[October 03, 2018] |
|
Resources Connection, Inc. Reports First Quarter Results for Fiscal 2019
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 (News - Alert) 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.
|
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