Revenue of $143.8 millionNet income of $2.9
million and adjusted EBITDA* of $8.4 millionAnnounces three key
strategic initiatives to enhance revenue and profitability
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 fiscal 2017 third quarter ended February
25, 2017.
Revenue for the fiscal 2017 third quarter was $143.8 million,
with net income per diluted share of $0.09. Revenue improved
quarter-over-quarter in Europe (up 4.7%) and Asia Pacific (up
5.0%). Net income for the quarter was $2.9 million (2.0% of
revenue), with an adjusted EBITDA* of $8.4 million (5.8% of
revenue). The Company also paid a quarterly cash dividend of $0.11
per share, resulting in a total dividend payment of $3.3 million
and repurchased 400,100 shares of its common stock for $6.9
million.
"I am pleased with the improving performance that we have seen
in Europe and Asia Pacific, but there is more we can do to improve
results in our North American practices, where we have been
adversely affected by negative trends in our financial services and
oil and gas businesses,” said Kate Duchene, President and Chief
Executive Officer of RGP. “As a management team, we are working
hard to identify new ways to drive our revenue generation across
the business. In order to address head on the underlying factors
that have limited our recent performance, we have developed three
major strategic initiatives that will form the foundation of a
go-forward strategy for RGP.”
*Adjusted EBITDA is defined as earnings before interest, income
taxes, depreciation, amortization and stock-based compensation
KEY STRATEGIC INITIATIVES
The Company today announced that it has implemented three
strategic initiatives to help improve its performance in both cost
containment and revenue generation. The initiatives include (1)
reducing selling, general and administrative expenses by
approximately $7.0 million per year, which will result in the
Company taking a charge of approximately $2.0-2.5 million in the
fourth quarter related primarily to severance expenses and office
consolidations, (2) improving the sales culture and business
development process, and (3) redesigning the business model to
enhance client offerings.
The first initiative, which includes a clear and actionable plan
for reducing costs in low growth markets, will streamline the
Company’s field and back office operations to better match current
and anticipated demand in certain geographies. The implementation
of this plan will result in a reduction in overhead expenses and
head count, and is expected to be completed by the end of the
fiscal 2017 fourth quarter.
The second priority initiative focuses on driving sales on an
enterprise level to advance the account development and management
activities in local markets, and will support a more sophisticated
and robust sales culture. The initiative includes four major
components: the implementation of Salesforce as a global Customer
Relationship Management tool and the realignment of the Company’s
sales process, the establishment of an enterprise-wide Business
Development function, the creation of a Strategic Client Program
dedicated to expanding service and revenue in the Company’s highest
level clients, and the evolution of the incentive compensation
plans to prioritize growth. These transition activities will
involve multi-step changes that are expected to take approximately
12-18 months to complete.
Finally, the Company’s decision to redesign its operating model
is expected to enhance its client offerings, providing insightful
business solutions as well as industry-leading project execution.
For example, the Company will build deeper capabilities in project
support for M&A transactions and Data Solutions, including Data
Governance, Privacy, Security & Analytics. The shift will also
enable stronger inter-office collaboration and allow the Company to
deliver improved solutions, expertise and talent to all of its
clients around the globe, regardless of their location.
“Our focus has always been to deliver exceptional service to
help our clients work differently and better,” said Duchene. “To
continue to do that at the highest level – and while delivering the
strongest possible business results – we are committed to evolving.
We will build on our strengths and adapt our services and model to
the changing needs of our client base. We are confident that the
three strategic initiatives we announced today will bolster our
offerings for our clients and drive better productivity in our
business over the long term.”
FISCAL THIRD QUARTER REVIEW
Revenue for the third quarter of fiscal 2017 decreased by 2.0%
(1.2% constant currency) to $143.8 million compared to $146.8
million in the prior year third quarter. On a sequential basis,
third quarter revenue decreased by 2.5% (1.8% constant currency)
compared to $147.6 million in the second quarter of fiscal 2017.
The third quarter of each fiscal year contains the Christmas, New
Year’s and Chinese New Year’s holidays. Quarter-over-quarter
constant currency revenue calculations are computed using the
comparable third quarter fiscal 2016 conversion rates, and the
sequential quarter constant currency is computed using the
comparable second quarter fiscal 2017 conversion rates for revenue
generated internationally.
Revenue in the U.S. decreased by 3.4% quarter-over-quarter and
by 0.6% sequentially, primarily impacted by declines in the
financial services and energy sectors. International revenue
improved by 4.5% quarter-over-quarter (8.8% constant currency),
reflecting RGP’s improving performance overseas, while decreasing
10.0% sequentially (6.7% constant currency), primarily due to the
expected impact of the holiday season.
Net income declined in the third quarter of fiscal 2017 to $2.9
million, or $0.09 per diluted share, compared to $6.0 million, or
$0.16 per diluted share, in the prior year third quarter.
Gross margin was 36.3% in the third quarter of fiscal 2017,
compared to 37.4% in the prior year third quarter, as a result of
an unfavorable change in the bill rate/pay rate ratio and an
increase in costs related to the Company’s self-insured medical
program. Sequentially, gross margin decreased 200 basis points from
38.3% in the second quarter of fiscal 2017, primarily due to an
increase in employer payroll taxes after the reset for the new
calendar year and the aforementioned increase in medical coverage
costs.
Selling, general and administrative expenses (“S, G & A”)
for the third quarter of fiscal 2017 were $45.4 million (31.5% of
revenue) compared to $43.3 million (29.5% of revenue) in the prior
year third quarter and $46.1 million (31.2% of revenue) in the
second quarter of fiscal 2017. The quarter-over-quarter increase is
related to compensation and related benefit costs attributable to
investments made in our client delivery Managing Consultant program
to support the solutions initiatives underway. S, G &A in the
second quarter of fiscal 2017 includes $1.5 million in severance
and additional stock compensation expense for acceleration of
vesting of certain options related to the resignation of a senior
executive. The remaining sequential increase was driven by an
increase in employer payroll taxes at the beginning of the new
calendar year and increased medical coverage costs.
Revenue for the nine months ended February 25, 2017 was $434.8
million compared to $446.0 million for the nine months ended
February 27, 2016. Net income for the nine months ended February
25, 2017 was $14.2 million or $0.41 per diluted share, including
$0.03 per diluted share related to severance charges. This compares
to net income for the nine months ended February 27, 2016 of $21.8
million or $0.58 per diluted share.
Cash provided by operations and Adjusted EBITDA were $6.9
million and $32.9 million (7.6% of revenue), respectively, for the
nine months ended February 25, 2017, compared to cash provided by
operations and Adjusted EBITDA of $7.0 million and $45.8 million
(10.3% of revenue), respectively, for the nine months ended
February 27, 2016.
In the third quarter of fiscal 2017, the Company repurchased
400,100 shares of its common stock for $6.9 million under its
existing share repurchase program and paid a quarterly dividend to
shareholders totaling $3.3 million ($0.11 per diluted share).
Currently, the Company has a total of $125.1 million available for
share purchases under its existing share repurchase program. As of
February 25, 2017, the Company’s cash, cash equivalents and
short-term investments were $44.6 million compared to $116.0
million at fiscal year-end May 28, 2016. The decrease reflects the
use of cash to complete the Company’s tender offer in November
2016, as outlined in the second quarter earnings announcement.
CONFERENCE CALL
RGP will hold a conference call for analysts and investors at
5:00 p.m., ET today, April 5, 2017. 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 12, 2017 at 855-859-2056. The conference ID
number for the replay is 81231408. 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 3,300
professionals, annually serving over 1,800 clients around the world
from 66 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 the Company’s expectations regarding strategic
initiatives to enhance revenue and profitability. 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 Nine Months Ended February 25, February
27, February 25, February 27, 2017
2016 2017 2016 (Unaudited) (Unaudited) Revenue
$ 143,844 $ 146,779 $ 434,791 $ 446,006 Direct cost of services
91,597 91,851 271,507
274,739 Gross margin 52,247 54,928 163,284 171,267
Selling, general and administrative expenses (1) 45,376
43,318 135,046 130,446
Operating income before amortization and
depreciation (1)
6,871 11,610 28,238 40,821 Amortization of intangible assets - 30 -
90 Depreciation expense 909 867
2,511 2,606 Operating income (1) 5,962 10,713
25,727 38,125 Interest expense 351 - 415 - Interest income
(16 ) (52 ) (126 ) (118 ) Income before
provision for income taxes (1) 5,627 10,765 25,438 38,243 Provision
for income taxes (2) 2,743 4,808
11,224 16,477 Net income (1), (2) $ 2,884
$ 5,957 $ 14,214 $ 21,766 Net income
per common share: Basic (1), (2) $ 0.10 $ 0.16 $ 0.42
$ 0.59 Diluted (1), (2) $ 0.09 $ 0.16 $
0.41 $ 0.58 Weighted average common shares
outstanding: Basic 29,764 37,073
33,916 37,186 Diluted 30,584
37,615 34,550 37,777 Cash
dividends declared per common share $ 0.11 $ 0.10 $
0.33 $ 0.30
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
$1.5 million for both the three months ended February 25, 2017 and
February 27, 2016, and $4.7 million and $5.0 million for the nine
months ended February 25, 2017 and February 27, 2016, respectively.
The expense for the nine months ended February 25, 2017 includes
approximately $400,000, or $0.01 per share, 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
27, 2016 includes approximately $900,000, or $0.01 per share,
related to accelerated vesting of 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 49% and approximately 44% for the three months
ended February 25, 2017 and February 27, 2016, respectively, and
approximately 44% and 43% for the nine months ended February 25,
2017 and February 27, 2016, respectively. The nine months ended
February 25, 2017 include the reversal of approximately $200,000 of
tax valuation allowances and the nine months ended February 27,
2016 include the reversal of approximately $290,000 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 25, February
27, February 25, February 27, 2017
2016 2017 2016 (Unaudited) (Unaudited)
Net income $ 2,884 $ 5,957 $ 14,214 $ 21,766 Adjustments:
Amortization of intangible assets - 30 - 90 Depreciation expense
909 867 2,511 2,606 Interest expense 351 - 415 - Interest income
(16 ) (52 ) (126 ) (118 ) Provision for income taxes 2,743
4,808 11,224 16,477
EBITDA 6,871 11,610 28,238 40,821 Stock-based compensation
expense 1,508 1,483 4,658
5,028 Adjusted EBITDA $ 8,379 $ 13,093
$ 32,896 $ 45,849 Revenue $ 143,844 $ 146,779
$ 434,791 $ 446,006 Adjusted EBITDA Margin
5.8 % 8.9 % 7.6 %
10.3 %
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, 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 25,
2017
GAAP
February 27,
2016
GAAP
November 26,
2016
GAAP
% Decrease
February 25, 2017
vs.
February 27, 2016
GAAP
% Decrease
February 25, 2017
vs.
February 27, 2016
Constant Currency (1)
% Decrease
February 25, 2017
vs.
November 26,
2016
GAAP
% Decrease
February 25, 2017
vs.
November 26,
2016
Constant Currency (2)
$ 143,844 $ 146,779 $ 147,558 -2.0 % -1.2 % -2.5 % -1.8 %
(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 2016 and applying those rates to
foreign-denominated revenue in the third 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 second quarter of fiscal 2017 and applying those rates to
foreign-denominated revenue in the third 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) February
25, May 28, 2017 2016 (Unaudited)
Cash, cash equivalents and short-term investments $ 44,607 $
116,046 Accounts receivable, less allowances $ 96,864 $ 97,807
Total assets $ 345,355 $ 417,255 Current liabilities $ 58,545 $
70,884 Total stockholders’ equity $ 233,480 $ 342,649 Consultant
headcount, end of period 2,611 2,511 Shares outstanding, end of
period 29,646 36,229
Nine Months Ended February
25, February 27, 2017 2016 (Unaudited)
Cash flow from operating activities $ 6,926 $ 7,047 Cash
flow from investing activities $ 21,133 $ (1,659 ) Cash flow from
financing activities $ (73,785 ) $ (20,841 )
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version on businesswire.com: http://www.businesswire.com/news/home/20170405006235/en/
For Resources Connection, Inc.Media Contact:Michael
Sitrick(US+) 1-310-788-2850mike_sitrick@sitrick.comorInvestor
Contact:Herb Mueller, Chief Financial Officer(US+)
1-714-430-6500herb.mueller@rgp.com
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