Q2 2019 revenue increases 20.5% year-over-year
to $188.8 millionSG&A as a percent of revenue improves by 250
basis points sequentially and 120 basis points YOYQ2 2019 gross
margin improves to 38.9% from 37.9% in prior year quarterQ2 2019
diluted earnings per common share increases to $0.33 compared to
$0.27 in prior year quarterQ2 2019 net income increases to $10.6
million compared to $8.1 million in prior year quarterQ2 2019
Adjusted EBITDA Margin at 10.6% compared to 8.5% in prior year
quarter
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 second quarter ended November 24,
2018.
Second Quarter 2019 Revenue Financial Highlights
- Revenue of $188.8 million, up $32.1
million (20.5%) over the second quarter of fiscal 2018.
- U.S. revenue* increased 24.7% over the
second quarter of fiscal 2018.
- European revenue* increased 0.9% (4.2%
constant currency**) over the second quarter of fiscal 2018;
twelfth successive quarter-over-quarter growth.
- Asia Pacific revenue increased 4.4%
(7.4% constant currency**) over the second quarter of fiscal
2018.
Management Commentary
“We are extremely pleased by the momentum in our business now,”
said Kate Duchene, president and chief executive officer. “I
attribute the improving results to three important changes in our
Go To Market efforts -- the client service and technical sales
teams spend more time in front of clients, we have improved the
alignment of our incentive systems to sales growth and velocity in
our sales efforts has been delivered by a focused business
development team.”
Other Second Quarter 2019 Financial Highlights
- Gross margin of 38.9% improved from
37.9% in the prior year second quarter due to improvement in the
pay rate to bill rate ratio and lower costs in the Company’s
self-insured medical program.
- Selling, general and administrative
(“SG&A”) expense of $55.0 million (29.1% of revenue) compared
to $47.5 million (30.3% of revenue) in the second quarter of fiscal
2018 shows improvement as a percent of revenue of 120 basis points
year-over-year. On a sequential basis, SG&A improved by $1.4
million or 250 basis points as a percent of revenue, reflecting
reduced spend as well as improved leverage. Sequentially,
transformation expenses decreased in the second quarter by $0.8
million.
- Tax rate of 33% in the second quarter
due primarily to the favorable impact of the Tax Cuts and Jobs Act,
partially offset by non-benefit of losses in international
operations. The tax rate of 21% in the prior year was favorably
impacted by the reversal of valuation allowances of $2.4 million
that offset deferred tax assets of certain foreign entities.
- Pre-tax income increased in the second
quarter to $15.7 million compared to $10.3 million in the prior
year second quarter; net income increased to $10.6 million compared
to $8.1 million in the prior year second quarter.
- Diluted earnings per common share
increased to $0.33 compared to $0.27 in the prior year second
quarter.
- Adjusted EBITDA*** of $20.0 million
(10.6% as a percent of revenue) compared to $13.4 million (8.5% as
a percent of revenue) in the prior year second quarter.
- Net cash provided by operating
activities for the three months ended November 24, 2018 was $18.3
million compared to $14.8 million in the prior year comparable
period.
- The Board of Directors approved a $0.13
per share dividend to shareholders in the second quarter for $4.1
million (paid in December), compared to a $0.12 per share dividend
and $3.6 million in the prior year second quarter; Company share
buybacks in the second quarter totaled approximately 339,000 shares
for $5.5 million, with $107.0 million remaining for future common
stock purchases as of November 24, 2018.
- Cash and cash equivalents were $40.8
million as of November 24, 2018.
Other First Half Fiscal 2019 Financial Highlights
- Revenue of $367.4 million, up $69.5
million (23.3%) over the same period of fiscal 2018.
- Gross margin of 38.5% improved from
38.0% in the comparable prior year period.
- SG&A expense of $111.3 million
(30.3% of revenue) compared to $94.9 million (31.9% of revenue) for
the first six months of the prior year. The increase reflects $10.5
million of additional payroll and benefits from acquisitions and
headcount to support growth of critical markets; $5.6 million of
bonus and commissions tied to revenue growth; $1.6 of marketing
spend; and $1.8 million in other categories; offset by lower spend
on severance and acquisition/transformation/integration costs of
$3.1 million.
- Tax rate of 35% compared to 33% in the
comparable prior year period.
- Pre-tax income increased to $24.9
million compared to $15.3 million in the comparable prior year
period; net income increased to $16.3 million compared to $10.3
million in the comparable prior year period.
- Diluted earnings per common share
increased to $0.50 compared to $0.34 in the comparable prior year
period.
- Adjusted EBITDA*** of $33.2 million
(9.0% as a percent of revenue) compared to $21.3 million (7.1% as a
percent of revenue) in the comparable prior year period.
- Net cash provided by operating
activities for the six months ended November 24, 2018 was $1.7
million compared to $1.6 million in the comparable prior year
period.
- Dividends paid during the fiscal year
to date of $7.9 million compared to $6.8 million in the comparable
prior year period; Company share buybacks year to date of
approximately 807,000 shares for $13.0 million.
Other News
Today, the Company also announced the planned retirement of its
Chief Accounting Officer, John Bower, during the fourth quarter of
fiscal 2019. Mr. Bower has been with the Company in various
financial roles since 1998. The Company has commenced a search for
a Senior Vice President of Finance position.
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 separately identify revenue generated by legacy
Accretive operations as opposed to RGP; therefore, the Company is
unable to provide a separate organic revenue amount for results
during 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 second quarter fiscal
2018 conversion rates, and the sequential quarter constant currency
international revenue is computed using the comparable first
quarter fiscal 2019 conversion rates. Additional information is
provided below.
***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, January 3, 2019. 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 January 10, 2019 at 855-859-2056. The conference
ID number for the replay is 7073056. 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 4,300
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, 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 Six Months Ended November 24, November
25, November 24, November 25, 2018
2017 2018 2017 (Unaudited) (Unaudited) Revenue
$ 188,799 $ 156,738 $ 367,357 $ 297,924 Direct cost of services
115,378 97,319 225,785
184,807 Gross margin 73,421 59,419 141,572 113,117
Selling, general and administrative expenses (1) 54,959
47,498 111,325 94,913
Operating income before amortization and
depreciation (1)
18,462 11,921 30,247 18,204 Amortization of intangible assets 952
322 1,907 322 Depreciation expense 1,197 947
2,266 1,887 Operating income (1)
16,313 10,652 26,074 15,995 Interest expense 642 397 1,247 734
Interest income (34 ) (32 ) (113 ) (60
) Income before provision for income taxes (1) 15,705 10,287 24,940
15,321 Provision for income taxes (2) 5,141
2,149 8,635 5,071
Net income (1),(2)
$ 10,564 $ 8,138 $ 16,305 $ 10,250 Net
income per common share:
Basic (1),(2)
$ 0.33 $ 0.27 $ 0.51 $ 0.34
Diluted (1),(2)
$ 0.33 $ 0.27 $ 0.50 $ 0.34 Weighted
average common shares outstanding: Basic 31,721
30,173 31,731 29,991
Diluted 32,446 30,579 32,457
30,319 Cash dividends declared per common
share $ 0.13 $ 0.12 $ 0.26 $ 0.24
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 $1.7 million and $1.5 million for the three months ended
November 24, 2018 and November 25, 2017, respectively, and $3.0
million and $3.1 million for the six months ended November 24, 2018
and November 25, 2017, respectively. (2) The Company’s
effective tax rate was approximately 33% and approximately 21% for
the three months ended November 24, 2018 and November 25, 2017,
respectively, and approximately 35% and approximately 33% for the
six months ended November 24, 2018 and November 25, 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 the Company’s fiscal year ended May 26, 2018.
The three months ended November 25, 2017 includes the reversal of
approximately $2.4 million of valuation allowances on the deferred
tax assets of certain foreign entities. 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 INCOME TO ADJUSTED EBITDA
(Dollars in thousands) Three Months Ended
Six Months Ended November 24, November 25,
November 24, November 25, 2018 2017
2018 2017 (Unaudited) (Unaudited) Net
income $ 10,564 $ 8,138 $ 16,305 $ 10,250 Adjustments: Amortization
of intangible assets 952 322 1,907 322 Depreciation expense 1,197
947 2,266 1,887 Interest expense 642 397 1,247 734 Interest income
(34 ) (32 ) (113 ) (60 ) Provision for income taxes 5,141
2,149 8,635 5,071
EBITDA 18,462 11,921 30,247 18,204 Stock-based compensation expense
1,652 1,450 3,013 3,062 Contingent consideration adjustment
(130 ) - (33 ) - Adjusted EBITDA $ 19,984
$ 13,371 $ 33,227 $ 21,266 Revenue $
188,799 $ 156,738 $ 367,357 $ 297,924
Adjusted EBITDA Margin 10.6 % 8.5 % 9.0
% 7.1 %
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)
November 24, May 26, SELECTED BALANCE SHEET
INFORMATION:
2018 2018 (Unaudited) Cash
and cash equivalents $ 40,823 $ 56,470 Accounts receivable, less
allowances $ 146,499 $ 130,452 Total assets $ 431,290 $ 432,674
Current liabilities $ 85,585 $ 94,524 Total stockholders’ equity $
277,410 $ 268,825
Six Months Ended November
24, November 25, SELECTED CASH FLOW INFORMATION:
2018 2017 (Unaudited) Cash flow --
operating activities $ 1,665 $ 1,640 Cash flow -- investing
activities $ (3,408 ) $ (4,206 ) Cash flow -- financing activities
$ (13,298 ) $ (2,907 )
November 24, May 26,
SELECTED OTHER INFORMATION:
2018 2018 Consultant
headcount, end of period 3,389 3,247 Average bill rate, second
quarter $ 124 $ 124 Average pay rate, second quarter $ 62 $ 64
Average bill rate (constant currency-Q2 18), second quarter $ 124
-- Average pay rate (constant currency-Q2 18), second quarter $ 63
-- Common shares outstanding, end of period 31,724 31,614
RESOURCES CONNECTION, INC. CONSTANT
CURRENCY REVENUE COMPARISON (Dollars in thousands)
(Unaudited)
Three Months Ended November 24,
November 25, 2018 2017 % Change
Consolidated Revenue -- GAAP $ 188,799 $ 156,738 20.5 %
Consolidated Revenue -- Constant Currency (1) $ 190,137 21.3 %
United States Revenue -- GAAP $ 148,901 $ 119,443 24.7 % North
America Revenue -- GAAP $ 153,823 $ 122,458 25.6 % North America
Revenue -- Constant Currency (1) $ 154,046 25.8 % Europe Revenue --
GAAP $ 23,163 $ 22,961 0.9 % Europe Revenue -- Constant Currency
(1) $ 23,932 4.2 % Asia Pacific Revenue -- GAAP $ 11,813 $ 11,319
4.4 % Asia Pacific Revenue -- Constant Currency (1) $ 12,159 7.4 %
Three Months Ended November 24, August
25, 2018 2018 % Change Consolidated
Revenue -- GAAP $ 188,799 $ 178,558 5.7 % Consolidated Revenue --
Constant Currency (2) $ 189,270 6.0 % United States Revenue -- GAAP
$ 148,901 $ 141,229 5.4 % North America Revenue -- GAAP $ 153,823 $
146,171 5.2 % North America Revenue -- Constant Currency (2) $
153,809 5.2 % Europe Revenue -- GAAP $ 23,163 $ 20,684 12.0 %
Europe Revenue -- Constant Currency (2) $ 23,388 13.1 % Asia
Pacific Revenue -- GAAP $ 11,813 $ 11,703 0.9 % Asia Pacific
Revenue -- Constant Currency (2) $ 12,074 3.2 %
Six
Months Ended November 24, November 25,
2018 2017 % Change Consolidated Revenue
-- GAAP $ 367,357 $ 297,924 23.3 % Consolidated Revenue -- Constant
Currency (3) $ 368,887 23.8 % United States Revenue -- GAAP $
290,130 $ 232,568 24.8 % North America Revenue -- GAAP $ 299,994 $
238,395 25.8 % North America Revenue -- Constant Currency (3) $
300,503 26.1 % Europe Revenue -- GAAP $ 43,847 $ 38,110 15.1 %
Europe Revenue -- Constant Currency (3) $ 44,503 16.8 % Asia
Pacific Revenue -- GAAP $ 23,516 $ 21,419 9.8 % Asia Pacific
Revenue -- Constant Currency (3) $ 23,881 11.5 % EXPLANATORY
NOTES 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. Revenue for the three
and six months ended November 24, 2018 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. (1) 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
second 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 first quarter of fiscal 2019
and applying those rates to foreign-denominated revenue in the
second quarter of fiscal 2019. (3) The percentage change in
revenue on a constant currency basis is calculated using the
average foreign exchange rates for the six months ended November
25, 2017 and applying those rates to foreign-denominated revenue
for the six months ended November 24, 2018.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190103005655/en/
Media Contact:Michael Sitrick(US+)
1-310-788-2850mike_sitrick@sitrick.com
Analyst Contact:Herb Mueller, Chief Financial
Officer(US+) 1-714-430-6500herb.mueller@rgp.com
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