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Item 7. Management’s Discussion and Analysis

2021-03-12 compared with 2020-03-05 · 146 added, 112 removed, 215 unchanged (55% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS O F FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Hackett, originally incorporated on April 23, 1997, is a leading strategic advisory and technology consulting firm that enables companies to achieve world-class business performance.

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Hackett is a strategic advisory firm and a world leader in best practice research, benchmarking and business transformation services which empirically defines and enables world-class enterprise performance.

Hackett empirically defines world-class performance in sales, general and administrative and certain supply chain activities with analysis gained through more than 17,850 benchmark and performance studies over 26 years at over 6,420 of the world’s leading companies.

Hackett empirically defines world-class performance in sales, general and administrative and certain supply chain activities with analysis gained through nearly 20,000 benchmark and performance studies over 27 years at over 7,000 of the world’s leading companies.

Hackett’s combined capabilities include executive advisory programs, benchmarking, business transformation and technology solutions, with corresponding offshore support.

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International includes results of our S&BT and EEA Practices, primarily in Europe.

COVID-19 Pandemic Impact on Our Business

The level of revenue we achieve is based on our ability to deliver market leading services and solutions and to deploy skilled teams of professionals quickly.

Our results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence.

Despite the disruption in March 2020, the COVID-19 pandemic did not have a significant impact on our consolidated results of operations during the first quarter of 2020.

However, our net revenue and diluted earnings per share were negatively impacted for the remainder of 2020, due to adverse economic conditions as a result of the COVID-19 pandemic, and we expect negative impacts to continue until economic conditions improve.

A prolonged economic downturn as a result of the COVID-19 pandemic or otherwise, weak or uncertain economic conditions or similar factors could adversely affect our clients’ financial condition which may further reduce our clients’ demand for our services.

We are actively managing our business to respond to the impact of the COVID-19 pandemic.

We have reduced employee headcount and employee travel to only essential business needs and most of our employees have been working remotely from home.

We are generally following the requirements and protocols published by the U.S.

Centers for Disease Control and the World Health Organization, and state and local governments.

We cannot predict when or how we will begin to lift the actions put in place.

As a response to the ongoing COVID-19 pandemic, we have implemented plans to manage our costs and preserve cash.

We have significantly limited the addition of new employees and third party contracted services, eliminated all travel except where necessary to meet customer needs, and limited discretionary spending.

At the end of June 2020, we reduced our global workforce by approximately 10% and recorded a $5.0 million restructuring charge.

All client concessions and accounts receivable allowances have been appropriately reflected in our financial statements.

During the fourth quarter of 2020, as a result of and in consideration of the COVID-19 pandemic, and the changing nature of our use of office space for its workforce, we evaluated our existing office leases as part of our transformation initiatives related to real estate.

This evaluation resulted in the complete and partial abandonment of certain leased office spaces and an asset impairment charge of $3.9 million for certain lease right-of-use assets and certain property, equipment and leasehold improvements.

To the extent the business disruption continues for an extended period, additional cost management actions will be considered.

All future asset impairment charges, increases in allowance for doubtful accounts, or restructuring charges will be dependent on the severity and duration of the pandemic.

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

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

Critical Accounting Policies

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We generate substantially all of our revenue from providing professional services to our clients.

We also generate revenue from software licenses, software support, maintenance and subscriptions to our executive and best practices advisory programs.

We also generate revenue from software licenses, software support and maintenance, as well as subscriptions to our executive and best practices advisory programs.

A single contract could include one or multiple performance obligations.

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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.

The customer is invoiced based on the contractual agreement between the parties, typically bi-weekly, monthly or milestone driven, with net thirty-day terms.

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.

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.

Advisory services contracts are typically in the form of a subscription agreement which allows the customer access to our 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.

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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.

SAP is the principal and we are the agent in these transactions as we do not obtain title to the software and maintenance which is sold simultaneously.

The transaction price is our 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.

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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.

Therefore, we recognize 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.

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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 typically 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 ability 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.

In the event of termination, the client is typically contractually required to pay for all time, materials and expenses incurred by us through the effective date of the termination.

In addition, from time to time we enter into agreements with our clients that limit its ability to enter into business relationships with specific competitors of that client for a specific time period.

These provisions typically prohibit us from performing a defined range of services which it might otherwise be willing to perform for potential clients.

These provisions are generally limited to three to six months and usually apply only to specific employees or the specific project team.

Differences between the timing of billings and the recognition of revenue are recognized as either unbilled services or contract liabilities 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 the Company is 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.

Differences between the timing of billings and the recognition of revenue are recognized as either contract assets or contract liabilities in the accompanying consolidated balance sheets.

Revenue recognized for services performed but not yet billed to clients are recorded as contract assets.

Revenue recognized, but for which we are not yet entitled to bill because of certain events, such as the completion of the measurement period, are recorded as contract assets and included within contract assets.

Client prepayments are classified as contract liabilities and recognized over future periods as earned in accordance with the applicable engagement agreement.

See Note 3, “Accounts Receivable and Unbilled Revenue, Net” and Note 5 “Accrued Expenses and Other Liabilities” to our consolidated financial statements included in this Annual Report on Form 10-K.

During the 12 months ended December 27, 2019, the Company recognized $17.7 million of revenue as a result of changes in deferred revenue liability balance, as compared to $19.1 million for the twelve months ended December 28, 2018, respectively.

The following table reflects the Company’s disaggregation of total revenue from continuing operations including reimbursable expenses for the twelve months ended December 27, 2019, December 28, 2018 and December 29, 2017:

See Note 3, “Accounts Receivable and Contract Assets, Net” and Note 5 “Accrued Expenses and Other Liabilities” to our

consolidated financial statements included in this Annual Report on Form 10-K.

During the 12 months ended January 1 , 20 21 , we recognized $ 9.2 million of revenue as a result of changes in the contract liability balance, as compared to $ 7 .

7 million for the twelve months ended December 2 7 , 201 9 , respectively.

The following table reflects our disaggregation of revenue before reimbursements from continuing operations for the twelve months ended January 1, 2021, December 27, 2019 and December 28, 2018:

Software license sales

Total revenue from continuing operations

Revenue before reimbursements from continuing operations

Capitalized Sales Commissions

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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.

We determined the period of amortization by taking into consideration the customer contract period, which is generally less than 12 months.

Commission expense is included in Selling, General and Administrative Costs in the accompanying condensed consolidated statements of operations.

As of December 27, 2019 and December 28, 2018, the Company had $1.6 million, and $1.2 million, respectively, of deferred commissions, of which $1.4 million was amortized during both the twelve months ended December 27, 2019 and December 28, 2018.

As of January 1, 2021 and December 27, 2019, we had $1.5 million, and $1.6 million, respectively, of deferred commissions, of which $1.5 million and $1.4 million, respectively, was amortized during the twelve months ended January 1, 2021 and December 27, 2019, respectively.

No impairment loss was recognized relating to the capitalization of deferred commission.

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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.

We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be less than one year.

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

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Our fiscal year generally consists of a 52-week period and periodically consists of a 53-week period as each fiscal year ends on the Friday closest to December 31.

Fiscal years 2019, 2018 and 2017, ended on December 27, 2019, December 28, 2018 and December 29, 2017, respectively.

Fiscal years 2020, 2019 and 2018, ended on January 1, 2021, December 27, 2019, and December 28, 2018, respectively.

References to a year included in this document refer to a fiscal year rather than a calendar year.

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Total selling, general, and administrative expenses

Restructuring charges and asset impairments

Acquisition-related contingent consideration liability

Impairment of assets

Restructuring costs

Total costs and operating expenses

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Income from continuing operations (net of taxes)

Earnings (loss) from discontinued operations

Loss from discontinued operations

Diluted net income per common share

Comparison of 2020 to 2019

For fiscal year 2019, revenue from continuing operations and before reimbursements decreased 1% to $260.8 million, as compared to fiscal year 2018.

Fiscal year 2019 results included restructuring charges and the impairment of an asset related to the Hackett Institute’s Enterprise Analytic Program.

For fiscal year 2020, revenue before reimbursements decreased 10% to $234.8 million, as compared to fiscal year 2019.

Fiscal year 2020 results included restructuring charges for the reduction of staff in the U.S.

and Europe and the impairment of our operating lease right-of-use assets and certain property, equipment and leasehold improvements relating to the reduction in office space as we have transitioned towards a remote work environment.

Together, these items negatively impacted dilutive earnings per share by $0.24.

Fiscal year 2018 results included discontinued operations related to the discontinuance of our European REL Working Capital group and the

impairment of assets primarily related to our investments in the Hackett Performance Exchange.

Fiscal year 2019 results included restructuring charges relating to the reduction of staff in Australia and Europe and the impairment of assets related to the Hackett Institute’s Enterprise Analytic Program.

Together, these items negatively impacted dilutive earnings per share by $0.12.

Fiscal 2018 had a more favorable tax rate as a result of the 2017 Tax Cuts a nd Jobs Act , which reduced corporate tax rates from 35% to 21% .

We are a global company with operations primarily in the United States and Western Europe.

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Our total Company revenue from continuing operations and before reimbursements decreased 10%, to $234.8 million in 2020, as compared to $260.8 million in 2019.

Our North American revenue from continuing operations and before reimbursements increased 3% and our international revenue from continuing operations and before reimbursements decreased 21% in 2019, as compared to 2018.

Our North American revenue from continuing operations and before reimbursements decreased 6% and our international revenue from continuing operations and before reimbursements decreased 36% in 2020, as compared to 2019.

Net revenue and reimbursable expenses were both affected from the economic disruption of the COVID-19 pandemic and as we transitioned to a remote service delivery model throughout the U.S.

Reimbursable expenses are project and travel-related expenses passed through to a client with no margin associated with them.

Reimbursable expenses as a percentage of net revenue were 8% during both 2019 and 2018.

Reimbursable expenses as a percentage of net revenue were 2% in 2020, as compared to 8% in 2019.

In 2020 and 2019, no customer accounted for more than 5% of our total revenue.

S&BT net revenue from continuing operations increased 3% in 2019, to $104.5 million as compared to 2018, primarily driven by improved results across most practices.

EEA net revenue from continuing operations increased 3% in 2019, to $119.5 million, as compared to 2018, primarily driven by strong results in our SAP and OneStream practices, as well as strong cloud revenue growth from our EPM practices, partially offset by the Oracle EPM On-Premise declines.

S&BT net revenue from continuing operations decreased 17% in 2020, to $88.7 million as compared to $107.1 million in 2019.

This group’s business transformation practice was disrupted by the impact of the pandemic.

EEA net revenue from continuing operations increased 5% in 2020, to $122.6 million, as compared to $116.9 million in 2019, primarily driven by strong growth in our SAP S4 HANA implementation and Reseller practices, as well as our Oracle Cloud ERP and OneStream practices.

The strong growth was partially offset by declines in our Oracle EPM practice.

net revenue from continuing operations represented 90% of our total Company net revenue during 2020 and as compared to 86% in 2019.

Hackett international net revenue from continuing operations decreased 36% in 2020, as compared to 2019.

This decrease in revenue, which is primarily derived in Europe, was largely due to the uncertainties surrounding Brexit which appears to have impacted client decision making.

Europe continues to be impacted by lengthened client decision-making from economic uncertainty, which has been further impacted by the COVID-19 pandemic.

Total Company international net revenue from continuing operations accounted for 10% of our total revenue in 2020, as compared to 14% in 2019.

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and reimbursable expenses associated with projects.

Personnel costs from continuing operations were $159.4 million in 2019 from $159.6 million in 2018.

Personnel costs before reimbursable expenses, as a percentage of revenue before reimbursements 61% in 2019, as compared to 60% in 2018.

Non-cash stock compensation expense from continuing operations was $3.8 million in both 2019 and 2018.

The acquisition related compensation benefit of $0.1 million and $0.5 million in 2019 and 2018, respectively, related to the liability for the cash portion of the Aecus contingent consideration that was 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 personnel, all of which are subject to service vesting and as a result is recorded as compensation expense.

See Note 15, “Acquisitions” to our consolidated financial statements included in this Annual Report on Form 10-K.

These liabilities were both settled in 2019.

Acquisition related non-cash stock compensation expense in 2019 and 2018 primarily related to our EPM AMS acquisition of Technolab in fiscal 2014 and the Jibe and Aecus acquisitions in 2017.

See Note 15, “Acquisitions” to our consolidated financial statements included in this Annual Report on Form 10-K.

Personnel costs from continuing operations decreased 3%, to $154.3 million in 2020, from $159.4 million in 2019.

The decrease in personnel costs in 2020 were primarily due to the restructuring actions that were implemented in 2020 which included a reduction of approximately 10% of the global workforce.

Personnel costs before reimbursable expenses and as a percentage of revenue before reimbursements 66% in 2020, as compared to 61% in 2019.

Non-cash stock compensation expense from continuing operations was $6.3 million in 2020 and $3.8 million in 2019.

This increase was primarily driven by a new retention-based non-cash incentive compensation program effective in 2020 for our key practice leaders.

Historically, annual performance grants are amortized over a three-year vesting period after the performance year.

However, due to competitive market conditions for these key employees, a program change was effected whereby 50% of their annual performance stock opportunity was granted based on the achievement of certain non-financial objectives and the grants vest at the end of the performance year, assuming the objectives were met.

In addition, there were some acceleration of expense associated with COVID-19 related terminations and the finalization of the Jibe acquisition earnout liability.

See Note 10, “Stock Based Compensation” to our consolidated financial statements included in this Annual Report on Form 10-K for further information.

The acquisition related compensation expense in 2020 and compensation benefit in 2019 both related to the accrual for the cash portion of contingent consideration related to acquisitions, all of which was subject to service vesting and as a result is recorded as compensation expense.

The majority of these liabilities were settled during the fourth quarter of 2019.

Acquisition related non-cash stock compensation expense in 2020 and 2019 related to equity awards issued in relation to acquisitions.

Selling, General and Administrative (“SG&A”) .

SG&A costs from continuing operations, excluding non-cash compensation expense, acquisition related costs and the amortization of intangible assets decreased 1% to $58.1 million in 2019, from $58.5 million in 2018.

SG&A costs from continuing operations, excluding non-cash compensation expense, acquisition related costs and the amortization of intangible assets decreased 13% to $50.6 million in 2020, from $58.1

million in 201 9 primarily due to decreased travel related selling and marketing activities due to the move to virtual sales and delivery models resulting from the pandemic .

SG&A costs as a percentage of revenue before reimbursements were 22% in both 20 20 and 201 9 .

Non-cash compensation expense included in total SG&A decreased to $2.4 million in 2020, as compared to $2.9 million in 2019.

See Note 10 , “Stock Based Compensation” to our consolidated financial st atements included in this Annual Report on Form 10-K for further information.

Amortization expense was $1.0 million in 2019, as compared to $2.4 million in 2018.

The amortization expense in 2019 and 2018 related to the amortization of the intangible assets acquired in 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 during the fourth quarter of 2017.

The 2018 amortization expense also includes the amortization of the intangible assets acquired in our 2014 EPM AMS acquisition of Technolab.

The intangible assets relate to the customer relationship, trademarks, customer backlog and non-compete agreements.

The Jibe and Aecus intangible assets will continue to amortize until 2022.

The CGBS Training and Certification intangible asset will amortize until 2021.

See Note 10, “Stock Based Compensation” to our consolidated financial statements included in this Annual Report on Form 10-K for further information.

Amortization expense was $1.0 million in both 2020 and 2019.

The amortization expense in both periods related to the amortization of the intangible assets acquired in our acquisitions in 2017.

The intangible assets related to the acquisitions will continue to amortize until 2022 and the intangible asset related to the joint venture will continue to amortize until 2021.

Acquisition-contingent Consideration Liability.

During 2019 and 2018, the liabilities related to the cash portion of the Jibe acquisition contingent consideration due to selling shareholders, which is not subject to service vesting, was reduced based on the estimated achievement of the contingent earnout targets, resulting in a benefit.

The liability was settled during 2019.

Impairment of Assets.

In 2019, we recorded a $1.2 million asset impairment on our investment in the Hackett Institute’s Enterprise Analytics Program.

In 2018, we recorded a $6.3 million asset impairment on our investments in the Hackett Performance Exchange and our Working Capital Course.

Restructuring Costs.

In 2019, we recorded restructuring costs primarily related to the continued weakness in our international operations.

These costs primarily related to severance costs as we reduced staff to be commensurate with current demand primarily in both Europe and Australia.

During 2019, the liabilities related to the cash portion of the Jibe acquisition contingent consideration due to selling shareholders, which was not subject to service vesting, was reduced based on the estimated achievement of the contingent earnout targets, resulting in a benefit.

The liability was settled in the fourth quarter of 2019.

Restructuring Charges and Asset Impairments.

During 2020, we recorded restructuring costs of $6.6 million, which were primarily related to the reduction of staff in the U.S.

and Europe as a result of the impact of the COVID-19 pandemic.

In addition, during the fourth quarter of 2020, as a result of and in consideration of the COVID-19 pandemic, and the changing nature of our use of office space for our workforce, we evaluated our existing office space utilization as part of our transformation initiatives related to real estate.

This evaluation resulted in the complete and partial abandonment of certain leased office spaces and a $3.9 million restructuring charge related to the asset impairment for certain lease right-of-use assets and certain property, equipment and leasehold improvements and other real estate related costs.

In 2019, we recorded restructuring charges of $3.3 million primarily related to the continued weakness in our international operations.

These costs primarily related to severance costs as we reduced staff to be commensurate with current demand primarily in both Australia and Europe.

In addition, in 2019, we recorded a $1.2 million restructuring charge related to the asset impairment of our investment in the Hackett Institute’s Enterprise Analytics Program.

Interest Expense .

In 2019, we recorded interest expense of $311 thousand, as compared to $638 thousand in 2018, primarily due to the lower average outstanding debt balance.

The debt was fully paid off during the fourth quarter of 2019.

In 2020 and 2019, we recorded interest expense of $126 thousand and $311 thousand, respectively.

The decrease was due to the lower average outstanding debt balance.

The debt was fully paid off during the fourth quarter of 2019 and there was no outstanding debt in 2020.

Income Taxes.

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During 2019, we recorded $7.7 million of income tax expense related to certain federal, foreign and state taxes which reflected an effective tax rate of 25.0% from continuing operations.

In 2018 the effective tax rate reflected a lower federal tax rate of 21% as a result of the 2017 Tax Cuts and Jobs Act.

The increase in the tax rate for 2020 was primarily due to lower tax benefits related to share-based compensation when compared to 2019.

In addition, the tax rate increase in 2020 related to restructuring charges impacting countries with lower statutory income tax rates and changes in our overall profitability due to the impact of the COVID-19 pandemic.

Discontinued Operations.

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

Prior year comparisons have been restated.

Comparison of 2019 to 2018

For fiscal year 2018, revenue from continuing operations and before reimbursements increased 4% to $264.5 million, as compared to fiscal year 2017, and earnings from continuing operations increased 7%.

Fiscal 2018 results included discontinued operations related to the discontinuance of our European REL Working Capital group and the impairment of assets primarily related to our investments in the Hackett Performance Exchange.

For fiscal year 2019, revenue from continuing operations and before reimbursements decreased 1% to $260.8 million, as compared to fiscal year 2018.

Fiscal year 2019 results included restructuring charges and the impairment of an asset related to the Hackett Institute’s Enterprise Analytic Program.

Together, these items negatively impacted dilutive earnings per share by $0.12.

Fiscal year 2017 earnings per share was favorably impacted by $0.23 per share related to the tax benefit for the revaluation of the deferred tax liabilities as a result of the tax legislation enacted in late 2017 and the change in tax accounting for the vesting of share-based awards.

Fiscal year 2018 results included discontinued operations related to the discontinuance of our European REL Working Capital group and the impairment of assets primarily related to our investments in the Hackett Performance Exchange.

Together these items negatively impacted dilutive earnings per share by $0.23.

Fiscal 2018 had a more favorable tax rate as a result of the 2017 Tax Cuts and Jobs Act, which reduced corporate tax rates from 35% to 21%.

We are a global company with operations primarily in the United States and Western Europe.

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Revenue from continuing operations before reimbursement

Our total Company revenue from continuing operations and before reimbursements increased 4%, to $264.5 million in 2018, as compared to $255.1 million in 2017.

Our domestic revenue from continuing operations and before reimbursements increased 2% and our international revenue from continuing operations and before reimbursements increased 11% in 2018, as compared to 2017.

Reimb ursable expenses are project and travel-related expenses passed through to a client with no margin associated with them.

Our total Company revenue before reimbursements decreased 1%, to $260.8 million in 2019, as compared to $264.5 million in 2018.

Reimbursable expenses are project and travel-related expenses passed through to a client with no margin associated with them.

Reimbursable expenses as a percentage of net revenue were 8% during both 2019 and 2018.

In 2019 and 2018, no customer accounted for more than 5% of our total revenue.

SBT net revenue from continuing operations and before reimbursements increased 17% in 2018, as compared to 2017, primarily due to strong results across most practices.

EEA net revenue from continuing operations and before reimbursements decreased 8% in 2018, as compared to 2017.

The decrease was primarily due to our Oracle EEA group which was adversely impacted as a result of the transition from on-premise to cloud application migration and our SAP EEA group which was negatively impacted by the SAP channel transition resulting from SAP’s decision to emphasize S4 HANA Single Tenant solutions more aggressively over its non-SAP hosted S4 HANA options.

Hackett international revenue from operations and before reimbursements increased 11% in 2018, as compared to 2017.

This increase in revenue, which is primarily derived in Europe, was due to growth in our international Strategy and Business Transformation groups and from having a full year of revenue from our Robotics Process Automation group acquired in 2017.

Our international revenue from operations before reimbursements accounted for 18% of our total revenue in 2018, as compared to 16% in 2017.

S&BT net revenue from continuing operations increased 3% in 2019, to $107.1 million as compared to $104.1 million in 2018, primarily driven by improved results across most practices.

EEA net revenue from continuing operations increased 3% in 2019, to $116.9 million, as compared to $114.0 million in 2018, primarily driven by strong results in our SAP and OneStream practices, as well as strong cloud revenue growth from our EPM practices, partially offset by the Oracle EPM On-Premise declines.

Hackett international net revenue from continuing operations decreased 21% in 2019, as compared to 2018.

This decrease in revenue, which is primarily derived in Europe, was largely due to the uncertainties surrounding Brexit which appears to have impacted client decision making.

Total Company international net revenue from continuing operations accounted for 14% of our total revenue in 2019, as compared to 18% in 2018.

Cost of Service.

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and reimbursable expenses associated with projects.

Personnel costs from continuing operations increased 4% to $159.6 million in 2018 from $153.4 million in 2017, primarily due to a full year of costs associated with the acquisitions in 2017 and due to higher incentive compensation accruals for our U.S.

Strategy and Business Transformation group.

Personnel costs before reimbursable expenses, as a percentage of revenue before reimbursements also remained consistent at 60% in both 2018 and 2017.

Non-cash stock compensation expense from continuing operations was $3.8 million in 2018, as compared to $4.4 million in 2017.

The acquisition related compensation benefit of $0.5 million in 2018 and cost of $1.6 million in 2017 related to the liability 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 personnel, all of which are subject to service vesting and as a result is recorded as compensation expense.

Personnel costs from continuing operations were $159.4 million in 2019 from $159.6 million in 2018.

Personnel costs before reimbursable expenses, as a percentage of revenue before reimbursements were 61% in 2019 and 60% in 2018.

Non-cash stock compensation expense from continuing operations was $3.8 million in both 2019 and 2018.

See Note 10, “Stock Based Compensation” to our consolidated financial statements included in this Annual Report on Form 10-K for further information.

See Note 15, “Acquisitions” to our consolidated financial statements included in this Annual Report on Form 10-K.

These liabilities were both settled in 2019.

Acquisition related non-cash stock compensation expense in 2019 and 2018 primarily related to our EPM AMS acquisition of Technolab in fiscal 2014 and the Jibe and Aecus acquisitions in 2017.

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Selling, General and Administrative (“SG&A”) .

SG&A costs from continuing operations, excluding non-cash compensation expense, acquisition related costs and the amortization of intangible assets increased 2% to $58.5 million in 2018, from $57.5 million in 2017.

SG&A costs as a percentage of revenue before reimbursements were 22% in 2018 and 23% in 2017.

Non-cash compensation expense included in total SG&A decreased slightly to $3.2 million in 2018, as compared to $3.3 million in 2017.

SG&A costs as a percentage of revenue before reimbursements were 22% in both 2019 and 2018.

Non-cash compensation expense included in total SG&A decreased to $2.9 million in 2019, as compared to $3.2 million in 2018.

See Note 10, “Stock Based Compensation” to our consolidated financial statements included in this Annual Report on Form 10-K for further information.

Amortization expense was $1.0 million in 2019, as compared to $2.4 million in 2018.

The amortization expense in 2018 and 2017 related to the amortization of the intangible assets acquired in our 2014 EPM AMS acquisition of Technolab, 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 during the fourth quarter of 2017.

The intangible assets relate to the customer relationship, trademarks, customer backlog and non-compete agreements.

The Technolab intangible assets were fully amortized in 2018.

The Jibe and Aecus intangible assets will continue to amortize until 2022.

The 2018 amortization expense also includes the amortization of the intangible assets acquired in our 2014 EPM AMS acquisition of Technolab.

The intangible assets relate to the customer relationship, trademarks, customer backlog and non-compete

T he Jibe and Aecus intangible assets will continue to amortize until 2022 .

The CGBS Training and Certification intangible asset will amortize until 2021 .

Acquisition-contingent Consideration Liability.

During 2018, the liabilities related to the cash portion of the Jibe acquisition contingent consideration due to selling shareholders, which is not subject to service vesting, was reduced based on the estimated achievement of the contingent earnout targets, resulting in a benefit.

Impairment of Assets.

In 2018, we recorded a $6.3 million asset impairment on our investments in the Hackett Performance Exchange and our Working Capital Course.

Restructuring Costs.

In 2017, we recorded restructuring costs primarily related to the transition of resources driven by our migration from on premise software to cloud-based implementations as well as the Jibe acquisition, and the rationalization of global resources as a result of the emergence of RPA related engag ements from our Aecus acquisition.

During 2019 and 2018, the liability related to the cash portion of the Jibe acquisition contingent consideration due to selling shareholders, which is not subject to service vesting, was reduced based on the estimated achievement of the contingent earnout targets, resulting in a benefit.

The liability was settled during 2019.

Restructuring Charges and Asset Impairments.

In 2019, we recorded restructuring costs of $3.3 million primarily related to the continued weakness in our international operations.

These costs primarily related to severance costs as we reduced staff to be commensurate with current demand primarily in both Australia and Europe.

In addition, in 2019, we recorded a $1.2 million restructuring charge, related to the asset impairment of our investment in the Hackett Institute’s Enterprise Analytics Program.

In 2018, we recorded a $6.3 million restructuring charge related to the asset impairment of our investments in the Hackett Performance Exchange and our Working Capital Course.

Interest Expense .

In 2018, we recorded interest expense of $638 thousand, as compared to $584 thousand in 2017.

In 2019, we recorded interest expense of $311 thousand, as compared to $638 thousand in 2018, primarily due to the lower average outstanding debt balance.

The debt was fully paid off during the fourth quarter of 2019.

Income Taxes.

During 2019, we recorded $7.7 million of income tax expense related to certain federal, foreign and state taxes which reflected an effective tax rate of 25.0% from continuing operations.

In 2018 the effective tax rate also reflected a lower federal tax rate of 21% as a result of the 2017 Tax Cuts and Jobs Act.

During 2018, we recorded $5.6 million of income tax expense related to certain federal, foreign and state taxes which reflected an effective tax rate of 16.9% from continuing operations.

During the first quarter of 2017, the Company recorded a tax benefit as result of the adoption of a new pronouncement relating to the accounting on the vesting of share-based awards.

During the fourth quarter of fiscal 2017 we recorded a tax benefit related to the revaluation of our deferred tax liabilities as a result of the adoption of the 2017 Tax Act on December 22, 2017.

Excluding the effect of the tax reform legislation, the 2017 effective tax rate would have been 35.7% for certain federal, foreign and state taxes.

In 2018 the effective tax rate reflected a lower federal tax rate of 21% as a result of the 2017 Tax Cuts and Jobs Act.

Discontinued Operations.

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

Prior year comparisons have been restated.

Liquidity and Capital Resources

As of December 27, 2019 and December 28, 2018, we had $26.0 million and $13.8 million, respectively, of cash and cash equivalents, respectively.

As of December 27, 2019, we had no outstanding debt under our revolving credit facility.

We currently believe that available funds (including the cash on hand and funds available for borrowing under the revolving line), and cash flows generated by operations will be enough to fund our working capital and capital expenditure requirements for at least the next twelve months.

As of January 1, 2021 and December 27, 2019, we had $49.5 million and $26.0 million, respectively, of cash.

As of January 1, 2021 and December 27, 2019, we had no outstanding debt under our credit facility.

We currently believe that available funds (including the cash on hand and funds available for borrowing under our credit facility), and cash flows generated by operations will be enough to fund our working capital and capital expenditure requirements for at least the next twelve months.

We may decide to raise additional funds to support expansion, to develop new or enhance products and services, to respond to competitive pressures or to acquire complementary businesses or technologies.

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Net cash provided by operating activities was $44.1 million in 2020, as compared to $42.4 million in 2019.

In 2019, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items, and decreased account receivables and unbilled revenue, partially offset by lower accrued expenses and other liabilities due to the payout of 2018 incentive compensation and state and federal income taxes.

In 2018, the net cash provided by operating activities was primarily due to net income from continuing operations adjusted for non-cash items, partially offset by lower accrued expenses and other liabilities due to the payout of 2017 incentive compensation and state and federal income taxes and an increase in accounts receivable and unbilled revenue.

In 2020, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items, and decreased account receivables and contract assets and higher accrued expenses and other liabilities.

In 2019, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items, and decreased account receivables and contract assets, partially offset by lower accrued expenses and other liabilities.

Cash Flows from Investing Activities

Net cash used in investing activities was $1.9 million in 2020, as compared to $5.6 million in 2019.

During 2019 and 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 2020, cash flows from investing activities included investments related to the continued development of our Quantum Leap benchmark technologies.

In the comparable 2019 period, cash flows used in investing activities included investments to our internal corporate systems, the rollout of new laptops, and the development of our Quantum Leap benchmark technologies.

In addition, in 2019 the Jibe earnout consideration with the selling shareholders was finalized and settled.

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Net cash used in financing activities was $18.7 million in 2020, as compared to $24.7 million in 2019.

The usage of cash in 2019 was primarily related to the dividend payments of $11.2 million, the net paydown of the revolving line of credit of $6.5 million, employee net vesting related tax withholding requirements of $2.5 million and for the repurchase of Company common stock under the Company’s share repurchase program of $5.3 million.

The usage of cash in 2018 was primarily related to the dividend payments of $10.0 million, the net paydown of the revolving line of credit of $12.5 million, employee net vesting related to tax withholding requirements of $3.6 million and for the repurchase of Company common stock under the Company’s share repurchase program of $1.2 million.

The usage of cash in 2020 was primarily related to dividend payments of $14.9 million, the repurchase of Company common stock under our share

repurchase program of $2.4 million and employee net vesting related tax withholding requirements of $2.

The usage of cash in 201 9 was primarily related to the dividend payment s of $1 1.2 million, the net paydown of the revolving line of credit of $ 6.5 million , the repurchase of Company common stock under our share repurchase program of $5.3 million and employee net vesting related tax withholding requirements of $2.5 million .

As of January 1, 2021, we did not have any outstanding borrowings under the Revolver, leaving us with a capacity of approximately $45.0 million.

See Note 7, “Credit Facility,” to our consolidated financial statements included in this Annual Report on Form 10-K for more information.

Contractual Obligations

There were no material capital commitments as of December 27, 2019.

The following table summarizes our future principal payments under our credit facility (See Note 8 to our consolidated financial statements included in this Annual Report on Form 10-K) and future lease commitments under our non-cancelable operating leases as of December 27, 2019 (in thousands):

There were no material capital commitments as of January 1, 2021.

Contractual Obligations

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Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of December 27, 2019.

We did not have any off-balance sheet arrangements as of January 1, 2021.

Recently Issued Accounting Standards

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

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

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis