Quarterly Report for Quarter Ending September 25, 2026 (Form 10-Q)

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 (the "Exchange Act"). We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. 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 could impact such forward-looking statements include, among others, changes in worldwide and U.S. economic conditions that impact business confidence and the demand for our products and services, our ability to transition our capabilities to support generative artificial intelligence ("Gen AI")-related consulting services and solutions, the adoption of Gen AI technologies by our clients and the timing thereof, the rapid change in Gen AI technologies and our ability to support new or changing technologies, our ability to effectively integrate acquisitions, including the LeewayHertz and Spend Matters acquisitions, into our operations, our ability to manage joint ventures and successfully cooperate with our joint venture partners, 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, the impact of the geopolitical conflict involving Russia and Ukraine and in the Middle East on our business and changes in general economic conditions, interest rates, tariffs and trade barriers and our ability to obtain additional debt financing if needed.

An additional description of our risk factors is described in Part I - Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the year ended December 26, 2025.

OVERVIEW

The following Management's Discussion and Analysis ("MD&A") is intended to help the reader understand the results of operations and financial condition of Hackett. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

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

In early 2024, we launched our AI assessment platform, AI XPLR which helps clients identify, evaluate and design Gen AI enablement opportunities. Using AI XPLR, our experienced professionals guide organizations to harness the power of Gen AI solutions designed to digitally transform their operations to achieve quantifiable, breakthrough results, allowing us to be key architects of our clients' Gen AI journey. We are now expanding the use of our AI platforms with XT and AIX across our primary enterprise transformation and software implementation offerings.

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

The Hackett Group has completed over 28,400 benchmarking and performance studies with major organizations. These studies are executed utilizing our Quantum Leap platform which drives our Digital Transformation Platform ("DTP" or "Hackett DTP"). This includes the firm's benchmarking metrics, best practices repository, and best practice configuration and process flow accelerators, which enables our clients and partners to achieve digital world-class performance. We consider this, along with our recent innovations, our core Hackett Intellectual Property ("IP") which allows us to identify, design and evaluate transformation opportunities to be proprietary and key components of our Hackett Solutioning IP.

Our transformation expertise is grounded in best practices insights from benchmarking the world's leading businesses - including 97% of the Dow Jones Industrials, 90% of the Fortune 100, 68% of the DAX 40 and 53% of the FTSE 100, which inform and are delivered by our platforms.

Impact of Macroeconomic Conditions on Our Business

The level of revenue we achieve is based on our ability to deliver market leading services and solutions and to deploy skilled teams of professionals quickly. Our results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence. Any deterioration in the current macroeconomic environment or economic downturn as a result of weak or uncertain economic conditions due to inflation, high interest rates, tariffs, national or geopolitical events or other factors impacting economic activity or business confidence could adversely affect our clients' financial condition or outlook which may reduce the clients' demand for our services.

RESULTS OF OPERATIONS

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

Revenue. We are a global Company with operations in our primary markets located in the United States and Western Europe. Our revenue is denominated in multiple currencies, primarily the U.S. Dollar, British Pound and Euro, and as a result is affected by currency exchange rate fluctuations. The impact of currency fluctuations did not have a significant impact on comparisons between the quarter and nine months ended September 25, 2026 and the same comparable periods of 2025. In this MD&A, we discuss revenue based on geographical location of engagement team personnel.

Our Company total revenue was $69.8 million and $207.9 million during the third quarter and first nine months of 2026, respectively, as compared to $73.1 million and $230.0 million in the same periods in 2025, respectively. In the third quarter and

first nine months of 2026, one customer accounted for 4% and 2%, respectively, of our Company total revenue. In the third quarter and first nine months of 2025, one customer accounted for 5% and 7%, respectively, of our Company total revenue.

Segment revenue. The Company has three reportable segments: Global Strategy & Business Transformation (Global S&BT), Oracle Solutions and SAP Solutions. Global S&BT includes S&BT Gen AI and Business Transformation Consulting, Benchmarking, Business Advisory Services, Intellectual Property as-a-Service (IPASS) and OneStream offerings. Oracle Solutions and SAP Solutions support the two fundamentally distinct ERP systems: Oracle and SAP.

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

Global S&BT total revenue was $37.1 million and $110.0 million during the third quarter and first nine months of 2026, respectively, as compared to $42.9 million and $130.5 million in the same periods of 2025, respectively. Elongated client decision marking still persists, as clients continue to question the underlying ROI value of AI-initiatives.

Oracle Solutions total revenue was $16.1 million and $47.3 million during the third quarter and first nine months of 2026, respectively, as compared to $16.5 million and $58.4 million in the same periods of 2025, respectively. Oracle Solutions has stabilized and is beginning to see the favorable impacts of our AIX platform which is beginning to improve sales and delivery productivity.

SAP Solutions total revenue was $16.6 million and $50.7 million during the third quarter and first nine months of 2026, respectively, as compared to $13.7 million and $41.0 million in the same periods of 2025, respectively. The increase in revenue during the third quarter and first nine months of 2026, as compared to the same periods in 2025, was primarily driven by increased volume of software sales coupled with significant implementation fees. This was primarily due to the increased sales investments we have made with SAP and SAP's success driving S4 HANA Cloud migrations.

Reimbursements as a percentage of Company total revenue were 1% during both the third quarter and first nine months of 2026, respectively, as compared to 1% and 2% during the third quarter and first nine months of 2025, respectively. Reimbursements are project travel-related expenses passed through to a client with no associated operating margin.

Cost of Service. Cost of service consists of personnel costs before reimbursable expenses, which includes salaries, benefits and incentive compensation for consultants and subcontractor fees, acquisition-related non-cash stock based compensation expense and non-cash stock based compensation expense, and reimbursable expenses which are travel and other expenses passed through to a client and are associated with projects.

Personnel costs before reimbursable expenses decreased 3% and 14.3%, to $41.2 million and $120.4 million for the third quarter and first nine months of 2026, respectively, as compared to $42.4 million and $140.5 million in the same periods of 2025, respectively. The decrease in the third quarter and first nine months of 2026 was primarily related to the headcount reductions from the leverage of our Gen AI delivery platforms and a decrease of non-cash stock based compensation expense relating to the stock price award program. Personnel costs as a percentage of total Company total revenue were 59% and 58% during the third quarter and first nine months of 2026, respectively, as compared to 58% and 61% during the third quarter and first nine months of 2025, respectively.

Non-cash stock based compensation expense, included in personnel costs before reimbursable expenses, was $3.2 million and $5.1 million during the third quarter and first nine months of 2026, respectively, as compared to $1.6 million and $11.5 million in the same periods in 2025, respectively. The decrease in the third quarter is due to the settlement of the acquisition related equity and the decrease in the first nine months of 2026 was primarily related to a decrease in non-cash stock compensation from the stock price award program issuances (Note 7), offset by the settlement of the acquisition related equity.

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 stock based compensation expense and various other overhead expenses.

SG&A costs decreased 11% and 17%, to $18.8 million and $56.7 million, for the third quarter and first nine months of 2026, respectively, as compared to $21.2 million and $68.0 million for the same periods in 2025, respectively. The decrease in the costs during the third quarter and first nine months of 2026 was primarily due to decreased non-cash stock based compensation from the stock price award program issuances (Note 7). SG&A costs as a percentage of total Company revenue were 27% during both the third quarter and first nine months of 2026, as compared to 29% and 30% during the same periods in 2025, respectively.

Non-cash stock based compensation expense, included in SG&A, was $1.9 million and $5.7 million during the third quarter and first nine months of 2026, respectively, as compared to $4.3 million and $13.8 million for the same periods in 2025, respectively. The decrease in the third quarter and first nine months of 2026 primarily relates to the non-cash stock compensation expense from the stock price award program issuances (Note 7).

Amortization expense was $297 thousand and $911 thousand for the third quarter and first nine months of 2026, respectively, as compared to $311 thousand and $685 thousand for the same periods in 2025, respectively, which was related to the intangible assets acquired in our September 2024 acquisition of LeewayHertz and May 2025 acquisition of Spend Matters.

Restructuring Costs. During the third quarter and first nine months of 2026, we incurred restructuring costs of $1.4 million and $3.9 million as a result of the continued pivot of our business to Gen AI, respectively. These costs were primarily employee-related costs, as the Company reduced staff to be commensurate with current market demand and the leverage of our Gen AI delivery platforms are expected to have on our service offerings.

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

Global S&BT segment contribution was $10.8 million and $29.0 million during the third quarter and first nine months of 2026, respectively, as compared to $13.2 million and $39.0 million for the same periods in 2025, respectively, primarily due to revenue decreases caused by elongated client decision making that persisted throughout the quarter as mentioned above.

Oracle Solutions segment contribution was $5.0 million and $12.8 million during the third quarter and first nine months of 2026, respectively, as compared to $2.7 million and $11.5 million for the same periods in 2025, respectively. The increase during the third quarter and first nine months of 2026 was primarily due to headcount reductions and the stabilization of revenue as discussed above.

SAP Solutions segment contribution was $5.2 million and $15.7 million during the third quarter and first nine months of 2026, respectively, as compared to $3.7 million and $11.8 million for the same periods in 2025, respectively. The increase in segment profit in the third quarter and first nine months of 2026, as compared to the same periods in 2025, was primarily due to increased volume of software sales that are coupled with significant implementation fees. This was primarily due to the increased sales investments we have made with SAP and SAP's success driving S4 HANA Cloud migrations.

Interest Expense, Net. Interest expense, net was $1.2 million and $3.4 million during the third quarter and first nine months of 2026, respectively, as compared to $0.4 million and $1.0 million in the same periods in 2025, respectively. As of September 25, 2026, we had outstanding debt of $86.5 million, excluding debt issue costs. As of September 26, 2025, we had outstanding debt of $44.0 million, excluding debt issue costs.

Income Taxes. During the third quarter and first nine months of 2026, we recorded $2.8 million and $8.5 million of income tax expense, respectively, related to certain federal, foreign and state taxes which reflected an effective tax rate of 43.8% and 41.0%, respectively. The increase in the effective tax rate for the first nine months of the year as compared to the third quarter 2026 tax rate is primarily due to the vesting fair value for restricted stock unit awards being lower than the grant date fair value for such awards. During the third quarter and first nine months of 2025, we recorded $2.5 million and $6.1 million of income tax expense, respectively, related to certain federal, foreign and state taxes which reflected an effective tax rate of 49.3% and 45.3%, respectively. The increase in the effective tax rates in both 2026 and 2025 was primarily due to the limitation of executive compensation deductions related to executive compensation, primarily driven by the stock price award program (See Note 7).

Liquidity and Capital Resources

As of September 25, 2026 and December 26, 2025, we had $12.6 million and $18.2 million, respectively, classified as cash on the consolidated balance sheets. We currently believe that available funds (including the cash on hand and funds available for borrowing under our revolving line of credit and cash flows generated by operations will be sufficient to fund our working capital requirements, including debt payments, lease obligations and capital expenditures for at least the next twelve months and beyond. We may decide to raise additional funds in order to fund expansion, to develop new or further enhance products and services, to respond to competitive pressures, or to acquire complementary businesses or technologies. There is no assurance that additional financing would be available when needed or desired. Our cash requirements have not changed materially from those disclosed in Item 7 included in Part II of our Annual Report on Form 10-K for the year ended December 26, 2025.

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

Cash Flows from Operating Activities

Net cash provided by operating activities was $11.9 million during the first nine months of 2026, as compared to $21.2 million during the same period in 2025. In 2026, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items, partially offset by increases in accounts receivable and prepaid assets and decreases in accrued liabilities primarily due to payments of the prior year earned incentive compensation liabilities, payments to vendors and contract liabilities. In 2025, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items. The cash inflows were partially offset by increases in prepaid expenses primarily due to the timing of payments for income taxes and decreases in accrued liabilities and other accruals primarily due to payments of incentive compensation liabilities and vendors.

Cash Flows from Investing Activities

Net cash used in investing activities was $8.1 million during the first nine months of 2026, as compared to $6.6 million during the same period in 2025. During both the first nine months periods of 2026 and 2025, cash flows used in investing activities primarily included investments made to the continued development of our Gen AI delivery platforms.

Cash Flows from Financing Activities

Net cash used in financing activities was $9.3 million during the first nine months of 2026, as compared to $17.0 million during the same period in 2025. The usage of cash in 2026 primarily related to the repurchase of $8.7 million of the Company's common stock and dividend payments of $9.0 million, partially offset by a net $10.5 million drawdown on our revolving line of credit (the "Credit Facility"). The usage of cash in 2025 primarily related to the repurchase of $39.0 million of the Company's common stock and dividend payments of $9.6 million, partially offset by a net $31.0 million drawdown on our Credit Facility.

As of September 25, 2026, we had $86.5 million of outstanding borrowings under our Credit Facility, excluding deferred debt costs, leaving us with a capacity of approximately $38.5 million. On August 3, 2026, we amended and restated our credit agreement in order to extend the maturity date of the Credit Facility and provide the Company with an additional $25 million in borrowing capacity resulting in aggregate borrowing capacity of up to $125 million. See Note 6, "Credit Facility," to our consolidated financial statements included in this Quarterly Report on Form 10-Q for more information