HACKETT GROUP, INC.

Previous wording

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.

Current wording

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.

Previous wording

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 six months ended June 26, 2026 and the same comparable periods of 2025. In this MD&A, we discuss revenue based on geographical location of engagement team personnel.

Current wording

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.

Previous wording

Our Company total revenue was $69.3 million and $138.1 million during the second quarter and first six months of 2026, respectively, as compared to $78.9 million and $156.8 million in the same periods in 2025, respectively. In the second quarter and first six months of 2026, one customer accounted for 3% and 4%, respectively, of our Company total revenue. In the second quarter and first six months of 2025, one customer accounted for 7% and 8%, respectively, of our Company total revenue.

Current wording

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.

Previous wording

Global S&BT total revenue was $36.0 million and $72.8 million during the second quarter and first six months of 2026, respectively, as compared to $44.2 million and $87.6 million in the same periods of 2025, respectively. Elongated client decision marking still persists, as clients continue to question the underlying value of Gen AI and are also confused by the return of investment of Gen AI first adoption strategies.

Current wording

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.

Previous wording

SAP Solutions total revenue was $17.8 million and $34.1 million during the second quarter and first six months of 2026, respectively, as compared to $13.9 million and $27.3 million in the same periods of 2025, respectively. The increase in revenue during the second quarter and first six months of 2026, as compared to the same periods in 2025, was primarily driven by implementation services that correspond to the 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.

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

Personnel costs before reimbursable expenses decreased 18% and 19%, to $40.6 million and $79.1 million for the second quarter and first six months of 2026, respectively, as compared to $49.7 million and $98.1 million in the same periods of 2025, respectively. The decrease in the second quarter and first six months of 2026 was primarily related to the decrease of acquisition related non-cash stock based compensation expense relating to the LeewayHertz acquisition and to the non-cash stock based compensation expense relating to the stock price award program. In addition, the Company incurred headcount reductions from the leverage of our Gen AI delivery platforms and lower bonus accruals commensurate with performance. Personnel costs as a percentage of total Company total revenue were 59% and 57% during the second quarter and first six months of 2026, respectively, as compared to 63% during both the second quarter and first six months of 2025, respectively.

Current wording

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.

Previous wording

Non-cash stock based compensation expense, included in personnel costs before reimbursable expenses, was $2.5 million and $1.9 million during the second quarter and first six months of 2026, respectively, as compared to $5.0 million and $9.9 million in the same periods in 2025, respectively. The decrease in the second quarter and first six months of 2026 was primarily related to a decrease in non-cash stock compensation from the stock price award program issuances (Note 7) and reversals of acquisition related non-cash stock compensation expense that were performance-related.

Current wording

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.

Previous wording

SG&A costs decreased 17% and 19%, to $19.5 million and $38.0 million, for the second quarter and first six months of 2026, respectively, as compared to $23.4 million and $46.8 million for the same periods in 2025, respectively. The decrease in the costs during the second quarter and first six months of 2026 was primarily due to decreased non-cash stock based compensation from the stock price award program issuances (Note 7) and lower bonus accruals. SG&A costs as a percentage of total Company revenue were 28% and 27% during the second quarter and first six months of 2026, as compared to 30% during the same periods in 2025, respectively.

Current wording

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.

Previous wording

Non-cash stock based compensation expense, included in SG&A, was $1.8 million and $3.9 million during the second quarter and first six months of 2026, respectively, as compared to $4.7 million and $9.5 million for the same periods in 2025, respectively. The decrease in the second quarter and first six months of 2026 primarily relates to the non-cash stock compensation expense from the stock price award program issuances (Note 7).

Current wording

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).

Previous wording

Amortization expense was $299 thousand and $614 thousand for the second quarter and first six months of 2026, respectively, as compared to $231 thousand and $376 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.

Current wording

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.

Previous wording

Restructuring Costs. During the second quarter and first six months of 2026, we incurred restructuring costs of $492 thousand and $2.4 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.

Current wording

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.

Previous wording

Global S&BT segment contribution was $9.1 million and $18.2 million during the second quarter and first six months of 2026, respectively, as compared to $13.0 million and $25.8 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.

Current wording

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.

Previous wording

SAP Solutions segment contribution was $5.6 million and $10.6 million during the second quarter and first six months of 2026, respectively, as compared to $3.9 million and $8.1 million for the same periods in 2025, respectively. The increase in segment profit in the second quarter and first six months of 2026, as compared to the same periods in 2025, was primarily due to increased implementation services from 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.

Current wording

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.

Previous wording

Interest Expense, Net. Interest expense, net was $1.2 million and $2.2 million during the second quarter and first six months of 2026, respectively, as compared to $0.4 million and $0.6 million in the same periods in 2025, respectively. As of June 26, 2026, we had outstanding debt of $81.0 million, excluding debt issue costs. As of June 27, 2025, we had outstanding debt of $23.0 million, excluding debt issue costs.

Current wording

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.

Previous wording

Income Taxes. During the second quarter and first six months of 2026, we recorded $2.1 million and $5.7 million of income tax expense, respectively, related to certain federal, foreign and state taxes which reflected an effective tax rate of 32.2% and 39.8%, respectively. The increase in the effective tax rate for the first six months of the year as compared to the second 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 second quarter and first six months of 2025, we recorded $2.6 million and $3.6 million of income tax expense, respectively, related to certain federal, foreign and state taxes which reflected an effective tax rate of 60.7% and 43.0%, respectively. The increase in the effective tax rate in 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).

Current wording

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).

Previous wording

As of June 26, 2026 and December 26, 2025, we had $14.2 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.

Current wording

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.

Previous wording

Net cash provided by operating activities was $10.1 million during the first six months of 2026, as compared to $9.8 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 decreases in accrued liabilities primarily due to payments of the prior year earned incentive compensation liabilities and payments to vendors and increases in accounts receivable and the timing of payments for income taxes. In 2025, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items and increases in contract liabilities, partially offset by increases in accounts receivable and contract assets, decreases in accrued liabilities and other accruals primarily due to payments in the prior year of earned incentive compensation liabilities and the timing of payments for income taxes and to vendors.

Current wording

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.

Previous wording

Net cash used in investing activities was $5.0 million during the first six months of 2026, as compared to $4.2 million during the same period in 2025. During both the first six 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.

Current wording

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.

Previous wording

Net cash used in financing activities was $9.1 million during the first six months of 2026, as compared to $11.8 million during the same period in 2025. The usage of cash in 2026 primarily related to the repurchase of $8.6 million of the Company's common stock and dividend payments of $6.0 million, partially offset by a net $5.0 million drawdown on our revolving line of credit (the "Credit Facility"). The usage of cash in 2025 primarily related to the repurchase of $16.1 million of the Company's common stock and dividend payments of $6.3 million, partially offset by the $10.0 million drawdown on our Credit Facility.

Current wording

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.

Previous wording

As of June 26, 2026, we had $81.0 million of outstanding borrowings under our Credit Facility, excluding deferred debt costs, leaving us with a capacity of approximately $19.0 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

Current wording

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