Q1 2019 revenue increases 26.5% YOY to $178.6
million
SG&A as a percent of revenue improves by 40
basis points sequentially and 200 basis points YOY
Gross margin improves 20 basis points YOY
Q1 2019 diluted earnings per common share
increases to $0.18 compared to $0.07 in prior year quarter
Q1 2019 net income increases to $9.2 million
compared to $5.0 million in prior year quarter
Q1 2019 Adjusted EBITDA Margin at 7.4% compared
to 5.6% in prior year quarter
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 first quarter ended August 25, 2018.
First Quarter 2019 Revenue Financial Highlights
- Revenue of $178.6 million, up $37.4
million (26.5%) over first quarter of fiscal 2018.
- U.S. revenue* increased 24.8% over
first quarter of fiscal 2018.
- European revenue increased 36.5% (35.8%
constant currency**) over first quarter of fiscal 2018 (increased
8.6% excluding taskforce acquisition); eleventh successive
quarter-over-quarter growth.
- Asia Pacific revenue increased 15.9%
(16.1% constant currency**) over first quarter of fiscal 2018.
Management Commentary
“These quarterly results reflect where we are headed: driving
strategic revenue growth and managing costs across our platform to
improve the bottom line,” said Kate Duchene, president and chief
executive officer. “We are very pleased by the growth we delivered
this quarter in North America, Europe and Asia Pac, as well as the
mix of business we are building. As we continue to wind down
transformation and acquisition costs over the next few quarters, we
intend to deliver more profit to the bottom line. As we have
communicated previously, we have strengthened the foundations of
the business through our evolution the past 18 months; now we are
keenly focused on delivering growth, expense management and
improved EBITDA performance.”
Other First Quarter 2019 Financial Highlights
- Gross margin of 38.2% improved from
38.0% in the prior year first quarter due to lower costs in the
Company’s self-insured medical program, partially offset by a
higher pay rate to bill rate ratio.
- Selling, general and administrative
(“SG&A”) expense of $56.4 million (31.6% of revenue) compared
to $47.4 million (33.6% of revenue) in the first quarter of fiscal
2018 shows improvement as a percent of revenue of 200 basis points
year-over-year. On a sequential basis, SG&A improved by $2.5
million or 40 basis points as a percent of revenue. Sequentially,
transformation and acquisition expenses decreased in the first
quarter by $2.1 million.
- Tax rate of 38% in the first quarter
compared to 58% in the comparable period last year due primarily to
the favorable impact of the Tax Cuts and Jobs Act, partially offset
by non-benefit of losses in international operations and expenses
related to unexercised stock options expiring.
- Pre-tax income increased in the first
quarter to $9.2 million compared to $5.0 million in the prior year
first quarter; net income increased to $5.7 million compared to
$2.1 million in prior year first quarter.
- Diluted earnings per common share
increased to $0.18 compared to $0.07 in the prior year first
quarter.
- Adjusted EBITDA*** of $13.2 million
(7.4% as a percent of revenue) compared to $7.9 million (5.6% as a
percent of revenue) in the prior year first quarter.
- Net cash used in operating activities
was $16.6 million compared to $13.1 million in the prior year first
quarter; the primary cause of the increased use of cash was the
increase in revenue in the current quarter (which increased the
amount of accounts receivable at quarter-end) compared to the prior
year first quarter.
- The Board of Directors approved a $0.01
increase in the per share dividend rate compared to the prior year
first quarter, resulting in a dividend accrual of $0.13 per share
to shareholders in the first quarter for $4.1 million (paid in
September), compared to $0.12 per share and $3.6 million in the
prior year first quarter. Company share buybacks in the first
quarter totaled approximately 468,000 shares for $7.5 million, with
$112.5 million remaining for future common stock purchases as of
August 25, 2018.
- Cash and cash equivalents were $27.1
million as of August 25, 2018.
Update on Strategic Initiatives and Acquisitions
RGP has 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 implemented a new incentive compensation program
to focus on revenue generation and gross margin improvement.
- 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 continues 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 reduce as a percentage of revenue
in the coming quarters.
Footnotes
*The Company completed its integration of the operations of
Accretive Solutions, Inc. effective with the start of the first
quarter of fiscal 2019. Accretive was acquired December 4, 2017.
With the completion of the integration of Accretive, it is not
possible to identify separately revenue generated by legacy
Accretive operations as opposed to RGP; therefore, the Company is
unable to provide a separate organic revenue amount for the first
quarter of fiscal 2019. The Company’s other acquisition during
fiscal 2018, taskforce, remains separate for accounting purposes in
Europe and, in order to provide a more comprehensive view of
revenue trends in our European business, organic revenue is
presented and defined as revenue without the revenue of taskforce
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 taskforce in the same periods. The table also
reports 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 first quarter fiscal 2018
conversion rates, and the sequential quarter constant currency
international revenue is computed using the comparable fourth
quarter fiscal 2018 conversion rates.
***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, October 3, 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 October 10, 2018 at 855-859-2056. The conference
ID number for the replay is 9074217. 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 4,000
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 statements regarding our expectations for
growth, expense management, 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 August
25, August 26, 2018
2017 (Unaudited) Revenue $ 178,558 $ 141,186 Direct
cost of services 110,407 87,488 Gross
margin 68,151 53,698 Selling, general and administrative expenses
(1) 56,366 47,415
Operating income before amortization and
depreciation (1)
11,785 6,283 Amortization of intangible assets 955 - Depreciation
expense 1,069 940 Operating income (1)
9,761 5,343 Interest expense 605 337 Interest income (79 )
(28 ) Income before provision for income taxes (1) 9,235
5,034 Provision for income taxes (2) 3,494
2,922 Net income (1), (2) $ 5,741 $ 2,112 Net
income per common share: Basic (1), (2) $ 0.18 $ 0.07
Diluted (1), (2) $ 0.18 $ 0.07 Weighted average
common shares outstanding: Basic 31,742 29,809
Diluted 32,468 30,059 Cash
dividends declared per common share $ 0.13 $ 0.12
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 $1.4 million and $1.6 million for the three months ended August
25, 2018 and August 26, 2017, respectively. The expense for the
quarter ended August 26, 2017 includes approximately $0.1 million
related to accelerated vesting of stock options as part of the
agreement with a departing senior executive. (2) The
Company’s effective tax rate was approximately 38% and
approximately 58% for the three months ended August 25, 2018 and
August 26, 2017, 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 fiscal year
ended May 26, 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 NET INCOME TO ADJUSTED EBITDA (Dollars
in thousands) Three Months Ended August
25, August 26, 2018
2017 (Unaudited) Net income $ 5,741 $ 2,112
Adjustments: Amortization of intangible assets 955 - Depreciation
expense 1,069 940 Interest expense 605 337 Interest income (79 )
(28 ) Provision for income taxes 3,494 2,922
EBITDA 11,785 6,283 Stock-based compensation expense 1,361
1,612 Contingent consideration adjustment 97 -
Adjusted EBITDA $ 13,243 $ 7,895 Revenue $
178,558 $ 141,186 Adjusted EBITDA Margin 7.4 %
5.6 %
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 plus or minus contingent
consideration adjustments. 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. SELECTED
BALANCE SHEET, CASH FLOW AND OTHER INFORMATION (Amounts in
thousands, except consultant headcount and average rates)
August 25, May 26, SELECTED
BALANCE SHEET INFORMATION:
2018
2018 (Unaudited) Cash and cash equivalents $
27,053 $ 56,470 Accounts receivable, less allowances $ 137,629 $
130,452 Total assets $ 408,439 $ 432,674 Current liabilities $
72,636 $ 94,524 Total stockholders’ equity $ 268,321 $ 268,825
Three Months Ended August 25, August
26, SELECTED CASH FLOW INFORMATION:
2018
2017 (Unaudited) Cash flow -- operating
activities $ (16,601 ) $ (13,129 ) Cash flow -- investing
activities $ (1,073 ) $ (382 ) Cash flow -- financing activities $
(11,667 ) $ (465 )
August 25, May 26, SELECTED
OTHER INFORMATION:
2018 2018
Consultant headcount, end of period 3,176 3,247 Average bill
rate, first quarter $ 124 $ 124 Average pay rate, first quarter $
63 $ 64 Average bill rate (constant currency-Q1 18), first quarter
$ 124 -- Average pay rate (constant currency-Q1 18), first quarter
$ 63 -- Common shares outstanding, end of period 31,498 31,614
RESOURCES CONNECTION, INC. CONSTANT CURRENCY
REVENUE COMPARISON (Dollars in thousands) (Unaudited)
Three Months Ended August 25,
August 26, WITH ACQUISITIONS
2018 2017
% Change Consolidated Revenue -- GAAP $ 178,558 $ 141,186
26.5% Consolidated Revenue -- Constant Currency (1) $ 178,750 26.6%
United States Revenue -- GAAP $ 141,229 $ 113,125 24.8% Europe
Revenue -- GAAP $ 20,684 $ 15,149 36.5% Europe Revenue -- Constant
Currency (1) $ 20,571 35.8%
Three Months Ended
August 25, May 26, WITH ACQUISITIONS
2018
2018 % Change Consolidated Revenue -- GAAP $ 178,558
$ 183,791 -2.8% Consolidated Revenue -- Constant Currency (2) $
180,105 -2.0% United States Revenue -- GAAP $ 141,229 $ 144,033
-1.9% Europe Revenue -- GAAP $ 20,684 $ 23,446 -11.8% Europe
Revenue -- Constant Currency (2) $ 21,709 -7.4%
Three
Months Ended August 25, August 26, WITHOUT
ACQUISITIONS
2018 2017 % Change Consolidated
Revenue -- without taskforce (3) $ 174,333 $ 141,186 23.5%
Consolidated Revenue -- Constant Currency (1) $ 174,577 23.7%
United States Revenue -- GAAP $ 141,229 $ 113,125 24.8% Europe
Revenue -- without taskforce (3) $ 16,459 $ 15,149 8.6% Europe
Revenue -- Constant Currency (1) $ 16,399 8.3% (1) The
percentage change in revenue on a constant currency basis is
calculated using the average foreign exchange rates for the first
quarter of fiscal 2018 and applying those rates to
foreign-denominated revenue in the first 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 fourth quarter of fiscal 2018 and applying those rates to
foreign-denominated revenue in the first quarter of fiscal 2019.
(3) The taskforce acquisition was completed near the start
of the second quarter of fiscal 2018. To provide a comparison to
the prior year first quarter, consolidated revenue and European
revenue are presented for the first quarter of fiscal 2019 without
taskforce revenue of $4.2 million. 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 United States dollar and currencies in countries in which
the Company operates. The "without acquisitions" columns exclude
only the revenue of taskforce, acquired September 1, 2017. Revenue
for the three months ended August 25, 2018 potentially 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181003005799/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
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