10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 29, 2018

OR

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

For the transition period from              to             

Commission File Number 333-48123

The Hackett Group, Inc.

(Exact name of registrant as specified in its charter)

FLORIDA	65-0750100
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1001 Brickell Bay Drive, Suite 3000 Miami, Florida	33131
(Address of principal executive offices)	(Zip Code)

(305) 375-8005

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days.    YES  ☒    NO  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  ☒    NO  ☐

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

Large Accelerated Filer	☐	Accelerated Filer	☒
Non-Accelerated Filer	☐ (Do not check if a smaller reporting company)	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES    NO  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of August 3, 2018, there were 29,461,843 shares of common stock outstanding.

The Hackett Group, Inc.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION		Page
Item 1.	Financial Statements
	Consolidated Balance Sheets as of June 29, 2018 and December 29, 2017 (unaudited)	3
	Consolidated Statements of Operations for the Quarters and Six Months Ended June 29, 2018 and June 30, 2017 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the Quarters and Six Months Ended June 29, 2018 and June 30, 2017 (unaudited)	5
	Consolidated Statements of Cash Flows for the Six Months Ended June 29, 2018 and June 30, 2017 (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 6.	Exhibits	23
SIGNATURES		24

2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The Hackett Group, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

	June 29,			December 29,
	2018			2017
ASSETS
Current assets:
Cash	$	13,270		$	17,512
Accounts receivable and unbilled revenue, net of allowance of $1,223 and $2,601 at June 29, 2018 and December 29, 2017, respectively		56,773			55,262
Prepaid expenses and other current assets		3,282			2,511
Total current assets		73,325			75,285
Property and equipment, net		22,846			18,851
Other assets		5,025			6,021
Goodwill, net		84,720			85,074
Total assets	$	185,916		$	185,231
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	8,400		$	8,434
Accrued expenses and other liabilities		34,072			43,014
Total current liabilities		42,472			51,448
Non-current accrued expenses and other liabilities		213			1,268
Long-term deferred tax liability, net		8,099			6,240
Long-term debt		13,500			19,000
Total liabilities		64,284			77,956
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $0.001 par value, 1,250,000 shares authorized; none issued and outstanding		—			—
Common stock, $0.001 par value, 125,000,000 shares authorized; 56,523,863 and 55,744,893 shares issued at June 29, 2018 and December 29, 2017, respectively		57			56
Additional paid-in capital		292,665			288,297
Treasury stock, at cost, 27,071,782 and 26,945,776 shares June 29, 2018 and December 29, 2017, respectively		(136,364	)		(134,054	)
Accumulated deficit		(25,023	)		(38,515	)
Accumulated other comprehensive loss		(9,703	)		(8,509	)
Total shareholders' equity		121,632			107,275
Total liabilities and shareholders' equity	$	185,916		$	185,231

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

3

The Hackett Group, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Quarter Ended						Six Months Ended
	June 29,			June 30,			June 29,			June 30,
	2018			2017			2018			2017
Revenue:
Revenue before reimbursements	$	69,614			67,726		$	137,089			132,795
Reimbursements		6,035			5,844			11,293			12,204
Total revenue		75,649			73,570			148,382			144,999
Costs and expenses:
Cost of service:
Personnel costs before reimbursable expenses		42,789			41,370			83,825			81,522
Stock compensation expense		923			1,842			2,766			3,284
Reimbursable expenses		6,035			5,844			11,293			12,204
Total cost of service		49,747			49,056			97,884			97,010
Selling, general and administrative costs		15,613			15,883			31,047			30,735
Stock compensation expense		804			874			1,646			1,533
Acquisition-related contingent consideration liability		(4,553	)		—			(4,553	)		—
Restructuring		—			1,293			—			1,293
Total costs and operating expenses		61,611			67,106			126,024			130,571
Income from operations		14,038			6,464			22,358			14,428
Other expense:
Interest expense		(178	)		(127	)		(357	)		(217	)
Income from operations before income taxes		13,860			6,337			22,001			14,211
Income tax expense		2,339			1,587			3,113			1,587
Net income	$	11,521		$	4,750		$	18,888		$	12,624
Basic net income per common share:
Income per common share from operations	$	0.39		$	0.16		$	0.65		$	0.44
Weighted average common shares outstanding		29,430			29,041			29,260			28,955
Diluted net income per common share:
Income per common share from operations	$	0.36		$	0.15		$	0.59		$	0.39
Weighted average common and common equivalent shares outstanding		32,235			32,513			32,025			32,403

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

4

The Hackett Group, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

	Quarter Ended					Six Months Ended
	June 29,			June 30,		June 29,			June 30,
	2018			2017		2018			2017
Net income	$	11,521		$	4,750	$	18,888		$	12,624
Foreign currency translation adjustment		(2,351	)		1,034		(1,194	)		1,468
Total comprehensive income	$	9,170		$	5,784	$	17,694		$	14,092

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

5

The Hackett Group, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended
	June 29,			June 30,
	2018			2017
Cash flows from operating activities:
Net income	$	18,888		$	12,624
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense		1,204			1,251
Amortization expense		1,204			918
Amortization of debt issuance costs		46			45
Non-cash stock compensation expense		4,412			4,817
Provision for doubtful accounts		196			224
Loss (gain) on foreign currency translation		(297	)		399
Release of valuation allowance		1,860			2,036
Changes in assets and liabilities:
(Increase) decrease in accounts receivable and unbilled revenue		(1,551	)		62
Increase in prepaid expenses and other assets		(953	)		(1,412	)
Decrease in accounts payable		(34	)		(1,327	)
Decrease in accrued expenses and other liabilities		(5,895	)		(6,821	)
Decrease in income tax payable		(4,247	)		(3,830	)
Net cash provided by operating activities		14,833			8,986
Cash flows from investing activities:
Purchases of property and equipment		(5,161	)		(2,946	)
Cash consideration paid for acquisitions		—			(9,268	)
Cash acquired in acquisitions		—			261
Net cash used in investing activities		(5,161	)		(11,953	)
Cash flows from financing activities:
Proceeds from ESPP		387			562
Proceeds from borrowings		—			19,000
Repayment of borrowings		(5,500	)		(6,000	)
Dividends paid		(4,656	)		(4,023	)
Exercise of stock options		—			200
Repurchase of common stock		(4,149	)		(12,060	)
Net cash used in financing activities		(13,918	)		(2,321	)
Effect of exchange rate on cash		4			(3	)
Net decrease in cash and cash equivalents		(4,242	)		(5,291	)
Cash at beginning of period		17,512			19,710
Cash at end of period	$	13,270		$	14,419
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	5,400		$	3,735
Cash paid for interest	$	296		$	163
Supplemental disclosure of non-cash acquisition financing activities:
Shares issued to sellers of Jibe Consulting	$	—		$	3,600,000

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

6

The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation and General Information

Basis of Presentation

The accompanying consolidated financial statements of The Hackett Group, Inc. (“Hackett” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the Company’s accounts and those of its wholly-owned subsidiaries which the Company is required to consolidate. All intercompany transactions and balances have been eliminated in consolidation.

In the opinion of management, the accompanying consolidated financial statements reflect all normal and recurring adjustments which are necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows as of the dates and for the periods presented. The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these statements do not include all the disclosures normally required by U.S. GAAP for annual financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 29, 2017, included in the Annual Report on Form 10-K filed by the Company with the SEC on March 9, 2018. The consolidated results of operations for the quarter and six months ended June 29, 2018, are not necessarily indicative of the results to be expected for any future period or for the full fiscal year.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

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

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

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

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

In fixed-fee billing arrangements, which would also include contracts with capped fees, we agree to a pre-established fee or fee cap in exchange for a predetermined set of professional services. We set the fees based on our estimates of the costs and timing for completing the engagements. We generally recognize revenue under fixed-fee or capped fee arrangements using a proportionate 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 revenues and cost of services are monitored regularly during the term of the engagement. If our estimates indicate a potential loss, such loss is recognized in the period in which the loss first becomes probable and reasonably estimable. The customer is invoiced based on the contractual agreement between the parties, typically bi-weekly, monthly or mile-stone driven, with net thirty-day terms, however client terms are subject to change.

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

7

The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation and General Information (continued)

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

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

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

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

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

Differences between the timing of billings and the recognition of revenue are recognized as either unbilled services or deferred revenue in the accompanying consolidated balance sheets. Revenue recognized for services performed but not yet billed to clients are recorded as unbilled services. Revenue recognized, but for which are not yet entitled to bill because certain events, such as the completion of the measurement period, are recorded as contract assets and included within unbilled services. Client prepayments are classified as deferred revenue and recognized over future periods as earned in accordance with the applicable engagement agreement. See Note 3 for the accounts receivable and unbilled revenue balances and see Note 4 for the deferred revenue balances. During the quarter and six months ended June 29, 2018, the Company recognized $5.0 million and $9.8 million of revenue as a result of changes in deferred revenue liability balance, respectively, as compared to $4.9 million and $11.3 million for the quarter and six months ended June 30, 2017, respectively. 

The following table reflects the Company’s disaggregation of total revenue including reimbursable expenses for the quarters and six months ended June 29, 2018 and June 30, 2017:

	Quarter Ended				Six Months Ended
	June 29,		June 30,		June 29,		June 30,
	2018		2017		2018		2017
Consulting	$	74,904	$	73,246	$	146,926	$	143,741
Software License Sales		745		324		1,456		1,258
Total revenue	$	75,649	$	73,570	$	148,382	$	144,999

8

The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation and General Information (continued)

Capitalized Sales Commissions

Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized as project revenue is recognized.  We determined the period of amortization by taking into consideration the customer contract period, which are generally less than 12 months. Commission expense is included in Selling, General and Administrative Costs in the accompanying condensed consolidated statements of operations. As of December 29, 2017 and December 30, 2016, the Company had $1.4 million and $1.8 million, respectively, of deferred commissions, of which $0.4 million and $0.7 million was amortized during the quarters and six months ended June 29, 2018, respectively, as compared to $0.5 million and $0.9 million during the quarter and six months ended June 30, 2017, respectively. No impairment loss was recognized relating to the capitalization of deferred commission.

Practical Expedients

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

Fair Value

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable and unbilled revenue, accounts payable, accrued expenses and other liabilities and debt. As of June 29, 2018 and December 29, 2017, the carrying amount of each financial instrument approximated the instrument’s respective fair value due to the short-term nature and maturity of these instruments.

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

Business Combinations

The Company applies the provisions of ASC 805, Business Combinations, in the accounting for its acquisitions, which requires recognition of the assets acquired and the liabilities assumed at their acquisition date fair values, separately from goodwill. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the tangible and identifiable intangible assets acquired and liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, that may be up to 12 months from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with a corresponding adjustment to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, the impact of any subsequent adjustments is included in the consolidated statements of operations.

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, as a new Topic, ASC 606, which superseded ASC 605. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted ASC 606 effective December 31, 2017 on a modified retrospective basis to all open contracts, as of that date. Adoption of the new standard resulted in changes to certain accounting policies for revenue recognition, but on a modified retrospective basis had no impact on our consolidated financial statements in the periods presented.

In February 2016, the FASB issued guidance on leases which supersedes the current lease guidance. The core principle requires lessees to recognize the assets and liabilities that arise from nearly all leases on the balance sheet. Accounting applied by lessors will remain largely consistent with previous guidance. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is assessing the impact of this standard on its consolidated financial statements and related disclosures.

9

1. Basis of Presentation and General Information (continued)

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

Reclassifications

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

2. Net Income per Common Share

Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. With regard to common stock subject to vesting requirements and restricted stock units issued to the Company’s employees and non-employee members of its Board of Directors, the calculation includes only the vested portion of such stock and units.

Diluted net income per common share is computed by dividing net income by the weighted average number of common shares outstanding, increased by the assumed conversion of other potentially dilutive securities during the period.

The following table reconciles basic and dilutive weighted average common shares:

	Quarter Ended				Six Months Ended
	June 29,		June 30,		June 29,		June 30,
	2018		2017		2018		2017
Basic weighted average common shares outstanding		29,429,925		29,041,291		29,259,641		28,954,621
Effect of dilutive securities:
Unvested restricted stock units and common stock subject to vesting requirements issued to employees and non-employees		469,702		1,105,875		420,020		1,046,173
Common stock issuable upon the exercise of stock options and SARs		2,335,458		2,365,435		2,345,288		2,401,714
Dilutive weighted average common shares outstanding		32,235,085		32,512,601		32,024,949		32,402,508

Approximately 0.8 million shares of common stock equivalents were excluded from the computations of diluted net income per common share for both the quarter and six months ended June 29, 2018, as compared to 0.8 million and 0.7 million for the quarter and six months ended June 29, 2017, respectively, as their inclusion would have had an anti-dilutive effect on diluted net income per common share.   

3. Accounts Receivable and Unbilled Revenue, Net

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

	June 29,			December 29,
	2018			2017
Accounts receivable	$	37,661		$	44,972
Unbilled revenue		20,335			12,891
Allowance for doubtful accounts		(1,223	)		(2,601	)
Accounts receivable and unbilled revenue, net	$	56,773		$	55,262

Accounts receivable is net of uncollected advanced billings. Unbilled revenue represents revenue for services performed that have not been invoiced.

10

The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

4. Accrued Expenses and Other Liabilities

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

	June 29,		December 29,
	2018		2017
Accrued compensation and benefits	$	7,323	$	5,289
Accrued bonuses		2,619		4,119
Accrued dividend payable		5,391		4,656
Acquisition earnout accruals		1,938		6,207
Deferred revenue		10,335		9,271
Accrued sales, use, franchise and VAT tax		2,835		3,670
Non-cash stock compensation accrual		490		1,890
Income tax payable		1,403		5,649
Other accrued expenses		1,738		2,263
Total accrued expenses and other liabilities	$	34,072	$	43,014

5. Restructuring Costs

During 2017, the Company recorded restructuring costs of $1.3 million, which was primarily related to the transition of resources driven by the Company’s migration from on-premise software to cloud-based implementations, as well as the Jibe acquisition, and the rationalization of global resources.   As of June 29, 2018 and December 29, 2017, the Company did not have any remaining commitments related to restructuring.     

6. Credit Facility

In February 2012, the Company entered into a credit agreement with Bank of America, N.A. (“Bank of America”), pursuant to which Bank of America agreed to lend the Company up to $20.0 million pursuant to a revolving line of credit (the “Revolver”) and up to $47.0 million pursuant to a term loan (the “Term Loan”).  The Company has fully utilized and repaid its Term Loan.

On May 9, 2016, the Company amended and restated the credit agreement with Bank of America (the “Credit Agreement”) to:

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

• Extend the maturity date on the Revolver to May 9, 2021, five years from the date of this amendment of the Credit Agreement.

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

During the quarter and six months ended June 29, 2018, the Company paid down $5.5 million of debtand had a balance of $13.5 million outstanding as of June 29, 2018. The interest rates per annum applicable to borrowings under Revolver will be, at the Company’s option, equal to either a base rate or a LIBOR base rate, plus an applicable margin percentage. The applicable margin percentage is based on the consolidated leverage ratio, as defined in the Credit Agreement. As of June 29, 2018, the applicable margin percentage was 1.50% per annum based on the consolidated leverage ratio, in the case of LIBOR rate advances, and 0.75% per annum, in the case of base rate advances. The interest rate as of June 29, 2018, was 3.5%.

The Company is subject to certain covenants, including total consolidated leverage, fixed cost coverage, adjusted fixed cost coverage and liquidity requirements, each as set forth in the Credit Agreement, subject to certain exceptions.  As of June 29, 2018, the Company was in compliance with all covenants.

11

The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

7. Stock Based Compensation

During the six months ended June 29, 2018, the Company issued 390,354 restricted stock units at a weighted average grant-date fair value of $16.29 per share. As of June 29, 2018, the Company had 1,192,781 restricted stock units outstanding at a weighted average grant-date fair value of $15.11 per share. As of June 29, 2018, $11.4 million of total restricted stock unit compensation expense related to unvested awards had not been recognized and is expected to be recognized over a weighted average period of approximately 2.5 years.

As of June 29, 2018, the Company had 289,507 shares of common stock subject to vesting requirements outstanding at a weighted average grant-date fair value of $16.03 per share. As of June 29, 2018, $3.2 million of compensation expense related to common stock subject to vesting requirements had not been recognized and is expected to be recognized over a weighted average period of approximately 2.4 years.

Forfeitures for all of the Company’s outstanding equity are recognized as incurred.

8. Shareholders’ Equity

Stock Appreciation Rights (“SARs”)

As of June 29, 2018, the Company had 2.9 million SARs outstanding with an exercise price of $4.00 per share and an expiration date of February 2022.           

Treasury Stock

Under the Company’s share repurchase plan, the Company may repurchase shares of its outstanding common stock either on the open market or through privately negotiated transactions subject to market conditions and trading restrictions. During the six months ended June 29, 2018, the Company repurchased 53 thousand shares of its common stock at an average price of $18.33 per share for a total cost of $1.0 million.As of June 29, 2018, the Company had a total authorization remaining of $7.2 million under its repurchase plan. During the quarter ended June 29, 2018, the Company’s Board of Directors approved an additional $5.0 million of authorization under the repurchase plan increasing the total authorization to $142.2 million.

During the quarter and six months ended June 30, 2017, the Company repurchased 507 thousand and 566 thousand shares of its common stock at an average price of $15.01 and $15.55 per share for a total cost of $7.6 million and $8.8 million, respectively.  

The shares repurchased under the share repurchase plan during the quarter and six months ended June 29, 2018, do not include 11 thousand and 184 thousand shares which the Company bought back to satisfy employee net vesting obligations for a cost of $0.2 million and $3.1 million, respectively.  During the quarter and six months ended June 30, 2017, the Company bought back 21 thousand and 195 thousand shares at a cost of $0.4 million and $3.3 million, respectively, to satisfy employee net vesting obligations.       

Dividend Program

In 2017, the Company increased the annual dividend from $0.26 per share to $0.30 per share to be paid on a semi-annual basis which resulted in aggregate dividends of $4.6 million and $4.7 million paid to shareholders of record on June 30, 2017 and December 22, 2017. These dividends were paid from U.S. domestic sources and are accounted for as an increase to accumulated deficit. The dividend declared in December 2017 was paid in January 2018. During the quarter ended March 30, 2018, the Company increased its annual dividend to $0.34 per share to be paid on a semi-annual basis.  During the quarter ended June 29, 2018, the Company declared its semi-annual dividend of $0.17 per share for shareholders of record as of June 29, 2018, which was paid on July 11, 2018 for a total of $5.4 million.

9. Transactions with Related Parties

During the six months ended June 29, 2018, the Company bought back 53 thousand shares of its common stock from members of its Board of Directors and executives for $1.0 million, or $18.33 per share.

10. Litigation

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

12

The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

11. Geographic and Group Information

Revenue before reimbursements, which is primarily based on the country of the contracting entity, was attributed to the following geographical areas (in thousands):

	Quarter Ended				Six Months Ended
	June 29,		June 30,		June 29,		June 30,
	2018		2017		2018		2017
Revenue before reimbursements:
North America	$	57,245	$	52,607	$	110,771	$	105,644
International (primarily European countries)		12,369		15,119		26,318		27,151
Revenue before reimbursements	$	69,614	$	67,726	$	137,089	$	132,795

Long-lived assets are attributable to the following geographic areas (in thousands):

	June 29,		December 29,
	2018		2017
Long-lived assets:
North America	$	92,990	$	90,605
International (primarily European countries)		19,601		19,341
Total long-lived assets	$	112,591	$	109,946

As of June 29, 2018 and December 29, 2017, foreign assets included $14.8 million and $15.1 million, respectively, of goodwill related to acquisitions.   

In the following table, “The Hackett Group” encompasses the Strategy and Business Transformation practice, Benchmarking, Executive Advisory and Business Transformation practices, and the ERP, EPM and Analytics practices including Enterprise Analytics Transformation, as well as the Oracle ERP Applications and Application Managed Services practices. The “SAP Solutions Group” which goes to market under the Answerthink brand, encompasses SAP Reseller, Implementation and Application Managed Services practices (in thousands):

	Quarter Ended				Six Months Ended
	June 29,		June 30,		June 29,		June 30,
	2018		2017		2018		2017
The Hackett Group	$	61,287	$	57,658	$	120,185	$	112,649
SAP Solutions		8,327		10,068		16,904		20,146
Revenue before reimbursements	$	69,614	$	67,726	$	137,089	$	132,795

12. Acquisitions

Jibe Consulting, Inc.

Effective May 1, 2017, the Company acquired certain assets and liabilities of Jibe Consulting, Inc. (“Jibe”), a U.S.- based Oracle E-Business Suite (“EBS”) and Oracle Cloud Business Application implementation firm. The acquisition of Jibe enhances the Company’s Cloud Application capabilities and strongly complements its market leading EPM transformation and technology implementation group.

The sellers’ purchase consideration was $5.4million in cash, not subject to vesting, and $3.6 million in shares of the Company’s common stock, subject to vesting. The initial cash consideration was funded from borrowings under the Company’s Revolver. The equity that was issued has a four-year vesting term and will be recorded as compensation expense over the respective vesting period. In addition, the sellers have the opportunity to earn an additional $6.6 million in cash and $4.4 million in Company common stock based on the achievement of the performance targets over the 18 month period following closing for a total of $11.0 million in contingent consideration, a portion of which will be allocated to key employees in both cash and Company stock. 

13

12. Acquisitions (continued)

The cash related to the contingent consideration, which is to be paid to the sellers, is not subject to service vesting and has been accounted for as part of the purchase consideration. The cash related to the contingent consideration, which is to be paid to the key employees, is subject to service vesting and is being accounted for as compensation expense. Due to the projected earnout results, during the second quarter of 2018, the acquisition-related purchase consideration and compensation expense allocated to both the selling shareholders and key employees resulted in a benefit. During the three and six months ended June 29, 2018, the Company recorded a benefit of $4.6 million in earnings from operations on the consolidated statement of operations related to the reduction of a contingent earnout liability for the Jibe acquisition.  During the three and six months ended June 29, 2018, the Company recorded, in personnel costs before reimbursements on the consolidated statement of operations, a benefit of $0.3 million and $0.2 million, respectively, related to the key employees’ portion of the cash related contingent consideration.  These contingent liabilities have been recorded in the consolidated balance sheet as current accrued expenses and other liabilities.  

The equity related to the contingent consideration will be subject to service vesting and will be recorded as compensation expense over the respective vesting period. As mentioned above, due to the projected results, the Company recorded for the three and six months ended June 29, 2018, a benefit of $0.6 million and benefit of $0.4 million, respectively, of acquisition-related non-cash stock compensation in cost of sales on the consolidated statement of operations.

The purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values.  The fair value of identifiable intangible assets acquired was based on estimates and assumptions made by management at the time of the acquisition. The following table presents the purchase price allocation of the assets acquired and liabilities assumed, based on the fair values:

	Purchase Price
	Allocation
	(in thousands)
Total purchase consideration	$	11,293
Accounts receivable		1,932
Other current assets		59
Total current assets acquired		1,991
Intangible assets		931
Goodwill		9,538
Total assets		12,460
Other accrued expenses		1,167
Total liabilities acquired		1,167
Purchase consideration on acquisition	$	11,293

The recognized goodwill is primarily attributable to the benefits the Company expects to derive from enhanced market opportunities. The acquired intangible assets with definite lives are amortized over periods ranging from 2 to 5 years. The following table presents the intangible assets acquired from Jibe:

	Amount		Useful Life
Category	(in thousands)		(in years)
Customer Base	$	140	5
Customer Backlog		325	2
Non-Compete		466	5
	$	931

The acquisition was not material to the Company's results of operations, financial position or cash flows and therefore, the pro forma impact of these acquisitions is not presented. Jibe contributed $12.3 million of revenue before reimbursable expenses and contribution before depreciation, amortization, interest, corporate overhead allocation and taxes totaled $1.2 million for the year ended December 29, 2017.  The acquisition related costs incurred in the second quarter of 2017 totaled $0.2 million and were all classified in selling, general and administrative costs in the Company’s consolidated statements of operations. All goodwill is expected to be deductible for tax purposes.

14

12. Acquisitions (continued)

Aecus Limited

Effective April 6, 2017, the Company acquired 100% of the equity of the U.K.-based operations of Aecus Limited (“Aecus”), a European Outsourcing Advisory and RPA consulting firm. This acquisition complements the global strategy and business transformation offerings of the Hackett Group.

The sellers’ purchase consideration was £3.2 million in cash. The closing purchase consideration was funded with the Company’s available funds. In addition, the sellers had the opportunity to earn an additional £2.4 million in contingent consideration in cash based on the achievement of performance targets achieved over the next 12 months, and key personnel had the opportunity to earn £0.3 million in cash and £0.3 million in the Company’s common stock. The contingent consideration for the selling shareholders and key personnel is subject to performance and service periods and will be accounted for as compensation expense and in non-current accrued expenses and other liabilities. During the first quarter of 2018, the acquisition related compensation expense for Aecus resulted in a benefit due to the estimated results of the contingent earnout calculation.

During the first quarter of 2018, the Company recorded a £0.5 million compensation benefit from acquisition-related cash and non-cash compensation for the cash portion of the contingent consideration.  During the quarter and six months ended June 29, 2018, the Company recorded compensation expense of £0.1 million and a compensation benefit of £0.4 million, respectively, from acquisition-related cash compensation for the cash portion of the contingent consideration.

During the quarter and six months ended June 29, 2018, the Company recorded compensation expense of £6 thousand and a compensation benefit of £16 thousand, respectively, from acquisition-related non-cash compensation for the equity portion of the contingent consideration in cost of sales on the consolidated statement of operations.    

The purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values.  The fair value of identifiable intangible assets acquired was based on estimates and assumptions made by management at the time of the acquisition. The following table presents the purchase price allocation of the assets acquired and liabilities assumed, based on the fair values:

	Purchase Price
	Allocation
	(in thousands)
Total purchase consideration	£	3,173
Cash		209
Accounts receivable		898
Other current assets		46
Total current assets acquired		1,153
Intangible assets		1,515
Goodwill		1,306
Total assets		3,974
Other accrued expenses		801
Total liabilities acquired		801
Purchase consideration on acquisition	£	3,173

15

The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

12. Acquisitions (continued)

The recognized goodwill is primarily attributable to the benefits the Company expects to derive from enhanced market opportunities. The acquired intangible assets with definite lives are amortized over periods ranging from 2 to 5 years. The following table presents the intangible assets acquired from Aecus:

	Amount		Useful Life
Category	(in thousands)		(in years)
Customer Base	£	455	5
Customer Backlog		52	2
Non-Compete		1,008	5
	£	1,515

The acquisition was not material to the Company's results of operations, financial position or cash flows and therefore, the pro forma impact of these acquisitions is not presented. Aecus contributed $3.9 million of revenue before reimbursable expenses and contribution before depreciation, amortization, interest, corporate overhead allocation and taxes totaled $0.5 million during the year ended December 29, 2017.  The acquisition related costs incurred during the year ended December 29, 2017 totaled $0.1 million and were all classified in selling, general and administrative costs in the Company’s consolidated statements of operations. The goodwill and intangibles resulting from this transaction are not expected to be deductible under UK tax regulations.

Chartered Institute of Management Accountants

Effective October 2017, Hackett-REL, Ltd., a subsidiary of the Company located in the United Kingdom, acquired The Chartered Institute of Management Accountants' share of the Certified GBS Professionals program.   This acquisition allows those studying under the program and their employers to benefit further from the Company’s sector specific expertise and focus on the growing global business services market.  Purchase consideration was $2.0 million in cash and was funded with the Company’s available funds.  Also in connection with this transaction, the Alliance and Program Development Agreement between the Company, Hackett-REL, Ltd. and The Chartered Institute of Management Accountants was terminated.The acquired intangible asset has a definite life which will be amortized over 4 years.

16

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements. All statements regarding our expected financial position and operating results, our business strategy, our financing plans and forecasted demographic and economic trends relating to our industry are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect,” or “intend” and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. We cannot promise you that our expectations reflected in such forward-looking statements will turn out to be correct. Factors that impact such forward-looking statements include, among others, our ability to effectively integrate acquisitions into our operations, our ability to retain existing business, our ability to attract additional business, our ability to effectively market and sell our product offerings and other services, the timing of projects and the potential for contract cancellation by our customers, changes in expectations regarding the business consulting and information technology industries, our ability to attract and retain skilled employees, possible changes in collections of accounts receivable due to the bankruptcy or financial difficulties of our customers, risks of competition, price and margin trends, foreign currency fluctuations and changes in general economic conditions, interest rates and our ability to obtain debt financing through additional borrowings under an amendment to our existing credit facility. An additional description of our risk factors is set forth in our Annual Report on Form 10-K for the year ended December 29, 2017. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

OVERVIEW

The Hackett Group, Inc. (“Hackett” or the “Company”) 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 more than 15,200 benchmark and performance studies over 24 years at over 5,300 of the world’s leading companies.

In the following discussion, “The Hackett Group” encompasses our Strategy and Business Transformation practice, Benchmarking, Executive Advisory and Business Transformation practices, and our ERP, EPM and Analytics practices including Enterprise Analytics Transformation, as well as our Oracle ERP Applications and Application Managed Services practices. The “SAP Solutions Group” which goes to market under our Answerthink brand, encompasses our SAP Reseller, Implementation and Application Managed Services practices.

During the second quarter of 2017, we completed the acquisitions of Jibe Consulting, Inc. and Aecus Limited. See Note 12, “Acquisitions” to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

17

RESULTS OF OPERATIONS

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 and unaudited):

	Quarter Ended										Six Months Ended
	June 29,					June 30,					June 29,					June 30,
	2018					2017					2018					2017
Revenue:
Revenue before reimbursements	$	69,614		100.0	%	$	67,726		100.0	%	$	137,089		100.0	%	$	132,795		100.0	%
Reimbursements		6,035					5,844					11,293					12,204
Total revenue		75,649					73,570					148,382					144,999
Costs and expenses:
Cost of service:
Personnel costs before reimbursable expenses		42,993		61.8	%		40,947		60.5	%		84,614		61.7	%		81,099		61.1	%
Acquisition-related compensation expense (benefit)		(204	)				423					(789	)				423
Non-cash stock compensation expense		1,002					1,226					2,045					2,358
Acquisition-related non-cash stock compensation expense		(79	)				616					721					926
Reimbursable expenses		6,035					5,844					11,293					12,204
Total cost of service		49,747					49,056					97,884					97,010
Selling, general and administrative costs		15,022		21.6	%		15,190		22.4	%		29,843		21.8	%		29,550		22.3	%
Non-cash stock compensation expense		804					874					1,646					1,533
Acquisition-related costs		—					161					—					267
Amortization of intangible assets		591					532					1,204					918
Acquisition-related contingent consideration liability		(4,553	)				—					(4,553	)				—
Restructuring costs		—					1,293					—					1,293
Total selling, general, and administrativeexpenses		11,864					18,050					28,140					33,561
Total costs and operating expenses		61,611					67,106					126,024					130,571
Income from operations		14,038		20.2	%		6,464		9.5	%		22,358		16.3	%		14,428		10.9	%
Other expense:
Interest expense		(178	)				(127	)				(357	)				(217	)
Income from operations before income taxes		13,860		19.9	%		6,337		9.4	%		22,001		16.0	%		14,211		10.7	%
Income tax expense		2,339		3.4	%		1,587		2.3	%		3,113		2.3	%		1,587		1.2	%
Net income	$	11,521		16.5	%	$	4,750		7.0	%	$	18,888		13.8	%	$	12,624		9.5	%
Diluted net income per common share	$	0.36				$	0.15				$	0.59				$	0.39

Revenue. We are a global company with operations located in North and South America, Western Europe, Australia and India. Our revenue is denominated in multiple currencies, primarily the U.S. Dollar, British Pound, Euro and Australian Dollar and as a result is affected by currency exchange rate fluctuations. The impact of currency fluctuations did not have a significant impact on comparisons between the second quarter and first six months of 2018 and the comparable periods of 2017. Revenue is analyzed based on geographical location of engagement team personnel.  

Our total Company net revenue, or revenue before reimbursements, increased by 3%, to $69.6 million and $137.1 million in the second quarter and first six months of 2018, as compared to $67.7 million and $132.8 million in the same periods of 2017. In the second quarter of 2018, one customer accounted for more than 5% of our total revenue, however in the first six months of 2018 and both periods of 2017, no customer accounted for more than 5% of our total revenue.

The Hackett Group net revenue increased 6%, to $61.3 million and 7%, to $120.2 million during the second quarter and first six months of 2018, respectively, as compared to $57.7 million and $112.6 million in the same periods of 2017. Hackett domestic revenue was up 8% and 7% during second quarter and first six months of 2018, respectively, as compared to the same periods in 2017. The growth in the second quarter of 2018 primarily related to increases in our Strategy and Business Transformation group. The increase in the six months ended June 29, 2018 primarily related to the acquisition of Jibe in the second quarter of 2017 and strong growth from our Strategy and Business Transformation practice, partially offset by the revenue decline resulting from the Oracle on-premise implementation demand.  Hackett international revenue was up 1% and 6% during the second quarter and first six months of 2018, respectively, as compared to the same periods in the prior year. The growth in the first six months of 2018 was primarily as a result of the acquisition of Aecus in the second quarter of 2017.  

18

SAP Solutions net revenue decreased 17%, to $8.3 million, and 16%, to $16.9 million during the second quarter of 2018 and first six months if 2018, respectively, as compared to $10.1 million and $20.1 million in the same periods of 2017, primarily due to the impact of client transition from on-premise to cloud-based offerings and the loss of a significant AMS contract.

Total Company international net revenue accounted for 20% of total Company net revenue during both the second quarter and first six months of 2018, as compared to 19% during both the same periods in 2017.

Reimbursements as a percentage of total net revenue were 9% and 8% during the second quarter and first six months of 2018, as compared to 9% during the same periods in 2017. The decrease in the first six months, primarily related to lower expense ratios resulting from the recent acquisitions and the increase in IP as a service revenue, which both historically drive lower levels of reimbursable expenses.  Reimbursements are project travel-related expenses passed through to a client with no associated margin.

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 increased 5%, to $43.0 million, and 4%, to $84.6 million, for the second quarter and first six months of 2018, respectively, from $40.9 million and $81.1 million in the same periods of 2017, respectively. The increase was primarily a result of an increase in average headcount due to the timing of the Jibe acquisition in May 2017, higher use of subcontractors during the period and higher incentive compensation accruals.  Personnel costs before reimbursable expenses, as a percentage of revenue before reimbursements, were 62% for both the second quarter and first six months of 2018 and 61% for the same periods in 2017.

The acquisition-related compensation expense (benefit) in all periods relates to the accrual for the cash portion of the Aecus contingent consideration to be paid to the selling shareholders and key personnel, and the cash portion of the Jibe contingent consideration that is to be paid to key employees, all of which are subject to service vesting and as a result is recorded as compensation expense. During the first quarter of 2018, the acquisition-related compensation expense for Aecus resulted in a benefit and during the second quarter of 2018 the acquisition-related compensation expense for Jibe resulted in a benefit, both due to the estimated earnout. See Note 12, “Acquisitions” to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Non-cash stock compensation expense was $1.0 million and $2.0 million in the second quarter and first six months of 2018, respectively, as compared to $1.2 million and $2.4 million for the same periods of 2017, respectively.

Acquisition related non-cash stock compensation expense in 2018 and 2017 primarily related to our EPM AMS acquisition of Technolab in fiscal 2014 and the Jibe and Aecus acquisitions in 2017. See Note 12, “Acquisitions” to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

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 were $15.0 million and $29.8 million for the second quarter and first six months of 2018, respectively, as compared to $15.2 million and $29.6 million for the same periods in 2017. These SG&A costs as a percentage of revenue before reimbursements were 22% during all four periods.

Amortization expense was $0.6 million and $1.2 million in the second quarter and first six months of 2018, respectively, as compared to $0.5 million and $0.9 million in the same periods in 2017. The amortization expense relates to the amortization of the intangible assets acquired in our 2014 EPM AMS acquisition of Technolab and our acquisitions of Jibe and Aecus in the second quarter of 2017, and the buyout of our partner’s joint venture interest in the CGBS Training and Certification Programs in the fourth quarter of 2017. The intangible assets relate to the customer relationship, customer backlog and non-compete agreements. The Technolab intangible assets will continue to amortize through 2018, the Jibe and Aecus intangible assets will continue to amortize until 2022, and CGBS Training and Certification Program intangible assets will continue to amortize until 2021.

Acquisition-related Contingent Consideration Liability. During the second quarter of 2018, the liability related to the cash portion of the Jibe acquisition contingent consideration due to the selling shareholders, which was not subject to vesting, resulted in a benefit due to the reduction of the contingent earnout liability.    

Restructuring. In 2017, we recorded restructuring costs primarily related to the transition of resources driven by the Company’s migration from on-premise software to cloud-based implementations, as well as the Jibe acquisition, and the rationalization of global resources.  

Income Taxes. During the second quarter and first six months of 2018, we recorded $2.3 million and $3.1 million, respectively, of income tax expense related to certain federal, foreign and state taxes which reflected an effective tax rate of 17% and 14%, respectively. In both the second quarter and first six months of 2017, we recorded $1.6 million of income tax expense related to certain federal, foreign and state taxes which reflected an effective tax rate of 25% and 11%, respectively.  All periods were impacted as a result of the adoption of a new pronouncement relating to the accounting on the vesting of share-based awards.

19

In March 2016, the FASB issued guidance simplifying the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities and classification on the statements of cash flows. Under the new standard, all excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit on the statements of income.  An excess income tax benefit arises when the tax deduction of a share-based award for income tax purposes exceeds the compensation cost recognized for financial reporting purposes and, a tax deficiency arises when the compensation cost exceeds the tax deduction. Management adopted the guidance effective December 31, 2016.

Liquidity and Capital Resources

As of June 29, 2018, and December 29, 2017, we had $13.3 million and $17.5 million, respectively, classified in cash on the consolidated balance sheets.  We currently believe that available funds (including the cash on hand and funds available for borrowing capacity under the revolving line of credit) and cash flows generated by operations will be sufficient to fund our working capital and capital expenditure requirements for at least the next twelve months. 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):

	Six Months Ended
	June 29,			June 30,
	2018			2017
Cash flows provided by operating activities	$	14,833		$	8,986
Cash flows used in investing activities	$	(5,161	)	$	(11,953	)
Cash flows used in financing activities	$	(13,918	)	$	(2,321	)

Cash Flows from Operating Activities

Net cash provided by operating activities was $14.8 million during the six months of 2018, as compared to $9.0 million during the same period in 2017.  In 2018, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items, partially offset by a decrease in accrued expenses and other accruals due to the payout of the 2017 incentive compensation, a decrease in the income tax payable accruals due to estimated federal payments, and an increase in accounts receivable and unbilled revenue. In 2017, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items, offset by a decrease in accounts payable related to the timing of vendor payments, a decrease in accrued expenses and other accruals due to the payout of the 2016 incentive compensation and a decrease in income tax payable.

Cash Flows from Investing Activities

Net cash used in investing activities was $5.2 million and $12.0 million during the first six months of 2018 and 2017, respectively. During 2018, cash flows used in investing activities included investments relating to investments in internal corporate systems, the global rollout of new laptops which occurs every three to four years, and our investments relating to the development of our Quantum Leap benchmark technology.  During 2017, cash flows used in investing activities primarily related to the closing consideration paid for the Jibe and Aecus acquisitions, for investments in internal corporate systems and investments relating to the development our Quantum Leap benchmark technology.

Cash Flows from Financing Activities

Net cash used in financing activities was $13.9 million and $2.3 million during 2018 and 2017, respectively. The usage of cash in 2018 was primarily related to the dividend payment of $4.7 million, the paydown of the revolving line of credit of $5.5 million, the repurchase of $4.0 million of Company common stock. The usage of cash in 2017 was primarily related to the repurchase of $12.1 million of the Company’s common stock, the payment of the dividend of $4.0 million, partially offset by the net $13.0 million drawdown on the revolving line of credit.

As of June 29, 2018, we had $13.5 million outstanding under the revolving line of credit, with a remaining capacity of $31.5 million. See Note 6, “Credit Facility,” to our consolidated financial statements included in this Quarterly Report on Form 10-Q for more information.

Recently Issued Accounting Standards

For a discussion of recently issued accounting standards, see Note 1, “Basis of Presentation and General Information,” to our consolidated financial statements included in this Quarterly Report on Form 10-Q and Note 1, “Basis of Presentation and General Information,” to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 29, 2017.

20

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As of June 29, 2018, our exposure to market risk related primarily to changes in interest rates and foreign currency exchange rate risks.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to the Revolver, which is subject to variable interest rates. The interest rates per annum applicable to loans under the Revolver will be, at our option, equal to either a base rate or a LIBOR rate for one-, two-, three- or nine-month interest periods chosen by us in each case, plus an applicable margin percentage. A 100-basis point increase in our interest rate under our Revolver did not have had a material impact on our results of operations for the quarter and six months ended June 29, 2018.

Exchange Rate Sensitivity

We face exposure to adverse movements in foreign currency exchange rates as a portion of our revenue, expenses, assets and liabilities are denominated in currencies other than the U.S. Dollar, primarily the British Pound, the Euro and the Australian Dollar. These exposures may change over time as business practices evolve.

Item 4. Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Changes in Internal Control Over Financial Controls

Beginning December 30, 2017, we implemented ASC 606, “Revenue from Contracts with Customers.” Although the new revenue standard had an immaterial impact on our ongoing net income, we did implement changes to our processes related to revenue recognition and the control activities within them. These included the development of new policies based on the five-step model provided in the new revenue standard, new training, ongoing contract review requirements, and gathering of information provided for disclosures.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

There have been no material changes to any of the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 29, 2017.

21

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

During the quarter ended June 29, 2018, the Company did not repurchase any shares of its common stock under the repurchase plan approved by the Company's Board of Directors. During the quarter the Company’s Board authorized an additional $5.0 million to the repurchase plan.  As of June 29, 2018, the Company had $7.2 million of authorization remaining under the repurchase plan.

					Total Number		Maximum Dollar
					of Shares as Part		Value That May
					of Publicly		Yet be Purchased
	Total Number		Average Price		Announced		Under the
Period	of Shares		Paid per Share		Program		Program
Balance as of March 30, 2018		—	$	—		—	$	2,173,914
March 30, 2018 to April 27, 2018		—	$	—		—	$	2,173,914
April 28, 2018 to May 25, 2018		—	$	—		—	$	7,173,914
May 26, 2018 to June 29, 2018		—	$	—		—	$	7,173,914
		—	$	—		—

Shares repurchased during the quarter and six months ended June 29, 2018 under the repurchase plan approved by the Company's Board of Directors do not include 11 thousand shares and 184 thousand shares, respectively, for a cost of $0.2 million and $3.1 million that the Company bought back to satisfy employee net vesting obligations.  

22

Item 6. Exhibits

Exhibit No.	Exhibit Description
3.1	Second Amended and Restated Articles of Incorporation of the Registrant, as amended (incorporated herein by reference to the Registrant's Form 10-K for the year ended December 29, 2000).
3.2	Articles of Amendment of the Articles of Incorporation of the Registrant (incorporated herein by reference to the Registrant's Form 10-K for the year ended December 28, 2007).
3.3	Amended and Restated Bylaws of the Registrant, as amended (incorporated herein by reference to the Registrant's Form 10-K for the year ended December 29, 2000).
3.4	Amendment to Amended and Restated Bylaws of the Registrant (incorporated herein by reference to the Registrant's Form 8-K filed on March 31, 2008).
3.5	Amendment to Amended and Restated Bylaws of the Registrant (incorporated herein by reference to the Registrant's Form 8-K filed on January 21, 2015).
31.1*	Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32*	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

* Filed herewith

** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.  

23

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	The Hackett Group, Inc.
Date: August 8, 2018	/s/ Robert A. Ramirez
	Robert A. Ramirez
	Executive Vice President, Finance and Chief Financial Officer

24

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ted A. Fernandez, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of The Hackett Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 8, 2018	By:	/s/ Ted A. Fernandez
		Ted A. Fernandez
		Chairman of the Board and Chief Executive Officer
		The Hackett Group, Inc.

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert A. Ramirez, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of The Hackett Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 8, 2018	By:	/s/ Robert A. Ramirez
		Robert A. Ramirez
		Executive Vice President, Finance and Chief Financial Officer
		The Hackett Group, Inc.

EX-32

Exhibit 32

THE HACKETT GROUP, INC

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of The Hackett Group, Inc. (the “Company”) on Form 10- Q for the period ended June 29, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Ted A. Fernandez, Chairman of the Board and Chief Executive Officer, and Robert A. Ramirez, Executive Vice President, Finance and Chief Financial Officer, of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

(1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

By:	/s/ Ted A. Fernandez
	Ted A. Fernandez
	Chairman of the Board and Chief Executive Officer
	August 8, 2018
By:	/s/ Robert A. Ramirez
	Robert A. Ramirez
	Executive Vice President, Finance and Chief Financial Officer
	August 8, 2018

A signed original of this statement required by Section 906 has been provided to The Hackett Group, Inc. and will be retained by The Hackett Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 29, 2018	Aug. 03, 2018
Document And Entity Information [Abstract]
Trading Symbol	HCKT
Entity Registrant Name	HACKETT GROUP, INC.
Entity Central Index Key	0001057379
Document Type	10-Q
Document Period End Date	Jun. 29, 2018
Amendment Flag	false
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-29
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		29,461,843

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 29, 2018	Dec. 29, 2017
Current assets:
Cash	$ 13,270	$ 17,512
Accounts receivable and unbilled revenue, net of allowance of $1,223 and $2,601 at June 29, 2018 and December 29, 2017, respectively	56,773	55,262
Prepaid expenses and other current assets	3,282	2,511
Total current assets	73,325	75,285
Property and equipment, net	22,846	18,851
Other assets	5,025	6,021
Goodwill, net	84,720	85,074
Total assets	185,916	185,231
Current liabilities:
Accounts payable	8,400	8,434
Accrued expenses and other liabilities	34,072	43,014
Total current liabilities	42,472	51,448
Non-current accrued expenses and other liabilities	213	1,268
Long-term deferred tax liability, net	8,099	6,240
Long-term debt	13,500	19,000
Total liabilities	64,284	77,956
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $0.001 par value, 1,250,000 shares authorized; none issued and outstanding
Common stock, $0.001 par value, 125,000,000 shares authorized; 56,523,863 and 55,744,893 shares issued at June 29, 2018 and December 29, 2017, respectively	57	56
Additional paid-in capital	292,665	288,297
Treasury stock, at cost, 27,071,782 and 26,945,776 shares June 29, 2018 and December 29, 2017, respectively	(136,364)	(134,054)
Accumulated deficit	(25,023)	(38,515)
Accumulated other comprehensive loss	(9,703)	(8,509)
Total shareholders' equity	121,632	107,275
Total liabilities and shareholders' equity	$ 185,916	$ 185,231

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Jun. 29, 2018	Dec. 29, 2017
Statement Of Financial Position [Abstract]
Accounts receivable and unbilled revenue, allowance	$ 1,223	$ 2,601
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	1,250,000	1,250,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	125,000,000	125,000,000
Common stock, shares issued	56,523,863	55,744,893
Treasury stock, at cost, shares	27,071,782	26,945,776

XML

Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2018	Jun. 30, 2017	Jun. 29, 2018	Jun. 30, 2017
Revenue:
Total revenue	$ 75,649	$ 73,570	$ 148,382	$ 144,999
Cost of service:
Stock compensation expense	923	1,842	2,766	3,284
Total cost of service	49,747	49,056	97,884	97,010
Selling, general and administrative costs	15,613	15,883	31,047	30,735
Stock compensation expense	804	874	1,646	1,533
Acquisition-related contingent consideration liability	(4,553)		(4,553)
Restructuring		1,293		1,293
Total costs and operating expenses	61,611	67,106	126,024	130,571
Income from operations	14,038	6,464	22,358	14,428
Other expense:
Interest expense	(178)	(127)	(357)	(217)
Income from operations before income taxes	13,860	6,337	22,001	14,211
Income tax expense	2,339	1,587	3,113	1,587
Net income	$ 11,521	$ 4,750	$ 18,888	$ 12,624
Basic net income per common share:
Income per common share from operations	$ 0.39	$ 0.16	$ 0.65	$ 0.44
Weighted average common shares outstanding	29,429,925	29,041,291	29,259,641	28,954,621
Diluted net income per common share:
Income per common share from operations	$ 0.36	$ 0.15	$ 0.59	$ 0.39
Weighted average common and common equivalent shares outstanding	32,235,085	32,512,601	32,024,949	32,402,508
Revenue Before Reimbursements [Member]
Revenue:
Total revenue	$ 69,614	$ 67,726	$ 137,089	$ 132,795
Reimbursements [Member]
Revenue:
Total revenue	6,035	5,844	11,293	12,204
Cost of service:
Total cost of service	6,035	5,844	11,293	12,204
Cost Before Reimbursements [Member]
Cost of service:
Total cost of service	$ 42,789	$ 41,370	$ 83,825	$ 81,522

XML

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2018	Jun. 30, 2017	Jun. 29, 2018	Jun. 30, 2017
Statement Of Income And Comprehensive Income [Abstract]
Net income	$ 11,521	$ 4,750	$ 18,888	$ 12,624
Foreign currency translation adjustment	(2,351)	1,034	(1,194)	1,468
Total comprehensive income	$ 9,170	$ 5,784	$ 17,694	$ 14,092

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 29, 2018	Jun. 30, 2017
Cash flows from operating activities:
Net income	$ 18,888	$ 12,624
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	1,204	1,251
Amortization expense	1,204	918
Amortization of debt issuance costs	46	45
Non-cash stock compensation expense	4,412	4,817
Provision for doubtful accounts	196	224
Loss (gain) on foreign currency translation	(297)	399
Release of valuation allowance	1,860	2,036
Changes in assets and liabilities:
(Increase) decrease in accounts receivable and unbilled revenue	(1,551)	62
Increase in prepaid expenses and other assets	(953)	(1,412)
Decrease in accounts payable	(34)	(1,327)
Decrease in accrued expenses and other liabilities	(5,895)	(6,821)
Decrease in income tax payable	(4,247)	(3,830)
Net cash provided by operating activities	14,833	8,986
Cash flows from investing activities:
Purchases of property and equipment	(5,161)	(2,946)
Cash consideration paid for acquisitions		(9,268)
Cash acquired in acquisitions		261
Net cash used in investing activities	(5,161)	(11,953)
Cash flows from financing activities:
Proceeds from ESPP	387	562
Proceeds from borrowings		19,000
Repayment of borrowings	(5,500)	(6,000)
Dividends paid	(4,656)	(4,023)
Exercise of stock options		200
Repurchase of common stock	(4,149)	(12,060)
Net cash used in financing activities	(13,918)	(2,321)
Effect of exchange rate on cash	4	(3)
Net decrease in cash and cash equivalents	(4,242)	(5,291)
Cash at beginning of period	17,512	19,710
Cash at end of period	13,270	14,419
Supplemental disclosure of cash flow information:
Cash paid for income taxes	5,400	3,735
Cash paid for interest	$ 296	163
Supplemental disclosure of non-cash acquisition financing activities:
Shares issued to sellers of Jibe Consulting		$ 3,600,000

XML

Basis of Presentation and General Information

6 Months Ended

Jun. 29, 2018

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Basis of Presentation and General Information

1. Basis of Presentation and General Information

Basis of Presentation

The accompanying consolidated financial statements of The Hackett Group, Inc. (“Hackett” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the Company’s accounts and those of its wholly-owned subsidiaries which the Company is required to consolidate. All intercompany transactions and balances have been eliminated in consolidation.

In the opinion of management, the accompanying consolidated financial statements reflect all normal and recurring adjustments which are necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows as of the dates and for the periods presented. The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these statements do not include all the disclosures normally required by U.S. GAAP for annual financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 29, 2017, included in the Annual Report on Form 10-K filed by the Company with the SEC on March 9, 2018. The consolidated results of operations for the quarter and six months ended June 29, 2018, are not necessarily indicative of the results to be expected for any future period or for the full fiscal year.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

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

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

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

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

In fixed-fee billing arrangements, which would also include contracts with capped fees, we agree to a pre-established fee or fee cap in exchange for a predetermined set of professional services. We set the fees based on our estimates of the costs and timing for completing the engagements. We generally recognize revenue under fixed-fee or capped fee arrangements using a proportionate 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 revenues and cost of services are monitored regularly during the term of the engagement. If our estimates indicate a potential loss, such loss is recognized in the period in which the loss first becomes probable and reasonably estimable. The customer is invoiced based on the contractual agreement between the parties, typically bi-weekly, monthly or mile-stone driven, with net thirty-day terms, however client terms are subject to change.

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

1. Basis of Presentation and General Information (continued)

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

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

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

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

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

Differences between the timing of billings and the recognition of revenue are recognized as either unbilled services or deferred revenue in the accompanying consolidated balance sheets. Revenue recognized for services performed but not yet billed to clients are recorded as unbilled services. Revenue recognized, but for which are not yet entitled to bill because certain events, such as the completion of the measurement period, are recorded as contract assets and included within unbilled services. Client prepayments are classified as deferred revenue and recognized over future periods as earned in accordance with the applicable engagement agreement. See Note 3 for the accounts receivable and unbilled revenue balances and see Note 4 for the deferred revenue balances. During the quarter and six months ended June 29, 2018, the Company recognized $5.0 million and $9.8 million of revenue as a result of changes in deferred revenue liability balance, respectively, as compared to $4.9 million and $11.3 million for the quarter and six months ended June 30, 2017, respectively. 

The following table reflects the Company’s disaggregation of total revenue including reimbursable expenses for the quarters and six months ended June 29, 2018 and June 30, 2017:

	Quarter Ended				Six Months Ended
	June 29,		June 30,		June 29,		June 30,
	2018		2017		2018		2017
Consulting	$	74,904	$	73,246	$	146,926	$	143,741
Software License Sales		745		324		1,456		1,258
Total revenue	$	75,649	$	73,570	$	148,382	$	144,999

1. Basis of Presentation and General Information (continued)

Capitalized Sales Commissions

Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized as project revenue is recognized.  We determined the period of amortization by taking into consideration the customer contract period, which are generally less than 12 months. Commission expense is included in Selling, General and Administrative Costs in the accompanying condensed consolidated statements of operations. As of December 29, 2017 and December 30, 2016, the Company had $1.4 million and $1.8 million, respectively, of deferred commissions, of which $0.4 million and $0.7 million was amortized during the quarters and six months ended June 29, 2018, respectively, as compared to $0.5 million and $0.9 million during the quarter and six months ended June 30, 2017, respectively. No impairment loss was recognized relating to the capitalization of deferred commission.

Practical Expedients

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

Fair Value

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable and unbilled revenue, accounts payable, accrued expenses and other liabilities and debt. As of June 29, 2018 and December 29, 2017, the carrying amount of each financial instrument approximated the instrument’s respective fair value due to the short-term nature and maturity of these instruments.

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

Business Combinations

The Company applies the provisions of ASC 805, Business Combinations, in the accounting for its acquisitions, which requires recognition of the assets acquired and the liabilities assumed at their acquisition date fair values, separately from goodwill. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the tangible and identifiable intangible assets acquired and liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, that may be up to 12 months from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with a corresponding adjustment to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, the impact of any subsequent adjustments is included in the consolidated statements of operations.

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, as a new Topic, ASC 606, which superseded ASC 605. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted ASC 606 effective December 31, 2017 on a modified retrospective basis to all open contracts, as of that date. Adoption of the new standard resulted in changes to certain accounting policies for revenue recognition, but on a modified retrospective basis had no impact on our consolidated financial statements in the periods presented.

In February 2016, the FASB issued guidance on leases which supersedes the current lease guidance. The core principle requires lessees to recognize the assets and liabilities that arise from nearly all leases on the balance sheet. Accounting applied by lessors will remain largely consistent with previous guidance. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is assessing the impact of this standard on its consolidated financial statements and related disclosures.

1. Basis of Presentation and General Information (continued)

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

Reclassifications

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

1

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Net Income Per Common Share

6 Months Ended

Jun. 29, 2018

Earnings Per Share [Abstract]

Net Income Per Common Share

2. Net Income per Common Share

Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. With regard to common stock subject to vesting requirements and restricted stock units issued to the Company’s employees and non-employee members of its Board of Directors, the calculation includes only the vested portion of such stock and units.

Diluted net income per common share is computed by dividing net income by the weighted average number of common shares outstanding, increased by the assumed conversion of other potentially dilutive securities during the period.

The following table reconciles basic and dilutive weighted average common shares:

	Quarter Ended				Six Months Ended
	June 29,		June 30,		June 29,		June 30,
	2018		2017		2018		2017
Basic weighted average common shares outstanding		29,429,925		29,041,291		29,259,641		28,954,621
Effect of dilutive securities:
Unvested restricted stock units and common stock subject to vesting requirements issued to employees and non-employees		469,702		1,105,875		420,020		1,046,173
Common stock issuable upon the exercise of stock options and SARs		2,335,458		2,365,435		2,345,288		2,401,714
Dilutive weighted average common shares outstanding		32,235,085		32,512,601		32,024,949		32,402,508

Approximately 0.8 million shares of common stock equivalents were excluded from the computations of diluted net income per common share for both the quarter and six months ended June 29, 2018, as compared to 0.8 million and 0.7 million for the quarter and six months ended June 29, 2017, respectively, as their inclusion would have had an anti-dilutive effect on diluted net income per common share.   

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Accounts Receivable and Unbilled Revenue, Net

6 Months Ended

Jun. 29, 2018

Receivables Net Current [Abstract]

Accounts Receivable and Unbilled Revenue, Net

3. Accounts Receivable and Unbilled Revenue, Net

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

	June 29,			December 29,
	2018			2017
Accounts receivable	$	37,661		$	44,972
Unbilled revenue		20,335			12,891
Allowance for doubtful accounts		(1,223	)		(2,601	)
Accounts receivable and unbilled revenue, net	$	56,773		$	55,262

Accounts receivable is net of uncollected advanced billings. Unbilled revenue represents revenue for services performed that have not been invoiced.

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Accrued Expenses and Other Liabilities

6 Months Ended

Jun. 29, 2018

Accrued Liabilities And Other Liabilities Current [Abstract]

Accrued Expenses and Other Liabilities

4. Accrued Expenses and Other Liabilities

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

	June 29,		December 29,
	2018		2017
Accrued compensation and benefits	$	7,323	$	5,289
Accrued bonuses		2,619		4,119
Accrued dividend payable		5,391		4,656
Acquisition earnout accruals		1,938		6,207
Deferred revenue		10,335		9,271
Accrued sales, use, franchise and VAT tax		2,835		3,670
Non-cash stock compensation accrual		490		1,890
Income tax payable		1,403		5,649
Other accrued expenses		1,738		2,263
Total accrued expenses and other liabilities	$	34,072	$	43,014

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Restructuring Costs

6 Months Ended

Jun. 29, 2018

Restructuring And Related Activities [Abstract]

Restructuring Costs

5. Restructuring Costs

During 2017, the Company recorded restructuring costs of $1.3 million, which was primarily related to the transition of resources driven by the Company’s migration from on-premise software to cloud-based implementations, as well as the Jibe acquisition, and the rationalization of global resources.   As of June 29, 2018 and December 29, 2017, the Company did not have any remaining commitments related to restructuring.     

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Credit Facility

6 Months Ended

Jun. 29, 2018

Debt Disclosure [Abstract]

Credit Facility

6. Credit Facility

In February 2012, the Company entered into a credit agreement with Bank of America, N.A. (“Bank of America”), pursuant to which Bank of America agreed to lend the Company up to $20.0 million pursuant to a revolving line of credit (the “Revolver”) and up to $47.0 million pursuant to a term loan (the “Term Loan”).  The Company has fully utilized and repaid its Term Loan.

On May 9, 2016, the Company amended and restated the credit agreement with Bank of America (the “Credit Agreement”) to:

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

• Extend the maturity date on the Revolver to May 9, 2021, five years from the date of this amendment of the Credit Agreement.

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

During the quarter and six months ended June 29, 2018, the Company paid down $5.5 million of debtand had a balance of $13.5 million outstanding as of June 29, 2018. The interest rates per annum applicable to borrowings under Revolver will be, at the Company’s option, equal to either a base rate or a LIBOR base rate, plus an applicable margin percentage. The applicable margin percentage is based on the consolidated leverage ratio, as defined in the Credit Agreement. As of June 29, 2018, the applicable margin percentage was 1.50% per annum based on the consolidated leverage ratio, in the case of LIBOR rate advances, and 0.75% per annum, in the case of base rate advances. The interest rate as of June 29, 2018, was 3.5%.

The Company is subject to certain covenants, including total consolidated leverage, fixed cost coverage, adjusted fixed cost coverage and liquidity requirements, each as set forth in the Credit Agreement, subject to certain exceptions.  As of June 29, 2018, the Company was in compliance with all covenants.

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Stock Based Compensation

6 Months Ended

Jun. 29, 2018

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock Based Compensation

7. Stock Based Compensation

During the six months ended June 29, 2018, the Company issued 390,354 restricted stock units at a weighted average grant-date fair value of $16.29 per share. As of June 29, 2018, the Company had 1,192,781 restricted stock units outstanding at a weighted average grant-date fair value of $15.11 per share. As of June 29, 2018, $11.4 million of total restricted stock unit compensation expense related to unvested awards had not been recognized and is expected to be recognized over a weighted average period of approximately 2.5 years.

As of June 29, 2018, the Company had 289,507 shares of common stock subject to vesting requirements outstanding at a weighted average grant-date fair value of $16.03 per share. As of June 29, 2018, $3.2 million of compensation expense related to common stock subject to vesting requirements had not been recognized and is expected to be recognized over a weighted average period of approximately 2.4 years.

Forfeitures for all of the Company’s outstanding equity are recognized as incurred.

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Shareholders' Equity

6 Months Ended

Jun. 29, 2018

Stockholders Equity Note [Abstract]

Shareholders' Equity

8. Shareholders’ Equity

Stock Appreciation Rights (“SARs”)

As of June 29, 2018, the Company had 2.9 million SARs outstanding with an exercise price of $4.00 per share and an expiration date of February 2022.           

Treasury Stock

Under the Company’s share repurchase plan, the Company may repurchase shares of its outstanding common stock either on the open market or through privately negotiated transactions subject to market conditions and trading restrictions. During the six months ended June 29, 2018, the Company repurchased 53 thousand shares of its common stock at an average price of $18.33 per share for a total cost of $1.0 million.As of June 29, 2018, the Company had a total authorization remaining of $7.2 million under its repurchase plan. During the quarter ended June 29, 2018, the Company’s Board of Directors approved an additional $5.0 million of authorization under the repurchase plan increasing the total authorization to $142.2 million.

During the quarter and six months ended June 30, 2017, the Company repurchased 507 thousand and 566 thousand shares of its common stock at an average price of $15.01 and $15.55 per share for a total cost of $7.6 million and $8.8 million, respectively.  

The shares repurchased under the share repurchase plan during the quarter and six months ended June 29, 2018, do not include 11 thousand and 184 thousand shares which the Company bought back to satisfy employee net vesting obligations for a cost of $0.2 million and $3.1 million, respectively.  During the quarter and six months ended June 30, 2017, the Company bought back 21 thousand and 195 thousand shares at a cost of $0.4 million and $3.3 million, respectively, to satisfy employee net vesting obligations.       

Dividend Program

In 2017, the Company increased the annual dividend from $0.26 per share to $0.30 per share to be paid on a semi-annual basis which resulted in aggregate dividends of $4.6 million and $4.7 million paid to shareholders of record on June 30, 2017 and December 22, 2017. These dividends were paid from U.S. domestic sources and are accounted for as an increase to accumulated deficit. The dividend declared in December 2017 was paid in January 2018. During the quarter ended March 30, 2018, the Company increased its annual dividend to $0.34 per share to be paid on a semi-annual basis.  During the quarter ended June 29, 2018, the Company declared its semi-annual dividend of $0.17 per share for shareholders of record as of June 29, 2018, which was paid on July 11, 2018 for a total of $5.4 million.

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Transactions with Related Parties

6 Months Ended

Jun. 29, 2018

Related Party Transactions [Abstract]

Transactions with Related Parties

9. Transactions with Related Parties

During the six months ended June 29, 2018, the Company bought back 53 thousand shares of its common stock from members of its Board of Directors and executives for $1.0 million, or $18.33 per share.

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Litigation

6 Months Ended

Jun. 29, 2018

Commitments And Contingencies Disclosure [Abstract]

Litigation

10. Litigation

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

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Geographic and Group Information

6 Months Ended

Jun. 29, 2018

Segment Reporting [Abstract]

Geographic and Group Information

11. Geographic and Group Information

Revenue before reimbursements, which is primarily based on the country of the contracting entity, was attributed to the following geographical areas (in thousands):

	Quarter Ended				Six Months Ended
	June 29,		June 30,		June 29,		June 30,
	2018		2017		2018		2017
Revenue before reimbursements:
North America	$	57,245	$	52,607	$	110,771	$	105,644
International (primarily European countries)		12,369		15,119		26,318		27,151
Revenue before reimbursements	$	69,614	$	67,726	$	137,089	$	132,795

Long-lived assets are attributable to the following geographic areas (in thousands):

	June 29,		December 29,
	2018		2017
Long-lived assets:
North America	$	92,990	$	90,605
International (primarily European countries)		19,601		19,341
Total long-lived assets	$	112,591	$	109,946

As of June 29, 2018 and December 29, 2017, foreign assets included $14.8 million and $15.1 million, respectively, of goodwill related to acquisitions.   

In the following table, “The Hackett Group” encompasses the Strategy and Business Transformation practice, Benchmarking, Executive Advisory and Business Transformation practices, and the ERP, EPM and Analytics practices including Enterprise Analytics Transformation, as well as the Oracle ERP Applications and Application Managed Services practices. The “SAP Solutions Group” which goes to market under the Answerthink brand, encompasses SAP Reseller, Implementation and Application Managed Services practices (in thousands):

	Quarter Ended				Six Months Ended
	June 29,		June 30,		June 29,		June 30,
	2018		2017		2018		2017
The Hackett Group	$	61,287	$	57,658	$	120,185	$	112,649
SAP Solutions		8,327		10,068		16,904		20,146
Revenue before reimbursements	$	69,614	$	67,726	$	137,089	$	132,795

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Acquisitions

6 Months Ended

Jun. 29, 2018

Business Combinations [Abstract]

Acquisitions

12. Acquisitions

Jibe Consulting, Inc.

Effective May 1, 2017, the Company acquired certain assets and liabilities of Jibe Consulting, Inc. (“Jibe”), a U.S.- based Oracle E-Business Suite (“EBS”) and Oracle Cloud Business Application implementation firm. The acquisition of Jibe enhances the Company’s Cloud Application capabilities and strongly complements its market leading EPM transformation and technology implementation group.

The sellers’ purchase consideration was $5.4million in cash, not subject to vesting, and $3.6 million in shares of the Company’s common stock, subject to vesting. The initial cash consideration was funded from borrowings under the Company’s Revolver. The equity that was issued has a four-year vesting term and will be recorded as compensation expense over the respective vesting period. In addition, the sellers have the opportunity to earn an additional $6.6 million in cash and $4.4 million in Company common stock based on the achievement of the performance targets over the 18 month period following closing for a total of $11.0 million in contingent consideration, a portion of which will be allocated to key employees in both cash and Company stock. 

12. Acquisitions (continued)

The cash related to the contingent consideration, which is to be paid to the sellers, is not subject to service vesting and has been accounted for as part of the purchase consideration. The cash related to the contingent consideration, which is to be paid to the key employees, is subject to service vesting and is being accounted for as compensation expense. Due to the projected earnout results, during the second quarter of 2018, the acquisition-related purchase consideration and compensation expense allocated to both the selling shareholders and key employees resulted in a benefit. During the three and six months ended June 29, 2018, the Company recorded a benefit of $4.6 million in earnings from operations on the consolidated statement of operations related to the reduction of a contingent earnout liability for the Jibe acquisition.  During the three and six months ended June 29, 2018, the Company recorded, in personnel costs before reimbursements on the consolidated statement of operations, a benefit of $0.3 million and $0.2 million, respectively, related to the key employees’ portion of the cash related contingent consideration.  These contingent liabilities have been recorded in the consolidated balance sheet as current accrued expenses and other liabilities.  

The equity related to the contingent consideration will be subject to service vesting and will be recorded as compensation expense over the respective vesting period. As mentioned above, due to the projected results, the Company recorded for the three and six months ended June 29, 2018, a benefit of $0.6 million and benefit of $0.4 million, respectively, of acquisition-related non-cash stock compensation in cost of sales on the consolidated statement of operations.

The purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values.  The fair value of identifiable intangible assets acquired was based on estimates and assumptions made by management at the time of the acquisition. The following table presents the purchase price allocation of the assets acquired and liabilities assumed, based on the fair values:

	Purchase Price
	Allocation
	(in thousands)
Total purchase consideration	$	11,293
Accounts receivable		1,932
Other current assets		59
Total current assets acquired		1,991
Intangible assets		931
Goodwill		9,538
Total assets		12,460
Other accrued expenses		1,167
Total liabilities acquired		1,167
Purchase consideration on acquisition	$	11,293

The recognized goodwill is primarily attributable to the benefits the Company expects to derive from enhanced market opportunities. The acquired intangible assets with definite lives are amortized over periods ranging from 2 to 5 years. The following table presents the intangible assets acquired from Jibe:

	Amount		Useful Life
Category	(in thousands)		(in years)
Customer Base	$	140	5
Customer Backlog		325	2
Non-Compete		466	5
	$	931

The acquisition was not material to the Company's results of operations, financial position or cash flows and therefore, the pro forma impact of these acquisitions is not presented. Jibe contributed $12.3 million of revenue before reimbursable expenses and contribution before depreciation, amortization, interest, corporate overhead allocation and taxes totaled $1.2 million for the year ended December 29, 2017.  The acquisition related costs incurred in the second quarter of 2017 totaled $0.2 million and were all classified in selling, general and administrative costs in the Company’s consolidated statements of operations. All goodwill is expected to be deductible for tax purposes.

12. Acquisitions (continued)

Aecus Limited

Effective April 6, 2017, the Company acquired 100% of the equity of the U.K.-based operations of Aecus Limited (“Aecus”), a European Outsourcing Advisory and RPA consulting firm. This acquisition complements the global strategy and business transformation offerings of the Hackett Group.

The sellers’ purchase consideration was £3.2 million in cash. The closing purchase consideration was funded with the Company’s available funds. In addition, the sellers had the opportunity to earn an additional £2.4 million in contingent consideration in cash based on the achievement of performance targets achieved over the next 12 months, and key personnel had the opportunity to earn £0.3 million in cash and £0.3 million in the Company’s common stock. The contingent consideration for the selling shareholders and key personnel is subject to performance and service periods and will be accounted for as compensation expense and in non-current accrued expenses and other liabilities. During the first quarter of 2018, the acquisition related compensation expense for Aecus resulted in a benefit due to the estimated results of the contingent earnout calculation.

During the first quarter of 2018, the Company recorded a £0.5 million compensation benefit from acquisition-related cash and non-cash compensation for the cash portion of the contingent consideration.  During the quarter and six months ended June 29, 2018, the Company recorded compensation expense of £0.1 million and a compensation benefit of £0.4 million, respectively, from acquisition-related cash compensation for the cash portion of the contingent consideration.

During the quarter and six months ended June 29, 2018, the Company recorded compensation expense of £6 thousand and a compensation benefit of £16 thousand, respectively, from acquisition-related non-cash compensation for the equity portion of the contingent consideration in cost of sales on the consolidated statement of operations.    

The purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values.  The fair value of identifiable intangible assets acquired was based on estimates and assumptions made by management at the time of the acquisition. The following table presents the purchase price allocation of the assets acquired and liabilities assumed, based on the fair values:

	Purchase Price
	Allocation
	(in thousands)
Total purchase consideration	£	3,173
Cash		209
Accounts receivable		898
Other current assets		46
Total current assets acquired		1,153
Intangible assets		1,515
Goodwill		1,306
Total assets		3,974
Other accrued expenses		801
Total liabilities acquired		801
Purchase consideration on acquisition	£	3,173

12. Acquisitions (continued)

The recognized goodwill is primarily attributable to the benefits the Company expects to derive from enhanced market opportunities. The acquired intangible assets with definite lives are amortized over periods ranging from 2 to 5 years. The following table presents the intangible assets acquired from Aecus:

	Amount		Useful Life
Category	(in thousands)		(in years)
Customer Base	£	455	5
Customer Backlog		52	2
Non-Compete		1,008	5
	£	1,515

The acquisition was not material to the Company's results of operations, financial position or cash flows and therefore, the pro forma impact of these acquisitions is not presented. Aecus contributed $3.9 million of revenue before reimbursable expenses and contribution before depreciation, amortization, interest, corporate overhead allocation and taxes totaled $0.5 million during the year ended December 29, 2017.  The acquisition related costs incurred during the year ended December 29, 2017 totaled $0.1 million and were all classified in selling, general and administrative costs in the Company’s consolidated statements of operations. The goodwill and intangibles resulting from this transaction are not expected to be deductible under UK tax regulations.

Chartered Institute of Management Accountants

Effective October 2017, Hackett-REL, Ltd., a subsidiary of the Company located in the United Kingdom, acquired The Chartered Institute of Management Accountants' share of the Certified GBS Professionals program.   This acquisition allows those studying under the program and their employers to benefit further from the Company’s sector specific expertise and focus on the growing global business services market.  Purchase consideration was $2.0 million in cash and was funded with the Company’s available funds.  Also in connection with this transaction, the Alliance and Program Development Agreement between the Company, Hackett-REL, Ltd. and The Chartered Institute of Management Accountants was terminated.The acquired intangible asset has a definite life which will be amortized over 4 years.

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Basis of Presentation and General Information (Policies)

6 Months Ended

Jun. 29, 2018

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying consolidated financial statements of The Hackett Group, Inc. (“Hackett” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the Company’s accounts and those of its wholly-owned subsidiaries which the Company is required to consolidate. All intercompany transactions and balances have been eliminated in consolidation.

In the opinion of management, the accompanying consolidated financial statements reflect all normal and recurring adjustments which are necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows as of the dates and for the periods presented. The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these statements do not include all the disclosures normally required by U.S. GAAP for annual financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 29, 2017, included in the Annual Report on Form 10-K filed by the Company with the SEC on March 9, 2018. The consolidated results of operations for the quarter and six months ended June 29, 2018, are not necessarily indicative of the results to be expected for any future period or for the full fiscal year.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

Revenue Recognition

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

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

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

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

In fixed-fee billing arrangements, which would also include contracts with capped fees, we agree to a pre-established fee or fee cap in exchange for a predetermined set of professional services. We set the fees based on our estimates of the costs and timing for completing the engagements. We generally recognize revenue under fixed-fee or capped fee arrangements using a proportionate 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 revenues and cost of services are monitored regularly during the term of the engagement. If our estimates indicate a potential loss, such loss is recognized in the period in which the loss first becomes probable and reasonably estimable. The customer is invoiced based on the contractual agreement between the parties, typically bi-weekly, monthly or mile-stone driven, with net thirty-day terms, however client terms are subject to change.

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

1. Basis of Presentation and General Information (continued)

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

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

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

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

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

Differences between the timing of billings and the recognition of revenue are recognized as either unbilled services or deferred revenue in the accompanying consolidated balance sheets. Revenue recognized for services performed but not yet billed to clients are recorded as unbilled services. Revenue recognized, but for which are not yet entitled to bill because certain events, such as the completion of the measurement period, are recorded as contract assets and included within unbilled services. Client prepayments are classified as deferred revenue and recognized over future periods as earned in accordance with the applicable engagement agreement. See Note 3 for the accounts receivable and unbilled revenue balances and see Note 4 for the deferred revenue balances. During the quarter and six months ended June 29, 2018, the Company recognized $5.0 million and $9.8 million of revenue as a result of changes in deferred revenue liability balance, respectively, as compared to $4.9 million and $11.3 million for the quarter and six months ended June 30, 2017, respectively. 

The following table reflects the Company’s disaggregation of total revenue including reimbursable expenses for the quarters and six months ended June 29, 2018 and June 30, 2017:

	Quarter Ended				Six Months Ended
	June 29,		June 30,		June 29,		June 30,
	2018		2017		2018		2017
Consulting	$	74,904	$	73,246	$	146,926	$	143,741
Software License Sales		745		324		1,456		1,258
Total revenue	$	75,649	$	73,570	$	148,382	$	144,999

1. Basis of Presentation and General Information (continued)

Capitalized Sales Commissions

Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized as project revenue is recognized.  We determined the period of amortization by taking into consideration the customer contract period, which are generally less than 12 months. Commission expense is included in Selling, General and Administrative Costs in the accompanying condensed consolidated statements of operations. As of December 29, 2017 and December 30, 2016, the Company had $1.4 million and $1.8 million, respectively, of deferred commissions, of which $0.4 million and $0.7 million was amortized during the quarters and six months ended June 29, 2018, respectively, as compared to $0.5 million and $0.9 million during the quarter and six months ended June 30, 2017, respectively. No impairment loss was recognized relating to the capitalization of deferred commission.

Practical Expedients

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

Fair Value

Fair Value

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable and unbilled revenue, accounts payable, accrued expenses and other liabilities and debt. As of June 29, 2018 and December 29, 2017, the carrying amount of each financial instrument approximated the instrument’s respective fair value due to the short-term nature and maturity of these instruments.

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

Business Combinations

Business Combinations

The Company applies the provisions of ASC 805, Business Combinations, in the accounting for its acquisitions, which requires recognition of the assets acquired and the liabilities assumed at their acquisition date fair values, separately from goodwill. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the tangible and identifiable intangible assets acquired and liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, that may be up to 12 months from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with a corresponding adjustment to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, the impact of any subsequent adjustments is included in the consolidated statements of operations.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, as a new Topic, ASC 606, which superseded ASC 605. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted ASC 606 effective December 31, 2017 on a modified retrospective basis to all open contracts, as of that date. Adoption of the new standard resulted in changes to certain accounting policies for revenue recognition, but on a modified retrospective basis had no impact on our consolidated financial statements in the periods presented.

In February 2016, the FASB issued guidance on leases which supersedes the current lease guidance. The core principle requires lessees to recognize the assets and liabilities that arise from nearly all leases on the balance sheet. Accounting applied by lessors will remain largely consistent with previous guidance. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is assessing the impact of this standard on its consolidated financial statements and related disclosures.

1. Basis of Presentation and General Information (continued)

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

1

Reclassifications

Reclassifications

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

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Basis of Presentation and General Information (Tables)

6 Months Ended

Jun. 29, 2018

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Summary of Disaggregation of Total Revenue Including Reimbursable Expenses

The following table reflects the Company’s disaggregation of total revenue including reimbursable expenses for the quarters and six months ended June 29, 2018 and June 30, 2017:

	Quarter Ended				Six Months Ended
	June 29,		June 30,		June 29,		June 30,
	2018		2017		2018		2017
Consulting	$	74,904	$	73,246	$	146,926	$	143,741
Software License Sales		745		324		1,456		1,258
Total revenue	$	75,649	$	73,570	$	148,382	$	144,999

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Net Income Per Common Share (Tables)

6 Months Ended

Jun. 29, 2018

Earnings Per Share [Abstract]

Reconciliation Of Basic And Diluted Weighted Average Shares

The following table reconciles basic and dilutive weighted average common shares:

	Quarter Ended				Six Months Ended
	June 29,		June 30,		June 29,		June 30,
	2018		2017		2018		2017
Basic weighted average common shares outstanding		29,429,925		29,041,291		29,259,641		28,954,621
Effect of dilutive securities:
Unvested restricted stock units and common stock subject to vesting requirements issued to employees and non-employees		469,702		1,105,875		420,020		1,046,173
Common stock issuable upon the exercise of stock options and SARs		2,335,458		2,365,435		2,345,288		2,401,714
Dilutive weighted average common shares outstanding		32,235,085		32,512,601		32,024,949		32,402,508

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Accounts Receivable and Unbilled Revenue, Net (Tables)

6 Months Ended

Jun. 29, 2018

Receivables Net Current [Abstract]

Accounts Receivable and Unbilled Revenue, Net

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

	June 29,			December 29,
	2018			2017
Accounts receivable	$	37,661		$	44,972
Unbilled revenue		20,335			12,891
Allowance for doubtful accounts		(1,223	)		(2,601	)
Accounts receivable and unbilled revenue, net	$	56,773		$	55,262

XML

Accrued Expenses and Other Liabilities (Tables)

6 Months Ended

Jun. 29, 2018

Accrued Liabilities And Other Liabilities Current [Abstract]

Components Of Accrued Expenses And Other Liabilities

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

	June 29,		December 29,
	2018		2017
Accrued compensation and benefits	$	7,323	$	5,289
Accrued bonuses		2,619		4,119
Accrued dividend payable		5,391		4,656
Acquisition earnout accruals		1,938		6,207
Deferred revenue		10,335		9,271
Accrued sales, use, franchise and VAT tax		2,835		3,670
Non-cash stock compensation accrual		490		1,890
Income tax payable		1,403		5,649
Other accrued expenses		1,738		2,263
Total accrued expenses and other liabilities	$	34,072	$	43,014

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Geographic and Group Information (Tables)

6 Months Ended

Jun. 29, 2018

Segment Reporting [Abstract]

Geographic Revenue before Reimbursements

Revenue before reimbursements, which is primarily based on the country of the contracting entity, was attributed to the following geographical areas (in thousands):

	Quarter Ended				Six Months Ended
	June 29,		June 30,		June 29,		June 30,
	2018		2017		2018		2017
Revenue before reimbursements:
North America	$	57,245	$	52,607	$	110,771	$	105,644
International (primarily European countries)		12,369		15,119		26,318		27,151
Revenue before reimbursements	$	69,614	$	67,726	$	137,089	$	132,795

Long-Lived Assets Attributable To Geographic Area

Long-lived assets are attributable to the following geographic areas (in thousands):

	June 29,		December 29,
	2018		2017
Long-lived assets:
North America	$	92,990	$	90,605
International (primarily European countries)		19,601		19,341
Total long-lived assets	$	112,591	$	109,946

Revenue By Service Group

In the following table, “The Hackett Group” encompasses the Strategy and Business Transformation practice, Benchmarking, Executive Advisory and Business Transformation practices, and the ERP, EPM and Analytics practices including Enterprise Analytics Transformation, as well as the Oracle ERP Applications and Application Managed Services practices. The “SAP Solutions Group” which goes to market under the Answerthink brand, encompasses SAP Reseller, Implementation and Application Managed Services practices (in thousands):

	Quarter Ended				Six Months Ended
	June 29,		June 30,		June 29,		June 30,
	2018		2017		2018		2017
The Hackett Group	$	61,287	$	57,658	$	120,185	$	112,649
SAP Solutions		8,327		10,068		16,904		20,146
Revenue before reimbursements	$	69,614	$	67,726	$	137,089	$	132,795

XML

Acquisitions (Tables)

6 Months Ended

Jun. 29, 2018

Jibe Consulting, Inc [Member]

Business Acquisition [Line Items]

Purchase Price Allocation

The following table presents the purchase price allocation of the assets acquired and liabilities assumed, based on the fair values:

	Purchase Price
	Allocation
	(in thousands)
Total purchase consideration	$	11,293
Accounts receivable		1,932
Other current assets		59
Total current assets acquired		1,991
Intangible assets		931
Goodwill		9,538
Total assets		12,460
Other accrued expenses		1,167
Total liabilities acquired		1,167
Purchase consideration on acquisition	$	11,293

Acquired Intangible Assets

The following table presents the intangible assets acquired from Jibe:

	Amount		Useful Life
Category	(in thousands)		(in years)
Customer Base	$	140	5
Customer Backlog		325	2
Non-Compete		466	5
	$	931

Aecus Limited [Member]

Business Acquisition [Line Items]

Purchase Price Allocation

The following table presents the purchase price allocation of the assets acquired and liabilities assumed, based on the fair values:

	Purchase Price
	Allocation
	(in thousands)
Total purchase consideration	£	3,173
Cash		209
Accounts receivable		898
Other current assets		46
Total current assets acquired		1,153
Intangible assets		1,515
Goodwill		1,306
Total assets		3,974
Other accrued expenses		801
Total liabilities acquired		801
Purchase consideration on acquisition	£	3,173

Acquired Intangible Assets

The following table presents the intangible assets acquired from Aecus:

	Amount		Useful Life
Category	(in thousands)		(in years)
Customer Base	£	455	5
Customer Backlog		52	2
Non-Compete		1,008	5
	£	1,515

XML

Basis of Presentation and General Information (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 29, 2018	Jun. 30, 2017	Jun. 29, 2018	Jun. 30, 2017	Dec. 29, 2017	Dec. 30, 2016
Basis Of Presentation And General Information [Line Items]
Revenue recognized as a result of change in contract liability	$ 5,000,000	$ 4,900,000	$ 9,800,000	$ 11,300,000
Deferred commissions					$ 1,400,000	$ 1,800,000
Commissions expense	400,000	500,000	700,000	900,000
Impairment loss recognized to capitalization of deferred commission	$ 0	$ 0	$ 0	$ 0
Minimum [Member]
Basis Of Presentation And General Information [Line Items]
Business relationship agreement period			6 months
Maximum [Member]
Basis Of Presentation And General Information [Line Items]
Business relationship agreement period			12 months
Customer contract period			12 months

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Basis of Presentation and General Information (Summary of Disaggregation of Total Revenue Including Reimbursable Expenses (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2018	Jun. 30, 2017	Jun. 29, 2018	Jun. 30, 2017
Disaggregation Of Revenue [Line Items]
Total revenue	$ 75,649	$ 73,570	$ 148,382	$ 144,999
Consulting [Member]
Disaggregation Of Revenue [Line Items]
Total revenue	74,904	73,246	146,926	143,741
Software License Sales [Member]
Disaggregation Of Revenue [Line Items]
Total revenue	$ 745	$ 324	$ 1,456	$ 1,258

XML

Net Income Per Common Share (Reconciliation Of Basic And Diluted Weighted Average Shares) (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 29, 2018	Jun. 30, 2017	Jun. 29, 2018	Jun. 30, 2017
Earnings Per Share [Abstract]
Basic weighted average common shares outstanding	29,429,925	29,041,291	29,259,641	28,954,621
Unvested restricted stock units and common stock subject to vesting requirements issued to employees and non-employees	469,702	1,105,875	420,020	1,046,173
Common stock issuable upon the exercise of stock options and SARs	2,335,458	2,365,435	2,345,288	2,401,714
Dilutive weighted average common shares outstanding	32,235,085	32,512,601	32,024,949	32,402,508

XML

Net Income Per Common Share (Narrative) (Details) - shares shares in Millions	3 Months Ended		6 Months Ended
	Jun. 29, 2018	Jun. 29, 2017	Jun. 29, 2018	Jun. 29, 2017
Earnings Per Share [Abstract]
Antidilutive common share equivalents	0.8	0.8	0.8	0.7

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Accounts Receivable and Unbilled Revenue, Net (Details) - USD ($) $ in Thousands	Jun. 29, 2018	Dec. 29, 2017
Receivables Net Current [Abstract]
Accounts receivable	$ 37,661	$ 44,972
Unbilled revenue	20,335	12,891
Allowance for doubtful accounts	(1,223)	(2,601)
Accounts receivable and unbilled revenue, net	$ 56,773	$ 55,262

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Accrued Expenses and Other Liabilities (Details) - USD ($) $ in Thousands	Jun. 29, 2018	Dec. 29, 2017
Accrued Liabilities And Other Liabilities Current [Abstract]
Accrued compensation and benefits	$ 7,323	$ 5,289
Accrued bonuses	2,619	4,119
Accrued dividend payable	5,391	4,656
Acquisition earnout accruals	1,938	6,207
Deferred revenue	10,335	9,271
Accrued sales, use, franchise and VAT tax	2,835	3,670
Non-cash stock compensation accrual	490	1,890
Income tax payable	1,403	5,649
Other accrued expenses	1,738	2,263
Total accrued expenses and other liabilities	$ 34,072	$ 43,014

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Restructuring Costs (Narrative) (Details) - USD ($)	12 Months Ended
	Dec. 29, 2017	Jun. 29, 2018
Restructuring And Related Activities [Abstract]
Restructuring costs	$ 1,300,000
Remaining restructuring commitments	$ 0	$ 0

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Credit Facility (Details) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 29, 2018	Jun. 29, 2018	May 09, 2016	Feb. 28, 2012
Revolving line of credit facility [Member]
Line of Credit Facility [Line Items]
Borrowing capacity under credit facility			$ 45,000,000	$ 20,000,000
Additional borrowing capacity			$ 25,000,000
Maturity date		May 09, 2021
Pledge of capital stock to U.S. subsidiaries		100.00%
Pledge of capital stock to direct foreign subsidiaries		66.00%
Payment of principal	$ 5,500,000	$ 5,500,000
Outstanding balance	$ 13,500,000	$ 13,500,000
Interest rate	3.50%	3.50%
Revolving line of credit facility [Member] | London Interbank Offered Rate (LIBOR) [Member]
Line of Credit Facility [Line Items]
Margin percentage base rate		1.50%
Revolving line of credit facility [Member] | Base Rate [Member]
Line of Credit Facility [Line Items]
Margin percentage base rate		0.75%
Term Loan [Member]
Line of Credit Facility [Line Items]
Borrowing capacity under credit facility				$ 47,000,000
Term of debt		5 years

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Stock Based Compensation (Narrative) (Details) $ / shares in Units, $ in Millions	6 Months Ended
	Jun. 29, 2018 USD ($) $ / shares shares
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares granted | shares	390,354
Weighted average grant-date fair value | $ / shares	$ 16.29
Shares outstanding | shares	1,192,781
Nonvested weighted average grant-date fair value | $ / shares	$ 15.11
Compensation expense | $	$ 11.4
Weighted average period	2 years 6 months
Common Stock Subject to Vesting Requirements [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares outstanding | shares	289,507
Nonvested weighted average grant-date fair value | $ / shares	$ 16.03
Compensation expense | $	$ 3.2
Weighted average period	2 years 4 months 24 days

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Shareholders' Equity (Details) - USD ($) $ / shares in Units, shares in Thousands			3 Months Ended			6 Months Ended
	Dec. 22, 2017	Jun. 30, 2017	Jun. 29, 2018	Mar. 30, 2018	Jun. 30, 2017	Jun. 29, 2018	Jun. 30, 2017
Equity, Class of Treasury Stock [Line Items]
Amount available under repurchase plan			$ 7,200,000			$ 7,200,000
Additional repurchase under plan			5,000,000
Total authorized amount under stock repurchase plan			$ 142,200,000			$ 142,200,000
Shares repurchased for employee net vesting obligations, shares			11		21	184	195
Shares repurchased for employee net vesting obligations, value			$ 200,000		$ 400,000	$ 3,100,000	$ 3,300,000
Annual cash dividend per share	$ 0.30	$ 0.26
Dividend payment	$ 4,700,000	$ 4,600,000	$ 5,400,000
Dividend declared			$ 0.17	$ 0.34
Dividend declared, date of record			Jun. 29, 2018
Dividend declared, date of payment			Jul. 11, 2018
Share Repurchase Plan [Member]
Equity, Class of Treasury Stock [Line Items]
Repurchase of common stock					507	53	566
Purchase price per share					$ 15.01	$ 18.33	$ 15.55
Total cost					$ 7,600,000	$ 1,000,000	$ 8,800,000
Stock Appreciation Rights (SARs) [Member]
Equity, Class of Treasury Stock [Line Items]
SARs outstanding			2,900			2,900
Exercise price			$ 4.00			$ 4.00
Expiration date						Feb. 28, 2022

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Transactions with Related Parties (Details) - Director and Executives [Member] $ / shares in Units, shares in Thousands, $ in Millions	6 Months Ended
	Jun. 29, 2018 USD ($) $ / shares shares
Related Party Transaction [Line Items]
Repurchase of common stock | shares	53
Total cost | $	$ 1.0
Purchase price per share | $ / shares	$ 18.33

XML

Geographic and Group Information (Geographic Revenue before Reimbursements) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2018	Jun. 30, 2017	Jun. 29, 2018	Jun. 30, 2017
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue before reimbursements	$ 75,649	$ 73,570	$ 148,382	$ 144,999
Revenue Before Reimbursements [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue before reimbursements	69,614	67,726	137,089	132,795
Revenue Before Reimbursements [Member] | North America [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue before reimbursements	57,245	52,607	110,771	105,644
Revenue Before Reimbursements [Member] | International (Primarily European Countries) [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue before reimbursements	$ 12,369	$ 15,119	$ 26,318	$ 27,151

XML

Geographic and Group Information (Long-Lived Assets Attributable To Geographic Area) (Details) - USD ($) $ in Thousands	Jun. 29, 2018	Dec. 29, 2017
Revenues from External Customers and Long-Lived Assets [Line Items]
Total long-lived assets	$ 112,591	$ 109,946
North America [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total long-lived assets	92,990	90,605
International (Primarily European Countries) [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total long-lived assets	$ 19,601	$ 19,341

XML

Geographic and Group Information (Narrative) (Details) - USD ($) $ in Millions	Jun. 29, 2018	Dec. 29, 2017
Segment Reporting [Abstract]
Goodwill included in foreign assets	$ 14.8	$ 15.1

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Geographic and Group Information (Revenue By Service Group) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2018	Jun. 30, 2017	Jun. 29, 2018	Jun. 30, 2017
Segment Reporting Information [Line Items]
Revenue before reimbursements	$ 75,649	$ 73,570	$ 148,382	$ 144,999
Revenue Before Reimbursements [Member]
Segment Reporting Information [Line Items]
Revenue before reimbursements	69,614	67,726	137,089	132,795
The Hackett Group [Member] | Revenue Before Reimbursements [Member]
Segment Reporting Information [Line Items]
Revenue before reimbursements	61,287	57,658	120,185	112,649
SAP Solutions [Member] | Revenue Before Reimbursements [Member]
Segment Reporting Information [Line Items]
Revenue before reimbursements	$ 8,327	$ 10,068	$ 16,904	$ 20,146

XML

Acquisitions (Narrative) (Details) £ in Thousands, $ in Thousands			1 Months Ended	3 Months Ended			6 Months Ended			12 Months Ended
	May 01, 2017 USD ($)	Apr. 06, 2017 GBP (£)	Oct. 31, 2017 USD ($)	Jun. 29, 2018 USD ($)	Jun. 29, 2018 GBP (£)	Mar. 30, 2018 GBP (£)	Jun. 29, 2018 USD ($)	Jun. 29, 2018 GBP (£)	Jun. 30, 2017 USD ($)	Dec. 29, 2017 USD ($)
Business Acquisition [Line Items]
Purchase consideration									$ 9,268
Non-cash stock compensation expense							$ 4,412		$ 4,817
Jibe Consulting, Inc [Member]
Business Acquisition [Line Items]
Effective date of acquisition	May 01, 2017
Purchase consideration	$ 5,400
Purchase consideration, common stock	$ 3,600
Common stock vesting period	4 years
Contingent consideration	$ 11,000
Contingent consideration performance period	18 months
Contributed total revenue										$ 12,300
Contribution before depreciation, amortization, interest, corporate overhead allocation and taxes										1,200
Acquisition related costs										200
Jibe Consulting, Inc [Member] | Minimum [Member]
Business Acquisition [Line Items]
Amortization period	2 years
Jibe Consulting, Inc [Member] | Maximum [Member]
Business Acquisition [Line Items]
Amortization period	5 years
Jibe Consulting, Inc [Member] | Cost of Sales [Member]
Business Acquisition [Line Items]
Non-cash stock compensation expense				$ (600)			(400)
Jibe Consulting, Inc [Member] | Selling Shareholder's [Member]
Business Acquisition [Line Items]
Cash compensation benefit (expense)				4,600			4,600
Jibe Consulting, Inc [Member] | Key Employees [Member]
Business Acquisition [Line Items]
Cash compensation benefit (expense)				$ 300			$ 200
Jibe Consulting, Inc [Member] | Cash Contingent Consideration [Member]
Business Acquisition [Line Items]
Contingent consideration	$ 6,600
Jibe Consulting, Inc [Member] | Stock Based Contingent Consideration [Member]
Business Acquisition [Line Items]
Contingent consideration	$ 4,400
Aecus Limited [Member]
Business Acquisition [Line Items]
Effective date of acquisition		Apr. 06, 2017
Purchase consideration | £		£ 3,200
Contingent consideration performance period		12 months
Contributed total revenue										3,900
Contribution before depreciation, amortization, interest, corporate overhead allocation and taxes										500
Acquisition related costs										$ 100
Acquired percentage		100.00%
Aecus Limited [Member] | Minimum [Member]
Business Acquisition [Line Items]
Amortization period		2 years
Aecus Limited [Member] | Maximum [Member]
Business Acquisition [Line Items]
Amortization period		5 years
Aecus Limited [Member] | Cost of Sales [Member]
Business Acquisition [Line Items]
Non-cash stock compensation expense | £					£ 6			£ (16)
Aecus Limited [Member] | Cash Contingent Consideration [Member]
Business Acquisition [Line Items]
Cash compensation benefit (expense) | £					£ (100)			£ 400
Aecus Limited [Member] | Cash Contingent Consideration [Member] | Cost Before Reimbursements [Member]
Business Acquisition [Line Items]
Cash compensation benefit (expense) | £						£ 500
Aecus Limited [Member] | Cash Contingent Consideration [Member] | Sellers [Member]
Business Acquisition [Line Items]
Contingent consideration | £		£ 2,400
Aecus Limited [Member] | Cash Contingent Consideration [Member] | Key Personnel [Member]
Business Acquisition [Line Items]
Contingent consideration | £		300
Aecus Limited [Member] | Stock Based Contingent Consideration [Member] | Key Personnel [Member]
Business Acquisition [Line Items]
Contingent consideration | £		£ 300
The Chartered Institute of Management Accountants [Member]
Business Acquisition [Line Items]
Purchase consideration			$ 2,000
Amortization period			4 years

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Acquisition (Purchase Price Allocation) (Details) £ in Thousands, $ in Thousands	May 01, 2017 USD ($)	Apr. 06, 2017 GBP (£)	Jun. 29, 2018 USD ($)	Dec. 29, 2017 USD ($)
Business Acquisition [Line Items]
Goodwill, net | $			$ 84,720	$ 85,074
Jibe Consulting, Inc [Member]
Business Acquisition [Line Items]
Total purchase consideration | $	$ 11,293
Accounts receivable | $	1,932
Other current assets | $	59
Total current assets acquired | $	1,991
Intangible assets | $	931
Goodwill, net | $	9,538
Total assets | $	12,460
Other accrued expenses | $	1,167
Total liabilities acquired | $	1,167
Purchase consideration on acquisition | $	$ 11,293
Aecus Limited [Member]
Business Acquisition [Line Items]
Total purchase consideration | £		£ 3,173
Cash | £		209
Accounts receivable | £		898
Other current assets | £		46
Total current assets acquired | £		1,153
Intangible assets | £		1,515
Goodwill, net | £		1,306
Total assets | £		3,974
Other accrued expenses | £		801
Total liabilities acquired | £		801
Purchase consideration on acquisition | £		£ 3,173

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Acquisition (Intangible Assets Acquired) (Details) £ in Thousands, $ in Thousands			6 Months Ended
	May 01, 2017 USD ($)	Apr. 06, 2017 GBP (£)	Jun. 29, 2018
Jibe Consulting, Inc [Member]
Business Acquisition [Line Items]
Amount | $	$ 931
Jibe Consulting, Inc [Member] | Customer Base [Member]
Business Acquisition [Line Items]
Amount | $	140
Useful Life (in years)			5 years
Jibe Consulting, Inc [Member] | Customer Backlog [Member]
Business Acquisition [Line Items]
Amount | $	325
Useful Life (in years)			2 years
Jibe Consulting, Inc [Member] | Non-Compete [Member]
Business Acquisition [Line Items]
Amount | $	$ 466
Useful Life (in years)			5 years
Aecus Limited [Member]
Business Acquisition [Line Items]
Amount | £		£ 1,515
Aecus Limited [Member] | Customer Base [Member]
Business Acquisition [Line Items]
Amount | £		455
Useful Life (in years)			5 years
Aecus Limited [Member] | Customer Backlog [Member]
Business Acquisition [Line Items]
Amount | £		52
Useful Life (in years)			2 years
Aecus Limited [Member] | Non-Compete [Member]
Business Acquisition [Line Items]
Amount | £		£ 1,008
Useful Life (in years)			5 years