Second Quarter Fiscal 2020 Highlights:
- Revenue $184.5 million, down 2.3% from prior year quarter, up
7.1% sequentially
- Gross margin percentage of 40.3%, an improvement of 140 basis
points from prior year quarter
- SG&A as a percent of revenue improves 400 basis points
sequentially
- Net income of $12.3 million, up 16.8% from $10.6 million in
prior year quarter
- Diluted earnings per common share of $0.38, up 15.2% from $0.33
in prior year quarter
- Adjusted EBITDA increases to $22.7 million compared to $20.0
million in prior year quarter
- Adjusted EBITDA margin improves by 170 basis points to 12.3%
compared to prior year quarter
- Cash dividends declared of $0.14 per share
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 second quarter ended November 23,
2019.
Management Commentary
“We experienced an improvement in revenue in North America this
quarter and modest strengthening in Europe – both good developments
since the previous quarter,” said Kate W. Duchene, chief executive
officer. “Despite the slight revenue dip year-over-year, we are
actively managing the business to deliver more profit through gross
margin improvement and lower SG&A. The pipeline is stronger
heading into Q3 than it has been in 12 months and while
year-over-year revenue is a tough comparable because of the peak of
lease accounting project revenue in Q2 and Q3 last year, we are
replacing that revenue stream with other opportunities,
particularly in our Strategic Client Program with program and
project management.”
RESOURCES CONNECTION,
INC.
SUMMARY OF CONSOLIDATED
FINANCIAL RESULTS
(Amounts in thousands, except
percentages and per share amounts)
Three Months Ended
Six Months Ended
November 23,
August 24,
November 24,
November 23,
November 24,
2019
2019
2018
2019
2018
As reported
(GAAP)
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
Revenue
North America
$
152,422
$
140,376
$
153,823
$
292,798
$
299,994
Asia Pacific
12,716
13,086
11,813
25,802
23,516
Europe
19,369
18,763
23,163
38,132
43,847
Total revenue
$
184,507
$
172,225
$
188,799
$
356,732
$
367,357
Gross margin
$
74,377
$
67,503
$
73,421
$
141,880
$
141,572
Selling, general and administrative
expenses
$
53,755
$
56,978
$
54,959
$
110,733
$
111,325
Income before provision for income
taxes
$
17,674
$
7,580
$
15,705
$
25,254
$
24,940
Net income
$
12,337
$
4,939
$
10,564
$
17,276
$
16,305
Effective tax rate
30
%
35
%
33
%
32
%
35
%
Diluted EPS
$
0.38
$
0.15
$
0.33
$
0.54
$
0.50
Cash dividends:
Per common share declared
$
0.14
$
0.14
$
0.13
$
0.28
$
0.26
Total cash dividends paid
$
4,475
$
4,106
$
4,095
$
8,581
$
7,887
Three Months Ended
Six Months Ended
November 23,
November 24,
November 23,
November 24,
2019
2018
2019
2018
As adjusted
(non-GAAP) (4)
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
Constant currency revenue (1)
North America
$
152,446
$
153,823
$
292,825
$
299,994
Asia Pacific
12,652
11,813
25,879
23,516
Europe
20,122
23,163
39,667
43,847
Total constant currency revenue
$
185,220
$
188,799
$
358,371
$
367,357
Organic revenue
North America (2)
$
146,634
$
153,823
$
285,614
$
299,994
Asia Pacific
12,716
11,813
25,802
23,516
Europe (3)
19,045
19,130
35,915
36,740
Consolidated (2)(3)
$
178,395
$
184,766
$
347,331
$
360,250
Constant currency organic revenue (1)
North America
$
146,658
$
153,823
$
285,641
$
299,994
Asia Pacific
12,652
11,813
25,879
23,516
Europe
19,774
19,130
37,305
36,740
Consolidated
$
179,084
$
184,766
$
348,825
$
360,250
Cash tax rate
29
%
29
%
29
%
30
%
Adjusted net income
$
12,493
$
11,119
$
17,808
$
17,408
Adjusted diluted EPS
$
0.39
$
0.34
$
0.55
$
0.54
Adjusted EBITDA
$
22,671
$
19,984
$
34,580
$
33,227
(1) Revenue and constant currency organic
revenue, for the three and six months ended November 23, 2019 are
measured on a constant currency basis while the comparable revenue
for the three and six months ended November 24, 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.
(2) Veracity was acquired on July 31, 2019.
Both the three month and six month periods ended November 23, 2019
are shown without revenue from Veracity to provide comparability to
the same periods in fiscal 2019. See Reconciliation of GAAP to
Non-GAAP financial measure below.
(3) We exited the Nordics and Belgium markets
beginning second quarter of fiscal 2020. Results from the Nordics
and Belgium are excluded from all periods presented to provide
comparability. See Reconciliation of GAAP to Non-GAAP financial
measure below.
(4) See definitions of Non-GAAP measures and
Reconciliation of GAAP to Non-GAAP financial measures below.
Second Quarter Fiscal 2020
Revenue for the second quarter of fiscal 2020 decreased 2.3%
compared to the second quarter of fiscal 2019 and increased 7.1% as
compared to the first quarter of fiscal 2020. On a constant
currency basis, revenue decreased 1.9% from the second quarter of
fiscal 2019 and increased 7.3% from the first quarter of fiscal
2020. Revenue in the second quarter of fiscal 2020 included $5.8
million of revenue attributable to Veracity. Excluding the impact
of the Veracity acquisition and the dispositions in fiscal 2020,
revenue decreased $6.4 million, or 3.4% compared to the prior year
quarter (3.1% on a constant currency basis). The decrease in
revenue compared to the second quarter of fiscal 2019 reflected the
impact of the wind-down of lease accounting implementation
projects, partially offset by a favorable impact due to the timing
of the Thanksgiving holidays.
Revenue increased sequentially reflecting a full quarter of
revenue from Veracity, active revenue pipeline management and
business development coupled with the impact of fewer holidays in
the U.S. as well as a favorable seasonal impact (second quarter of
fiscal 2020 included only Labor Day while the first quarter of
fiscal 2020 included Memorial Day and July 4th holidays in the U.S.
and summer holiday breaks taken by our consultants).
Gross margin for the second quarter was 40.3%, increasing 140
basis points from the second quarter of fiscal 2019, and increasing
110 basis points sequentially. The year-over-year increase is
related primarily to improved bill/pay ratio as well as a decrease
in holiday pay for consultants in the U.S. (second quarter of
fiscal 2020 included only Labor Day while the second quarter of
fiscal 2019 included Labor Day and Thanksgiving).
The sequential quarter improvement in gross margin is primarily
due to a decrease in holiday pay for consultants in the U.S. as a
result of fewer holidays and lower payroll taxes.
SG&A was $53.8 million, or 29.1% of revenue for the second
quarter of fiscal 2020 and $55.0 million, or 29.1% of revenue for
the second quarter of fiscal 2019. The year-over-year dollar
decrease is attributable primarily to a decrease in incentive
compensation as a result of lower revenue in the second quarter of
fiscal 2020, lower costs associated with business expenses as we
continue to manage discretionary spend closely and lower severance
expense, partially offset by an increase in payroll and benefit
costs due to additional headcount related to project delivery and
digital transformation efforts, including Veracity.
Sequentially, SG&A as a percentage of revenue decreased by
400 basis points from 33.1% in the first quarter of fiscal 2020.
SG&A improved significantly primarily due to tighter management
of discretionary spending as well as fewer one-time costs in the
second quarter of fiscal 2020 compared to the first quarter of
fiscal 2020 which included acquisition costs related to Veracity
and severance and other costs in connection with the exit
activities in Europe.
First Half Fiscal 2020
Revenue for the first half of fiscal 2020 decreased 2.9%
compared to the prior year period. On a constant currency basis,
revenue decreased 2.4%. Revenue in the first half of fiscal 2020
included $7.2 million of revenue in North America attributable to
Veracity. Excluding the impact of both the Veracity acquisition and
the dispositions, revenue decreased $12.9 million, or 3.6% (3.2%
constant currency), compared to the prior year period. The decrease
in revenue on a comparable basis reflected the impact of the
wind-down of lease accounting implementation projects as well as
the completion of other large projects.
Gross margin for the first half of fiscal 2020 was 39.8%,
increasing 130 basis points from first half of fiscal 2019. The
year-over-year improvement is related primarily to an improved
bill/pay ratio as well as a decrease in holiday pay for consultants
due to fewer holidays in the U.S.
SG&A was $110.7 million, or 31.0% of revenue for the first
half of fiscal 2020 and $111.3 million, or 30.3% of revenue for the
first half of fiscal 2019. The year-over-year dollar decrease is
primarily attributable to a decrease in incentive compensation
expense as a result of lower revenue, lower costs associated with
transformation and system implementation and business expenses,
partially offset by an increase in acquisition costs as well as
payroll and benefits due to additional headcount related to project
delivery and digital transformation efforts, including
Veracity.
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.
Conference Call Information
RGP will hold a conference call for analysts and investors at
5:00 p.m., ET today, January 2, 2020. 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 January 9, 2020 at 855-859-2056. The conference
ID number for the replay is 5984947. The call will also be archived
on the RGP website for 30 days.
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 4,000 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
Irvine, California, RGP is proud to have served 89 of the Fortune
100.
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 May 25, 2019
and our other public filings made with the Securities and Exchange
Commission (File No. 000-32113). 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.
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.
- Organic revenue is calculated as GAAP revenue less revenues
from acquired businesses and revenues related to businesses that
the Company disposed of either through sale or abandonment.
- Constant currency organic revenue amounts represent the outcome
that would have resulted had exchange rates in the reported period
been the same as those in effect and applied to the same organic
revenue 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, organic revenue,
constant currency organic 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, organic revenue,
constant currency organic 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.
RESOURCES CONNECTION,
INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Amounts in thousands, except
per share amounts)
Three Months Ended
Six Months Ended
November 23,
November 24,
November 23,
November 24,
2019
2018
2019
2018
(Unaudited)
(Unaudited)
Revenue
$
184,507
$
188,799
$
356,732
$
367,357
Direct cost of services
110,130
115,378
214,852
225,785
Gross margin
74,377
73,421
141,880
141,572
Selling, general and administrative
expenses
53,755
54,959
110,733
111,325
Operating income before amortization
and depreciation
20,622
18,462
31,147
30,247
Amortization of intangible assets
1,510
952
2,604
1,907
Depreciation expense
1,424
1,197
2,793
2,266
Operating income
17,688
16,313
25,750
26,074
Interest expense
551
608
1,033
1,134
Other (income)/expense
(537
)
-
(537
)
-
Income before provision for income
taxes
17,674
15,705
25,254
24,940
Provision for income taxes
5,337
5,141
7,978
8,635
Net income
$
12,337
$
10,564
$
17,276
$
16,305
Net income per common share:
Basic
$
0.39
$
0.33
$
0.54
$
0.51
Diluted
$
0.38
$
0.33
$
0.54
$
0.50
Weighted average common shares
outstanding:
Basic
31,984
31,721
31,852
31,731
Diluted
32,369
32,446
32,287
32,457
Cash dividends declared per common
share
$
0.14
$
0.13
$
0.28
$
0.26
RESOURCES CONNECTION,
INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(Amounts in thousands, except
per share amounts and percentages)
Three Months Ended
Six Months Ended
Organic
Revenue
November 23,
November 24,
November 23,
November 24,
2019
2018
2019
2018
Revenue
(GAAP)
(Unaudited)
(Unaudited)
North America
$
152,422
$
153,823
$
292,798
$
299,994
Asia Pacific
12,716
11,813
25,802
23,516
Europe
19,369
23,163
38,132
43,847
Total revenue
$
184,507
$
188,799
$
356,732
$
367,357
Less: Impact of
Acquisitions and Dispositions
North America
$
5,788
$
-
$
7,184
$
-
Asia Pacific
-
-
-
-
Europe
324
4,033
2,217
7,107
Total revenue
$
6,112
$
4,033
$
9,401
$
7,107
Organic
Revenue
North America
$
146,634
$
153,823
$
285,614
$
299,994
Asia Pacific
12,716
11,813
25,802
23,516
Europe
19,045
19,130
35,915
36,740
Total revenue
$
178,395
$
184,766
$
347,331
$
360,250
RESOURCES CONNECTION,
INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(Amounts in thousands, except
per share amounts and percentages)
Three Months Ended
Six Months Ended
November 23,
November 24,
November 23,
November 24,
Adjusted EBITDA
and Adjusted EBITDA Margin
2019
2018
2019
2018
(Unaudited)
(Unaudited)
Net income
$
12,337
$
10,564
$
17,276
$
16,305
Adjustments:
Amortization of intangible assets
1,510
952
2,604
1,907
Depreciation expense
1,424
1,197
2,793
2,266
Interest expense
551
608
1,033
1,134
Provision for income taxes
5,337
5,141
7,978
8,635
Stock-based compensation expense
1,643
1,652
3,158
3,013
Contingent consideration adjustment
(131
)
(130
)
(262
)
(33
)
Adjusted EBITDA
$
22,671
$
19,984
$
34,580
$
33,227
Revenue
$
184,507
$
188,799
$
356,732
$
367,357
Adjusted EBITDA Margin
12.3
%
10.6
%
9.7
%
9.0
%
Adjusted
Provision for Income Taxes, Annual Cash Tax Rate, Adjusted Net
Income and Adjusted Diluted Earnings Per Common
Share
Three Months Ended
Six Months Ended
November 23,
November 24,
November 23,
November 24,
2019
2018
2019
2018
(Unaudited)
(Unaudited)
Provision for income taxes
$
5,337
$
5,141
$
7,978
$
8,635
Effect of non-cash tax items:
Stock-based compensation expense
(33
)
(434
)
(76
)
(795
)
Valuation allowance on international
deferred tax assets
(115
)
(121
)
(448
)
(305
)
Other non-cash tax items
(8
)
-
(8
)
(3
)
Adjusted provision for income taxes
$
5,181
$
4,586
$
7,446
$
7,532
Effective tax rate
30
%
33
%
32
%
35
%
Total effect of non-cash tax items on
effective tax rate
(1
%)
(4
%)
(3
%)
(5
%)
Annual cash tax rate
29
%
29
%
29
%
30
%
Net income
$
12,337
$
10,564
$
17,276
$
16,305
Total effect of non-cash tax items on net
income
156
555
532
1,103
Adjusted net income
$
12,493
$
11,119
$
17,808
$
17,408
Diluted earnings per common share
$
0.38
$
0.33
$
0.54
$
0.50
Effect of non-cash tax items on diluted
earnings per common share
0.01
0.01
0.01
0.04
Adjusted diluted earnings per common
share
$
0.39
$
0.34
$
0.55
$
0.54
RESOURCES CONNECTION,
INC.
SELECTED BALANCE SHEET, CASH
FLOW AND OTHER INFORMATION
(Amounts in thousands, except
consultant headcount and average rates)
November 23,
May 25,
SELECTED BALANCE SHEET INFORMATION:
2019
2019
(Unaudited)
Cash and cash equivalents
$
43,033
$
43,045
Accounts receivable, less allowances
$
137,371
$
133,304
Total assets
$
496,352
$
428,370
Current liabilities
$
97,923
$
91,416
Total stockholders’ equity
$
300,265
$
282,396
Six Months Ended
November 23,
November 24,
SELECTED CASH FLOW INFORMATION:
2019
2018
(Unaudited)
Cash flow -- operating activities
$
17,218
$
1,665
Cash flow -- investing activities
$
(25,471
)
$
(3,408
)
Cash flow -- financing activities
$
8,485
$
(13,298
)
November 23,
May 25,
SELECTED OTHER INFORMATION:
2019
2019
Consultant headcount, end of period
3,072
2,965
Average bill rate, second quarter
$123
$124
Average pay rate, second quarter
$61
$62
Average bill rate (constant currency-Q2
19), second quarter
$124
--
Average pay rate (constant currency-Q2
19), second quarter
$62
--
Common shares outstanding, end of
period
32,138
31,588
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200102005507/en/
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
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