Revenue of $172.4 million for the quarterNet
income of $4.6 million and adjusted EBITDA* of $8.7 million for the
quarterDiluted earnings per share of $0.14 for the quarterCompany
achieves significant milestones in implementation of its strategic
initiatives and integration of recent acquisitions
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 24,
2018.
Revenue for the third quarter of 2018 was $172.4 million, up
approximately 20% year over year and 10% sequentially, including
revenue from the Company’s recent Accretive Solutions, Inc.
(“Accretive”) and taskforce – Management on Demand AG (“taskforce”)
acquisitions. Excluding Accretive and taskforce, revenue was up
approximately 5% year over year. Revenue in Europe improved for the
ninth successive quarter, up 61% year over year, including revenue
from taskforce. Revenue in the US increased approximately 15% year
over year, including revenue from Accretive. The Company’s Asia
Pacific revenue improved 9.4% year over year.
Net income for the quarter was $4.6 million (2.7% of revenue),
with an Adjusted EBITDA* of $8.7 million (5.0% of revenue). Net
income per diluted share was $0.14 for the third quarter of 2018,
including $0.07 per diluted share related to a reduction in income
tax expense from the Tax Cuts and Jobs Act, offset by costs of
$0.11 per diluted share related to severance, acquisition, business
development, transformation and integration expenses during the
quarter. The Company paid a quarterly cash dividend on December 14,
2017 of $0.12 per share, resulting in a total dividend payment of
$3.6 million. RGP also repurchased approximately $5.1 million of
its common stock on the open market; as of February 24, 2018,
approximately $120 million remains available for future repurchases
of the Company’s common stock under the Company’s share repurchase
program.
“We achieved strong results this quarter across our three
priority focus areas: growing revenue in all geographies, the
smooth integration of Accretive and taskforce, and continuing the
successful execution of our strategic initiatives,” said Kate
Duchene, President and Chief Executive Officer of RGP. “Our
performance demonstrates the positive impact that our acquisitions
and strategic initiatives are beginning to have on the business. We
remain focused on delivering in all three areas in Q4 to build on
our momentum and capitalize on the many growth opportunities
ahead.”
*Adjusted EBITDA is defined as earnings before interest, income
taxes, depreciation, amortization and stock-based compensation.
UPDATE ON ACQUISITION INTEGRATIONS
RGP has made continued progress this quarter in integrating its
two acquisitions, Accretive and taskforce, and the Company remains
on track to complete the integration of both acquisitions during
the summer. RGP’s consolidated financial results for the third
quarter include Accretive revenue of approximately $17.3 million
and taskforce revenue of approximately $3.8 million.
UPDATE ON STRATEGIC INITIATIVES
RGP continues to implement successfully the strategic
initiatives it announced last year to improve its performance in
both revenue generation and cost containment. With respect to the
first initiative, to transform the Company’s sales culture, RGP has
completed virtually all of its sales transformation efforts in the
US. The Company has rolled out Salesforce throughout the
enterprise, launched a new learning and development program and
developed go to market, sales management and account development
playbooks to guide sales behavior. A new incentive structure for
the Company’s sales team is expected to be fully developed by the
end of the fourth quarter and implemented in fiscal year 2019.
Revenue for the Company’s Strategic Client Program (“SCP”) is up
9.0% year over year, and SCP is expected to deliver additional
growth in fiscal year 2019.
The Company’s second initiative, to redesign its business model
to enhance client offerings, is substantially complete. In the
third quarter, RGP finished building out its talent group, marking
the completion of all of its major structural updates. The Company
also completed the implementation of a sales structure in all major
markets to focus on middle market client acquisition and
development. The Company is now operating entirely under its new
organizational design in the US, and is focused on driving
accountability, productivity and results. As part of these efforts,
the Company recently hosted a leadership summit in Dallas to
outline the management team’s strategies and business objectives
and more clearly define roles and responsibilities.
The Company remains committed to its third initiative, to
contain costs and lower selling, general and administrative
expenses (“SG&A”) as a percentage of revenue. The Company’s
SG&A was higher than planned this quarter, largely due to costs
associated with the integration of the Company’s two acquisitions
and increased business development and training efforts. These
short-term costs are a necessary investment in the growth of the
business and its client base, and are expected to taper off
beginning in fiscal year 2019, and to be further offset by
additional cost synergies realized through the successful
integrations of the Accretive and taskforce acquisitions.
FISCAL THIRD QUARTER REVIEW
Revenue for the third quarter of fiscal 2018 increased by 19.9%
(17.6% constant currency) to $172.4 million compared to $143.8
million in the prior year third quarter. Without Accretive’s
revenue of $17.3 million in the quarter and taskforce’s revenue of
$3.8 million revenue was up 5.2%. On a sequential basis, third
quarter revenue increased by approximately 10% (9.6% constant
currency) from $156.7 million in the second quarter of fiscal 2018.
Absent revenue from the acquisitions, revenue decreased $1.8
million sequentially, or 1.2%. The decline, which was expected, can
be attributed primarily to the Christmas, New Year and Chinese New
Year holidays, with the only significant holiday in the second
quarter being Thanksgiving in the US. Year over year constant
currency results for international revenue are computed using the
comparable third quarter fiscal 2017 conversion rates, and the
sequential quarter constant currency international revenue is
computed using the comparable second quarter fiscal 2018 conversion
rates.
Including Accretive operations, revenue in the US increased by
14.9% year over year and 12.5% sequentially. Excluding Accretive
operations, US revenue was flat year over year and decreased 2.0%
sequentially. The sequential decrease was expected and was
primarily due to the timing of holidays, as outlined above.
International revenue improved by 41.4% year over year (29.6%
constant currency) and 2.1% sequentially (0.6% constant currency),
reflecting strength in the Company’s United Kingdom, Ireland and
Sweden practices. Revenue in Europe grew 34.4% year over year and
0.2% sequentially, excluding revenue attributable to the taskforce
acquisition.
Net income improved in the third quarter of fiscal 2018 to $4.6
million, or $0.14 per diluted share, including $0.07 per diluted
share related to a reduction in income tax expense from the Tax
Cuts and Jobs Act, offset by costs of $0.11 per diluted share
related to severance, acquisition, business development and
transformation related expenses during the quarter; this compares
to net income of $2.9 million, or $0.09 per diluted share, in the
prior year third quarter. Adjusted EBITDA was $8.7 million (5.0% of
revenue) and $8.4 million (5.8% of revenue) for the quarter ended
February 24, 2018 and February 25, 2017, respectively.
Gross margin of 36.3% in the third quarter of fiscal 2018 was
flat compared to the prior year third quarter. Sequentially, gross
margin decreased 160 basis points from 37.9% in the second quarter
of fiscal 2018, primarily due to an increase in average pay rate
per hour and an increase in employer payroll tax expense typically
experienced with the beginning of a new calendar year.
SG&A expenses for the third quarter of fiscal 2018 were
$55.3 million (32.1% of revenue) compared to $45.4 million (31.5%
of revenue) in the prior year third quarter and $47.5 million
(30.3% of revenue) in the second quarter of fiscal 2018. The
Company recorded approximately $3.6 million related to severance,
acquisition, transformation and integration costs in the third
quarter of fiscal 2018, including approximately $700,000 related to
severance expenses. Without these charges, the primary driver of
the SG&A increase year over year was additional expenses
related to the operations of Accretive and taskforce of $6.2
million. Sequentially, SG&A increased because of $5.2 million
of expenses related to the operations of Accretive, an increase of
$0.7 million over the amount incurred related to severance,
acquisition, transformation and integration costs, an increase in
higher employer payroll related taxes with the reset of limit rates
at the beginning of the new calendar year and an increase in the
provision for uncollectable accounts.
Cash used in operations was $3.9 million for the third quarter
ended February 24, 2018, compared to $1.2 million for the third
quarter ended February 25, 2017; the increased use of cash was
primarily driven by growth in the Company’s revenue activity at the
end of the quarter, increasing the ending fiscal 2018 third quarter
balance of accounts receivable.
In the third quarter of fiscal 2018, the Company paid a dividend
of $0.12 per share to shareholders, resulting in a total dividend
payment of $3.6 million. RGP also purchased 320,822 shares of its
common stock on the open market at an average price of $15.95 per
share, for approximately $5.1 million. As of February 24, 2018, the
Company’s cash and cash equivalents were $43.2 million compared to
$56.3 million at the end of the second quarter on November 25,
2017.
CONFERENCE CALL
RGP will hold a conference call for analysts and investors at
5:00 p.m., ET today, April 4, 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 April 11, 2018 at 855-859-2056. The conference ID
number for the replay is 5367088. 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 2,600 clients around the world
from 74 practice offices.
Headquartered in Irvine, California, RGP has served 87 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 expectations regarding the successful
integration of the Accretive and taskforce acquisitions, including
cost synergies expected to be realized in connection with such
acquisitions, revenue growth and financial results, and the
Company’s 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 and integrate our acquisitions of Accretive
and taskforce, 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 24, February 25, February 24,
February 25, 2018 2017 2018 2017
(Unaudited) (Unaudited) Revenue $ 172,414 $ 143,844 $ 470,338 $
434,791 Direct cost of services 109,904 91,597
294,711 271,507 Gross margin
62,510 52,247 175,627 163,284 Selling, general and administrative
expenses (1) 55,268 45,376
150,181 135,046 Operating income before
amortization and depreciation (1) 7,242 6,871 25,446 28,238
Amortization of intangible assets 1,004 - 1,326 - Depreciation
expense 1,089 909 2,976
2,511 Operating income (1) 5,149 5,962 21,144 25,727
Interest expense 542 351 1,276 415 Interest income (34 )
(16 ) (94 ) (126 ) Income before provision for
income taxes (1) 4,641 5,627 19,962 25,438 Provision for income
taxes (2) 46 2,743 5,117
11,224 Net income (1), (2) $ 4,595 $ 2,884
$ 14,845 $ 14,214 Net income per common share:
Basic (1), (2) $ 0.15 $ 0.10 $ 0.49 $ 0.42
Diluted (1), (2) $ 0.14 $ 0.09 $ 0.48 $
0.41 Weighted average common shares outstanding: Basic
31,440 29,764 30,473
33,916 Diluted 32,066 30,584
30,901 34,550 Cash dividends
declared per common share $ 0.12 $ 0.11 $ 0.36
$ 0.33
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 $1.5 million for the three months ended
February 24, 2018 and February 25, 2017, respectively and $4.5
million and $4.7 million for the nine months ended February 24,
2018 and February 25, 2017, respectively. The expense for the nine
months ended February 24, 2018 includes approximately $140,000
related to accelerated vesting of stock options as part of the
agreement with a departing senior executive; the expense for the
nine months ended February 25, 2017 includes approximately
$400,000, or $0.01 per share, related to accelerated vesting of
options as part of the agreement with a departing senior
executive.
(2) The Company’s effective tax rate was
approximately 1% and approximately 49% for the three months ended
February 24, 2018 and February 25, 2017, respectively and
approximately 26% and 44% for the nine months ended February 24,
2018 and February 25, 2017, respectively. On December 22, 2017, US
federal tax reform was enacted 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 29.4% for fiscal year ending May 26, 2018. For the
three months ended February 24, 2018, the Company reported
provisional amounts related to the impact of US federal tax reform,
including a tax benefit of $1.1 million due to re-measurement of US
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 the US earnings for
fiscal 2018.
The nine months ended February 24, 2018 also
includes the reversal of approximately $2.4 million of valuation
allowances on the deferred tax assets of certain foreign entities
and the nine months ended February 25, 2017 includes the reversal
of approximately $0.2 million of tax valuation allowances. 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 incentive 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 Nine Months Ended February 24, February
25, February 24, February 25, 2018
2017 2018 2017 (Unaudited) (Unaudited)
Net income $ 4,595 $ 2,884 $ 14,845 $ 14,214 Adjustments:
Amortization of intangible assets 1,004 - 1,326 - Depreciation
expense 1,089 909 2,976 2,511 Interest expense 542 351 1,276 415
Interest income (34 ) (16 ) (94 ) (126 ) Provision for income taxes
46 2,743 5,117
11,224 EBITDA 7,242 6,871 25,446 28,238 Stock-based
compensation expense 1,437 1,508
4,499 4,658 Adjusted EBITDA $ 8,679 $
8,379 $ 29,945 $ 32,896 Revenue $ 172,414
$ 143,844 $ 470,338 $ 434,791 Adjusted
EBITDA Margin 5.0 % 5.8 % 6.4
% 7.6 %
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. 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. CONSTANT CURRENCY
REVENUE COMPARISON (Dollars in thousands) (Unaudited)
Revenue for the Three Months Ended February
24,
2018
GAAP
February 25,
2017
GAAP
November 25,
2017
GAAP
% Increase
February 24, 2018
vs.
February 25, 2017
GAAP
% Increase
February 24, 2018
vs.
February 25, 2017
Constant Currency (1)
% Increase
February 24, 2018
vs.
November 25,
2017
GAAP
% Increase
February 24, 2018
vs.
November 25,
2017
Constant Currency (2)
$ 172,414 $ 143,844 $ 156,738 19.9 % 17.6 % 10.0 % 9.6 %
(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 2017 and applying those rates to
foreign-denominated revenue in the third quarter of fiscal 2018.
(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 2018 and applying those rates to
foreign-denominated revenue in the third quarter of fiscal 2018.
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 the United States dollar and currencies in countries in
which the Company operates.
RESOURCES CONNECTION, INC.
SELECTED BALANCE SHEET, CASH FLOW AND OTHER INFORMATION
(Amounts in thousands, except consultant headcount)
February 24, May 27, 2018 2017
(Unaudited) Cash and cash equivalents $ 43,217 $ 62,329
Accounts receivable, less allowances $ 125,795 $ 98,222 Total
assets $ 420,134 $ 364,128 Current liabilities $ 78,313 $ 71,771
Total stockholders’ equity $ 268,912 $ 238,142 Consultant
headcount, end of period 3,143 2,569 Shares outstanding, end of
period 31,487 29,662
Nine Months Ended February
24, February 25, 2018 2017
(Unaudited) Cash flow from operating activities $ (2,254 ) $
6,926 Cash flow from investing activities $ (25,086 ) $ 21,133 Cash
flow from financing activities $ 8,233 $ (73,785 )
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180404006251/en/
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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