HACKETT GROUP, INC. (HCKT)

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 2022 items and year-to-year comparisons between fiscal years 2023 and 2022 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 December 29, 2023.

Hackett is a global IP platform-based GenAI strategic consulting and executive advisory digital transformation firm. strategic consulting and digital transformation firm. The Hackett Group provides dedicated expertise in Gen AI enabled enterprise transformation services across front, mid and back office areas, including its highly recognized Oracle, SAP, OneStream and Coupa implementation offerings.

In early 2024, we launched our AI assessment platform, AI XPLR which helps clients identify, evaluate and design Gen AI enablement opportunities. Using AI XPLR, our experienced professionals guide organizations to harness the power of Gen AI solutions designed to digitally transform their operations to achieve quantifiable, breakthrough results, allowing us to be key architects of our clients' Gen AI journey.

We believe Gen AI will fundamentally change the way companies operate as well as the way consulting services are sold and delivered. We believe the Gen AI platform capabilities we have developed in AI XPLR which were expanded with ZBrain, which we acquired as part of the LeewayHertz acquisition, is highly differentiating and we expect will enable us to effectively compete in this emerging and important space.

The Hackett Group has completed over 27,500 benchmarking and performance studies with major organizations. These studies are executed utilizing our Quantum Leap platform which drives our DTP. This includes the firm's benchmarking metrics, best practices repository, and best practice configuration and process flow accelerators, which enables our clients and partners to achieve digital world-class performance.

Our transformation expertise is grounded in best practices insights from benchmarking the world’s leading businesses – including 97% of the Dow Jones Industrials, 90% of the Fortune 100, 70% of the DAX 40 and 51% of the FTSE 100, which inform and are delivered utilizing our platforms.

Impact of Macroeconomic Conditions 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. Any deterioration in the current macroeconomic environment or economic downturn as a result of weak or uncertain economic conditions due to inflation, high interest rates, national or geopolitical events or other factors impacting economic activity or business confidence could adversely affect our clients' financial condition or outlook which may reduce the clients' demand for our services.

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.

22

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

We review accounts receivable to assess our estimates of collectability regularly. 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.

Business Combinations

For transactions that are considered business combinations, we utilize fair values in determining the carrying values of the purchased assets and assumed liabilities, which 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 for up to one year after the closing date of an acquisition as information relative to closing date fair values become available. A bargain purchase gain on an acquisition occurs when the net of the estimated fair value of the assets acquired and liabilities assumed exceeds the consideration paid.

On September 23, 2024, the Company acquired 100% of the equity of LeewayHertz Technologies Private Limited (“LeewayHertz”), a technology consulting company based in India, focused on AI technology solutions for a provisional purchase consideration of $7.8 million subject to a working capital achievement. LeewayHertz’s founder, one of LeewayHertz’s owners, was hired by the Company to serve as its executive vice president of the AI practice.

Since the acquisition was only recently completed, the allocation of the purchase price is preliminary and will likely change in future periods as fair value estimates of the assets acquired and liabilities assumed are finalized, including those primarily related to working capital, property and equipment, intangible assets, and taxes. The final determination of the fair values will be completed within the one-year measurement period.

The following table summarizes the provisional fair value of the assets acquired and liabilities assumed:

As a result, the provisional excess of the purchase price over the assets acquired resulted in goodwill of $5.9 million. Additionally, the Company recognized provisional intangible assets of $2.5 million, with a remaining weighted average useful life of 4.6 years. The fair values of identifiable intangible assets acquired were prepared by a third-party valuation specialist and incorporate significant unobservable inputs, judgment, and estimates, including the amount and timing of future cash flows. The intangible assets will be amortized in accordance with the Company’s accounting policies. The following table summarizes the provisional value of the intangible assets acquired:

23

Also, in connection with the acquisition, the Company and LeewayHertz’s founder are creating a joint venture whereby The Hackett Group will contribute its AI XPLR platform and LeewayHertz will contribute its ZBrain platform. The integration of AI XPLR and the ZBrain Gen AI orchestration solution will enable the joint venture to provide advanced and tailored Gen AI solutions to its clients. The joint venture is expected to be formed by the middle of the Company's 2025 fiscal year and we expect its results will be consolidated into our financial statements.

Goodwill

For acquisitions accounted for as a business combination, goodwill represents the excess of the cost over the fair value of the net assets acquired. The Company has organized its operating and internal reporting structure to align with its primary market solutions. In accordance with ASC 280, management made the determination to present three operating segments, three reportable segments and three reporting units as follows: (1) Global S&BT, (2) Oracle Solutions, and (3) SAP Solutions. A reporting unit is an operating segment or one level below an operating segment to which goodwill is assigned. The goodwill has been allocated to the reporting unit based on the reporting unit's relative fair value. The provisional goodwill related to LeewayHertz has been included in Global S&BT segment. The carrying amount of goodwill by reporting unit is as follows (in thousands):

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

We performed our annual impairment test of goodwill in the fourth quarter of fiscal years 2024, 2023 and 2022 and determined that goodwill was not impaired.

Stock Based Compensation

We recognize compensation expense for awards of equity and liability instruments, which have only a service condition, to employees based on the grant-date fair value of those awards, over the requisite service period, with limited exceptions.

In September 2024, a stock price award program was offered to certain leaders. These equity awards were granted with both a market condition (three tranches, each with varying market share price thresholds) and service conditions. The Company measured these equity awards using the Monte Carlo valuation model to determine the fair value as of the grant date. The Monte Carlo valuation model, using different share price paths, calculated a derived service period which is the median share price path on which the market condition is satisfied for each tranche. The assumptions utilized in the model are as of a point in time and may differ from the actual value of the equity awards. The requisite service period was determined to be service conditions as the service conditions are greater than the derived service period. For each of the three tranches, stock compensation expense is recognized on a straight-line basis over the requisite service period. The Company has elected to account for forfeitures as incurred. If an employee forfeits nonvested shares subsequent to meeting a service condition, the previously recognized expense is not reversed. See Note 10, "Stock Based Compensation," for additional information.

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 2024 and 2023 ended on December 27, 2024 and December 29, 2023, respectively, each consisted of a 52-week period. References to a year included in this document refer to a fiscal year rather than a calendar year.

24

The following table sets forth, for the periods indicated, our results of operations (in thousands):

Comparison of 2024 to 2023

Overview. For fiscal year 2024, total revenue increased to $313.9 million, as compared to $296.6 million in 2023, primarily driven by increased total revenue from our SAP Solutions segment of $10.2 million and our Oracle Solutions segment of $7.9 million, as compared to 2023.

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 2024 and 2023. Revenue is analyzed based on geographic location of engagement team personnel.

In 2024, one customer accounted for 11% of our total revenue and in 2023 one customer accounted for 6% of our total revenue.

Segment revenue. We have three reportable segments: Global S&BT, Oracle Solutions and SAP Solutions. Global S&BT includes S&BT Consulting, Benchmarking, Advisory Services, IPASS, Gen AI Consulting and Implementation, OneStream and our Coupa offerings. Oracle Solutions and SAP Solutions support the two fundamentally distinct ERP systems: Oracle and SAP.

The following table sets forth total revenue by reportable operating segment, which includes reimbursable expenses related to project travel-related expenses passed through to a client with no associated operating margin (in thousands):

Global S&BT total revenue decreased to $171.1 million in 2024, as compared to $171.9 million in 2023. The revenue decrease was primarily due to weakness in our eProcurement and OneStream implementation offerings. This was partially offset by growth in

25

our Gen AI consulting and implementation offerings, driven by the capabilities of our AI XPLR platform and our recently acquired ZBrain platform and LeewayHertz consulting and implementation team.

Oracle Solutions total revenue increased to $85.7 million in 2024, as compared to $77.8 million in 2023. The segment has continued the momentum it has experienced since the second quarter of 2023, as we have continued to see strong overall EPM activity resulting from Oracle’s re-establishment of their dedicated EPM salesforce.

SAP Solutions total revenue increased to $57.1 million in 2024, from $46.9 million in 2023. The revenue growth in 2024 was due to the strong software-related sales resulting from the increased sales investments we made in late 2023.

Reimbursements as a percentage of total revenue were 2.2% in 2024 and 1.8% in 2023. Reimbursements are project travel-related expenses passed through to a client with no associated operating margin.

Cost of Service. Cost of service consists of personnel costs before reimbursable expenses, which includes 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 which are travel and other expenses passed through to a client and are associated with projects.

Personnel costs before reimbursable expenses, increased to $183.8 million in 2024, as compared to $174.9 million in 2023. The higher costs in 2024 were primarily a result of increased salaries relating to increased headcount, higher utilization of subcontractors and increases in non-cash stock compensation expense. Personnel costs as a percentage of total revenue were 59% in both 2024 and 2023.

Non-cash stock-based compensation expense, included in personnel costs before reimbursable expenses, was $10.5 million in 2024 and $6.2 million in 2023. This increase was primarily related to the stock price award program and the acquisition related non-cash stock compensation expense related to LeewayHertz. See Notes 1 and 10, "Basis of Presentation and General Information” and “Stock Based Compensation”, respectively, to our consolidated financial statements included in this Annual Report on Form 10-K for more information.

Selling, General and Administrative Costs (“SG&A”). SG&A primarily consists of salaries, benefits and incentive compensation for the selling, marketing, administrative and executive employees, non-cash compensation expense, amortization of intangible assets, acquisition-related costs and various other overhead expenses.

SG&A costs increased 19%, to $78.5 million in 2024, as compared to $65.9 million in 2023. This increase in the costs during 2024 was primarily due to increased commissions and sales related expenses, increased incentive compensation commensurate with Company performance and increased non-cash stock based compensation related to the stock price award program. SG&A costs as a percentage of total revenue were 25% and 22% during 2024 and 2023, respectively.

Non-cash stock-based compensation expense, included in SG&A, was $9.0 million in 2024, as compared to $4.5 million in 2023. The increase in 2024 primarily related to the non-cash stock compensation expense from the stock price award program. See Note 10, “Stock Based Compensation,” to our consolidated financial statements included in this Annual Report on Form 10-K for more information.

Amortization Expense. There was $148 thousand of amortization expense in 2024. There was no amortization expense included in SG&A in 2023. The amortization expense related to the amortization of the intangible asset acquired in our acquisition of Leeway Hertz in September 2024. See Note 1, “Basis of Presentation and General Information,” to our consolidated financial statements included in this Annual Report on Form 10-K for more information.

Segment Profit. Segment profit consists of the revenue generated by the segment, less the direct costs of revenue and selling, general and administrative expenses that are incurred directly by the segment. Items not allocated to the segment level include corporate costs related to administrative functions that are performed in a centralized manner that are not attributable to a particular segment. These administrative function costs include corporate general and administrative expenses, non-cash compensation, depreciation and amortization expense and interest expense.

Global S&BT segment profit decreased to $51.6 million in 2024, as compared to $54.4 million in 2023 primarily due to the revenue growth in our Gen AI consulting and implementation offerings, which were offset by weakness in our eProcurement and OneStream implementation offerings.

Oracle Solutions segment profit increased to $19.1 million in 2024, as compared to $18.1 million in 2023, primarily due to higher revenue, partially offset by increased headcount and increased usage of subcontractors.

SAP Solutions segment profit increased to $18.7 million in 2024, as compared to $11.9 million in 2023, primarily due to the value-added reseller activity in the year, partially offset by higher commissions and sales related costs.

Legal Settlement and Related Costs. In May 2023, Gartner, Inc. ("Gartner") filed a lawsuit seeking a preliminary injunction and damages against the Company and two ex-Gartner employees that were hired by us. On February 17, 2024, we, Gartner and the two

26

ex-Gartner employees entered into a settlement agreement whereby we made a settlement payment of $985,000 to Gartner in exchange for a dismissal of the lawsuit and a release of all claims which is reflected in our Consolidated Statement of Operations for the year ended December 29, 2023. In addition, we incurred incremental legal costs related to the settlement which were recorded as expenses in the period incurred.

Income Taxes. During 2024, we recorded $13.4 million of income tax expense related to certain federal, state and foreign taxes which reflected an effective tax rate of 31.1%. During 2023, we recorded $11.9 million of income tax expense related to certain federal, state and foreign taxes which reflected an effective tax rate of 25.8%. The increase in the effective tax rate is primarily due to the limitation of executive compensation deductions related to executive compensation, primarily driven by the stock price award program. See Note 10, “Stock Based Compensation,” to our consolidated financial statements included in this Annual Report on Form 10-K for more information.

Liquidity and Capital Resources

As of December 27, 2024 and December 29, 2023, we had $16.4 million and $21.0 million, respectively, of cash, and $12.7 million and $32.7 million, respectively, outstanding under our Credit Facility, net of deferred debt costs. 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 expenditures for at least the next twelve months and beyond. We may decide to raise additional funds in order to fund expansion, to develop new or further enhance products and services, to respond to competitive pressures, or to acquire complementary businesses or technologies. There is no assurance that additional financing would be available when needed or desired.

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

Cash Flows from Operating Activities

Net cash provided by operating activities was $47.7 million in 2024, as compared to $37.4 million in 2023. In 2024, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items, partially offset by increases in accounts receivable and contract assets. In 2023, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items, partially offset by increases in accounts receivable and contract assets and decreases in accrued liabilities, other accruals and income taxes payable.

Cash Flows from Investing Activities

Net cash used in investing activities was $10.6 million in 2024, as compared to $4.1 million in 2023. During the third quarter of 2024, the Company acquired LeewayHertz for $6.5 million, net of cash acquired. See Note 1 , “Basis of Presentation and General Information”, to our consolidated financial statements included in this Annual Report on Form 10-K for more information. During both periods, cash flows used in investing activities primarily related to investments for the development of our Hackett Connect Executive Advisory member platform and continued development of our QL benchmark, DTP technologies and our Gen AI platform, AI XPLR.

Cash Flows from Financing Activities

Net cash used in financing activities was $41.7 million in 2024, as compared to $42.6 million in 2023. The usage of cash in 2024, primarily related to the repayment of borrowings of $20.0 million related to our Credit Facility, dividend payments of $12.1 million, employee net vesting related tax withholding requirements of $4.1 million and the repurchase of $6.4 million of the Company's common stock. The usage of cash in 2023 was primarily related to the net pay down of our Credit Facility $27.0 million, dividend payments of $12.0 million and employee net vesting related tax withholding requirements of $3.8 million.

Material Cash Requirements

Debt Payments and Lease Obligations

On November 7, 2022, we amended and restated our credit agreement in order to extend the maturity date of our Credit Facility and provide the Company with an additional $55.0 million in borrowing capacity, for an aggregate amount of up to $100 million. See Note 8, “Credit Facility,” to our consolidated financial statements included in this Annual Report on Form 10-K for more information.

27

As of December 27, 2024, we had $13.0 million of outstanding borrowings, excluding deferred debt costs, under our revolving line of credit, leaving us with borrowing capacity of approximately $87.0 million. See Note 8, “Credit Facility,” to our consolidated financial statements included in this Annual Report on Form 10-K for more information.

The following table summarizes our future principal payments under our future Credit Facility and lease commitments under our non-cancelable operating leases as of December 27, 2024 (in thousands):

(1) Excludes interest charges on borrowings, the fee on the amount of any unused commitment that we may be obligated to pay under our revolving Credit Facility as such amounts vary and the deferred debt costs. See Note 8, “Credit Facility”, to our consolidated financial statements included in this Annual Report on Form 10-K for more information

Capital Expenditures

As part of the LeewayHertz acquisition, the Company has committed to fund up to $10.0 million of development costs related to ZBrain AI subject to the business plans approved by the JV Board of Directors. Our capital expenditures primarily consist of investments related to the continued development of our Hackett Connect Executive Advisory member platform, our QL benchmark, Digital Transformation technologies and our Gen AI platform, AI XPLR. During the years ended December 27, 2024, and December 29, 2023, our capital expenditures were $4.1 million for both years. We expect an increase in capital expenditures related to the continued development of the ZBrain AI orchestration platform and the integration of AI XPLR.

Taxes

Cash paid for income taxes was $11.6 million and $13.3 million for the years ended December 27, 2024, and December 29, 2023, respectively. See Note 9, "Income Taxes," to our consolidated financial statements included in this Annual Report on Form 10-K for additional information.

Dividends and Share Repurchases

During the fiscal year 2024, our Board of Directors approved four quarterly dividends payments of $0.11 per share totaling $12.1 million. Subsequent to December 27, 2024, our Board of Directors approved a 9% increase in the dividend, increasing the annual dividend amount to $0.48 per share. We expect dividend payments in 2025 to be approximately $13.2 million.

We have an ongoing authorization from our Board of Directors to repurchase shares of our common stock. During 2024, we repurchased 43 thousand shares of common stock from members of our Board of Directors at an average price per share of $24.34, for a total cost of $1.1 million. In addition, we repurchased 182 thousand shares of common stock on the open market at an average price per share of $29.46, for a total cost of $5.4 million. As of December 27, 2024, we had $27.5 million share repurchase authorization remaining. Subsequent to fiscal year end, we repurchased 50 thousand shares of the Company’s common stock from our Chief Financial Officer and members of our Board of Directors for a total of $1.6 million, or $30.78 per share. Including these repurchases, we had approximately $26.0 million available for future repurchases under the plan.

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 2024, 0.2 million shares were withheld and not issued for a cost of $4.1 million, bringing the total cumulative cash used to repurchase stock in 2024 to $10.5 million. In 2023, 0.2 million shares were withheld and not issued for a cost of $3.8 million, bringing the total cumulative cash used to repurchase stock in 2023 to $4.5 million.

Recently Issued Accounting Standards

For discussion of recently issued accounting standards, see Note 1, “Basis of Presentation and General Information”, to our consolidated financial statements included in this Annual Report on Form 10-K for more information.

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 2021 items and year-to-year comparisons between fiscal years 2022 and 2021 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 December 30, 2022.

Hackett is a global IP-based executive advisory, strategic consulting and digital transformation firm. The Hackett Group provides dedicated expertise in Gen AI strategy, operations, finance, human capital management, strategic sourcing, procurement, and information technology, including its highly recognized Oracle, SAP, OneStream and Coupa implementation offerings.

The firm recently launched our AI XPLR offering which helps define an organizations’ Gen AI enablement opportunities. Using AI XPLR, our AI assessment platform, our experienced professionals guide organizations to harness the power of Gen AI to digitally transform their operations and seek to achieve quantifiable, breakthrough results, allowing us to be key architects of our clients' Gen AI journey.

The Hackett Group has completed over 26,600 benchmarking and performance studies with major organizations. These studies are executed utilizing our Quantum Leap platform which drives our DTP. This includes the firm's benchmarking metrics, best practices repository, and best practice configuration and process flow accelerators, which enables our clients and partners to achieve digital world-class performance.

Our expertise is grounded in best practices insights from benchmarking the world’s leading businesses – including 97% of the Dow Jones Industrials, 89% of the Fortune 100, 70% of the DAX 40 and 55% of the FTSE 100, which are delivered through our Hackett Connect, QL and DTP platforms.

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

We review accounts receivable to assess our estimates of collectability regularly. 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.

21

Segment Reporting

Segments are defined as components of a company that engage in business activities from which they may earn revenues and incur expenses, and for which separate financial information is available and is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company assesses its operating segments under the management approach in accordance with ASC 280, Segment Reporting (ASC 280) and has determined that it has three operating segments: Global Strategy & Business Transformation ("Global S&BT"), Oracle Solutions and SAP Solutions. Global S&BT includes S&BT Consulting, Benchmarking, Executive Advisory Services, IPaaS, OneStream and Coupa. Oracle Solutions and SAP Solutions support the two fundamentally distinct ERP systems: Oracle and SAP. See Note 15 “Segment Information and Geographic Data” for detailed segment information.

Goodwill and Other Intangible Assets

For acquisitions accounted for as a business combination, goodwill represents the excess of the cost over the fair value of the net assets acquired. The Company has organized its operating and internal reporting structure to align with its primary market solutions. In accordance with ASC 280, management made the determination to present three operating segments, three reportable segments and three reporting units as follows: (1) Global S&BT, (2) Oracle Solutions, and (3) SAP Solutions. A reporting unit is an operating segment or one level below an operating segment to which goodwill is assigned. The goodwill has been allocated to the reporting unit based on the reporting unit's relative fair value. The carrying amount of goodwill by reporting unit is as follows (in thousands):

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 2023 and 2022 ended on December 29, 2023 and December 30, 2022, respectively, each consisted of a 52-week period. References to a year included in this document refer to a fiscal year rather than a calendar year.

22

The following table sets forth, for the periods indicated, our results of operations (in thousands):

Comparison of 2023 to 2022

Overview. For fiscal year 2023, total revenue increased to $296.6 million, as compared to $293.7 million in 2022, primarily driven by increased total revenue from our Global S&BT segment of $2.3 million and our Oracle Solutions segment of $1.5 million, as compared to 2022.

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 2023 and 2022. Revenue is analyzed based on geographic location of engagement team personnel.

In 2023 one customer accounted for 6% of our total revenue and in 2022 one customer accounted for 7% of our total revenue.

Segment revenue. We have three reportable segments: Global S&BT, Oracle Solutions and SAP Solutions. Global S&BT includes S&BT Consulting, Benchmarking, Advisory Services, IPASS, OneStream and our Coupa offerings. Oracle Solutions and SAP Solutions support the two fundamentally distinct ERP systems: Oracle and SAP.

The following table sets forth total revenue by reportable operating segment, which includes reimbursable expenses related to project travel-related expenses passed through to a client with no associated operating margin (in thousands):

Global S&BT total revenue increased to $171.9 million in 2023, as compared to $169.7 million in 2022. This segment has been impacted by slowing economic growth resulting in extended client decision making in our business transformation engagements.

23

Additionally, the prior periods comparisons were against the accelerated post pandemic demand that we experienced throughout the first half of 2022. Global S&BT represented 58% of the Company's total revenue. In addition to solid performance from our transformation consulting groups, our IP-based higher-margin Executive Advisory and IPaaS offerings grew 7%. The success and market opportunity for our IP offerings highlight the reasons why we have accelerated our sales and product development investments in this area.

Oracle Solutions total revenue increased to $77.8 million in 2023, as compared to $76.3 million in 2022, primarily due to the segment's continued momentum that began in the second quarter of 2023, with strong double digit growth over the last two quarters of 2023, as compared to the prior year periods. This is being driven by increasing activity across our EPM offerings within this segment.

SAP Solutions total revenue decreased to $46.9 million in 2023, from $47.8 million in 2022, primarily due to lower sales of SAP cloud software, as compared to the prior year.

Reimbursements as a percentage of total revenue were 1.8% in 2023 and 1.4% in 2022. Reimbursements are project travel-related expenses passed through to a client with no associated operating margin.

Cost of Service. Cost of service consists of personnel costs before reimbursable expenses, which includes 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 which are travel and other expenses passed through to a client and are associated with projects.

Personnel costs before reimbursable expenses, increased slightly to $174.9 million in 2023, as compared to $174.1 million in 2022. The higher costs in 2023 were primarily a result of increased utilization of subcontractors to support business growth, partially offset by lower incentive compensation accruals when compared to the prior year resulting from Company performance. Personnel costs as a percentage of total revenue were 59% in both 2023 and 2022.

Non-cash stock-based compensation expense, included in personnel costs before reimbursable expenses, was $6.2 million in both 2023 and 2022.

Selling, General and Administrative Costs (“SG&A”). SG&A primarily consists of salaries, benefits and incentive compensation for the selling, marketing, administrative and executive employees, non-cash compensation expense, amortization of intangible assets, acquisition related costs and various other overhead expenses.

SG&A costs increased 8%, to $65.9 million in 2023, as compared to $61.0 million in 2022. This increase in the costs was primarily due to the increased investments in dedicated sales resources for our IP-based offerings in our Global S&BT segment, partially offset by lower incentive compensation commensurate with Company performance. SG&A costs as a percentage of total revenue were 22% and 21% during 2023 and 2022, respectively.

Non-cash stock-based compensation expense, included in SG&A, was $4.5 million in 2023, as compared to $4.1 million in 2022.

There was no amortization expense included in SG&A in 2023, however, there was $0.2 million of amortization expense in 2022. The amortization expense related to the amortization of the intangible asset acquired in our acquisitions and the buyout of our partner’s joint venture interest in the CGBS Training and Certification Programs in 2017. The intangible assets related to the acquisitions were fully amortized as of the second quarter of 2022.

Legal Settlement and Related Costs. In May 2023, Gartner, Inc. ("Gartner") filed a lawsuit seeking a preliminary injunction and damages against the Company and two ex-Gartner employees that were hired by us. On February 17, 2024, we, Gartner and the two ex-Gartner employees entered into a settlement agreement whereby we made a settlement payment of $985,000 to Gartner, Inc. in exchange for a dismissal of the lawsuit and a release of all claims. In addition, we incurred incremental legal costs related to the settlement.

Segment Profit. Segment profit consists of the revenue generated by the segment, less the direct costs of revenue and selling, general and administrative expenses that are incurred directly by the segment. Items not allocated to the segment level include corporate costs related to administrative functions that are performed in a centralized manner that are not attributable to a particular segment. These administrative function costs include corporate general and administrative expenses, non-cash compensation, depreciation and amortization expense, interest expense and the restructuring and asset impairment reversals.

Global S&BT segment profit decreased to $54.4 million in 2023, as compared to $61.3 million in 2022. This decrease was primarily a result of the incremental investments we are making in program development and additional dedicated sales resources for Benchmark, Executive Advisory, Market Intelligence and our other IPaaS offerings.

Oracle Solutions segment profit increased to $18.1 million in 2023, as compared to $15.3 million in 2022, primarily due to lower salaries and benefits and higher revenue, partially offset by the higher utilization of subcontractors.

24

SAP Solutions segment profit decreased to $11.9 million in 2023, as compared to $12.8 million in 2022, primarily due to the lower sales of SAP cloud software, as well as sales related investments made during the year.

Income Taxes. During 2023, we recorded $11.9 million of income tax expense related to certain federal, state and foreign taxes which reflected an effective tax rate of 25.8%. During 2022, we recorded $14.3 million of income tax expense related to certain federal, state and foreign taxes which reflected an effective tax rate of 26.0%.

Liquidity and Capital Resources

As of December 29, 2023 and December 30, 2022, we had $21.0 million and $30.3 million, respectively, of cash, and $32.7 million,and $59.7 million, respectively, outstanding under our Credit Facility, net of deferred debt costs. 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 expenditures for at least the next twelve months and beyond. We may decide to raise additional funds in order to fund expansion, to develop new or further enhance products and services, to respond to competitive pressures, or to acquire complementary businesses or technologies. There is no assurance that additional financing would be available when needed or desired.

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

Cash Flows from Operating Activities

Net cash provided by operating activities was $37.4 million in 2023, as compared to $58.9 million in 2022. In 2023, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items, partially offset by a decrease in the income tax liabilities and contract liabilities and an increase in accounts receivable. In 2022, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items and an increase in the income tax liabilities, partially offset by the decrease in accrued liabilities and other accruals.

Cash Flows from Investing Activities

Net cash used in investing activities was $4.1 million in 2023, as compared to $4.7 million in 2022. During both periods, cash flows used in investing activities primarily related to investments for the development of our Hackett Connect Executive Advisory member platform and continued development of our QL benchmark and DTP technologies.

Cash Flows from Financing Activities

Net cash used in financing activities was $42.6 million in 2023, as compared to $69.7 million in 2022. The usage of cash in 2023 was primarily related to the net pay down of our Credit Facility $27.0 million, dividend payments of $12.0 million and employee net vesting related tax withholding requirements of $3.8 million. The usage of cash in 2022 was primarily related to the repurchase of Company common stock under our share repurchase program of $116.6 million, inclusive of the tender offer transaction related costs, employee net vesting related tax withholding requirements of $3.2 million, and dividend payments of $10.4 million, partially offset by the $60.0 million drawdown of our Credit Facility.

Material Cash Requirements

Debt Payments and Lease Obligations

On November 7, 2022, we amended and restated our credit agreement in order to extend the maturity date of our Credit Facility and provide the Company with an additional $55 million in borrowing capacity, for an aggregate amount of up to $100 million. See Note 8, “Credit Facility,” to our consolidated financial statements included in this Annual Report on Form 10-K for more information. As of December 29, 2023, we had $32.7 million of outstanding borrowings, net of deferred debt costs, under our revolving line of credit, leaving us with borrowing capacity of approximately $67.0 million. See Note 8 for more information.

25

There were no material capital commitments as of December 29, 2023. The following table summarizes our future principal payments under our future Credit Facility and lease commitments under our non-cancelable operating leases as of December 29, 2023 (in thousands):

(1) Excludes interest charges on borrowings, the fee on the amount of any unused commitment that we may be obligated to pay under our revolving Credit Facility as such amounts vary and the deferred debt costs. See Note 8, in the notes to consolidated financial statements for additional information.

Capital Expenditures

There were no material commitments for capital expenditures as of December 29, 2023. Our capital expenditures primarily consist of investments related to the continued development of our QL, DTP and Hackett Connect platforms and laptop purchases. During the years ended December 29, 2023, and December 30, 2022, our capital expenditures were $4.1 million and $4.7 million, respectively. We expect capital expenditures for the year ended December 27, 2024, to approximate the capital expenditures in 2023.

Taxes

Cash paid for income taxes was $13.3 million and $4.6 million for the years ended December 29, 2023, and December 30, 2022, respectively. The increase in the income tax payments related to the 2021 tax deduction for the exercise of the 2.9 million SARs. As a result of the transaction, the Company carried an income tax receivable on its Consolidated Balance Sheet in 2022 until the fourth quarter of 2022. 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 2023, our Board of Directors approved four quarterly dividends payments of $0.11 per share totaling $12.0 million. We expect dividend payments in 2024 to be approximately $12.0 million.

We have an ongoing authorization from our Board of Directors to repurchase shares of our common stock. During 2023, we repurchased 37 thousand shares of common stock from members of our Board of Directors at an average price per share of $18.96, for a total cost of $0.7 million. As of December 29, 2023, we had $13.9 million share repurchase authorization remaining. Subsequent to fiscal year end, we repurchased 43 thousand shares of the Company’s common stock from members of our Board of Directors for a total of $1.1 million, or $24.34 per share. Including these repurchases, we had approximately $12.9 million available for future repurchases under the plan as of March 1, 2024.

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 2023, 0.2 million shares were withheld and not issued for a cost of $3.8 million, bringing the total cumulative cash used to repurchase stock in 2023 to $4.5 million. In 2022, 0.2 million shares were withheld and not issued for a cost of $3.2 million, bringing the total cumulative cash used to repurchase stock in 2022 to $119.8 million, including the tender offer transaction and related transaction fees.

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 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 2020 items and year-to-year comparisons between fiscal years 2021 and 2020 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 December 31, 2021.

Hackett, originally incorporated on April 23, 1997, is a leading IP-based 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. Only Hackett empirically defines world-class performance in sales, general and administrative and certain supply chain activities with analysis gained through over 25,000 benchmark and performance studies over 29 years at over 8,800 of the world’s leading companies.

Hackett’s combined capabilities include executive advisory programs, IPaaS, market intelligence, 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.

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.

Segment Reporting

Segments are defined as components of a company that engage in business activities from which they may earn revenues and incur expenses, and for which separate financial information is available and is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Effective in the third quarter of 2022, the Company re-assessed its operating segments under the management approach in accordance with ASC 280, Segment Reporting (ASC 280) and has determined that effective in the third quarter of 2022, it has three operating segments: Global Strategy &

22

Business Transformation ("Global S&BT"), Oracle Solutions and SAP Solutions. Global S&BT includes S&BT Consulting, Benchmarking, Executive Advisory Services, IPaaS and OneStream. Oracle Solutions and SAP Solutions support the two fundamentally distinct ERP systems: Oracle and SAP. See Note 15 “Segment Information and Geographic Data” for detailed segment information.

Goodwill and Other Intangible Assets

For acquisitions accounted for as a business combination, goodwill represents the excess of the cost over the fair value of the net assets acquired. Effective in the third quarter of fiscal year 2022, the Company reorganized its operating and internal reporting structure to better align with its primary market solutions. Due to the reorganization and in accordance with ASC 280, management made the determination to present three operating segments, three reportable segments and three reporting units as follows: (1) Global S&BT, (2) Oracle Solutions, and (3) SAP Solutions. Global S&BT includes the results of the Company’s strategic business consulting groups; Oracle Solutions includes the results of the Company’s Oracle EPM/ERP and AMS groups; SAP Solutions includes the Company’s SAP applications and related SAP service offerings. A reporting unit is an operating segment or one level below an operating segment to which goodwill is assigned. With the new reporting unit structure, the goodwill previously assigned to Hackett Technology Solutions and The Hackett Group has now been allocated based on the reporting unit's relative fair value. The carrying amount of goodwill by the new reporting units are as follows (in thousands):

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 2022 and 2021 ended on December 30, 2022 and December 31, 2021, respectively. References to a year included in this document refer to a fiscal year rather than a calendar year.

23

The following table sets forth, for the periods indicated, our results of operations (in thousands):

Comparison of 2022 to 2021

Overview. For fiscal year 2022, total revenue increased 5% to $293.7 million, as compared to fiscal year 2021, primarily driven by increased total revenue from our Global S&BT segment of 16%, or $23.4 million, as compared to 2021. Diluted earnings per share increased to $1.28 in 2022 from $1.26 in 2021. 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 of $7.7 million for the exercise of 2.9 million SARs which was recorded in the fourth quarter of 2021. Together, these items positively impacted net income for 2021 by $13.0 million and dilutive earnings per share by $0.33.

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 2022 and 2021. Revenue is analyzed based on geographic location of engagement team personnel.

Our total revenue from continuing operations increased 5%, to $293.7 million in 2022, as compared to $278.8 million in 2021. The 2021 revenue included a $5.3 million software sale transaction which was recorded in the second quarter of 2021 as mentioned above.

In 2022 one customer accounted for 7% of our total revenue and in 2021 no customer accounted for more than 5% of our total revenue.

Segment revenue. Effective in the third quarter of 2022, the Company reorganized its operating and internal reporting structure to better align with its primary market solutions. Due to the reorganization, management made the determination to present three reportable segments: Global S&BT, Oracle Solutions and SAP Solutions. Global S&BT includes S&BT Consulting, Benchmarking, Advisory Services, Intellectual Property as-a-Service (IPASS) and OneStream. Oracle Solutions and SAP Solutions support the two fundamentally distinct ERP systems: Oracle and SAP.

24

The following table sets forth total revenue by reportable operating segment, which includes reimbursable expenses related to project travel-related expenses passed through to a client with no associated operating margin (in thousands):

Global S&BT total revenue increased 16% in 2022, to $169.7 million, as compared to $146.2 million in 2021 reflecting the continued sequential growth since the second quarter of 2020 and continuing demand for digital transformation investments. Global S&BT represented 58% of the Company's total revenue. In addition to solid performance from our transformation consulting groups, our IP-based higher-margin Executive Advisory, IPaaS and Market Intelligence offerings grew more than 20%. Our annualized contract value from the segment recurring revenues also grew over 20%. The success and market opportunity for our IP offerings highlight the reasons why we have accelerated our sales and product development investments in this area.

Oracle Solutions total revenue increased to $76.3 million in 2022, as compared to $74.9 million in 2021. Our Oracle Solutions segment revenues were slightly up for the year as the group struggled to maintain its early year momentum. Although client activity remains strong this was the segment where we experienced the most volatility in client decision in the second half of the year.

SAP Solutions total revenue decreased to $47.8 million in 2022, from $57.7 million in 2021. Total SAP Solutions revenue in 2021 included a $5.3 million software sale transaction which was recorded in the second quarter of 2021. The decrease in revenue in 2022 as compared to 2021, excluding the software sale transaction, was primarily the result of strong 2021 results which benefitted from several large global engagements with larger than normal subcontractor levels, partially offset by strong software transaction activity in the third and fourth quarters of 2022.

Reimbursements as a percentage of total revenue were 1.4% in 2022 and 0.4% in 2021. Reimbursements are project travel-related expenses passed through to a client with no associated operating margin. We have experienced increased client-related travel since the transition to a remote delivery model, however we do not expect reimbursements to return to pre-pandemic levels.

Cost of Service. Cost of service consists of personnel costs before reimbursable expenses, which includes 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 which are travel and other expenses passed through to a client and are associated with projects.

Personnel costs before reimbursable expenses, increased slightly to $174.1 million in 2022, as compared to $171.9 million in 2021. The higher costs in 2022 were primarily a result of hiring activities to support business growth. Personnel costs as a percentage of total revenue decreased to 59% in 2022 from 62% in 2021.

Non-cash stock-based compensation expense, included in personnel costs before reimbursable expenses, was $6.2 million in 2022, as compared to $6.4 million in 2021.

Acquisition related non-cash stock-based compensation expense, included in personnel costs before reimbursable expenses, was $15 thousand in 2022, as compared to $406 thousand in 2021. This cost was related to equity issued in relation to acquisitions which has vested over the years resulting in lower compensation expense.

Selling, General and Administrative Costs (“SG&A”). SG&A primarily consists of salaries, benefits and incentive compensation for the selling, marketing, administrative and executive employees, non-cash compensation expense, amortization of intangible assets, acquisition related costs and various other overhead expenses.

SG&A costs increased 3%, to $61.0 million in 2022, as compared to $59.2 million in 2021. This increase in the costs was primarily due to increased non-client billable expenses and increased investments in sales and marketing and information technology. SG&A costs as a percentage of total revenue were 21% during both 2022 and 2021.

Non-cash stock-based compensation expense, included in SG&A, was $4.1 million in 2022, as compared to $3.4 million in 2021. The increase in the compensation expense in 2022 is due to higher incentive compensation expense commensurate with Company performance.

25

Amortization expense, included in SG&A, was $0.2 million in 2022, as compared to $1.0 million in 2021. The amortization expense related to the amortization of the intangible asset acquired in our acquisitions and the buyout of our partner’s joint venture interest in the CGBS Training and Certification Programs in 2017. The intangible assets related to the acquisitions have been fully amortized as of the second quarter of 2022.

Segment Profit. Segment profit consists of the revenue generated by the segment, less the direct costs of revenue and selling, general and administrative expenses that are incurred directly by the segment. Items not allocated to the segment level include corporate costs related to administrative functions that are performed in a centralized manner that are not attributable to a particular segment. These administrative function costs include corporate general and administrative expenses, non-cash compensation, depreciation and amortization expense, interest expense and the restructuring charges and reversals.

Global S&BT segment profit increased to $61.3 million in 2022, as compared to $49.3 million in 2021. This increase was primarily a result of increased revenue from our higher margin executive advisory, IPaaS and market intelligence offerings, which grew more than 20%, as discussed above.

Oracle Solutions segment profit decreased slightly to $15.3 million in 2022, as compared to $15.7 million in 2021. On the operating side, we continued to expand the segment offshore leverage throughout the year and also added senior sales and practice leaders in the latter part of the year to strengthen our team.

SAP Solutions segment profit decreased to $12.8 million in 2022, as compared to $18.8 million in 2021. SAP Solutions segment profit in 2021 included a $5.3 million software sales transaction. Although total revenue was down, the segment reported solid segment profits for the year aided by increasing software activity.

Income Taxes. During 2022, we recorded $14.3 million of income tax expense related to certain federal, state and foreign taxes which reflected an effective tax rate of 26%. During 2021, we recorded $4.8 million of income tax expense related to certain federal, state and foreign taxes which reflected an effective tax rate of 10%. The lower tax rate in 2021 was primarily due to a $7.7 million tax benefit resulting from the exercise of 2.9 million SARs.

Liquidity and Capital Resources

As of December 30, 2022 and December 31, 2021, we had $30.3 million and $45.8 million, respectively, of cash, and as of December 30, 2022 we had $59.7 million outstanding debt under our credit facility, net of deferred debt costs, and no balance outstanding in the prior year. 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 expenditures for at least the next twelve months and beyond. We may decide to raise additional funds in order to fund expansion, to develop new or further enhance products and services, to respond to competitive pressures, or to acquire complementary businesses or technologies. There is no assurance that additional financing would be available when needed or desired.

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

Cash Flows from Operating Activities

Net cash provided by operating activities was $58.9 million in 2022, as compared to $46.4 million in 2021. In 2022, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items, a decrease in the income tax receivable and an increase in income tax liabilities, partially offset by the decrease in accrued liabilities and other accruals primarily due to payments to vendors and the 2021 incentive compensation payments. 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.

Cash Flows from Investing Activities

Net cash used in investing activities was $4.7 million in 2022, as compared to $3.2 million in 2021. During both periods, cash flows used in investing activities primarily related to investments for the development of our Hackett Connect Executive Advisory

26

Member Platform, Market Intelligence Programs, IPaaS and continued development of our Quantum Leap benchmark and Digital Transformation technologies. The investing activities in 2022 also included purchases of computer equipment.

Cash Flows from Financing Activities

Net cash used in financing activities was $69.7 million in 2022, as compared to $46.7 million in 2021. The usage of cash in 2022 was primarily related to the repurchase of Company common stock under our share repurchase program of $116.6 million, inclusive of the transaction related costs, employee net vesting related tax withholding requirements of $3.2 million, and dividend payments of $10.4 million, partially offset by the $60.0 million drawdown of our credit facility. 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.

Material Cash Requirements

Debt Payments and Lease Obligations

On November 7, 2022, we amended and restated our credit agreement in order to extend the maturity date of our Credit Facility and provide the Company with an additional $55 million in borrowing capacity, for an aggregate amount of up to $100 million. See Note 8, “Credit Facility,” to our consolidated financial statements included in this Annual Report on Form 10-K for more information. As of December 30, 2022, we had $59.7 million of outstanding borrowings, net of deferred debt costs, under our revolving line of credit, leaving us with borrowing capacity of approximately $40.0 million. See Note 8 for more information.

There were no material capital commitments as of December 30, 2022. The following table summarizes our future principal payments under our future Credit Facility and lease commitments under our non-cancelable operating leases as of December 30, 2022 (in thousands):

(1) Excludes interest charges on borrowings, the fee on the amount of any unused commitment that we may be obligated to pay under our revolving credit facility as such amounts vary and the deferred debt costs. See Note 8, in the notes to consolidated financial statements for additional information.

Capital Expenditures

There were no material commitments for capital expenditures as of December 30, 2022. 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 30, 2022, and December 31, 2021, our capital expenditures were $4.7 million and $3.2 million, respectively. We expect capital expenditures for the year ended December 29, 2023, to approximate the capital expenditures in 2022.

Taxes

Cash paid for income taxes was $4.6 million and $9.1 million for the years ended December 30, 2022, and December 31, 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

27

as of December 31, 2021, of $3.4 million, as compared to an income tax liability as of December 30, 2022 of $5.8 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 2022, our Board of Directors approved four quarterly dividends payments of $0.11 per share totaling $13.4 million. Subsequent to our completion of the tender offer transaction, we expect dividend payments in 2023 to be approximately $12.0 million.

We have an ongoing authorization from our Board of Directors to repurchase shares of our common stock. During 2022, we repurchased 4.9 million shares of common stock at an average price per share of $23.69, for a total cost of $116.6 million, including the shares repurchased under the tender offer transaction and transaction fees. As of December 30, 2022, we had $14.7 million share repurchase authorization remaining. Subsequent to fiscal year end, we repurchased 37 thousand shares of the Company’s common stock from members of our Board of Directors for a total of $0.7 million, or $18.96 per share. Including these repurchases, we had approximately $14.0 million available for future repurchases under the plan as of March 3, 2023.

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 2022, 0.2 million shares were withheld and not issued for a cost of $3.2 million, bringing the total cumulative cash used to repurchase stock in 2022 to $119.8 million, including the tender offer transaction and related transaction fees. 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 included the net settlement of the 2.9 million SARs for a cost of $19.7 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 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.

21

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.

22

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).

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.

23

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

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 increased 1% 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.

24

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):

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.

25

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):

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.

26