Resources Connection, Inc. Reports First Quarter Results for Fiscal 2020
Resources Connection, Inc. Reports First Quarter Results for Fiscal 2020
First Quarter Fiscal 2020 Highlights:
- Revenue
$172.2 million , down 3.6% from prior year quarter - Gross margin percentage of 39.2%, an improvement of 100 basis points from prior year quarter
- SG&A as a percent of revenue up 150 basis points from prior year quarter due to
$2.3 million of one-time expenses - Diluted earnings per common share of
$0.15 compared to$0.18 in prior year quarter - Net income of
$4.9 million compared to$5.7 million in prior year quarter - Adjusted EBITDA of
$11.9 million compared to$13.2 million in prior year quarter - Cash dividends declared of
$0.14 per share
Management Commentary
“We engaged in decisive actions this quarter to improve our financial performance over the mid and longer term – including an important acquisition, a divestiture and an office closure,” said
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RESOURCES CONNECTION, INC. |
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SUMMARY OF CONSOLIDATED FINANCIAL RESULTS |
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(Amounts in thousands, except percentages and per share amounts) |
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Three Months Ended |
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August 24, |
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May 25, |
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August 25, |
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2019 |
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2019 |
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2018 |
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As reported (GAAP) |
(Unaudited) |
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(Unaudited) |
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(Unaudited) |
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Revenue |
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North America |
$ |
140,376 |
|
$ |
146,988 |
|
$ |
146,171 |
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Asia Pacific |
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13,086 |
|
|
13,559 |
|
|
11,703 |
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Europe |
|
18,763 |
|
|
21,597 |
|
|
20,684 |
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Total revenue |
$ |
172,225 |
|
$ |
182,144 |
|
$ |
178,558 |
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|
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Gross margin |
$ |
67,503 |
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$ |
72,956 |
|
$ |
68,151 |
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Selling, general and administrative expenses |
$ |
56,978 |
|
$ |
56,890 |
|
$ |
56,366 |
|
Income before provision for income taxes |
$ |
7,580 |
|
$ |
13,411 |
|
$ |
9,235 |
|
Net income |
$ |
4,939 |
|
$ |
9,369 |
|
$ |
5,741 |
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Effective tax rate |
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35% |
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|
30% |
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38% |
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Diluted EPS |
$ |
0.15 |
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$ |
0.29 |
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$ |
0.18 |
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Cash dividends: |
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|
|
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Per common share |
$ |
0.14 |
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$ |
0.13 |
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$ |
0.13 |
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Total cash dividends paid |
$ |
4,106 |
|
$ |
4,147 |
|
$ |
3,792 |
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Three Months Ended |
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August 24, |
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August 25, |
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2019 (1) |
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2018 (1) |
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As adjusted (non-GAAP) |
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(Unaudited) |
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Constant currency revenue |
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North America |
|
|
$ |
140,379 |
|
$ |
146,171 |
|
|
Asia Pacific |
|
|
|
13,228 |
|
|
11,703 |
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Europe |
|
|
|
19,545 |
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|
20,684 |
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Total constant currency revenue |
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$ |
173,152 |
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$ |
178,558 |
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Cash tax rate |
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30% |
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32% |
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Adjusted net income |
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$ |
5,315 |
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$ |
6,289 |
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Adjusted diluted EPS |
|
|
$ |
0.16 |
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$ |
0.20 |
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Adjusted EBITDA |
|
|
$ |
11,909 |
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$ |
13,243 |
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______ |
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(1) Revenue for the three months ended August 24, 2019 is measured on a constant currency basis while the comparable revenue for the three months ended August 25, 2018 is measured under GAAP. Constant currency revenue amounts represent the outcome that would have resulted had exchange rates in the reported period been the same as those in effect in the comparable prior year period. |
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First Quarter Fiscal 2020
Revenue for the first quarter of fiscal year 2020 decreased 3.6% and 5.4% from the first and fourth quarters of fiscal year 2019, respectively. On a constant currency basis, revenue decreased 3.0% and 5.3% from the first and fourth quarters of fiscal year 2019, respectively. Compared to the prior year first quarter, the decrease in revenue in the first quarter of fiscal 2020 reflects the impact of reduced client demand in the Nordics as well as the wind-down of technical accounting implementation projects. Revenue decreased sequentially as the first quarter of fiscal year 2020 included the
Gross margin for the first quarter was 39.2%, increasing 100 basis points from the first quarter of fiscal year 2019, and decreasing 90 basis points sequentially. The year-over-year increase is related primarily to an improved bill/pay ratio, driven by the impact of internal initiatives to improve pricing and a decrease in pay rate. The sequential quarter decrease is primarily due to an increase in holiday pay for consultants for the
SG&A was 33.1% of revenue for the first quarter of fiscal 2020 compared to 31.6% and 31.2% of revenue in the first and fourth quarters of fiscal year 2019, respectively. The year-over-year percentage increase relates to higher payroll and benefits costs due to an increase in headcount to support anticipated revenue growth, an increase in retention bonus, an increase in costs resulting from exit activities in our European operations, and an increase in costs from the Veracity acquisition, partially offset by a decrease in transformation and system implementation costs, and lower incentive and bonus compensation due to lower revenue. The sequential increase also relates to the same factors noted above.
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 unexercised expiring stock options and shares purchased through the Employee Stock Purchase Plan has caused volatility in the Company’s effective tax rate.
The Company’s Board of Directors approved a
Conference Call Information
RGP will hold a conference call for analysts and investors at
About RGP
RGP is a global consulting firm that enables rapid business outcomes by bringing together the right people to create transformative change. As a human capital partner for our clients, we specialize in solving today’s most pressing business problems across the enterprise in the areas of Business Strategy & Transformation, Finance & Accounting, Risk & Compliance and Technology & Digital Innovation. Our engagements are designed to leverage human connection and collaboration to deliver practical solutions and more impactful results that power our clients, consultants and partners’ success.
RGP was founded in 1996 to help finance executives with operational needs and special projects created by workforce gaps. Our first-to-market, agile human capital model disrupted the professional services industry at a time when traditional talent models prevailed. Today’s new ecosystem for work embraces our founding principle – quickly align the right resource for the work at hand with a premium placed on value, efficiency and ease of use.
Our pioneering approach to workforce strategy uniquely positions us to support our clients on their transformation journeys. With more than 3,800 professionals, we annually engage with over 2,400 clients around the world from more than 70 practice offices. We are their partner in delivering on the future of work. Headquartered in
The Company is listed on the Nasdaq Global Select Market, the exchange’s highest tier by listing standards. To learn more about RGP, visit: http://www.rgp.com. (RECN-F)
Forward-Looking Statements
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. In this press release, such statements include statements regarding our expectations for growth and our new business pipeline. 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 our ability to successfully execute on our strategic initiatives, our ability to compete effectively in the highly competitive professional services market and to secure new projects from clients, our ability to successfully integrate any acquired companies, seasonality, overall economic conditions and other factors and uncertainties as are identified in our most recent Annual Report on Form 10-K for the year ended
Use of Non-GAAP Financial Measures
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. The following are the Company’s non-GAAP measures:
- Constant currency revenue amounts represent the outcome that would have resulted had exchange rates in the reported period been the same as those in effect in the comparable prior year period.
- Adjusted EBITDA is calculated as net income before amortization of intangible assets, depreciation expense, interest and income taxes plus stock-based compensation expense and plus or minus contingent consideration adjustments.
- Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenue.
- Cash tax rate excludes the non-cash tax impact of stock-based compensation expense, non-cash tax benefits related to the Tax Cuts and Jobs Act in the U.S., and non-cash impact of valuation allowances on international deferred tax assets.
- Adjusted provision for income taxes, adjusted net income and adjusted diluted earnings per common share were calculated based on the Company's cash tax rates, which exclude the non-cash tax impact of stock-based compensation expense, non-cash tax benefits related to the Tax Cuts and Jobs Act, and non-cash tax impact of valuation allowances on international deferred tax assets.
We believe that constant currency revenue, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted provision for income taxes, Adjusted net income, and Adjusted diluted earnings per common share, which are used by management to assess the core performance of our Company, also provide useful information to our investors because they are alternative financial measures that investors can also use to assess the core performance of our Company and compare it to the Company’s peers. Constant currency revenue, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted diluted earnings per common share 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, as well as the Adjusted provision for income taxes and cash tax rate should be considered in addition to, and not as a substitute for, net income, earnings per share, cash flows or other measures of financial performance prepared in accordance with GAAP.
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RESOURCES CONNECTION, INC. |
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CONSOLIDATED STATEMENTS OF OPERATIONS |
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(Amounts in thousands, except per share amounts) |
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Three Months Ended |
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August 24, |
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August 25, |
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2019 |
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2018 |
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(Unaudited) |
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Revenue |
|
$ |
172,225 |
|
$ |
178,558 |
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Direct cost of services |
|
|
104,722 |
|
|
110,407 |
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Gross margin |
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|
67,503 |
|
|
68,151 |
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Selling, general and administrative expenses |
|
|
56,978 |
|
|
56,366 |
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Operating income before amortization and depreciation |
|
|
10,525 |
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|
11,785 |
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Amortization of intangible assets |
|
|
1,094 |
|
|
955 |
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Depreciation expense |
|
|
1,369 |
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|
1,069 |
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Operating income |
|
|
8,062 |
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|
9,761 |
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Interest expense |
|
|
482 |
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|
526 |
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Income before provision for income taxes |
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|
7,580 |
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|
9,235 |
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Provision for income taxes |
|
|
2,641 |
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|
3,494 |
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Net income |
|
$ |
4,939 |
|
$ |
5,741 |
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Net income per common share: |
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|
|
|
|
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Basic |
|
$ |
0.16 |
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$ |
0.18 |
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Diluted |
|
$ |
0.15 |
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$ |
0.18 |
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Weighted average common shares outstanding: |
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Basic |
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31,788 |
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|
31,742 |
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Diluted |
|
|
32,267 |
|
|
32,468 |
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Cash dividends declared per common share |
|
$ |
0.14 |
|
$ |
0.13 |
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RESOURCES CONNECTION, INC. |
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RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES |
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(Amounts in thousands, except per share amounts and percentages) |
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Adjusted EBITDA |
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Three Months Ended |
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August 24, |
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August 25, |
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|
2019 |
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2018 |
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|
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(Unaudited) |
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Net income |
$ |
4,939 |
|
|
$ |
5,741 |
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|
Adjustments: |
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|
|
|
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Amortization of intangible assets |
|
1,094 |
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|
|
955 |
|
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Depreciation expense |
|
1,369 |
|
|
|
1,069 |
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Interest expense |
|
482 |
|
|
|
526 |
|
|
Provision for income taxes |
|
2,641 |
|
|
|
3,494 |
|
|
Stock-based compensation expense |
|
1,515 |
|
|
|
1,361 |
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Contingent consideration adjustment |
|
(131 |
) |
|
|
97 |
|
|
Adjusted EBITDA |
$ |
11,909 |
|
|
$ |
13,243 |
|
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Revenue |
$ |
172,225 |
|
|
$ |
178,558 |
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Adjusted EBITDA Margin |
|
6.9% |
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7.4% |
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Adjusted Provision for Income Taxes, Annual Cash Tax Rate, Adjusted Net Income and Adjusted Earnings Per Common Share |
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Three Months Ended |
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August 24, |
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August 25, |
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|
2019 |
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2018 |
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|
|
|
|
|
|
||
|
|
(Unaudited) |
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|
|
|
|
|
|
||
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Provision for income taxes |
$ |
2,641 |
|
|
$ |
3,494 |
|
|
Effect of non-cash tax items: |
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|
|
|
|
||
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Stock-based compensation expense |
|
(43 |
) |
|
|
(361 |
) |
|
Valuation allowance on international deferred tax assets |
|
(333 |
) |
|
|
(184 |
) |
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Other non-cash tax items |
|
- |
|
|
|
(3 |
) |
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Adjusted provision for income taxes |
$ |
2,265 |
|
|
$ |
2,946 |
|
|
|
|
|
|
|
|
||
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Effective tax rate |
|
35% |
|
|
38% |
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Total effect of non-cash tax items on effective tax rate |
|
(5% |
) |
|
|
(6% |
) |
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Annual cash tax rate |
|
30% |
|
|
32% |
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||
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Net income |
$ |
4,939 |
|
|
$ |
5,741 |
|
|
Total effect of non-cash tax items on net income |
|
376 |
|
|
|
548 |
|
|
Adjusted net income |
$ |
5,315 |
|
|
$ |
6,289 |
|
|
|
|
|
|
|
|
||
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Diluted earnings per common share |
$ |
0.15 |
|
|
$ |
0.18 |
|
|
Effect of non-cash tax items on diluted earnings per common share |
|
0.01 |
|
|
|
0.02 |
|
|
Adjusted diluted earnings per common share |
$ |
0.16 |
|
|
$ |
0.20 |
|
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RESOURCES CONNECTION, INC. |
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SELECTED BALANCE SHEET, CASH FLOW AND OTHER INFORMATION |
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(Amounts in thousands, except consultant headcount and average rates) |
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|
August 24, |
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May 25, |
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SELECTED BALANCE SHEET INFORMATION: |
2019 |
|
2019 |
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|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
45,723 |
|
$ |
43,045 |
|
Accounts receivable, less allowances |
$ |
129,569 |
|
$ |
133,304 |
|
Total assets |
$ |
496,611 |
|
$ |
428,370 |
|
Current liabilities |
$ |
89,025 |
|
$ |
91,416 |
|
Total stockholders’ equity |
$ |
288,431 |
|
$ |
282,396 |
|
|
|
|
|
|
|
|
|
Three Months Ended |
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|
August 24, |
|
August 25, |
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SELECTED CASH FLOW INFORMATION: |
2019 |
|
2018 |
||
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow -- operating activities |
$ |
(3,038) |
|
$ |
(16,601) |
|
Cash flow -- investing activities |
$ |
(24,822) |
|
$ |
(1,073) |
|
Cash flow -- financing activities |
$ |
30,744 |
|
$ |
(11,667) |
|
|
|
|
|
|
|
|
|
August 24, |
|
May 25, |
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SELECTED OTHER INFORMATION: |
2019 |
|
2019 |
||
|
Consultant headcount, end of period |
|
3,120 |
|
|
2,965 |
|
Average bill rate, first quarter |
|
$122 |
|
|
$124 |
|
Average pay rate, first quarter |
|
$61 |
|
|
$62 |
|
Average bill rate (constant currency-Q1 19), first quarter |
|
$122 |
|
|
-- |
|
Average pay rate (constant currency-Q1 19), first quarter |
|
$61 |
|
|
-- |
|
Common shares outstanding, end of period |
|
31,970 |
|
|
31,588 |
View source version on businesswire.com: https://www.businesswire.com/news/home/20191002005782/en/
Source:
Media Contact:
Michael Sitrick
(US+) 1-310-788-2850
mike_sitrick@sitrick.com
Analyst Contact:
Jennifer Ryu, Interim Chief Financial Officer
(US+) 1-714-430-6500
jennifer.ryu@rgp.com