RGP
Apr 7, 2016
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Resources Connection, Inc. Reports Third Quarter Results for Fiscal 2016

*Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation, amortization and stock-based compensation

IRVINE, Calif.--(BUSINESS WIRE)-- Resources Connection, Inc. (NASDAQ: RECN), today announced financial results for its third fiscal quarter ended February 27, 2016. Resources Connection, Inc. (the "Company") is a multinational professional services firm that provides to clients - through its operating subsidiary, Resources Global Professionals ("RGP") - consulting and business support services in the areas of accounting; finance; corporate governance, risk and compliance; corporate advisory, strategic communications and restructuring; information management; human capital; supply chain management; healthcare solutions; and legal and regulatory.

Revenue for the third quarter of fiscal 2016 was $146.8 million, essentially flat with the prior year's third quarter. On a sequential basis, third quarter revenue (which includes the holiday season) decreased 2.7% compared to $150.9 million in the second quarter of fiscal 2016.

Using the comparable third quarter fiscal 2015 conversion rates to adjust for the impact of currency fluctuations, fiscal 2016's third quarter revenue would have been $148.4 million, up 1.1% quarter-over-quarter.

Revenue in the U.S. decreased 0.2% quarter-over-quarter and 1.2% sequentially. International revenue increased 1.2% on a quarter-over-quarter basis and decreased 8.8% sequentially. Adjusting for the impact of currency fluctuations, international revenue increased 7.5% quarter-over-quarter using the comparable third quarter fiscal 2015 conversion rates and decreased 7.8% sequentially using the comparable second quarter fiscal 2016 conversion rates.

The Company's net income in the third quarter of fiscal 2016 was $6.0 million, or $0.16 per diluted share, or flat compared to the prior year's third quarter.

"We continue to make progress internationally, especially in Europe where we had constant currency quarter-over-quarter growth in revenue of 8.9%," said Tony Cherbak, president and chief executive officer of RGP. "Our results in the U.S. were unfavorably impacted by weakness in demand from our energy clients. In spite of this, our strong operating metrics allowed us to return $12.2 million of capital to shareholders in the form of our dividend and stock repurchase programs."

Gross margin was 37.4% in the third quarter of fiscal 2016, compared to 37.3% in the prior year quarter. Gross margin in the current quarter was better than anticipated due to improved bill/pay spread. Sequentially, gross margin decreased 160 basis points from 39.0%, due to the reset of employer payroll taxes after the New Year, offset by an improvement in the bill/pay spread in the current quarter.

Selling, general and administrative expenses for the third quarter of fiscal 2016 were $43.3 million (29.5% of revenue) compared to the prior year third quarter of $43.5 million (29.6% of revenue) and the second quarter of fiscal 2016 of $43.2 million (28.6% of revenue).

Cash used in operations and Adjusted EBITDA were $3.7 million and $13.1 million (8.9% of revenue), respectively, for the third quarter of fiscal 2016 compared to cash used in operations and Adjusted EBITDA of $2.9 million and $12.9 million (8.8% of revenue), respectively, for the third quarter of fiscal 2015. In each of the quarters, operating cash flows were impacted by the timing of payroll accruals.

The Company's revenue for the nine months ended February 27, 2016 was $446.0 million compared to $441.8 million for the nine months ended February 28, 2015. The Company's net income for the nine months ended February 27, 2016 was $21.8 million or $0.58 per diluted share. This compares to net income in the nine months ended February 28, 2015 of $19.4 million, or $0.51 per diluted share, including $0.03 per diluted share related to European severance charges.

In the third quarter of fiscal 2016, the Company repurchased 589,000 shares of common stock for $8.5 million and paid a quarterly dividend totaling $3.7 million ($0.10 per diluted share) to shareholders. Currently, the Company has a total of $146.7 million available for share purchases. As of February 27, 2016, the Company's cash, cash equivalents and short-term investments were $96.5 million compared to $112.2 million at fiscal year-end May 30, 2015.

Today, the Company also announced the planned retirement of its Executive Vice President and Chief Financial Officer, Nathan Franke, following the close of the Company's fiscal year. Mr. Franke will remain in his current position until the end of July, while the Company conducts a search for his successor. The Company has retained the executive search firm, Spencer Stuart, to assist with this search.

Tony Cherbak stated, "Nate and I have worked together for more than 30 years, first at Deloitte and then RGP. He is an outstanding financial professional who we will all miss in the day-to-day business. Nate has been a valuable member of the management team at RGP for the past nine years, and on behalf of all of the employees of RGP and the Board of Directors, we want to thank Nate for his contribution and wish him well as he embraces retirement."

"I am incredibly fortunate to finish my career working with the great people and clients of RGP," said Nate Franke. "As I move to the next chapter of my life, I know RGP is well positioned to continue to capitalize on these two phenomenal assets."

ABOUT RGP

RGP, the operating subsidiary of Resources Connection, Inc. (NASDAQ: RECN), is a multinational professional services firm that helps business leaders execute internal initiatives. Partnering with business leaders, we drive internal change across all parts of a global enterprise - accounting; finance; corporate governance, risk and compliance; corporate advisory, strategic communications and restructuring; information management; human capital; supply chain management; healthcare solutions; and legal and regulatory.

RGP was founded in 1996 within a Big Four accounting firm. Today, we are a publicly traded company with over 3,300 professionals, annually serving over 1,700 clients around the world from 68 practice offices.

Headquartered in Irvine, California, RGP has served 87 of the Fortune 100 companies.

The Company is listed on the NASDAQ Global Select Market, the exchange's highest tier by listing standards. More information about RGP is available at http://www.rgp.com. (RECN-F)

RGP will hold a conference call for interested analysts and investors at 5:00 p.m. ET today, April 7, 2016. This conference call will be available for listening via a webcast on the Company's website: http://www.rgp.com. An audio replay of the conference call will be available through April 14, 2016 at 855-859-2056. The conference ID number for the replay is 63038435. The call will also be archived on the RGP website for 30 days.

Certain statements in this press release are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by words such as "anticipates," "believes," "can," "continue," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "remain," "should" or "will" or the negative of these terms or other comparable terminology. Such statements and all phases of the Company's operations are subject to known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievements and those of our industry to differ materially from those expressed or implied by these forward-looking statements. Risks and uncertainties include seasonality, overall economic conditions and other factors and uncertainties as are identified in our most recent Quarterly Report on Form 10-Q and our other public filings made with the Securities and Exchange Commission (File No. 0-32113). Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business or operating results. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company does not intend, and undertakes no obligation, to update the forward-looking statements in this press release to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, unless required by law to do so.

 
RESOURCES CONNECTION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
 
      Three Months Ended       Nine Months Ended
February 27,       February 28, February 27,       February 28,
2016 2015 2016 2015
(Unaudited) (Unaudited)
Revenue $ 146,779 $ 146,832 $ 446,006 $ 441,775
Direct cost of services   91,851     91,991     274,739     271,274  
Gross margin 54,928 54,841 171,267 170,501
Selling, general and administrative expenses (1)   43,318     43,478     130,446     131,333  

Operating income before amortization and depreciation (1)

11,610 11,363 40,821 39,168
Amortization of intangible assets 30 62 90 888
Depreciation expense   867     839     2,606     2,542  
Operating income (1) 10,713 10,462 38,125 35,738
Interest income   (52 )   (37 )   (118 )   (114 )
Income before provision for income taxes (1) 10,765 10,499 38,243 35,852
Provision for income taxes (2)   4,808     4,510     16,477     16,452  
Net income (1), (2) $ 5,957   $ 5,989   $ 21,766   $ 19,400  
Net income per common share:
Basic (1), (2) $ 0.16   $ 0.16   $ 0.59   $ 0.51  
Diluted (1), (2) $ 0.16   $ 0.16   $ 0.58   $ 0.51  
Weighted average common shares outstanding:
Basic   37,073     37,724     37,186     37,938  
Diluted   37,615     38,288     37,777     38,300  
Cash dividends declared per common share $ 0.10   $ 0.08   $ 0.30   $ 0.24  
 

EXPLANATORY NOTES

 
(1) Selling, general and administrative expenses include non-cash compensation expense for employee stock option grants, restricted share grants and employee stock purchases of $1.5 million for both the three months ended February 27, 2016 and February 28, 2015, and $5.0 million and $4.6 million for the nine months ended February 27, 2016 and February 28, 2015, respectively. The expense for the nine months ended February 27, 2016 includes approximately $900,000, or $0.01 per share, related to the Board of Director's approval of accelerated vesting of 127,500 stock options related to Don Murray's transition from Executive Chairman to non-employee Chairman of the Board.
 
(2) The Company's effective tax rate was approximately 44% and approximately 43% for the three months ended February 27, 2016 and February 28, 2015, respectively, and approximately 43% and approximately 46% for the nine months ended February 27, 2016 and February 28, 2015, respectively. The nine months ended February 27, 2016 includes the reversal of approximately $290,000 of tax valuation allowances. For all periods presented, the Company is unable to benefit from, or has limitations on the benefit of, tax losses in certain foreign jurisdictions. To a lesser extent, the accounting treatment under GAAP for the cost associated with incentive stock options and shares purchased through the Employee Stock Purchase Plan have caused volatility in the Company's effective tax rate.
 

 
RESOURCES CONNECTION, INC.
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA
(Amounts in thousands, except Adjusted EBITDA Margin)
 
      Three Months Ended       Nine Months Ended
February 27,       February 28, February 27,       February 28,
2016 2015 2016 2015
(Unaudited) (Unaudited)
 
Net income $ 5,957 $ 5,989 $ 21,766 $ 19,400
Adjustments:
Amortization of intangible assets 30 62 90 888
Depreciation expense 867 839 2,606 2,542
Interest income (52 ) (37 ) (118 ) (114 )
Provision for income taxes   4,808     4,510     16,477     16,452  
EBITDA 11,610 11,363 40,821 39,168
Stock-based compensation expense   1,483     1,523     5,028     4,627  
Adjusted EBITDA $ 13,093   $ 12,886   $ 45,849   $ 43,795  
Revenue $ 146,779   $ 146,832   $ 446,006   $ 441,775  
Adjusted EBITDA Margin   8.9 %   8.8 %   10.3 %   9.9 %
 

EXPLANATORY NOTE

The Company utilizes certain financial measures and key performance indicators that are not defined by, or calculated in accordance with, GAAP to assess our financial and operating performance. A non-GAAP financial measure is defined as a numerical measure of a company's financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP in the statement of operations; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure so calculated and presented.

EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. EBITDA is calculated as net income before amortization of intangible assets, depreciation expense, interest income and income taxes. Adjusted EBITDA is calculated as EBITDA plus stock-based compensation expense. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by revenue. We believe that EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin provide useful measures to our investors because they are financial measures used by management to assess the core performance of our Company. EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are not measurements of financial performance or liquidity under GAAP and should not be considered in isolation or construed as substitutes for net income or other cash flow data prepared in accordance with GAAP for purposes of analyzing our profitability or liquidity. These measures should be considered in addition to, and not as a substitute to, net income, earnings per share, cash flows or other measures of financial performance prepared in accordance with GAAP.

 
RESOURCES CONNECTION, INC.
CONSTANT CURRENCY REVENUE COMPARISON
(Dollars in thousands)
(Unaudited)
 
Revenue for the Three Months Ended                        
           

 

% Increase

% Decrease

% Decrease

% Change

February 27, 2016 vs.

February 27, 2016

February 27, 2016 vs.

February 27,

February 28,

November 28,

February 27, 2016

February 28, 2015

vs. November 28,

November 28, 2015

2016

2015

2015

vs. February 28,

Constant Currency

2015

Constant Currency

GAAP GAAP GAAP 2015 GAAP

(1)

GAAP

(2)

 
$ 146,779 $ 146,832 $ 150,887 0.0 % 1.1 % -2.7 % -2.5 %

 

(1) The percentage change in revenue on a constant currency basis is calculated using the average foreign exchange rates for the third quarter of fiscal 2015 and applying those rates to foreign-denominated revenue in the third quarter of fiscal 2016.

(2) The percentage change in revenue on a constant currency basis is calculated using the average foreign exchange rates for the second quarter of fiscal 2016 and applying those rates to foreign-denominated revenue in the third quarter of fiscal 2016.

EXPLANATORY NOTE

In order to provide a more comprehensive view of trends in our business, this table shows revenue data on an as reported basis (GAAP) for the respective periods and relative change in the same periods from the impact on revenue of exchange rate fluctuations between the United States dollar and currencies in countries in which the Company operates.

 
RESOURCES CONNECTION, INC.
SELECTED BALANCE SHEET, CASH FLOW AND OTHER INFORMATION
(Amounts in thousands, except consultant headcount)
 
      February 27,       May 30,
2016 2015
 
(Unaudited)
 
Cash, cash equivalents and short-term investments $ 96,462 $ 112,238
Accounts receivable, less allowances $ 100,493 $ 96,574
Total assets $ 406,798 $ 416,981
Current liabilities $ 55,407 $ 68,946
Total stockholders' equity $ 343,224 $ 340,452
Consultant headcount, end of period 2,584 2,516
Shares outstanding, end of period 36,758 37,273
 
Nine Months Ended
February 27, February 28,
2016 2015
 
(Unaudited)
 
Cash flow from operating activities $ 7,047 $ 2,805
Cash flow from investing activities $ (1,659 ) $ 7,392
Cash flow from financing activities $ (20,841 ) $ (20,832 )
 

For Resources Connection, Inc.
Media Contact:
Michael Sitrick
(US+) 1-310-788-2850
mike_sitrick@sitrick.com
or
Analyst Contact:
Nate Franke, Chief Financial Officer
(US+) 1-714-430-6500
nate.franke@rgp.com

Source: Resources Connection, Inc.

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