial statements, and notes thereto, have been reclassified to conform to current year presentation with no effect on net income or shareholder’s equity.

2. Fair Value Measurement

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

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

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

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

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Accounts Receivable and Contract Assets, Net

Accounts receivable and contract assets, net, consists of the following (in thousands):

December 31, January 1,

Contract assets (unbilled revenue) 22,586 9,485

Allowance for doubtful accounts (2,702 ) (605 )

Accounts receivable as of December 31, 2021, and January 1, 2021, is net of uncollected advanced billings. Contract assets as of December 31, 2021, and January 1, 2021 includes recognized recoverable costs and accrued profits on contracts for which billings had not been presented to clients.

4. Property and Equipment, net

December 31, January 1,

Depreciation expense for the years ended December 31, 2021, January 1, 2021, and December 27, 2019, was $3.4 million, $3.5 million, and $3.2 million, respectively, and is included in selling, general and administrative costs in the accompanying consolidated statements of operations.

5. Accrued Expenses and Other Liabilities

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

December 31, January 1,

Accrued compensation and benefits $ 7,730 $ 6,696

Deferred employer's payroll taxes 1,780 3,560

Accrued sales, use, franchise and VAT tax 1,783 2,550

Non-cash stock compensation accrual 1,357 295

Income tax payable — 2,308

Total accrued expenses and other liabilities $ 30,297 $ 25,084

As a result of the tax deduction related to the exercise of the 2.9 million SARs in 2021, the Company has recorded an income tax receivable of $3.4 million to prepaid expenses and other current assets on the consolidated balance sheet.

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Restructuring Charges and Asset Impairments

During 2020, the Company recorded restructuring charges of $10.5 million, of which $5.7 million was primarily related to the reduction of staff in the U.S. and Europe due to the impact of the COVID-19 pandemic and $4.8 million of which primarily related to real estate leases. In consideration of the COVID-19 pandemic and the changing nature of the Company’s use of office space for its workforce, the Company evaluated its existing office space utilization and made a determination to completely or partially abandon certain leased office spaces. As a result, the Company recorded restructuring charges of $4.8 million, primarily relating to the impairment of certain lease right-of-use assets, property, equipment and leasehold improvements and other real estate related costs.See Note 7 for further discussion.

During 2019, the Company recorded restructuring charges of $3.3 million, which was primarily related to the reduction of staff in Europe and Australia. In addition, as a result of the decline in the Europe market and management’s efforts to focus on resources within the markets that provide the Company with the strongest growth opportunity, in 2019 the Company made the determination that the remaining investment in its Hackett Institute Enterprise Analytics Program was impaired and recorded an asset impairment of $1.2 million. See Note 7 for further discussion.

The Company did not record any restructuring charges or asset impairments in 2021.

The following table summarizes the costs incurred in connection with the 2020 and 2019 restructuring charges and asset impairments (in thousands):

Twelve Months Ended

January 1, December 27,

Lease right-of-use asset impairment charges 3,545 -

Property, equipment and lease improvement impairment charges 340 1,180

Other lease related restructuring costs 893 422

The following table summarizes the Company’s restructuring activities recorded in accrued expenses and other liabilities (in thousands):

Employee Related Exit, Closure and Consolidation

Costs of Facilities Total

7. Lease Commitments

Effective December 29, 2018, the Company adopted the new lease accounting standard. The Company has operating leases for office space and, to a much lesser extent, operating leases for equipment. The Company’s office leases are between terms of 1 and 4 years. Rents usually increase annually in accordance with defined rent steps or are based on current year consumer price index adjustments. Some of the lease agreements contain one or more of the following provisions or clauses: tenant allowances, rent holidays, lease premiums, and rent escalation clauses. There are typically no purchase options, residual value guarantees or restrictive covenants. When renewal options exist, the Company generally does not deem them to be reasonably certain to be exercised, and therefore the amounts are not recognized as part of our lease liability nor our right-of use-asset.

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Lease Commitments (continued)

The weighted average remaining lease term is 1.0 year. The weighted average discount rate utilized is 4%. The discount rates applied to each lease, reflects the Company’s estimated incremental borrowing rate. This includes an assessment of the Company’s credit rating to determine the rate that the Company would have to pay to borrow, on a collateralized basis for a similar term, an amount equal to the Company’s lease payments in a similar economic environment. For the twelve months ended December 31, 2021, the Company paid $2.6 million from operating cash flows for operating leases.

The Company has operating lease agreements for its premises that expire on various dates through December 2024. Lease expense for the years ended December 31, 2021, January 1, 2021, and December 27, 2019, was $1.0 million, $2.5 million and $2.8 million, respectively. The components of lease expense during the fiscal years ended December 31, 2021, January 1, 2021, and December 27, 2019, all related to operating lease costs.

Future minimum lease commitments under non-cancelable operating leases as of December 31, 2021, are as follows (in thousands):

Rental

Payments

Thereafter —

As of December 31, 2021, the Company does not have any additional operating leases that have not yet commenced that create significant rights and obligations for the Company.

8. Credit Facility

The Company entered into a credit agreement with Bank of America, N.A. ("Bank of America"), pursuant to which Bank of America agreed to lend the Company up to $45.0 million pursuant to a revolving line of credit (the “Revolver”) with a maturity date of May 9, 2021 (the “Credit Agreement”).

On April 3, 2020, the Company amended the Credit Agreement with Bank of America to extend the maturity date to November 30, 2022. The amendment also increased the interest payable on outstanding loans in respect to the Revolver by an additional per annum rate of 0.50% and provided for a LIBOR floor of 75 basis points. The borrowing capacity remained at $45.0 million.

The obligations of Hackett under the Credit Facility are guaranteed by active existing and future material U.S. subsidiaries of Hackett (the “U.S. Subsidiaries”) and are secured by substantially all of the existing and future property and assets of Hackett and the U.S. Subsidiaries, a 100% pledge of the capital stock of the U.S. Subsidiaries, and a 66% pledge of the capital stock of Hackett’s direct foreign subsidiaries (subject to certain exceptions).

The interest rates per annum applicable to loans under the Credit Facility will be, at the Company’s option, equal to either a base rate or a LIBOR base rate, plus an applicable margin percentage. The applicable margin percentage is based on the consolidated leverage ratio, as defined in the Credit Agreement. As of December 31, 2021, the applicable margin percentage was 1.50% per annum based on the consolidated leverage ratio, in the case of LIBOR rate advances, and 0.75% per annum, in the case of base rate advances. The interest rate of the commitment fee as of December 31, 2021, was 0.125%.

The Company is subject to certain covenants, including total consolidated leverage, fixed cost coverage, adjusted fixed cost coverage and liquidity requirements, each as set forth in the Credit Agreement, subject to certain exceptions. As of December 31, 2021, the Company was in compliance with all covenants.

The Company incurred $4 thousand and $21 thousand of incremental debt issuance costs in 2021 and 2020 as a result of the credit agreement discussions and the 2020 extension. No debt issue costs were incurred in 2019. As of December 31, 2021, the Company had $47 thousand of debt issuance costs remaining which will be amortized over the remaining life of the Credit Facility. These costs are included in Prepaid expenses and other current assets in the accompanying consolidated balance sheet.

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. Credit Facility (continued)

As of December 31, 2021, and January 1, 2021, the Company did not have any outstanding debt balance on the Revolver. During fiscal 2019, the Company borrowed $1.0 million and paid down $7.5 million,leaving no outstanding balance as of December 27, 2019.

9. Income Taxes

The Company files federal income tax returns, as well as multiple state, local and foreign jurisdiction tax returns. A number of years may elapse before an uncertain tax position is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution on any particular uncertain tax position, the Company believes that its reserves for income taxes reflect the most probable outcome. The Company adjusts these reserves, as well as the related interest, in the light of changing facts and circumstances. The resolution of a matter would be recognized as an adjustment to the provision for income taxes and the effective tax rate in the period of resolution. The Company is no longer subject to examinations of its federal income tax returns by the Internal Revenue Service for years through 2017 and all significant state, local and foreign matters have been concluded for years through 2016.

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

Year Ended

December 31, January 1, December 27,

Income from continuing operations before income taxes $ 46,381 $ 8,516 $ 31,027

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

Year Ended

December 31, January 1, December 27,

Current tax expense

Deferred tax expense (benefit)

Income tax expense from continuing operations $ 4,829 $ 2,871 $ 7,744

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Income Taxes (continued)

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

Year Ended

December 31, January 1, December 27,

U.S. statutory income tax expense rate 21.0 % 21.0 % 21.0 %

State income taxes, net of federal income tax expense 1.6 6.8 4.3

Valuation reduction 0.1 (0.6 ) 1.2

Meals and entertainment — 0.6 0.5

Foreign rate differential 0.3 0.9 —

Share based compensation (13.2 ) 2.4 (1.3 )

Purchase accounting — — (0.8 )

Foreign exchange loss (0.1 ) 0.2 0.2

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

Year Ended

December 31, January 1,

Deferred income tax assets:

Allowance for doubtful accounts $ 681 $ 169

Net operating loss and tax credits carryforward 2,562 3,485

Accrued expenses and other liabilities 5,014 5,575

Deferred income tax liabilities:

Tax over book amortization on goodwill and intangibles (9,548 ) (8,966 )

Net deferred income tax liability $ (7,325 ) $ (5,588 )

As of December 31, 2021, the Company had $0.9 million of U.S. state net operating loss carryforwards. Additionally, at December 31, 2021, the Company had $7.0 million of foreign net operating loss carryforwards primarily from operations in the United Kingdom, Germany, France and Australia. A significant amount of the foreign net operating losses may be carried forward indefinitely.

The liability method of accounting for deferred income taxes requires a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In determining the need for valuation allowances the Company considers evidence such as history of losses and general economic conditions. At December 31, 2021, and January 1, 2021, the Company had a valuation allowance of $1.6 million to reduce deferred income tax assets, primarily related to foreign net operating loss carryforwards, to the amounts expected to be realized.

The undistributed earnings in foreign subsidiaries as of December 31, 2021, was approximately $5.4 million. The Company has historically reinvested its foreign earnings abroad indefinitely and continues to reinvest future earnings abroad.

Penalties and tax-related interest expense are reported as a component of income tax expense. For the years ended December 31, 2021, and January 1, 2021, the total amount of accrued income tax-related interest and penalties was $179 thousand and $167 thousand, respectively.

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Income Taxes (continued)

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

The following table sets forth the detail and activity of the ASC 740 liability during the years ended December 31, 2021 and January 1, 2021 (in thousands):

Year Ended

December 31, January 1,

Additions based on tax positions 12 12

As of December 31, 2021, and January 1, 2021, the ASC 740-10, “Accounting for Uncertainty in Income Taxes”, liability of $0.4 million for both periods was classified as a current liability and included in accrued expenses and other liabilities in the accompanying 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 31, 2021 and January 1, 2021 would have a favorable impact on the effective tax rate in future period.

10. Stock Based Compensation

Stock Plans

Total share-based compensation included in net income for the years ended December 31, 2021, January 1, 2021, and December 27, 2019, is as follows:

Year Ended

December 31, January 1, December 27,

Common stock subject to vesting requirements 406 1,064 954

The number of shares available for future issuance under the Company's stock plans as of December 31, 2021, were 1,162,406. The Company issues new shares as they are required to be delivered under the plan.

Stock Options and SARs

The Company has granted stock options to employees and directors of the Company at exercise prices equal to the fair value of the stock at the date of grant. The options generally vest ratably over four years, based on continued employment, with a maximum term of ten years. Stock option activity under the Company’s stock option plans for the year ended December 31, 2021, is summarized as follows:

Forfeited or expired — —

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Stock Based Compensation (continued)

A summary of the Company’s stock option activity for the years ended January 1, 2021, and December 27, 2019, was as follows:

Exercised — — — —

Forfeited or expired — — (167 ) 3.63

The intrinsic value of the options that were exercised in 2021 was $2.4 million.

SAR activity for the year ended December 31, 2021, was as follows:

Expired — — —

Outstanding as of December 31, 2021 — — —

Exercisable at December 31, 2021 — — —

The intrinsic value of the SARs that were exercised in 2021 was $46.1 million.

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

Restricted Stock Units

Under the stock plans, participants may be granted restricted stock units, each of which represents a conditional right to receive a common share in the future. The restricted stock units granted under this plan generally vest over one of the following vesting schedules: (1) a four -year period, with 50% vesting on the second anniversary and 25% of the shares vesting on the third and fourth anniversaries of the grant date, (2) a four -year period, with 25% vesting on the first, second, third and fourth anniversary, (3) a three -year period with 33% vesting on the first, second and third anniversary, or (4) a one-year period with 100% vest on the first anniversary. Upon vesting, the restricted stock units will convert into an equivalent number of shares of common stock. The amount of expense relating to the restricted stock units is based on the closing market price of the Company’s common stock on the date of grant and is amortized on a straight-line basis over the applicable requisite service period. Restricted stock unit activity for the year ended December 31, 2021, was as follows:

Number of Restricted Stock Units Weighted Average Grant-Date Fair Value

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Stock Based Compensation (continued)

The Company recorded restricted stock units-based compensation expense of $9.7 million, $8.7 million and $6.8 million in 2021, 2020, and 2019 respectively, which is included in stock compensation expense, based on the vesting provisions of the restricted stock units and the fair value of the stock on the grant date. As of December 31, 2021, there was $9.2 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 2.2 years. The Company accounts for certain restricted stock units under liability accounting as a result of the fixed monetary amount and a variable number of shares that will be issued.

Common Stock Subject to Vesting Requirements

Shares of common stock subject to vesting requirements were issued to employees of acquired companies. These shares vest over a period of up to four years. Compensation expense was based on the fair value of the Company’s common stock at the time of grant and is recognized on a straight-line basis. The activity for common stock subject to vesting requirements for the year ended December 31, 2021, was as follows:

Common stock subject to vesting requirements of $1.0 million was issued in 2019 in relation to acquisitions. These shares are subject to up to a four-year vesting period.

The Company recorded compensation expense of $0.4 million, $1.1 million and $1.0 million, during the years ended December 31, 2021, January 1, 2021, and December 27, 2019, respectively, related to common stock subject to vesting requirements.

As of December 31, 2021, there was $27 thousand of total stock-based compensation expense related to common stock granted subject to vesting requirements not yet recognized, which is expected to be recognized over a weighted average period of 1.8 years.

11. Shareholders’ Equity

Employee Stock Purchase Plan

Effective July 1, 1998, the Company adopted an Employee Stock Purchase Plan to provide substantially all employees who have completed three months of service as of the beginning of an offering period an opportunity to purchase shares of its common stock through payroll deductions. Purchases on any one grant are limited to 10% of eligible compensation. Shares of the Company’s common stock may be purchased by employees at six -month intervals at 95% of the fair value on the last trading day of each six-month period. The aggregate fair value, determined as of the first trading date of the offering period, of shares purchased by an employee may not exceed $25,000 annually. In 2017, the Company’s Board of Directors and the Company’s shareholders approved an extension of the Employee Stock Purchase Plan to July 1, 2023, from July 1, 2018 and added an additional 250,000 shares of common stock which increased the total available shares of common stock to 279,606 at that time. As of year-end 2021, a total of 32,069 sharesof common stock were available for purchase under the plan. For plan years 2021, 2020 and 2019, 41,504 shares, 56,679 shares and 51,548 shares, respectively, were issued for total proceeds of $0.8 million in each year. On February 17, 2022, the Company’s Board of Directors approved an extension of the Employee Stock Purchase Plan to July 1, 2028 from July 1, 2023 and added an additional 250,000 shares of common stock, subject to the Company’s shareholders approval in May 2022.

Treasury Stock

On July 30, 2002, the Company announced that its Board of Directors approved the repurchase of up to $5.0 million of the Company’s common stock. Since the inception of the repurchase plan, the Board of Directors approved the repurchase of an additional $162.2 million of the Company’s common stock, thereby increasing the total program size to $167.2 million as of December 31, 2021. As of December 31, 2021, the Company had affected cumulative purchases under the plan of $155.9 million, leaving $11.2 millionavailable for future purchases. There is no expiration of the authorization. Under the repurchase plan, the Company may buy back shares of its outstanding stock from time to time either on the open market or through privately negotiated transactions, subject to market conditions and trading restrictions.

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Shareholders’ Equity (continued)

During 2021 and 2020, the Company repurchased 749 thousand and 184 thousand shares of its common stock, respectively, at an average price per share of $17.42 and $12.84, respectively, for a total cost of $13.0 million and $2.4 million, respectively. As of December 31, 2021, and January 1, 2021, the Company had repurchased under the plan inception to date 28.3 million and 27.6 million shares of its common stock, respectively, at an average price of $5.51 per share and $5.19 per share, respectively. During 2021, the Company repurchased 24 thousand shares of its common stock from members of its Board of Directors for $0.4 million or $16.05 per share. The proceeds from the sale of these shares were used in part to cover estimated tax liabilities associated with previously vested restricted stock units.

The Company holds repurchased shares of its common stock as treasury stock and accounts for treasury stock under the cost method.

Shares purchased under the repurchase plan do not include shares withheld to satisfy withholding tax obligations. These withheld shares are never issued and in lieu of issuing the shares, taxes were paid on the employee’s behalf. In 2021, 1.1 million shares were withheld and not issued for 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. In 2020, 139 thousand shares were withheld and not issued for a cost of $2.1 million, bringing the total cumulative cash used to repurchase stock in 2020 to $4.5 million. The shares withheld for taxes are included under issuance of common stock in the accompanying consolidated statements of shareholders’ equity.

Dividends

In December 2012, the Company announced an annual dividend of $0.10 per share to be paid semi-annually. In 2019, the Company increased the annual dividend to $0.36 per share to be paid on a semi-annual basis which resulted in aggregate dividends of $11.2 million each paid to shareholders of record on July 10, 2019, and December 20, 2019, respectively. The second semi-annual dividend declared in December 2019 of $5.8 million, was paid in January 2020. In 2020, the Company increased the annual dividend to $0.38 per share to be paid on a quarterly 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 Company increased the annual dividend to $0.40 per share to be paid on a quarterly basis which resulted in aggregate dividends of $12.9 million paid to shareholders of record on March 26, 2021, June 25, 2021, September 24, 2021, and December 17, 2021, all of which were paid in 2021. These dividends were paid from U.S. domestic sources and are accounted for as an increase to accumulated deficit. Subsequent to December 31, 2021, the Company increased its annual dividend by 10% to $0.44 per share to be paid on a quarterly basis and declared its first quarterly dividend for 2022 of $0.11 per share for shareholders on March 25, 2022, to be paid on April 8, 2022.

12. 401(k) Plan

The Company maintains a 401(k) plan covering all eligible employees. Subject to certain dollar limits, eligible employees may contribute up to 15% of their pre-tax annual compensation to the plan. The Company may make discretionary contributions on an annual basis. The Company makes matching contributions of 40% of employee eligible contributions up to 6% of their gross salaries. The Company’s matching contributions were $0.8 million for each of the fiscal years ended December 31, 2021, January 1, 2021 and December 27, 2019, respectively.

13. Transactions with Related Parties

During the year ended December 31, 2021 the Company repurchased 24 thousand shares of the Company’s stock from members of its Board of Directors for a total cost of $0.4 million, or $16.05 per share. During the year ended January 1, 2021, the Company repurchased 37 thousand shares of the Company’s stock from members of its Board of Directors for a total cost of $0.7 million, or $17.43 per share. Subsequent to the year ended December 31, 2021, the Company repurchased 31 thousand shares of the Company’s stock from members of its Board of Directors for a total of $0.6 million, or $20.50 per share. The proceeds from the sale of these shares were used primarily to cover estimated tax liabilities associated with previously vested restricted stock units. See Note 11 for further details.

14. Litigation

The Company is involved in legal proceedings, claims, and litigation arising in the ordinary course of business not specifically discussed herein. In the opinion of management, the final disposition of such matters will not have a material adverse effect on the Company’s consolidated financial position, cash flows or results of operations.

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. Geographic and Service Group Information

Revenue, which is primarily based on the country of the Company’s contracting entity is attributed to geographic areas as follows (in thousands):

Year Ended

December 31, January 1, December 27,

Revenue:

Long-lived assets are attributed to geographic areas as follows (in thousands):

December 31, January 1,

Long-lived assets:

International (primarily European countries) 16,166 18,626

As of December 31, 2021 and January 1, 2021 foreign assets included $15.1 million and $15.3 million, respectively, of goodwill related to acquisitions, in fiscal years 2005, 2009 and 2017.

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. Quarterly Financial Information (unaudited)

The following tables present unaudited supplemental quarterly financial information for the years ended December 31, 2021 and January 1, 2021 (in thousands, except per share data):

Quarter Ended

Loss from discontinued operations (2) $ (7 ) $ - $ - $ -

Basic net income per common share (3):

Income per common share from continuing operations $ 0.21 $ 0.35 $ 0.27 $ 0.55

Loss per common share from discontinued operations (2) $ - $ - $ - $ -

Basic net income per common share $ 0.21 $ 0.35 $ 0.27 $ 0.55

Diluted net income (loss) per common share (3):

Income per common share from continuing operations $ 0.19 $ 0.32 $ 0.25 $ 0.50

Loss per common share from discontinued operations (2) $ - $ - $ - $ -

Diluted net income per common share $ 0.19 $ 0.32 $ 0.25 $ 0.50

Quarter Ended

Loss from discontinued operations (2) $ (8 ) $ - $ (157 ) $ (7 )

Basic net income (loss) per common share (3):

Loss per common share from discontinued operations (2) $ - $ - $ (0.01 ) $ -

Basic net income (loss) per common share $ 0.19 $ (0.13 ) $ 0.10 $ 0.03

Diluted net income (loss) per common share (3):

Loss per common share from discontinued operations (2) $ - $ - $ (0.01 ) $ -

Diluted net income (loss) per common share $ 0.17 $ (0.13 ) $ 0.09 $ 0.03

THE HACKETT GROUP, INC.

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

YEARS ENDED December 31, 2021, January 1, 2021, and December 27, 2019

(in thousands)

Balance at Charge to

HCKT US Equity

HCKT · 10-K · period ended 2021-12-31

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

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

HCKT US Equity☆

HCKT · 10-K · period ended 2021-12-31

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

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

HCKT US Equity