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
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 24, 2019.
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
Kate W. Duchene, chief executive officer. “We are very pleased to
have completed these strategic moves in Q1 of FY20 and continue to
progress with our transformation efforts. At the same time, we are
disappointed by our revenue results this quarter, and although the
decline was modest, we have specific plans to build momentum in the
second quarter and are encouraged by the strengthening
pipeline.”
RESOURCES CONNECTION,
INC.
SUMMARY OF CONSOLIDATED
FINANCIAL RESULTS
(Amounts in thousands, except
percentages and per share amounts)
Three Months Ended
August 24,
May 25,
August 25,
2019
2019
2018
As reported
(GAAP)
(Unaudited)
(Unaudited)
(Unaudited)
Revenue
North America
$
140,376
$
146,988
$
146,171
Asia Pacific
13,086
13,559
11,703
Europe
18,763
21,597
20,684
Total revenue
$
172,225
$
182,144
$
178,558
Gross margin
$
67,503
$
72,956
$
68,151
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
Effective tax rate
35%
30%
38%
Diluted EPS
$
0.15
$
0.29
$
0.18
Cash dividends:
Per common share
$
0.14
$
0.13
$
0.13
Total cash dividends paid
$
4,106
$
4,147
$
3,792
Three Months Ended
August 24,
August 25,
2019 (1)
2018 (1)
As adjusted
(non-GAAP)
(Unaudited)
Constant currency revenue
North America
$
140,379
$
146,171
Asia Pacific
13,228
11,703
Europe
19,545
20,684
Total constant currency revenue
$
173,152
$
178,558
Cash tax rate
30%
32%
Adjusted net income
$
5,315
$
6,289
Adjusted diluted EPS
$
0.16
$
0.20
Adjusted EBITDA
$
11,909
$
13,243
______
(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.
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 Memorial Day and July 4th holidays in the U.S. (there
were no paid holidays in the fourth quarter of fiscal 2019) and
summer holiday breaks taken by our consultants.
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 Memorial
Day and July 4th holidays in the U.S. (there were no paid holidays
in the fourth quarter of fiscal 2019) while the bill/pay ratio
remained the same between the two quarters.
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 $0.14 per share
dividend to shareholders in the first quarter for $4.5 million
(paid on September 19, 2019), compared to a $0.13 per share
dividend for $4.1 million in the prior year first quarter. The
Company did not buy back any of its common shares during the first
quarter of fiscal 2020. As of August 24, 2019, approximately $90.1
million remained available for future common stock purchases.
Conference Call Information
RGP will hold a conference call for analysts and investors at
5:00 p.m. ET today, October 2, 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 October 9, 2019 at 855-859-2056. The conference
ID number for the replay is 1397937. 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 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
Irvine, California, RGP is proud to have served 86 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.
- 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.
RESOURCES CONNECTION,
INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Amounts in thousands, except
per share amounts)
Three Months Ended
August 24,
August 25,
2019
2018
(Unaudited)
Revenue
$
172,225
$
178,558
Direct cost of services
104,722
110,407
Gross margin
67,503
68,151
Selling, general and administrative
expenses
56,978
56,366
Operating income before amortization and
depreciation
10,525
11,785
Amortization of intangible assets
1,094
955
Depreciation expense
1,369
1,069
Operating income
8,062
9,761
Interest expense
482
526
Income before provision for income
taxes
7,580
9,235
Provision for income taxes
2,641
3,494
Net income
$
4,939
$
5,741
Net income per common share:
Basic
$
0.16
$
0.18
Diluted
$
0.15
$
0.18
Weighted average common shares
outstanding:
Basic
31,788
31,742
Diluted
32,267
32,468
Cash dividends declared per common
share
$
0.14
$
0.13
RESOURCES CONNECTION,
INC.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES
(Amounts in thousands, except
per share amounts and percentages)
Adjusted
EBITDA
Three Months Ended
August 24,
August 25,
2019
2018
(Unaudited)
Net income
$
4,939
$
5,741
Adjustments:
Amortization of intangible assets
1,094
955
Depreciation expense
1,369
1,069
Interest expense
482
526
Provision for income taxes
2,641
3,494
Stock-based compensation expense
1,515
1,361
Contingent consideration adjustment
(131
)
97
Adjusted EBITDA
$
11,909
$
13,243
Revenue
$
172,225
$
178,558
Adjusted EBITDA Margin
6.9%
7.4%
Adjusted
Provision for Income Taxes, Annual Cash Tax Rate, Adjusted Net
Income and Adjusted Earnings Per Common Share
Three Months Ended
August 24,
August 25,
2019
2018
(Unaudited)
Provision for income taxes
$
2,641
$
3,494
Effect of non-cash tax items:
Stock-based compensation expense
(43
)
(361
)
Valuation allowance on international
deferred tax assets
(333
)
(184
)
Other non-cash tax items
-
(3
)
Adjusted provision for income taxes
$
2,265
$
2,946
Effective tax rate
35%
38%
Total effect of non-cash tax items on
effective tax rate
(5%
)
(6%
)
Annual cash tax rate
30%
32%
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
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
RESOURCES CONNECTION,
INC.
SELECTED BALANCE SHEET, CASH
FLOW AND OTHER INFORMATION
(Amounts in thousands, except
consultant headcount and average rates)
August 24,
May 25,
SELECTED BALANCE SHEET INFORMATION:
2019
2019
(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
August 24,
August 25,
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,
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/
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
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