Resources Connection, Inc. Reports First Quarter Results for Fiscal 2019
IRVINE, Calif.--(BUSINESS WIRE)--Oct 3, 2018--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 HighlightsRevenue 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.
“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 HighlightsGross 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.
*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.
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.
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