- Company reports first quarter revenue
of $143.4 million
- Revenue improves quarter-over-quarter
in Europe (6.2%) and Asia Pacific (2.5%)
- Net income $5.6 million (3.9% of
revenue), Adjusted EBITDA* $12.2 million (8.5% of revenue) for
quarter
- Company returns capital to shareholders
of $9.3 million in first quarter
*Adjusted EBITDA is defined as earnings before interest, income
taxes, depreciation, amortization and stock-based compensation
Resources Connection, Inc. (NASDAQ: RECN), a multinational
business consulting firm, operating as Resources Global
Professionals (the “Company” or “RGP”) today announced financial
results for its first fiscal quarter ended August 27, 2016.
Revenue for the first quarter of fiscal 2017 decreased 3.3%
(3.1% constant currency) to $143.4 million compared to the prior
year’s first quarter of $148.3 million. The revenue decrease is
partially attributable to fewer business opportunities in the
financial services and energy sectors. In addition, approximately
0.9% of the quarter-over-quarter revenue decrease is attributable
to the shift of the Memorial Day holiday to the first quarter of
fiscal 2017 (Memorial Day calendar 2015 was in the fourth quarter
of fiscal 2015). On a sequential basis, first quarter revenue
decreased 6.0% (5.9% constant currency) compared to $152.5 million
in the fourth quarter of fiscal 2016. Approximately 1.8% of the
sequential quarter revenue decrease is attributable to the Memorial
Day and July Fourth holidays. Constant currency
quarter-over-quarter is computed using the comparable first quarter
fiscal 2016 conversion rates and the sequential quarter is computed
using the comparable fourth quarter fiscal 2016 conversion rates
for revenue generated internationally.
Revenue in the U.S. decreased 4.5% quarter-over-quarter and 7.0%
sequentially. The Memorial Day holiday had an unfavorable impact on
U.S. revenue of 1.1% on a quarter-over-quarter basis; on a
sequential basis, the Memorial Day and July Fourth holidays had an
unfavorable impact on revenue of 2.1%. International revenue
improved 1.9% quarter-over-quarter (3.1% constant currency) but
decreased 1.4% sequentially (0.9% constant currency).
The Company’s net income declined in the first quarter of fiscal
2017 to $5.6 million, or $0.15 per diluted share, compared to $7.1
million, or $0.19 per diluted share, in the prior year’s first
quarter.
“Our strong balance sheet allows us to return capital to our
shareholders as evidenced by the $9.3 million we returned in the
first quarter from our dividend and stock repurchase programs,”
said Tony Cherbak, President and Chief Executive Officer (“CEO”) of
RGP. “We are continuing to focus on business development with new
and existing clients in an ongoing effort to stimulate revenue
growth.”
In a separate press release issued today, the Company announced
that Mr. Cherbak will resign as the Company’s President and CEO
effective Friday, October 7, 2016 due to health considerations.
Kate W. Duchene, the Company’s Chief Legal Officer, Executive Vice
President, Human Resources and Secretary, will serve as interim CEO
while the Company’s Board of Directors oversees a search for a
permanent CEO.
Gross margin was 38.0% in the first quarter of fiscal 2017,
compared to 38.7% in the prior year quarter. Gross margin in the
first quarter of 2017 decreased more than expected primarily due to
an unfavorable change in the bill rate/pay rate ratio.
Sequentially, gross margin decreased 190 basis points from 39.9% in
the fourth quarter of fiscal 2016, due primarily to two paid
holidays in the U.S. during the first quarter and an unfavorable
change in the bill rate/pay rate ratio.
Selling, general and administrative expenses for the first
quarter of fiscal 2017 were $43.6 million (30.4% of revenue)
compared to $44.0 million (29.7% of revenue) in the prior year’s
first quarter and $44.4 million (29.1% of revenue) in the fourth
quarter of fiscal 2016. The prior year quarter includes $900,000 in
additional stock compensation expense for acceleration of vesting
of certain options; the remaining quarter-over-quarter increase is
related to compensation and related benefit costs. The sequential
decrease is primarily related to reduced marketing spend.
Cash used in operations and Adjusted EBITDA were $7.1 million
and $12.2 million (8.5% of revenue), respectively, for the first
quarter of fiscal 2017 compared to cash used in operations and
Adjusted EBITDA of $4.6 million and $15.7 million (10.6% of
revenue), respectively, for the first quarter of fiscal 2016. Cash
flows in the first quarter of the fiscal year are typically used in
operations as the Company pays its year-end incentive based
compensation in that quarter.
In the first quarter of fiscal 2017, the Company repurchased
approximately 375,000 shares of its common stock for $5.7 million
and paid a quarterly dividend totaling $3.6 million ($0.10 per
diluted share) to shareholders. Currently, the Company has a total
of $132.9 million available for share purchases under its existing
repurchase program. As of August 27, 2016, the Company’s cash, cash
equivalents and short-term investments were $102.9 million compared
to $116.0 million at fiscal year-end May 28, 2016.
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 3,300
professionals, annually serving over 1,800 clients around the world
from 68 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)
RGP will hold a conference call for interested analysts and
investors at 5:00 p.m., ET today, October 5, 2016. 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 12, 2016 at 855-859-2056. The
conference ID number for the replay is 75548888. The call will also
be archived on the RGP website for 30 days.
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 the Company’s continued focus on business
development to stimulate revenue growth. 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 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
27, August 29, 2016 2015
(Unaudited) Revenue $ 143,389 $ 148,340 Direct cost of services
88,862 90,877 Gross margin 54,527
57,463 Selling, general and administrative expenses (1)
43,614 43,957 Operating income before
amortization and depreciation (1) 10,913 13,506 Amortization of
intangible assets - 30 Depreciation expense 794
858 Operating income (1) 10,119 12,618 Interest
income (70 ) (32 ) Income before provision for income
taxes (1) 10,189 12,650 Provision for income taxes (2) 4,551
5,517 Net income (1), (2) $ 5,638 $
7,133 Net income per common share: Basic (1), (2) $ 0.16
$ 0.19 Diluted (1), (2) $ 0.15 $ 0.19
Weighted average common shares outstanding: Basic 36,269
37,295 Diluted 36,817
37,847 Cash dividends declared per common share $ 0.11
$ 0.10
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 $1.3
million and $2.2 million for the three months ended August 27, 2016
and August 29, 2015, respectively. The expense for the three months
ended August 29, 2015 includes approximately $900,000, or $0.01 per
share, for the Board of Director’s approval of accelerated vesting
of 127,500 stock options related to Don Murray’s transition from
Executive Chairman to non-employee Chairman of the Board.
(2) The Company's effective tax rate was approximately 45% and
approximately 44% for the three months ended August 27, 2016 and
August 29, 2015, respectively. 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 August 27, August 29,
2016 2015 (Unaudited) Net income
$ 5,638 $ 7,133 Adjustments: Amortization of intangible assets - 30
Depreciation expense 794 858 Interest income (70 ) (32 ) Provision
for income taxes 4,551 5,517 EBITDA
10,913 13,506 Stock-based compensation expense 1,295
2,155 Adjusted EBITDA $ 12,208 $ 15,661
Revenue $ 143,389 $ 148,340 Adjusted EBITDA Margin
8.5
%
10.6
%
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
income 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 provide useful
measures to our investors because they are financial measures used
by management to assess the core performance of our Company.
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 to, 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 August 27,
2016
GAAP
August 29,
2015
GAAP
May 28,
2016
GAAP
% Decrease
August 27, 2016
vs.
August 29, 2015 GAAP
% Decrease
August 27, 2016
vs.
August 29, 2015
Constant Currency (1)
% Decrease
August 27, 2016
vs.
May 28, 2016 GAAP
% Decrease
August 27, 2016
vs.
May 28, 2016 Constant Currency
(2)
$ 143,389 $ 148,340 $ 152,515 -3.3 % -3.1 % -6.0 % -5.9 %
(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 2016 and applying those rates to
foreign-denominated revenue in the first quarter of fiscal 2017.
(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 2016 and applying those rates to
foreign-denominated revenue in the first quarter of fiscal 2017.
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) August
27, May 28, 2016 2016
(Unaudited) Cash, cash equivalents and short-term
investments $ 102,921 $ 116,046 Accounts receivable, less
allowances $ 96,236 $ 97,807 Total assets $ 402,835 $ 417,255
Current liabilities $ 54,891 $ 70,884 Total stockholders’ equity $
344,019 $ 342,649 Consultant headcount, end of period 2,570 2,511
Shares outstanding, end of period 36,151 36,229
Three
Months Ended August 27, August 29, 2016
2015 (Unaudited) Cash flow from
operating activities $ (7,055 ) $ (4,553 ) Cash flow from investing
activities $ 13,898 $ (572 ) Cash flow from financing activities $
(5,595 ) $ (5,694 )
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161005006345/en/
for 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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