Q3 2019 revenue increases 4.1% year-over-year
to $179.5 million
Q3 2019 gross margin improves to 37.8% from
36.3% in prior year
SG&A as a percent of revenue improves by
110 basis points YOY
Q3 2019 diluted earnings per common share
increases to $0.18 compared to $0.14 in prior year quarter
Q3 2019 adjusted diluted earnings per common
share increases to $0.20 compared to $0.09 in prior year
quarter
Q3 2019 pretax income more than doubles to $9.6
million from $4.6 million in prior year quarter
Company announces appointment of Tim Brackney
as President and Chief Operating Officer
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 third quarter ended February 23,
2019.
Third Quarter 2019 Revenue Financial Highlights
- Revenue of $179.5 million, up $7.1
million (4.1%) over third quarter of fiscal 2018.
- U.S. revenue* increased 6.0% over third
quarter of fiscal 2018.
- European revenue decreased 9.7% (3.5%
constant currency**) over third quarter of fiscal 2018.
- Asia Pacific revenue increased 4.0%
(7.5% constant currency**) over third quarter of fiscal 2018.
Management Commentary
“We continue to make good progress in improving our top and
bottom line results,” said Kate W. Duchene, Chief Executive
Officer. “While Europe has faced macro headwinds, our business in
North America and Asia Pacific delivered growth in the quarter and
have performed well cumulatively through the first three quarters
of the fiscal year. We are also pleased that we have made progress
with our critical initiatives to improve bill rates and expand our
mix of business to drive more profitable results through our
solutions offerings.”
“Today, I am delighted to announce the appointment of Tim
Brackney as RGP’s President and Chief Operating Officer, effective
immediately,” said Kate Duchene. “Having previously served as the
President of North America, Tim moves into this role to drive and
align our growth and Go-To-Market strategies across the globe. Tim
is an accomplished operator with tremendous work ethic and business
acumen. I am excited to embrace the opportunities ahead with Tim as
a trusted and valued senior leader.”
Other Third Quarter 2019 Financial Highlights
- Gross margin of 37.8% improved from
36.3% in the prior year third quarter due to improvement in the pay
rate to bill rate ratio and lower costs in the Company’s
self-insured medical program.
- Selling, general and administrative
(“SG&A”) expense of $55.6 million (31.0% of revenue) compared
to $55.3 million (32.1% of revenue) in the third quarter of fiscal
2018 shows improvement as a percent of revenue of 110 basis points
year-over-year. On a sequential basis, SG&A increased $0.6
million.
- Tax rate of 40% in the third quarter
compared to 1% in the comparable period last year. The tax rate in
the prior year was favorably impacted by the U.S. Tax Reform Act,
with the Company able to reverse $2.2 million of tax expense in the
prior year third quarter as a result of the reduction in the U.S.
statutory rate applied to its year-to-date U.S. earnings and
cumulative net deferred tax liability. The rate in the current year
reflects the inability to benefit from losses in certain foreign
jurisdictions in which a full valuation allowance on operating loss
carryforwards had previously been established.
- Estimated annual cash tax rate*** of
32% compared to 39% in the prior year third quarter.
- Pre-tax income increased in the third
quarter to $9.6 million compared to $4.6 million in the prior year
third quarter; net income increased to $5.8 million compared to
$4.6 million in the prior year third quarter.
- Diluted earnings per common share
increased to $0.18 compared to $0.14 in the prior year third
quarter.
- Adjusted diluted earnings per common
share*** increased to $0.20 compared to $0.09 in the prior year
third quarter.
- Adjusted EBITDA**** of $13.9 million
(7.8% as a percent of revenue) compared to $8.7 million (5.0% as a
percent of revenue) in the prior year third quarter.
- Net cash provided by operating
activities for the three months ended February 23, 2019 was $11.8
million compared to cash used in operating activities of $3.9
million in the prior year comparable period.
- The Board of Directors approved a $0.13
per share dividend to shareholders in the third quarter for $4.1
million (paid in March), compared to a $0.12 per share dividend and
$3.6 million in the prior year third quarter; Company share
buybacks in the third quarter totaled approximately 559,000 shares
for $9.2 million, with $97.7 million remaining for future common
stock purchases as of February 23, 2019.
- Cash and cash equivalents were $48.0
million as of February 23, 2019.
Other Year-to-Date Financial Highlights
- Revenue of $546.9 million, up $76.5
million (16.3%) over the comparable fiscal 2018 period.
- Gross margin of 38.3% improved from
37.3% in the prior year comparable period.
- SG&A expense of $166.9 million
(30.5% of revenue) compared to $150.2 million (31.9% of revenue) in
the prior year comparable period. The increase reflects $11.8
million of additional payroll and benefits from acquisitions and
headcount to support growth of critical markets; $6.1 million of
bonus and commissions tied to revenue growth; $1.8 million of
marketing spend; $2.0 million of other categories; offset by lower
spend on severance and acquisition/transformation costs of $5.0
million.
- Tax rate of 36% compared to 26% in the
prior year comparable period (the prior year lower rate results
from recognition of the impact of the U.S. Tax Reform Act).
- Estimated annual cash tax rate*** of
32% compared to 39% in the prior year comparable period.
- Pre-tax income increased to $34.6
million compared to $20.0 million in the prior year comparable
period; net income increased to $22.1 million compared to $14.8
million in the prior year comparable period.
- Diluted earnings per common share
increased to $0.68 compared to $0.48 in the prior year comparable
period.
- Adjusted diluted earnings per common
share*** increased to $0.72 compared to $0.39 in the prior
year.
- Adjusted EBITDA**** of $47.2 million
(8.6% as a percent of revenue) compared to $29.9 million (6.4% as a
percent of revenue) in the prior year comparable period.
- Net cash provided by operating
activities for the nine months ended February 23, 2019 was $13.5
million compared to a use of cash in operating activities of $2.3
million in the prior year comparable period.
- Dividends paid during the fiscal year
to date of $12.0 million compared to $10.5 million in the prior
year comparable period; Company share buybacks year to date of
approximately 1.4 million shares for $22.3 million.
Footnotes
*Accretive was acquired December 4, 2017. Results of operations
for the quarter ended February 24, 2018 include twelve weeks of
activity of Accretive.
**Year over year constant currency results for international
revenue are computed using the comparable third quarter fiscal 2018
conversion rates, and the sequential quarter constant currency
international revenue is computed using the comparable second
quarter fiscal 2019 conversion rates. Additional information is
provided below.
***Adjusted diluted earnings per common share and estimated
annual cash tax rates are non-GAAP financial measures that exclude
non-cash tax effects of certain items. A reconciliation table is
provided below.
****Adjusted EBITDA, a non-GAAP financial measure, is defined as
earnings before interest, income taxes, depreciation, amortization,
contingent consideration adjustments and stock-based compensation.
A reconciliation table is provided below.
Conference Call Information
RGP will hold a conference call for analysts and investors at
5:00 p.m., ET today, April 3, 2019. 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 10, 2019 at 855-859-2056. The conference ID
number for the replay is 3279267. 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 4,000 professionals,
annually serving over 2,400 clients around the world from 73
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 statements regarding our expectations for
growth, financial performance and the impact of our strategic
initiatives. 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, 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 23, February 24,
February 23, February 24, 2019
2018 2019
2018 (Unaudited) (Unaudited) Revenue $ 179,498 $
172,414 $ 546,855 $ 470,338 Direct cost of services 111,587
109,904 337,372 294,711
Gross margin 67,911 62,510 209,483 175,627 Selling, general
and administrative expenses (1) 55,587 55,268
166,912 150,181
Operating income before amortization and
depreciation (1)
12,324 7,242 42,571 25,446 Amortization of intangible assets 948
1,004 2,855 1,326 Depreciation expense 1,163
1,089 3,429 2,976 Operating
income (1) 10,213 5,149 36,287 21,144 Interest expense 655 542
1,902 1,276 Interest income (60 ) (34 ) (173 )
(94 ) Income before provision for income taxes (1) 9,618
4,641 34,558 19,962 Provision for income taxes (2) 3,822
46 12,457 5,117
Net income (1), (2) $ 5,796 $ 4,595 $ 22,101 $
14,845 Net income per common share: Basic (1), (2) $ 0.18
$ 0.15 $ 0.70 $ 0.49 Diluted (1), (2) $
0.18 $ 0.14 $ 0.68 $ 0.48 Weighted
average common shares outstanding: Basic 31,890
31,440 31,784 30,473
Diluted 32,370 32,066 32,428
30,901 Cash dividends declared per common
share $ 0.13 $ 0.12 $ 0.39 $ 0.36
EXPLANATORY
NOTES
(1) Selling, general and administrative
expenses, and the related line items in the table above, include
non-cash compensation expense for employee stock option grants,
restricted share grants and employee stock purchases of $1.9
million and $1.4 million for the three months ended February 23,
2019 and February 24, 2018, respectively, and $5.0 million and $4.5
million for the nine months ended February 23, 2019 and February
24, 2018, respectively. (2) The Company’s effective tax rate
was approximately 40% and approximately 1% for the three months
ended February 23, 2019 and February 24, 2018, respectively, and
approximately 36% and approximately 26% for the nine months ended
February 23, 2019 and February 24, 2018, respectively. On December
22, 2017, the Tax Cuts and Jobs Act was enacted in the U.S., 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% implemented in the third quarter of the
Company’s fiscal year ended May 26, 2018. For the three months
ended February 24, 2018, the Company reported provisional amounts
related to the impact of U.S. federal tax reform, including a tax
benefit of $1.1 million due to re-measurement of U.S. deferred tax
assets and liabilities at the rate the balances are expected to be
realized (29.4% in fiscal 2018 and 21% thereafter) and a tax
benefit of $1.1 million as a result of applying the reduced
statutory federal rate of 29.4% to U.S. earnings for fiscal 2018.
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
NON-GAAP FINANCIAL MEASURES (Dollars in thousands, except
per share amounts)
EBITDA and
Adjusted EBITDA
Three Months Ended Nine Months Ended
February 23, February 24, February 23,
February 24, 2019 2018
2019 2018
(Unaudited) (Unaudited) Net income $ 5,796 $ 4,595 $ 22,101
$ 14,845 Adjustments: Amortization of intangible assets 948 1,004
2,855 1,326 Depreciation expense 1,163 1,089 3,429 2,976 Interest
expense 655 542 1,902 1,276 Interest income (60 ) (34 ) (173 ) (94
) Provision for income taxes 3,822 46
12,457 5,117 EBITDA 12,324 7,242 42,571
25,446 Stock-based compensation expense 1,948 1,437 4,961 4,499
Contingent consideration adjustment (343 ) -
(376 ) - Adjusted EBITDA $ 13,929 $
8,679 $ 47,156 $ 29,945 Revenue $ 179,498
$ 172,414 $ 546,855 $ 470,338 Adjusted
EBITDA Margin 7.8 % 5.0 % 8.6 % 6.4 %
Adjusted
Provision for Income Taxes, Annual Cash Tax Rate, Adjusted Net
Income and Adjusted Earnings Per Common Share
Three Months Ended Nine Months Ended
February 23, February 24, February 23,
February 24, 2019 2018
2019 2018
(Unaudited) (Unaudited) Provision for income taxes $ 3,822 $
46 $ 12,457 $ 5,117 Effect of non-cash tax items on provision for
income taxes (744 ) 1,764 (1,398 )
2,668 Adjusted provision for income taxes $ 3,078
$ 1,810 $ 11,059 $ 7,785
Effective tax rate 40 % 1 % 36 % 26 % Effect of non-cash tax items
on effective tax rate (8 %) 38 % (4 %)
13 % Annual cash tax rate 32 % 39 % 32 %
39 % Net income $ 5,796 $ 4,595 $ 22,101 $ 14,845
Effect of non-cash tax items on net income 744
(1,764 ) 1,398 (2,668 ) Adjusted net income $
6,540 $ 2,831 $ 23,499 $ 12,177
Diluted earnings per common share $ 0.18 $ 0.14 $ 0.68 $ 0.48
Effect of non-cash tax items on diluted earnings per common share
0.02 (0.06 ) 0.04 (0.09 )
Adjusted diluted earnings per common share $ 0.20 $ 0.09
$ 0.72 $ 0.39
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, Adjusted EBITDA Margin, Adjusted
Provision for Income Taxes, Annual Cash Tax Rate, Adjusted Net
Income, and Adjusted Diluted Earnings Per Common Share 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 plus or minus contingent
consideration adjustments. Adjusted EBITDA Margin is calculated by
dividing Adjusted EBITDA by revenue. Adjusted Provision for Income
Taxes, Adjusted Net Income, and Adjusted Diluted Earnings Per
Common Share were calculated to reflect the Company's estimated
effective annual cash tax rates of 32% and 39% in fiscal 2019 and
2018, respectively. The estimated effective annual cash tax rates
exclude the non-cash tax impact of stock-based compensation
expense, non-cash tax benefits related to the Tax Cuts and Jobs
Acts in the U.S., and non-cash impact of valuation allowances on
international deferred tax assets. We believe that EBITDA, 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. EBITDA, Adjusted
EBITDA and 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 Annual 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.
RESOURCES CONNECTION, INC. SELECTED BALANCE SHEET, CASH
FLOW AND OTHER INFORMATION (Amounts in thousands, except
consultant headcount and average rates)
February 23, May 26, SELECTED BALANCE SHEET
INFORMATION:
2019 2018
(Unaudited) Cash and cash equivalents $ 47,967 $
56,470 Accounts receivable, less allowances $ 138,545 $ 130,452
Total assets $ 435,131 $ 432,674 Current liabilities $ 81,324 $
94,524 Total stockholders’ equity $ 283,300 $ 268,825
Nine Months Ended February 23, February 24,
SELECTED CASH FLOW INFORMATION:
2019
2018 (Unaudited) Cash flow -- operating
activities $ 13,496 $ (2,254 ) Cash flow -- investing activities $
(5,939 ) $ (25,086 ) Cash flow -- financing activities $ (15,624 )
$ 8,233
February 23, May 26, SELECTED OTHER
INFORMATION:
2019 2018
Consultant headcount, end of period 3,059 3,247 Average bill rate,
third quarter $124 $124 Average pay rate, third quarter $62 $64
Average bill rate (constant currency-Q3 18), third quarter $125 --
Average pay rate (constant currency-Q3 18), third quarter $63 --
Common shares outstanding, end of period 32,020 31,614
RESOURCES CONNECTION, INC. CONSTANT CURRENCY REVENUE
COMPARISON (Dollars in thousands) (Unaudited)
Three Months Ended February 23,
February 24, 2019 2018 % Change
Consolidated Revenue -- GAAP $ 179,498 $ 172,414 4.1% Consolidated
Revenue -- Constant Currency (1) $ 181,503 5.3% United States
Revenue -- GAAP $ 142,409 $ 134,334 6.0% North America Revenue --
GAAP $ 146,817 $ 137,953 6.4% North America Revenue -- Constant
Currency (1) $ 147,006 6.6% Europe Revenue -- GAAP $ 20,911 $
23,149 -9.7% Europe Revenue -- Constant Currency (1) $ 22,336 -3.5%
Asia Pacific Revenue -- GAAP $ 11,770 $ 11,312 4.0% Asia Pacific
Revenue -- Constant Currency (1) $ 12,161 7.5%
Three Months
Ended February 23, November 24, 2019
2018 % Change Consolidated Revenue -- GAAP $ 179,498
$ 188,799 -4.9% Consolidated Revenue -- Constant Currency (2) $
179,691 -4.8% United States Revenue -- GAAP $ 142,409 $ 148,901
-4.4% North America Revenue -- GAAP $ 146,817 $ 153,823 -4.6% North
America Revenue -- Constant Currency (2) $ 146,888 -4.5% Europe
Revenue -- GAAP $ 20,911 $ 23,163 -9.7% Europe Revenue -- Constant
Currency (2) $ 21,152 -8.7% Asia Pacific Revenue -- GAAP $ 11,770 $
11,813 -0.4% Asia Pacific Revenue -- Constant Currency (2) $ 11,651
-1.4%
Nine Months Ended February 23, February
24, 2019 2018 % Change Consolidated
Revenue -- GAAP $ 546,855 $ 470,338 16.3% Consolidated Revenue --
Constant Currency (3) $ 550,391 17.0% United States Revenue -- GAAP
$ 432,539 $ 366,902 17.9% North America Revenue -- GAAP $ 446,811 $
376,348 18.7% North America Revenue -- Constant Currency (3) $
447,510 18.9% Europe Revenue -- GAAP $ 64,758 $ 61,259 5.7% Europe
Revenue -- Constant Currency (3) $ 66,839 9.1% Asia Pacific Revenue
-- GAAP $ 35,286 $ 32,731 7.8% Asia Pacific Revenue -- Constant
Currency (3) $ 36,042 10.1% EXPLANATORY NOTES 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. Revenue for the three and nine months ended February 23,
2019 attributable to Accretive, acquired December 4, 2017, cannot
be segregated as the legacy operations of Accretive have been fully
integrated into daily operations of RGP as of May 27, 2018.
(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 2018 and applying those rates to
foreign-denominated revenue in the third quarter of fiscal 2019.
(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 2019 and applying those rates to
foreign-denominated revenue in the third quarter of fiscal 2019.
(3) The percentage change in revenue on a constant currency basis
is calculated using the average foreign exchange rates for the nine
months ended February 24, 2018 and applying those rates to
foreign-denominated revenue for the nine months ended February 23,
2019.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190403005830/en/
Media Contact:Michael Sitrick(US+)
1-310-788-2850mike_sitrick@sitrick.com
Analyst Contact:Herb Mueller, Chief Financial
Officer(US+) 1-714-430-6500herb.mueller@rgp.com
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