Q4 revenue increases 23.7% YOY to $183.8
million
FY 2018 diluted earnings per common share
increases to $0.60 compared to $0.56 in prior year
Strong progress integrating recent
acquisitions
Resources Connection, Inc. (NASDAQ: RECN), a multinational
business consulting firm, operating as Resources Global
Professionals (the “Company” or “RGP”), today announced its
financial results for the fourth quarter and year ended May 26,
2018.
Fourth Quarter 2018 Revenue Financial Highlights
- Revenue of $183.8 million, up $35.2
million (23.7%) over fourth quarter of fiscal 2017.
- Revenue includes $22.0 million from
operations of recent acquisitions of taskforce – Management on
Demand (“taskforce”) and Accretive.
- Organic revenue* increased 8.8% (7.3%
constant currency**) over fourth quarter of fiscal 2017.
- U.S. revenue (organic) increased 5.2%
over fourth quarter of fiscal 2017.
- European revenue (organic) increased
22.1% (11.1% constant currency) over fourth quarter of fiscal 2017;
tenth successive quarter of growth.
- Asia Pacific revenue increased 12.8%
(8.4% constant currency) over fourth quarter of fiscal 2017.
Management Commentary
“We are pleased with the substantial revenue growth we saw
across all regions in the fourth quarter,” said Kate W. Duchene,
President and Chief Executive Officer of RGP. “The first quarter to
date is also trending strongly compared to the first quarter of
fiscal 2018 as we believe our strategic initiatives are having a
positive impact on our business. In addition, our recent
acquisitions have opened up significant new opportunities that we
would not have won as standalone companies. As we head into the new
fiscal year, we are focused on building on our strong momentum by
continuing to drive organic growth across the business.”
Other Fourth Quarter 2018 Financial Highlights
- Gross margin of 38.3% compared to 39.1%
in prior year fourth quarter due to a lower ratio of bill rate to
pay rate.
- Selling, general and administrative
(“SG&A”) expense of $58.9 million compared to $48.4 million in
fourth quarter of fiscal 2017; fiscal 2018 fourth quarter included
$3.8 million (approximately $0.05 per diluted share) of severance,
acquisition, transformation and integration costs and $7.2 million
of Accretive and taskforce G&A (approximately $0.10 per diluted
share). Prior year fourth quarter included $2.4 million related to
severance costs and $1.3 million of transformation costs
(approximately $0.07 per diluted share).
- Tax rate of 55% in fourth quarter
compared to 47% in the comparable period last year due to
non-benefit of losses in international operations, expense related
to unexercised stock options expiring and impact of withholding
taxes on foreign dividend distribution.
- Pre-tax income increased in the fourth
quarter to $8.9 million compared to $8.3 million in the prior year
fourth quarter; net income of $4.0 million compared to $4.4 million
in prior year fourth quarter.
- Diluted earnings per common share of
$0.12 compared to $0.15 in prior year fourth quarter.
- Adjusted EBITDA*** as a percentage of
revenue was 7.1% compared to 7.4% in prior year fourth quarter.
Adjusted EBITDA, a non-GAAP financial measure, is defined
below.
- Net cash provided by operating
activities was $17.6 million, a decrease from prior year fourth
quarter of $3.7 million; primary cause is payments had not been
received at quarter-end for the increased amount of revenue (and
accounts receivable) compared to the prior year.
- Dividend accrued of $0.12 per share to
shareholders in fourth quarter for $3.8 million (paid in June),
compared to $0.11 per share and $3.3 million in the prior year
fourth quarter; no share buybacks in quarter, $120 million
remaining for future common stock purchases.
- Cash and cash equivalents of $56.5
million as of May 26, 2018.
Year End 2018 Financial Highlights
- During fiscal 2018, the Company
completed two acquisitions: in September 2017, taskforce, a
business consulting firm based in Germany for approximately $13.4
million; and in December 2017, substantially all operating assets
and liabilities of Accretive, a business consulting firm with
operations in the U.S., for approximately $31.8 million.
- Revenue of $654.1 million, up $70.7
million (12.1%) over fiscal 2017.
- Revenue includes $46.9 million from
taskforce and Accretive acquisitions.
- Organic revenue* increased 4.1% (3.1%
constant currency**).
- U.S. revenue (organic) increased 1.2%
over fiscal 2017.
- European revenue (organic) increased
21.3% (13.1% constant currency) over fiscal 2017.
- Asia Pacific revenue increased 2.0%
(0.9% constant currency) over fiscal 2017.
- Gross margin of 37.6% compared to 37.9%
in prior year.
- SG&A expense of $209.0 million
compared to $183.5 million in fiscal 2017; fiscal 2018 included
$14.0 million (approximately $0.29 per diluted share) of severance,
acquisition, transformation and integration costs and $14.2 million
(approximately $0.29 per diluted share) of Accretive and taskforce
G&A. Prior year included $3.9 million related to severance
costs and $1.3 million of transformation costs (approximately $0.09
per diluted share).
- Tax rate of 35% for fiscal 2018
compared to 45% in prior year; decrease primarily due to impact of
Tax Cuts and Jobs Act, offset by non-benefit of losses in
international operations and expense related to unexercised stock
options expiring.
- Pre-tax income of $28.9 million in
fiscal 2018 compared to $33.8 million in the prior year; net income
of $18.8 million compared to $18.7 million in prior fiscal
year.
- Diluted earnings per common share of
$0.60 compared to $0.56 in prior year.
- Adjusted EBITDA*** as a percentage of
revenue was 6.6% compared to 7.5% in prior year.
- Net cash provided by operating
activities was $15.4 million, a decrease from prior year of $12.9
million; primary cause is payments had not been received at
year-end for the increased amount of revenue (and accounts
receivable) compared to the prior year.
- Dividends paid during year of $0.48 per
share to shareholders for total of $14.3 million compared to $0.44
per share and $14.2 million in the prior year; share buybacks
during year of $5.1 million.
Update on Strategic Initiatives and Acquisitions
RGP has largely completed the implementation in North America of
the strategic initiatives it laid out in fiscal 2017, and is now
focused on implementation in Europe and Asia Pacific. These
initiatives are already contributing meaningfully to the Company’s
bottom line:
- Sales Culture Transformation: In
fiscal 2019, RGP will implement a new bonus reward program for
individuals focused on revenue generation, marking one of the final
steps in its sales culture transformation.
- Business Model Redesign: The
implementation of the Company’s new operating model for sales,
talent and integrated solutions within RGP for North America
delivered improved revenue growth and customer experience in fiscal
2018. The rollout of the operating model will continue in Europe
and Asia Pacific during fiscal 2019.
- Cost Containment: The Company
remains focused on reducing SG&A expenses as a percent of
revenue. With integration and special transformation costs largely
complete, RGP expects SG&A to taper off in the coming
quarters.
The Company has also substantially completed the integration of
both the taskforce and Accretive acquisitions. The principal
operations of Accretive have been fully integrated into RGP’s
business model effective with the first day of fiscal 2019. Both
businesses are now driving significant new opportunities for
revenue growth in their respective markets, as well as in RGP’s
core business and with the Company’s existing clients.
Footnotes
*In order to provide a more comprehensive view of revenue trends
in our business, organic revenue is presented and defined as
revenue without the revenue of taskforce and Accretive for the
applicable period. A table is provided below with revenue data on
an as-reported basis (GAAP) for the respective periods and revenue
without the acquisitions in the same periods and the impact on
revenue of exchange rate fluctuations between the United States
dollar and currencies in countries in which the Company
operates.
**Year over year constant currency results for international
revenue are computed using the comparable fourth quarter fiscal
2017 conversion rates, and the sequential quarter constant currency
international revenue is computed using the comparable third
quarter fiscal 2018 conversion rates.
***Adjusted EBITDA, a non-GAAP financial measure, is defined as
earnings before interest, income taxes, depreciation, amortization
and stock-based compensation. Reconciliation table provided
below.
Conference Call Information
RGP will hold a conference call for analysts and investors at
5:00 p.m., ET today, July 18, 2018. 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 July 25, 2018 at 855-859-2056. The conference ID
number for the replay is 4753368. The call will also be archived on
the RGP website for 30 days.
About RGP
RGP, the operating subsidiary of Resources Connection, Inc.
(NASDAQ: RECN), is a multinational business consulting firm that
helps leaders execute internal initiatives. Partnering with
business leaders, we drive internal change across all parts of a
global enterprise – accounting; finance; governance, risk and
compliance management; corporate advisory, strategic communications
and restructuring; information management; human capital; supply
chain management; and legal and regulatory.
RGP was founded in 1996 within a Big Four accounting firm.
Today, we are a publicly traded company with over 4,100
professionals, annually serving over 2,400 clients around the world
from 74 practice offices.
Headquartered in Irvine, California, RGP has served 86 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)
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 expectations regarding the Accretive and
taskforce acquisitions, the Company’s strategic initiatives and
continued revenue and earnings growth. 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, 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
Years Ended May 26, May 27, May
26, May 27, 2018 2017 2018
2017 (Unaudited) (Unaudited) Revenue $ 183,791 $ 148,620 $
654,129 $ 583,411 Direct cost of services 113,363
90,579 408,074 362,086
Gross margin 70,428 58,041 246,055 221,325 Selling, general and
administrative expenses (1) 58,861 48,425
209,042 183,471
Operating income before amortization and
depreciation (1)
11,567 9,616 37,013 37,854 Amortization of intangible assets 972 -
2,298 - Depreciation expense 1,115 941
4,091 3,452 Operating income (1) 9,480
8,675 30,624 34,402 Interest expense 591 358 1,867 773 Interest
income (38 ) (18 ) (132 ) (144 ) Income
before provision for income taxes (1) 8,927 8,335 28,889 33,773
Provision for income taxes (2) 4,946 3,898
10,063 15,122 Net income (1),
(2) $ 3,981 $ 4,437 $ 18,826 $ 18,651
Net income per common share: Basic (1), (2) $ 0.13 $ 0.15
$ 0.61 $ 0.57 Diluted (1), (2) $ 0.12 $
0.15 $ 0.60 $ 0.56 Weighted average common
shares outstanding: Basic 31,545 29,654
30,741 32,851 Diluted 32,137
30,234 31,210 33,471
Cash dividends declared per common share $ 0.12 $
0.11 $ 0.48 $ 0.44
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 and $1.4 million for the three months ended May 26, 2018
and May 27, 2017, respectively and $6.0 million and $6.1 million
for the years ended May 26, 2018 and May 27, 2017, respectively.
The expense for the year ended May 26, 2018 includes approximately
$140,000 related to accelerated vesting of stock options as part of
the agreement with a departing senior executive; the expense for
the year ended May 27, 2017 includes approximately $400,000, or
$0.01 per share, related to accelerated vesting of options as part
of the agreement with a departing senior executive.
(2) The Company’s effective tax rate was approximately 55% and
approximately 47% for the three months ended May 26, 2018 and May
27, 2017, respectively and approximately 35% and 45% for the years
ended May 26, 2018 and May 27, 2017, respectively. On December 22,
2017, U.S. federal tax reform was enacted which lowered the US
statutory federal tax rate from 35% to 21% effective January 1,
2018, resulting in a blended US statutory federal tax rate of
approximately 29% for the fiscal year ended May 26, 2018.
For the year ended May 26, 2018, the Company reported amounts
related to the impact of US federal tax reform, including a tax
benefit of $0.8 million due to re-measurement of U.S. deferred tax
assets and liabilities at the reduced rates. The year ended May 26,
2018 also includes the reversal of approximately $2.4 million of
valuation allowances on the deferred tax assets of certain foreign
entities and the year ended May 27, 2017 includes the reversal of
approximately $0.2 million 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 unexercised expiring stock
options and shares purchased through the Employee Stock Purchase
Plan has caused volatility in the Company’s effective tax rate.
RESOURCES CONNECTION, INC. RECONCILIATION OF NET
INCOME TO ADJUSTED EBITDA (Dollars in thousands)
Three Months Ended Years Ended May
26, May 27, May 26, May 27,
2018 2017 2018 2017 (Unaudited)
(Unaudited) Net income $ 3,981 $ 4,437 $ 18,826 $ 18,651
Adjustments: Amortization of intangible assets 972 - 2,298 -
Depreciation expense 1,115 941 4,091 3,452 Interest expense 591 358
1,867 773 Interest income (38 ) (18 ) (132 ) (144 ) Provision for
income taxes 4,946 3,898 10,063
15,122 EBITDA 11,567 9,616 37,013 37,854
Stock-based compensation expense 1,534 1,410
6,033 6,068 Adjusted EBITDA $
13,101 $ 11,026 $ 43,046 $ 43,922
Revenue $ 183,791 $ 148,620 $ 654,129 $
583,411 Adjusted EBITDA Margin 7.1 % 7.4 %
6.6 % 7.5 %
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
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, 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. 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 for, 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)
Three Months Ended WITH ACQUISITIONS
May
26, May 27, 2018 2017 %
Change Consolidated Revenue -- GAAP $ 183,791 $ 148,620 23.7 %
Consolidated Revenue -- Constant Currency (1) $ 181,039 21.8 %
United States Revenue -- GAAP $ 144,033 $ 119,641 20.4 % Europe
Revenue -- GAAP $ 23,446 $ 16,027 46.3 % Europe Revenue -- Constant
Currency (1) $ 21,248 32.6 %
Three Months Ended WITH
ACQUISITIONS
May 26, February 24, 2018
2018 % Change Revenue -- GAAP $ 183,791 $ 172,414 6.6
% Revenue -- Constant Currency (2) $ 183,644 6.5 % United States
Revenue -- GAAP $ 144,033 $ 134,334 7.2 % Europe Revenue -- GAAP $
23,446 $ 23,149 1.3 % Europe Revenue -- Constant Currency (2) $
23,417 1.2 %
Three Months Ended WITHOUT ACQUISITIONS
May 26, May 27, 2018 2017 %
Change Revenue -- GAAP $ 161,771 $ 148,620 8.8 % Revenue --
Constant Currency (1) $ 159,466 7.3 % United States Revenue -- GAAP
$ 125,896 $ 119,641 5.2 % Europe Revenue -- GAAP $ 19,563 $ 16,027
22.1 % Europe Revenue -- Constant Currency (1) $ 17,812 11.1 %
Three Months Ended WITHOUT ACQUISITIONS
May
26, February 24, 2018 2018 % Change
Revenue -- GAAP $ 161,771 $ 151,257 7.0 % Revenue -- Constant
Currency (2) $ 161,659 6.9 % United States Revenue -- GAAP $
125,896 $ 117,006 7.6 % Europe Revenue -- GAAP $ 19,563 $ 19,320
1.3 % Europe Revenue -- Constant Currency (2) $ 19,568 1.3 %
Years Ended WITH ACQUISITIONS
May 26, May 27,
2018 2017 % Change Revenue -- GAAP $ 654,129 $
583,411 12.1 % Revenue -- Constant Currency (3) $ 647,055 10.9 %
United States Revenue -- GAAP $ 510,935 $ 469,846 8.7 % Europe
Revenue -- GAAP $ 84,705 $ 60,461 40.1 % Europe Revenue -- Constant
Currency (3) $ 78,658 30.1 %
Years Ended WITHOUT
ACQUISITIONS
May 26, May 27, 2018 2017
% Change Revenue -- GAAP $ 607,273 $ 583,411 4.1 % Revenue
-- Constant Currency (3) $ 601,338 3.1 % United States Revenue --
GAAP $ 475,470 $ 469,846 1.2 % Europe Revenue -- GAAP $ 73,314 $
60,461 21.3 % Europe Revenue -- Constant Currency (3) $ 68,407 13.1
%
(1)
The percentage change in revenue on a
constant currency basis is calculated using the average foreign
exchange rates for the fourth quarter of fiscal 2017 and applying
those rates to foreign-denominated revenue in the fourth quarter of
fiscal 2018.
(2)
The percentage change in revenue on a
constant currency basis is calculated using the average foreign
exchange rates for the third quarter of fiscal 2018 and applying
those rates to foreign-denominated revenue in the fourth quarter of
fiscal 2018.
(3)
The percentage change in revenue on a
constant currency basis is calculated using the average foreign
exchange rates for each period of fiscal 2017 and applying those
rates to foreign-denominated revenue in each period of fiscal
2018.
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 and average rates)
May 26, May 27, SELECTED BALANCE SHEET
INFORMATION:
2018 2017 (Unaudited) Cash
and cash equivalents $ 56,470 $ 62,329 Accounts receivable, less
allowances $ 130,452 $ 98,222 Total assets $ 432,674 $ 364,128
Current liabilities $ 94,524 $ 71,771 Total stockholders’ equity $
268,825 $ 238,142
For the Years Ended May 26,
May 27, SELECTED CASH FLOW INFORMATION:
2018
2017 (Unaudited) Cash flow -- operating
activities $ 15,370 $ 28,265 Cash flow -- investing activities $
(25,666 ) $ 20,409 Cash flow -- financing activities $ 3,474 $
(76,876 )
May 26, May 27, SELECTED OTHER
INFORMATION:
2018 2017 Consultant headcount, end of
period 3,247 2,569 Average bill rate, fourth quarter $ 124 $ 120
Average pay rate, fourth quarter $ 64 $ 60 Average bill rate
(constant currency-Q4 17), fourth quarter $ 123 -- Average pay rate
(constant currency-Q4 17), fourth quarter $ 63 -- Common shares
outstanding, end of period 31,614 29,662
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180718005862/en/
Resources Connection, Inc.Media Contact:Michael
Sitrick(US+) 1-310-788-2850mike_sitrick@sitrick.comorAnalyst
Contact:Herb Mueller, Chief Financial Officer(US+)
1-714-430-6500herb.mueller@rgp.com
Resources Connection (NASDAQ:RECN)
Historical Stock Chart
From Aug 2024 to Sep 2024
Resources Connection (NASDAQ:RECN)
Historical Stock Chart
From Sep 2023 to Sep 2024