[PART I—FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) This section provides the unaudited consolidated financial statements, management's discussion, market risk disclosures, and controls and procedures for the period [ITEM 1. Consolidated Financial Statements (Unaudited)](index=3&type=section&id=ITEM%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements for the three months ended August 24, 2019, including Balance Sheets, Statements of Operations, Comprehensive Income, Stockholders' Equity, and Cash Flows, with accompanying notes detailing significant accounting policies, acquisitions, divestitures, and new lease accounting standard adoption [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and equity as of specific dates Consolidated Balance Sheet Highlights (as of August 24, 2019 vs. May 25, 2019) | Account | August 24, 2019 ($ thousands) | May 25, 2019 ($ thousands) | Change | | :--- | :--- | :--- | :--- | | **Total Assets** | **496,611** | **428,370** | **+15.9%** | | Goodwill | 216,420 | 190,815 | +13.4% | | Operating right-of-use assets | 40,198 | - | New | | **Total Liabilities** | **208,180** | **145,974** | **+42.6%** | | Long-term debt | 73,000 | 43,000 | +69.8% | | Operating lease liabilities | 47,048 | - | New | | **Total Stockholders' Equity** | **288,431** | **282,396** | **+2.1%** | - The significant increase in assets and liabilities is primarily due to the acquisition of Veracity, which increased goodwill, and the adoption of the new lease accounting standard (ASC 842), which resulted in the recognition of operating right-of-use assets and lease liabilities[10](index=10&type=chunk)[34](index=34&type=chunk)[39](index=39&type=chunk) [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) This section outlines the company's financial performance, including revenue, expenses, and net income over a period Statement of Operations Summary (Three Months Ended) | Metric | August 24, 2019 ($ thousands) | August 25, 2018 ($ thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | 172,225 | 178,558 | -3.5% | | Gross Margin | 67,503 | 68,151 | -0.9% | | Income from Operations | 8,062 | 9,761 | -17.4% | | Net Income | 4,939 | 5,741 | -14.0% | | Diluted EPS | $0.15 | $0.18 | -16.7% | - Cash dividends declared per common share increased to **$0.14** from **$0.13** in the prior-year quarter[12](index=12&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section details the sources and uses of cash from operating, investing, and financing activities - Net cash used in operating activities was **$3.0 million**, a significant improvement compared to **$16.6 million** used in the same period last year[17](index=17&type=chunk) - Investing activities used **$24.8 million**, driven by the **$30.3 million** acquisition of Veracity (net of cash acquired)[17](index=17&type=chunk) - Financing activities provided **$30.7 million**, primarily from **$35.0 million** in proceeds from the Revolving Credit Facility, which was used to fund the Veracity acquisition[17](index=17&type=chunk) [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the consolidated financial statements - On July 31, 2019, the Company acquired Veracity Consulting Group for initial cash consideration of **$30.3 million** (net of **$2.1 million** cash acquired), plus potential earn-out payments, provisionally adding **$25.8 million** to goodwill[36](index=36&type=chunk)[39](index=39&type=chunk) - The company adopted the new lease accounting standard (ASC 842) on May 26, 2019, which resulted in the recognition of right-of-use assets and lease liabilities for its operating leases, materially impacting the balance sheet[32](index=32&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk) - The company divested its business in Sweden and closed its office in Belgium during the quarter, incurring **$0.7 million** in exit costs[43](index=43&type=chunk) - As of August 24, 2019, borrowings on the secured revolving credit facility were **$73.0 million**[58](index=58&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a **3.6%** year-over-year revenue decrease to **$172.2 million** for the first quarter of fiscal 2020, attributing it to reduced client demand in the Nordics and the conclusion of certain technical accounting projects, highlighting the acquisition of Veracity as a key strategic initiative to bolster digital transformation services, and detailing operational results, including a decline in Adjusted EBITDA margin to **6.9%**, and improved operating cash flow with increased borrowing to fund the acquisition [Overview and Business Strategy](index=22&type=section&id=Overview%20and%20Business%20Strategy) This section outlines the company's strategic objectives and key initiatives for business growth and market positioning - The company's core business strategy focuses on hiring and retaining highly qualified consultants, maintaining a distinctive corporate culture, building consultative client relationships, and strengthening the RGP brand[75](index=75&type=chunk) - A key strategic move in the quarter was the acquisition of Veracity Consulting Group to enhance digital transformation capabilities and offer comprehensive end-to-end solutions[81](index=81&type=chunk) - As part of a strategic review, the company divested its business in Sweden and closed its office in Belgium during the first quarter of fiscal 2020[82](index=82&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including revenue trends, expense management, and profitability Q1 FY2020 vs Q1 FY2019 Performance | Metric | Q1 FY2020 | Q1 FY2019 | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | $172.2M | $178.6M | -3.6% | | Revenue (Constant Currency) | - | - | -3.0% | | Adjusted EBITDA | $11.9M | $13.2M | -10.1% | | Adjusted EBITDA Margin | 6.9% | 7.4% | -50 bps | - The revenue decrease was primarily driven by reduced client demand in the Nordics and the wind-down of technical accounting implementation projects[93](index=93&type=chunk) - SG&A expenses increased slightly to **$57.0 million** from **$56.4 million**, mainly due to retention bonuses, severance costs from the Sweden divestiture, and **$0.6 million** in costs related to the Veracity acquisition[99](index=99&type=chunk) - The effective tax rate decreased to approximately **35%** from **38%** in the prior year quarter, attributed to lower global income and fewer stock option expirations[105](index=105&type=chunk)[106](index=106&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's ability to meet short-term obligations and fund long-term growth through its financial resources - Primary liquidity sources are cash from operations and a **$120 million** secured revolving credit facility[110](index=110&type=chunk) - As of August 24, 2019, the company had **$45.7 million** in cash and cash equivalents and **$73.0 million** in borrowings under its credit facility[110](index=110&type=chunk)[112](index=112&type=chunk) - The company borrowed an additional **$35.0 million** during the quarter to finance the acquisition of Veracity[117](index=117&type=chunk) - No shares of common stock were repurchased during the quarter, with approximately **$90.1 million** remaining available under the stock repurchase program[60](index=60&type=chunk)[118](index=118&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are identified as interest rate risk and foreign currency exchange rate risk, where interest rate fluctuations affect earnings on cash and costs on its **$73.0 million** of variable-rate debt, and foreign currency risk stems from international operations, which constitute **20.5%** of revenue, potentially impacting reported financial results, with the company not currently using hedging instruments - The company is exposed to interest rate risk on its **$73.0 million** of borrowings under its variable-rate credit facility, where a **10%** change in interest rates would impact quarterly interest expense by approximately **$0.1 million**[122](index=122&type=chunk)[124](index=124&type=chunk) - Foreign currency exchange rate risk exists as **20.5%** of revenues were generated outside the U.S., and the company does not currently use financial hedging to mitigate this risk[125](index=125&type=chunk)[129](index=129&type=chunk) [ITEM 4. Controls and Procedures](index=35&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Based on an evaluation as of August 24, 2019, the company's Chief Executive Officer and Interim Chief Financial Officer concluded that the disclosure controls and procedures were effective, with no material changes made to the internal control over financial reporting during the quarter - Management, including the CEO and Interim CFO, concluded that the company's disclosure controls and procedures were effective as of August 24, 2019[130](index=130&type=chunk) - There were no changes in the company's internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[130](index=130&type=chunk) [PART II—OTHER INFORMATION](index=35&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity security sales, and a list of exhibits filed with the report [ITEM 1. Legal Proceedings](index=35&type=section&id=ITEM%201.%20Legal%20Proceedings) The company reports that it is not a party to any material legal proceedings, and any ongoing legal matters are considered part of the ordinary course of business and are not expected to have a material adverse effect - The company is not a party to any material legal proceedings[131](index=131&type=chunk) [ITEM 1A. Risk Factors](index=35&type=section&id=ITEM%201A.%20Risk%20Factors) The company states there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended May 25, 2019 - There have been no material changes in risk factors from those disclosed in the company's most recent Form 10-K[132](index=132&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports that it did not purchase any of its common stock during the first quarter of fiscal 2020 - The Company did not repurchase any of its common stock during the first quarter of fiscal 2020[133](index=133&type=chunk) [ITEM 6. Exhibits](index=35&type=section&id=ITEM%206.%20Exhibits) This section provides an index of all exhibits filed with the report, including various consulting and severance agreements, offer letters, and certifications required by the Sarbanes-Oxley Act - The report includes several exhibits, such as consulting agreements, a retention bonus agreement, and CEO/CFO certifications pursuant to the Sarbanes-Oxley Act[137](index=137&type=chunk)

Resources Connection, Inc. (RECN) Q1 2020 Results Earnings Conference Call October 2, 2019 5:00 PM ET Company Participants Alice Washington - General Counsel Kate Duchene - CEO Tim Brackney - COO Jennifer Ryu - Interim CFO Conference Call Participants Andrew Steinerman - JPMorgan Operator Good afternoon, ladies and gentlemen, and welcome to the Resources Connection Incorporated Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I would like to turn ...

Part I [Item 1. Business](index=4&type=section&id=ITEM%201.%20BUSINESS) RGP is a global consulting firm specializing in business transformation, risk, and technology, serving over 2,400 clients with 3,800+ professionals, and growing through client expansion and strategic acquisitions - RGP is a global consulting firm focused on business transformation, risk, and technology, serving over **2,400 clients**, including **86 of the Fortune 100**, with a network of over **3,800 professionals**[14](index=14&type=chunk)[16](index=16&type=chunk) - The company's business strategy is built on hiring and retaining high-caliber consultants, maintaining a unique culture (LIFE AT RGP), building long-term consultative client relationships, and strengthening the RGP brand[25](index=25&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) - Key growth strategies include expanding services within the existing client base, attracting new clients, expanding geographically, and pursuing strategic acquisitions. In **fiscal 2018**, RGP acquired taskforce in Germany and Accretive in the United States[32](index=32&type=chunk)[33](index=33&type=chunk)[35](index=35&type=chunk) - As of **May 25, 2019**, the company had **3,896 employees**, consisting of **2,965 consultants** and **931 management and administrative staff**. None are covered by collective bargaining agreements[54](index=54&type=chunk) - In **fiscal 2019**, no single client accounted for more than **10% of revenue**, and the top **10 clients** represented approximately **15% of total revenues**[41](index=41&type=chunk) [Item 1A. Risk Factors](index=9&type=page&id=ITEM%201A.%20RISK%20FACTORS) The company faces multiple risks in economic downturns, intense competition, talent retention, IT systems, and regulatory compliance - An economic downturn could reduce demand for the company's services, and a significant downturn in the stock's market value could lead to goodwill impairment[58](index=58&type=chunk)[60](index=60&type=chunk) - The professional services market is highly competitive and fragmented. Many competitors have greater financial resources, revenue, and name recognition[62](index=62&type=chunk) - The business depends on attracting and retaining highly qualified consultants. The loss of a significant number of consultants could adversely affect operating results[77](index=77&type=chunk) - IT systems are vulnerable to security breaches, including cyber-attacks. Unauthorized access could lead to disclosure of confidential information, legal liability, and reputational harm[78](index=78&type=chunk) - The company's credit facility imposes operating and financial restrictions, including covenants on debt, interest coverage, and leverage ratios. Failure to comply could result in the acceleration of debt[85](index=85&type=chunk) - Compliance with evolving and stringent data privacy laws, such as the GDPR, may result in additional costs, require changes to business practices, and increase potential exposure to significant fines for non-compliance[88](index=88&type=chunk)[89](index=89&type=chunk) [Item 1B. Unresolved Staff Comments](index=15&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) Not applicable - Not applicable[92](index=92&type=chunk) [Item 2. Properties](index=15&type=section&id=ITEM%202.%20PROPERTIES) As of May 25, 2019, RGP maintained 48 domestic offices and 25 international offices, all under operating leases except for its corporate headquarters - As of **May 25, 2019**, the company maintained **48 domestic offices** and **25 international offices**, primarily under operating lease agreements[93](index=93&type=chunk) - The company owns its corporate office building in Irvine, California, which is approximately **57,000 square feet**. It occupies about **44,000 square feet** and leases the remaining **13,000 square feet** to third parties[93](index=93&type=chunk) [Item 3. Legal Proceedings](index=15&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company is not currently subject to any material legal proceedings - The company is not currently subject to any material legal proceedings[94](index=94&type=chunk) [Item 4. Mine Safety Disclosures](index=15&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) Not applicable - Not applicable[95](index=95&type=chunk) Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=16&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The company's common stock trades on Nasdaq, featuring a $0.13 quarterly dividend and an active stock repurchase program - The company's common stock trades on the Nasdaq Global Select Market under the symbol 'RECN'[98](index=98&type=chunk) Quarterly Dividend per Common Share | Fiscal Year | Quarterly Dividend per Share | | :--- | :--- | | 2019 | $0.13 | | 2018 | $0.12 | Issuer Purchases of Equity Securities (Q4 Fiscal 2019) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet be Purchased Under Announced Program | | :--- | :--- | :--- | :--- | | Feb 24 - Mar 23, 2019 | - | - | $97,736,690 | | Mar 24 - Apr 20, 2019 | 352,629 | $15.70 | $92,199,776 | | Apr 21 - May 25, 2019 | 131,034 | $16.05 | $90,096,548 | | **Total Q4 2019** | **483,663** | **$15.80** | **$90,096,548** | [Item 6. Selected Financial Data](index=18&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) This section summarizes five years of financial data, showing revenue growth, fluctuating net income, and consistent dividend increases Selected Financial Data (2015-2019) | (In thousands, except per share data) | May 25, 2019 | May 26, 2018 | May 27, 2017 | May 28, 2016 | May 30, 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenue** | $728,999 | $654,129 | $583,411 | $598,521 | $590,589 | | **Income from operations** | $50,159 | $30,624 | $34,402 | $53,803 | $50,258 | | **Net income** | $31,470 | $18,826 | $18,651 | $30,443 | $27,508 | | **Diluted Net income per common share** | $0.98 | $0.60 | $0.56 | $0.81 | $0.72 | | **Cash dividends declared per common share** | $0.52 | $0.48 | $0.44 | $0.40 | $0.32 | | **Total assets** | $428,370 | $432,674 | $364,128 | $417,255 | $416,981 | | **Long-term debt** | $43,000 | $63,000 | $48,000 | - | - | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Fiscal 2019 saw revenue grow 11.5% to $729.0 million, with improved profitability and positive operating cash flow [Results of Operations](index=21&type=section&id=Results%20of%20Operations) Fiscal 2019 revenue grew 11.5% to $729.0 million, driven by acquisitions and improved profitability metrics Fiscal 2019 vs. 2018 Performance | Metric | Fiscal 2019 | Fiscal 2018 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $729.0M | $654.1M | 11.5% | | Gross Margin | 38.7% | 37.6% | +1.1 p.p. | | Income from Operations | $50.2M | $30.6M | 63.8% | | Net Income | $31.5M | $18.8M | 67.2% | | Adjusted EBITDA | $64.6M | $43.0M | 50.1% | Revenue by Geography (FY 2019 vs. FY 2018) | Geography | FY 2019 Revenue (in millions) | % of Total | FY 2018 Revenue (in millions) | % of Total | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | | North America | $593.8M | 81.5% | $524.9M | 80.3% | 13.1% | | Europe | $86.4M | 11.8% | $84.7M | 12.9% | 1.9% | | Asia Pacific | $48.8M | 6.7% | $44.6M | 6.8% | 9.6% | | **Total** | **$729.0M** | **100.0%** | **$654.1M** | **100.0%** | **11.4%** | - Direct cost of services as a percentage of revenue improved to **61.3%** in **fiscal 2019** from **62.4%** in **fiscal 2018**, primarily due to an improved bill/pay ratio and lower self-insured medical program costs[140](index=140&type=chunk) - SG&A expenses increased by **$14.8 million**, mainly due to higher payroll from acquisitions and new hires (**$12.9 million**), increased commissions and bonuses (**$5.5 million**), and higher marketing costs (**$1.8 million**), offset by lower acquisition and integration costs (**$7.2 million**)[142](index=142&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is primarily from operating cash flow and a $120 million credit facility, with cash used for share repurchases and debt repayment - Primary sources of liquidity are cash from operations and a **$120 million** secured revolving credit facility. As of **May 25, 2019**, the company had **$43.0 million** in cash and equivalents and **$43.0 million** in borrowings under the facility[160](index=160&type=chunk)[162](index=162&type=chunk) Cash Flow Summary (Fiscal 2019 vs. 2018) | (In millions) | Fiscal 2019 | Fiscal 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $43.6 | $15.4 | | Net cash used in investing activities | ($12.9) | ($25.7) | | Net cash (used in)/provided by financing activities | ($43.6) | $3.5 | - Financing activities in **fiscal 2019** included **$29.9 million** for share repurchases, **$16.2 million** for dividend payments, and a **$20.0 million** repayment on the revolving credit facility[166](index=166&type=chunk)[167](index=167&type=chunk) Contractual Obligations as of May 25, 2019 | (In thousands) | Total | Fiscal 2020 | Fiscal 2021-2022 | Fiscal 2023-2024 | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating lease obligations | $54,705 | $12,828 | $21,548 | $14,286 | $6,043 | | Purchase obligations | $1,959 | $1,784 | $175 | - | - | | Long-term debt | $43,000 | - | $43,000 | - | - | [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company faces market risks from interest rate and foreign currency fluctuations, with no current hedging strategies - The company is exposed to interest rate risk on its **$43.0 million** of variable-rate borrowings under its credit facility. A **10% change** in interest rates would result in an approximate **$0.2 million** change in annual interest expense[177](index=177&type=chunk) - Approximately **21.0%** of the company's revenues for **fiscal 2019** were generated outside the United States, exposing the company to foreign currency exchange rate risk[179](index=179&type=chunk) - The company does not currently use financial hedging techniques to mitigate risks associated with foreign currency fluctuations[181](index=181&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=30&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents the company's audited consolidated financial statements for fiscal year ended May 25, 2019, including key statements and notes [Consolidated Balance Sheets](index=32&type=section&id=Consolidated%20Balance%20Sheets) As of May 25, 2019, total assets were $428.4 million, with decreased liabilities and increased stockholders' equity Consolidated Balance Sheet Highlights (in thousands) | Account | May 25, 2019 | May 26, 2018 | | :--- | :--- | :--- | | **Total Current Assets** | $191,657 | $194,881 | | Goodwill | $190,815 | $191,950 | | **Total Assets** | **$428,370** | **$432,674** | | **Total Current Liabilities** | $91,416 | $94,524 | | Long-term debt | $43,000 | $63,000 | | **Total Liabilities** | **$145,974** | **$163,849** | | **Total Stockholders' Equity** | **$282,396** | **$268,825** | [Consolidated Statements of Operations](index=33&type=section&id=Consolidated%20Statements%20of%20Operations) For fiscal year ended May 25, 2019, revenues increased to $729.0 million, leading to higher operating and net income Consolidated Statements of Operations (in thousands, except per share data) | Metric | FY 2019 | FY 2018 | FY 2017 | | :--- | :--- | :--- | :--- | | Revenue | $728,999 | $654,129 | $583,411 | | Gross margin | $282,439 | $246,055 | $221,325 | | Income from operations | $50,159 | $30,624 | $34,402 | | Net income | $31,470 | $18,826 | $18,651 | | Diluted net income per share | $0.98 | $0.60 | $0.56 | [Consolidated Statements of Cash Flows](index=36&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For fiscal year ended May 25, 2019, operating activities provided $43.6 million in cash, leading to a $13.4 million net decrease in cash and equivalents Consolidated Statements of Cash Flows (in thousands) | Activity | FY 2019 | FY 2018 | FY 2017 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $43,621 | $15,370 | $28,265 | | Net cash (used in) provided by investing activities | ($12,877) | ($25,666) | $20,409 | | Net cash (used in) provided by financing activities | ($43,601) | $3,474 | ($76,876) | | **Net decrease in cash** | **($13,425)** | **($5,859)** | **($28,760)** | | Cash and cash equivalents at end of period | $43,045 | $56,470 | $62,329 | [Notes to Consolidated Financial Statements](index=37&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, acquisitions, credit facility, income taxes, stock repurchases, and compensation plans - The company adopted ASC 606 (Revenue from Contracts with Customers) in **fiscal 2019** using the modified retrospective method, which did not have a significant impact on revenue recognition[207](index=207&type=chunk) - In **fiscal 2018**, the company acquired taskforce for initial consideration of approximately **$6.9 million** plus contingent consideration, and Accretive for **$20.0 million** in cash and **1,072,000 shares** of common stock[241](index=241&type=chunk)[244](index=244&type=chunk) - The company has a **$120 million** secured revolving credit facility expiring in **October 2021**. As of **May 25, 2019**, borrowings were **$43.0 million**[250](index=250&type=chunk)[253](index=253&type=chunk) - The effective tax rate for **fiscal 2019** was **34.4%**, compared to **34.8%** in **2018** and **44.8%** in **2017**. The company has foreign net operating loss carryforwards of **$63.5 million**[256](index=256&type=chunk)[260](index=260&type=chunk) - Under its stock repurchase program, the company bought back **1.8 million shares** for **$29.9 million** in **fiscal 2019**. Approximately **$90.1 million** remains available for future repurchases[272](index=272&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=54&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) None reported - None[298](index=298&type=chunk) [Item 9A. Controls and Procedures](index=54&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) As of May 25, 2019, the company's disclosure and internal controls over financial reporting were deemed effective - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of **May 25, 2019**[299](index=299&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of **May 25, 2019**. The independent auditor, RSM US LLP, also issued an unqualified opinion on its effectiveness[302](index=302&type=chunk)[303](index=303&type=chunk) - There were no changes in the company's internal control over financial reporting during the **fourth quarter of fiscal 2019** that materially affected, or are reasonably likely to materially affect, these controls[303](index=303&type=chunk) [Item 9B. Other Information](index=56&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) None reported - None[312](index=312&type=chunk) Part III [Item 10. Directors, Executive Officers and Corporate Governance](index=56&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) This section incorporates by reference information from the company's definitive proxy statement for its 2019 Annual Meeting of Stockholders - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2019 Annual Meeting of Stockholders proxy statement[314](index=314&type=chunk) [Item 11. Executive Compensation](index=56&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) This section incorporates by reference information from the company's 2019 proxy statement - Information regarding executive compensation is incorporated by reference from the company's 2019 Annual Meeting of Stockholders proxy statement[315](index=315&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=56&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) Security ownership information is incorporated from the 2019 proxy statement, detailing equity compensation plan issuances and remaining availability - Information regarding security ownership is incorporated by reference from the company's 2019 Annual Meeting of Stockholders proxy statement[316](index=316&type=chunk) Equity Compensation Plan Information as of May 25, 2019 | Plan Category | Number of Securities to Be Issued Upon Exercise (a) | Weighted-Average Exercise Price of Outstanding Options (b) | Number of Securities Remaining Available for Future Issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 6,028,841 | $15.95 | 1,816,514 | | Equity compensation plans not approved by security holders | - | - | - | | **Total** | **6,028,841** | **$15.95** | **1,816,514** | [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=57&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) This section incorporates by reference information from the company's 2019 proxy statement concerning director independence and the company's policy on related party transactions - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2019 Annual Meeting of Stockholders proxy statement[322](index=322&type=chunk) [Item 14. Principal Accounting Fees and Services](index=57&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTING%20FEES%20AND%20SERVICES) This section incorporates by reference information from the company's 2019 proxy statement regarding principal accounting fees and services - Information regarding principal accounting fees and services is incorporated by reference from the company's 2019 Annual Meeting of Stockholders proxy statement[323](index=323&type=chunk) Part IV [Item 15. Exhibits, Financial Statement Schedules](index=58&type=section&id=ITEM%2015.%20EXHIBITS%2C%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K report - This item lists the consolidated financial statements of the company included in Item 8[325](index=325&type=chunk) - Financial Statement Schedule II (Valuation and Qualifying Accounts) is included within the Notes to Consolidated Financial Statements[326](index=326&type=chunk) - An index of all exhibits filed with the Form 10-K is provided, including corporate governance documents, material contracts, and certifications[328](index=328&type=chunk)[329](index=329&type=chunk) [Item 16. Form 10-K Summary](index=60&type=section&id=ITEM%2016.%20FORM%2010-K%20SUMMARY) Not applicable - Not applicable[331](index=331&type=chunk)

Financial Data and Key Metrics Changes - The total revenue for Q4 2019 was $182.1 million, a 0.9% decrease year-over-year but a 1.5% increase sequentially [42] - Gross margin for Q4 was 40.1%, up 180 basis points from the prior year, primarily due to improvements in the pay rate to bill rate ratio [43] - Net income improved to $9.4 million or $0.29 per diluted share compared to $4 million or $0.12 per diluted share in the prior year quarter [44] Business Line Data and Key Metrics Changes - Global revenue increased 11.4% to $729 million on an annual basis, with North America showing improvements in sales productivity [31] - SG&A expenses for Q4 were $56.9 million or 31.2% of revenue, down from $58.9 million or 32% of revenue in the previous year [55] - Adjusted EBITDA for Q4 was $17.5 million or 9.6% of revenue, compared to $13.1 million or 7.1% of revenue in the year-ago quarter [44][58] Market Data and Key Metrics Changes - U.S. revenue decreased 0.6% year-over-year but increased 0.5% sequentially, with significant improvements in the Southeast, Chicago, and Northwest [45] - International revenues for Q4 were $39 million, a decrease of 1.8% year-over-year, but increased 5.3% sequentially [46] - Europe’s revenue decreased 7.9% year-over-year but increased 3.3% sequentially [47] Company Strategy and Development Direction - The company aims to become a more digital business, focusing on building a digital engagement platform and enhancing consulting capabilities [10][11] - A refreshed brand was launched to emphasize the human aspect of their services, reflecting a shift towards project-based talent engagement [25][27] - The company is committed to operational improvements in sales productivity, cost containment, and delivery efficiency [31][36] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future prospects despite short-term uncertainties, particularly in Europe [49] - The company is adapting to changes in client buying patterns, particularly among millennials who prefer efficient engagement methods [78] - There is a recognition of the need for ongoing transformation to meet client demands in the digital space [88] Other Important Information - The company is transitioning to an open office footprint to enhance collaboration among teams [62] - Cash and short-term investments at the end of Q4 were $49 million, with receivables at approximately $133.3 million [61] - The company repurchased $7.6 million in stock during Q4 and $29.9 million for the fiscal year [63] Q&A Session Summary Question: Revenue opportunity from digital initiatives - The marketplace for the human cloud platform is estimated to be about $63 billion, with a significant opportunity for professional services [75] Question: Client demand for self-service options - There is a notable demand from clients for self-service options, particularly among millennials who prefer efficient engagement [78] Question: Changes in client decision-making - There is cautious purchasing behavior, but clients are beginning to push through critical initiatives despite macroeconomic uncertainties [82] Question: Internal reception of digital transformation strategy - The company is undergoing a purposeful cultural transformation to enhance capabilities in technology and digital space [88] Question: Timeline for digital initiatives - The transformation is expected to take three to five years, with some products anticipated to launch by the end of the fiscal year [92] Question: Impact of Brexit and labor regulations in Europe - Changes in labor and tax regulations are negatively impacting the business, particularly regarding independent contractors [103] Question: Prospects in specific U.S. markets - There is a renewed focus on leadership in key markets like Tri-State and Southern California to improve performance [112]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 23, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 0-32113 RESOURCES CONNECTION, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 33-0832424 (S ...

Resources Connection, Inc. (RECN) Q3 2019 Results Conference Call April 3, 2019 5:00 PM ET Company Participants Alice Washington - General Counsel Kate Duchene - Chief Executive Officer Herb Mueller - Chief Financial Officer Tim Brackney - Chief Operating Officer Conference Call Participants Andrew Steinerman - JPMorgan Mark Marcon - Baird Operator Good day, ladies and gentlemen. And welcome to the Resources Global Professionals' Q3 Fiscal Year 2019 Earnings Conference Call. At this time, all participants a ...

Financial Data and Key Metrics Changes - Total revenues for Q2 2019 were $188.8 million, a 20.5% increase year-over-year and a 5.7% sequential increase [7][34] - Adjusted EBITDA was $20 million, or 10.6% of revenue, compared to $13.4 million, or 8.5% of revenue in the prior year [9][35] - Net income improved to $10.6 million, or $0.33 per diluted share, compared to $8.1 million, or $0.27 per diluted share in the prior year [35] Business Line Data and Key Metrics Changes - Solutions practices, particularly transaction services and technical accounting, grew 36% year-over-year [15][16] - The technical accounting practice is a leading driver, helping clients comply with new accounting standards [16] - The standalone business from the Accretive acquisition, Countsy, continues to grow positively [14] Market Data and Key Metrics Changes - North America revenue increased approximately 25% year-over-year, reflecting the Accretive acquisition and organic growth [7][36] - Europe’s revenue increased 1% year-over-year, with a sequential increase of 12% [38] - Asia Pacific growth was driven by China, with positive trends noted [41][79] Company Strategy and Development Direction - The company is focused on improving gross margins by expanding its mix of higher-value work and implementing institutional pricing [23][25] - There is a strategic emphasis on project management services for large companies, with a shift towards more agile workforce strategies [19][73] - The company aims to differentiate itself from the Big Four by enhancing its capabilities and client service [29][74] Management's Comments on Operating Environment and Future Outlook - Management noted macro challenges such as slower growth in China and uncertainties due to trade tensions and Brexit [27][76] - Despite these challenges, the company believes it is well-positioned for growth due to a stronger sales foundation and a focus on agile models [28][74] - The company is optimistic about growth opportunities in China and has made leadership changes to enhance its presence in the region [79] Other Important Information - SG&A expenses were $55 million, or 29.1% of revenue, down from 30.3% in the prior year [35][48] - The average hourly bill rate was approximately $124, consistent with the previous quarter [46] - The company repurchased $5.5 million in stock during the quarter, with $107 million remaining in the stock buyback program [56][57] Q&A Session Summary Question: Expectations on bill rates and wage rates - Management is committed to bill rate improvement and believes it will continue through the calendar year, while wage rates are holding steady [66][68] Question: Insights on macroeconomic conditions and client feedback - Clients are focusing on bottom-line initiatives, and there is a shift towards more agile workforce strategies, providing opportunities for the company [72][73] Question: Impact of Brexit and growth in China - Clients in the UK do not anticipate significant operational migration due to Brexit, while growth in China remains strong with new leadership in place [76][79] Question: Performance of lease accounting services - Lease accounting services are growing and opening new client opportunities, although they may replace some fundamental finance work [84][86] Question: Progress in specific regional offices - Leadership changes in the Tri-State area are stabilizing, while Chicago and Southern California are showing positive growth trends [90][95]

[PART I—FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) This part presents the unaudited consolidated financial statements, management's discussion, market risk disclosures, and controls and procedures for Resources Connection, Inc [ITEM 1. Consolidated Financial Statements (Unaudited)](index=3&type=section&id=ITEM%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements of Resources Connection, Inc. for the periods ended November 24, 2018, and November 25, 2017, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, along with detailed notes on accounting policies, acquisitions, and other financial disclosures [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific reporting dates | Metric | Nov 24, 2018 (in thousands) | May 26, 2018 (in thousands) | Change | | :-------------------------------- | :-------------------------- | :------------------------ | :----- | | Total Assets | $431,290 | $432,674 | $(1,384) | | Cash and cash equivalents | $40,823 | $56,470 | $(15,647) | | Trade accounts receivable, net | $146,499 | $130,452 | $16,047 | | Total Liabilities | $153,880 | $163,849 | $(9,969) | | Total Stockholders' Equity | $277,410 | $268,825 | $8,585 | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) This section details the company's financial performance, presenting revenues, expenses, and net income for the three and six months ended November 24, 2018, and November 25, 2017 | Metric (in thousands) | 3 Months Ended Nov 24, 2018 | 3 Months Ended Nov 25, 2017 | YoY Change (%) | 6 Months Ended Nov 24, 2018 | 6 Months Ended Nov 25, 2017 | YoY Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Revenue | $188,799 | $156,738 | 20.5% | $367,357 | $297,924 | 23.3% | | Gross margin | $73,421 | $59,419 | 23.6% | $141,572 | $113,117 | 25.2% | | Income from operations | $16,313 | $10,652 | 53.1% | $26,074 | $15,995 | 63.0% | | Net income | $10,564 | $8,138 | 29.8% | $16,305 | $10,250 | 59.1% | | Basic EPS | $0.33 | $0.27 | 22.2% | $0.51 | $0.34 | 50.0% | | Diluted EPS | $0.33 | $0.27 | 22.2% | $0.50 | $0.34 | 47.1% | | Cash dividends declared per common share | $0.13 | $0.12 | 8.3% | $0.26 | $0.24 | 8.3% | [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This section reports the company's total comprehensive income, including net income and other comprehensive income items like foreign currency translation adjustments | Metric (in thousands) | 3 Months Ended Nov 24, 2018 | 3 Months Ended Nov 25, 2017 | YoY Change (%) | 6 Months Ended Nov 24, 2018 | 6 Months Ended Nov 25, 2017 | YoY Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Net income | $10,564 | $8,138 | 29.8% | $16,305 | $10,250 | 59.1% | | Foreign currency translation adjustment, net of tax | $(1,426) | $(610) | 133.8% | $(2,028) | $2,105 | -196.3% | | Total comprehensive income | $9,138 | $7,528 | 21.4% | $14,277 | $12,355 | 15.6% | [Consolidated Statement of Stockholders' Equity](index=6&type=section&id=Consolidated%20Statement%20of%20Stockholders%27%20Equity) This section outlines changes in the company's stockholders' equity, including common stock, additional paid-in capital, retained earnings, and treasury stock | Metric (in thousands) | As of Nov 24, 2018 | As of May 26, 2018 | Change | | :-------------------------------- | :----------------- | :----------------- | :----- | | Total Stockholders' Equity | $277,410 | $268,825 | $8,585 | | Common Stock (Shares) | 62,169 | 61,252 | 917 | | Additional Paid-in Capital | $445,098 | $429,578 | $15,520 | | Retained Earnings | $343,827 | $335,741 | $8,086 | | Treasury Stock (Amount) | $(499,724) | $(486,722) | $(13,002) | | Net income for the six months ended Nov 24, 2018 | $16,305 | N/A | N/A | | Cash dividends declared ($0.26 per share) | $(8,219) | N/A | N/A | | Purchase of shares | $(13,002) | N/A | N/A | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended November 24, 2018, and November 25, 2017 | Cash Flow Activity (in thousands) | 6 Months Ended Nov 24, 2018 | 6 Months Ended Nov 25, 2017 | Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :----- | | Net cash provided by operating activities | $1,665 | $1,640 | $25 | | Net cash used in investing activities | $(3,408) | $(4,206) | $798 | | Net cash used in financing activities | $(13,298) | $(2,907) | $(10,391) | | Net decrease in cash | $(15,647) | $(6,045) | $(9,602) | | Cash and cash equivalents at end of period | $40,823 | $56,284 | $(15,461) | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed disclosures and explanations of the accounting policies, significant transactions, and other financial information supporting the consolidated financial statements [Note 1. Description of the Company and its Business](index=8&type=section&id=Note%201.%20Description%20of%20the%20Company%20and%20its%20Business) This note describes Resources Connection, Inc. as a multinational business consulting firm offering agile services and talent across various professional domains - Resources Connection, Inc. (RGP) is a multinational business consulting firm offering agile consulting services and talent in areas like accounting, finance, governance, risk, compliance, information management, human capital, supply chain, and legal/regulatory[24](index=24&type=chunk) - The company operates globally with offices in the U.S., Asia, Australia, Canada, Europe, and Mexico[24](index=24&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=8&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and methods used in preparing the financial statements, including interim information, revenue recognition, and foreign currency translation [Interim Financial Information](index=8&type=section&id=Interim%20Financial%20Information) This section clarifies that interim financial information is unaudited and includes necessary adjustments, but is not indicative of full fiscal year results - Interim financial information is unaudited but includes all necessary normal recurring adjustments for fair presentation[26](index=26&type=chunk) - Interim results are not necessarily indicative of full fiscal year results and should be read with the prior annual 10-K[27](index=27&type=chunk) [Revenue Recognition](index=8&type=section&id=Revenue%20Recognition) This section details the company's revenue recognition policy, including the adoption of ASC Topic 606 and the method for recognizing revenue over time based on hours worked - Effective May 27, 2018, the company adopted ASC Topic 606, Revenue from Contracts with Customers, using the modified retrospective method, with no significant impact on revenue recognition or opening retained earnings[28](index=28&type=chunk) - Revenue is recognized over time based on hours worked by professionals, reflecting the transfer of control to the client[29](index=29&type=chunk) - Conversion fees were **0.4% of revenue** for the three months ended November 24, 2018, and **0.5%** for the six months ended November 24, 2018. Permanent placement fees were **0.6%** and **0.6%** for the same periods, respectively[33](index=33&type=chunk) [Foreign Currency Translation](index=9&type=section&id=Foreign%20Currency%20Translation) This section explains the accounting treatment for foreign currency translation, including the use of local currency as functional currency and the recording of adjustments - Non-U.S. subsidiary financial statements use local currency as functional currency[35](index=35&type=chunk) - Assets and liabilities are translated at period-end exchange rates, while income and expenses use average rates[35](index=35&type=chunk) - Translation adjustments are recorded as a component of accumulated other comprehensive income or loss[35](index=35&type=chunk) [Net Income Per Share Information](index=9&type=section&id=Net%20Income%20Per%20Share%20Information) This section provides details on the calculation of basic and diluted net income per share, including the weighted average shares outstanding | Metric (in thousands, except per share) | 3 Months Ended Nov 24, 2018 | 3 Months Ended Nov 25, 2017 | 6 Months Ended Nov 24, 2018 | 6 Months Ended Nov 25, 2017 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $10,564 | $8,138 | $16,305 | $10,250 | | Basic Weighted average shares | 31,721 | 30,173 | 31,731 | 29,991 | | Diluted Weighted average shares | 32,446 | 30,579 | 32,457 | 30,319 | | Basic EPS | $0.33 | $0.27 | $0.51 | $0.34 | | Diluted EPS | $0.33 | $0.27 | $0.50 | $0.34 | | Anti-dilutive shares not included | 3,248 | 5,268 | 3,112 | 5,225 | [Stock-Based Compensation](index=10&type=section&id=Stock-Based%20Compensation) This section describes the accounting for stock-based compensation, including the valuation model used and the recognition of expense over the service period - Compensation expense for share-based awards (stock options, restricted stock, RSUs, ESPP) is recognized based on estimated fair value at grant date[38](index=38&type=chunk) - The Black-Scholes valuation model is used for stock option awards, with expense recognized on a straight-line basis over the service period[39](index=39&type=chunk) [Use of Estimates](index=10&type=section&id=Use%20of%20Estimates) This section highlights management's use of estimates and assumptions in preparing GAAP financial statements and the potential for actual results to differ - GAAP financial statements require management to make estimates and assumptions affecting reported asset/liability amounts and revenue/expense during the reporting period[41](index=41&type=chunk) - Actual results could differ from these estimates and assumptions[41](index=41&type=chunk) [Note 3. Acquisitions](index=10&type=section&id=Note%203.%20Acquisitions) This note details the company's acquisitions in fiscal 2018, including taskforce – Management on Demand AG and Accretive Solutions, Inc., and their financial considerations - In fiscal 2018, the company completed two acquisitions: taskforce – Management on Demand AG (Germany) and Accretive Solutions, Inc. (U.S.)[42](index=42&type=chunk)[44](index=44&type=chunk) - The taskforce acquisition involved initial consideration of **€5.8 million** (approximately **$6.9 million**) in cash and restricted stock, plus contingent earn-out payments based on Adjusted EBITDA for calendar years 2017, 2018, and 2019[42](index=42&type=chunk)[43](index=43&type=chunk) - The Accretive acquisition involved **$20.0 million** in cash and **1,072,000 shares** of restricted common stock, with integration into RGP's business model completed as of the first day of fiscal 2019[44](index=44&type=chunk) [Note 4. Intangible Assets and Goodwill](index=11&type=section&id=Note%204.%20Intangible%20Assets%20and%20Goodwill) This note provides a breakdown of the company's intangible assets and goodwill, including changes due to acquisitions and amortization expense | Intangible Asset (in thousands) | Net as of Nov 24, 2018 | Net as of May 26, 2018 | Change | | :------------------------------ | :--------------------- | :--------------------- | :----- | | Customer contracts and relationships | $12,164 | $13,302 | $(1,138) | | Tradenames | $3,370 | $3,921 | $(551) | | Consultant list | $459 | $610 | $(151) | | Non-compete agreements | $524 | $698 | $(174) | | Total Intangible assets, net | $16,517 | $18,531 | $(2,014) | | Metric (in thousands) | Nov 24, 2018 | Nov 25, 2017 | | :-------------------- | :----------- | :----------- | | Goodwill, end of period | $191,172 | $181,208 | | Goodwill, beginning of year | $191,950 | $171,088 | | Acquisitions | $3 | $9,039 | | Impact of foreign currency exchange rate changes | $(781) | $1,081 | - Amortization expense increased to **$1.0 million** for the three months ended November 24, 2018 (from **$0.3 million** in prior year) and **$1.9 million** for the six months (from **$0.3 million** in prior year), primarily due to intangible assets acquired in the Accretive transaction[45](index=45&type=chunk) [Note 5. Income Taxes](index=11&type=section&id=Note%205.%20Income%20Taxes) This note discusses the impact of tax law changes, such as the Tax Cuts and Jobs Act, on the company's income tax provision and effective tax rate - The Tax Cuts and Jobs Act (2017) reduced the U.S. corporate tax rate from **35% to 21%** effective January 1, 2018, leading to a provisional income tax benefit of approximately **$0.8 million** from deferred tax asset/liability re-measurement in fiscal 2018[47](index=47&type=chunk) - The company is evaluating the impact of the GILTI provision and has recognized provisional tax impacts as a current expense for the six months ended November 24, 2018[49](index=49&type=chunk) | Metric | 3 Months Ended Nov 24, 2018 | 3 Months Ended Nov 25, 2017 | 6 Months Ended Nov 24, 2018 | 6 Months Ended Nov 25, 2017 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Provision for income taxes | $5,141 | $2,149 | $8,635 | $5,071 | | Effective tax rate | 33% | 21% | 35% | 33% | [Note 6. Long-Term Debt](index=13&type=section&id=Note%206.%20Long-Term%20Debt) This note details the company's $120 million secured revolving credit facility, including outstanding borrowings and compliance with financial covenants - The company has a **$120 million** secured revolving credit facility with Bank of America, consisting of a **$90 million** revolving loan and a **$30 million** reducing revolving loan, expiring October 17, 2021[54](index=54&type=chunk) - As of November 24, 2018, borrowings under the facility were **$58.0 million**, all under the Revolving Loan, with **$30.7 million** remaining to borrow under the Revolving Loan and **$30.0 million** under the Reducing Revolving Loan[57](index=57&type=chunk) - The company was in compliance with all financial covenants under the Facility as of November 24, 2018[55](index=55&type=chunk) [Note 7. Stockholders' Equity](index=13&type=section&id=Note%207.%20Stockholders%27%20Equity) This note provides information on the company's stock repurchase program, including shares purchased and remaining authorization - In July 2015, the board approved a stock repurchase program for up to **$150 million** of common stock[58](index=58&type=chunk) - During the six months ended November 24, 2018, the company purchased **806,448 shares** for approximately **$13.0 million** at an average price of **$16.12 per share**[58](index=58&type=chunk) - Approximately **$107.0 million** remained available for future repurchases under the program as of November 24, 2018[58](index=58&type=chunk) [Note 8. Supplemental Disclosure of Cash Flow Information](index=13&type=section&id=Note%208.%20Supplemental%20Disclosure%20of%20Cash%20Flow%20Information) This note offers additional details on non-cash investing and financing activities and other cash flow items not presented elsewhere in the cash flow statement | Metric (in thousands) | 6 Months Ended Nov 24, 2018 | 6 Months Ended Nov 25, 2017 | | :-------------------- | :-------------------------- | :-------------------------- | | Income taxes paid | $6,778 | $6,248 | | Interest paid | $1,227 | $712 | | Dividends declared, not paid | $4,124 | $3,663 | | Acquisition of taskforce: Issuance of common stock | $0 | $2,602 | | Acquisition of taskforce: Liability for contingent consideration | $0 | $6,514 | [Note 9. Stock-Based Compensation Plans](index=14&type=section&id=Note%209.%20Stock-Based%20Compensation%20Plans) This note describes the company's stock-based compensation plans, including stock options, restricted stock, and the Employee Stock Purchase Plan (ESPP) [Stock Options and Restricted Stock](index=14&type=section&id=Stock%20Options%20and%20Restricted%20Stock) This section details the activity and terms of stock options and restricted stock awards, including shares available for grant and vesting schedules - As of November 24, 2018, **1,359,000 shares** were available for award grant purposes under the 2014 Performance Incentive Plan[60](index=60&type=chunk) - Stock option grants generally vest in equal annual installments over four years and terminate ten years from the grant date[61](index=61&type=chunk) | Stock Option Activity (in thousands) | Number of Shares Under Option | Weighted Average Exercise Price | Aggregate Intrinsic Value | | :----------------------------------- | :---------------------------- | :------------------------------ | :------------------------ | | Outstanding at May 26, 2018 | 6,869 | $15.10 | $12,310 | | Granted | 1,290 | $18.96 | N/A | | Exercised | (752) | $13.85 | N/A | | Forfeited | (128) | $15.32 | N/A | | Expired | (268) | $19.41 | N/A | | Outstanding at Nov 24, 2018 | 7,011 | $15.78 | $8,934 | | Exercisable at Nov 24, 2018 | 4,405 | $14.97 | $7,988 | [Stock-Based Compensation Expense](index=15&type=section&id=Stock-Based%20Compensation%20Expense) This section reports the total unrecognized compensation cost related to unvested employee stock options and restricted stock awards - As of November 24, 2018, there was **$10.5 million** of total unrecognized compensation cost related to unvested employee stock options, expected to be recognized over a weighted-average period of **38 months**[64](index=64&type=chunk) | Metric (in thousands) | 3 Months Ended Nov 24, 2018 | 3 Months Ended Nov 25, 2017 | 6 Months Ended Nov 24, 2018 | 6 Months Ended Nov 25, 2017 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Stock-based compensation expense | $1,700 | $1,500 | $3,000 | $3,100 | | Restricted stock awards expense | $400 | $300 | $800 | $600 | [Employee Stock Purchase Plan](index=15&type=section&id=Employee%20Stock%20Purchase%20Plan) This section describes the ESPP, allowing employees to purchase common stock at a discount, and details shares issued and available - The ESPP allows qualified employees to purchase common stock at **85%** of the lesser of the fair market value at the beginning or end of each semi-annual stock purchase period[67](index=67&type=chunk) - **166,000 shares** were issued under the ESPP during the six months ended November 24, 2018[67](index=67&type=chunk) - As of November 24, 2018, **414,000 shares** of common stock were available for issuance under the ESPP[67](index=67&type=chunk) [Note 10. Segment Information and Enterprise Reporting](index=15&type=section&id=Note%2010.%20Segment%20Information%20and%20Enterprise%20Reporting) This note presents revenue and long-lived asset information by geographic region, confirming the company operates as a single segment - The company operates as one segment, with accounting policies consistent across domestic and international operations[68](index=68&type=chunk) | Region (in thousands) | 3 Months Ended Nov 24, 2018 | 3 Months Ended Nov 25, 2017 | 6 Months Ended Nov 24, 2018 | 6 Months Ended Nov 25, 2017 | Long-Lived Assets (Nov 24, 2018) | Long-Lived Assets (May 26, 2018) | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | United States Revenue | $148,901 | $119,443 | $290,130 | $232,568 | $198,573 | $198,280 | | International Revenue | $39,898 | $37,295 | $77,227 | $65,356 | $32,815 | $34,614 | | Total Revenue | $188,799 | $156,738 | $367,357 | $297,924 | $231,388 | $232,894 | [Note 11. Legal Proceedings](index=15&type=section&id=Note%2011.%20Legal%20Proceedings) This note states that the company is involved in ordinary course legal matters, but management believes they will not materially affect financial position or results - The company is involved in certain legal matters arising in the ordinary course of business[69](index=69&type=chunk) - Management believes that all such matters, if disposed of unfavorably, would not have a material adverse effect on the company's financial position, cash flows, or results of operations[69](index=69&type=chunk) [Note 12. Recent Accounting Pronouncements](index=16&type=section&id=Note%2012.%20Recent%20Accounting%20Pronouncements) This note discusses recently adopted and pending accounting pronouncements, including their expected impact on the company's financial statements [Accounting Pronouncements Adopted During Current Fiscal Year](index=16&type=section&id=Accounting%20Pronouncements%20Adopted%20During%20Current%20Fiscal%20Year) This section details the accounting pronouncements adopted during the current fiscal year, such as ASC 606 and ASU 2018-15, and their initial impact - The company adopted ASC 606 (Revenue from Contracts with Customers) effective May 27, 2018, using the modified retrospective method, which did not have a significant impact on revenue recognition or opening retained earnings[70](index=70&type=chunk) - ASU 2018-15 (Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract) was early adopted prospectively in Q1 fiscal 2019, resulting in approximately **$0.8 million** capitalized in Other Assets[71](index=71&type=chunk)[72](index=72&type=chunk) - ASU 2017-09 (Scope of Modification Accounting for Stock Compensation) was adopted effective May 27, 2018, applied prospectively[73](index=73&type=chunk) [Accounting Pronouncements Pending Adoption](index=16&type=section&id=Accounting%20Pronouncements%20Pending%20Adoption) This section lists accounting pronouncements pending adoption, including ASU 2016-02 (Leases), and their anticipated effects on future financial reporting - ASU 2018-13 (Fair Value Measurement) is effective for fiscal 2021; no material impact is expected[74](index=74&type=chunk) - ASU 2017-04 (Simplifying the Test for Goodwill Impairment) is effective for fiscal 2021; no initial impact is expected based on the most recent test[75](index=75&type=chunk) - ASU 2016-13 (Measurement of Credit Losses on Financial Instruments) is effective for fiscal 2021; the company is currently evaluating its potential impact[76](index=76&type=chunk) - ASU 2016-02 (Leases) is effective for fiscal 2020 and is expected to have a significant impact on the Consolidated Balance Sheet assets and liabilities, but not a material impact on the Consolidated Statements of Operations[77](index=77&type=chunk)[78](index=78&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, highlighting key performance indicators, strategic initiatives, critical accounting policies, and a detailed comparison of financial results for the three and six months ended November 24, 2018, against prior periods. It also discusses liquidity, capital resources, and recent accounting pronouncements [Overview](index=17&type=section&id=Overview) This section introduces RGP as a multinational business consulting firm, outlining its history, service offerings, and strategic focus on sales culture and cost containment - RGP is a multinational business consulting firm providing agile consulting services and talent in areas such as finance, accounting, information management, corporate advisory, governance, risk, compliance, supply chain, human capital, and legal/regulatory[81](index=81&type=chunk)[82](index=82&type=chunk) - The company was founded in 1996, operated as part of Deloitte until 1999, and completed its IPO in December 2000[83](index=83&type=chunk) - RGP completed strategic initiatives including cultivating a robust sales culture, redesigning its business model to enhance client offerings (Transaction Services, Technical Accounting Services, Data & Analytics), and focusing on cost containment, reducing S, G & A as a percentage of revenue to **29.1%** in Q2 fiscal 2019[85](index=85&type=chunk)[86](index=86&type=chunk)[87](index=87&type=chunk) [Critical Accounting Policies](index=19&type=section&id=Critical%20Accounting%20Policies) This section describes the company's critical accounting policies, including revenue recognition, valuation of long-lived assets, allowance for doubtful accounts, income taxes, and stock-based compensation [Revenue recognition](index=19&type=section&id=Revenue%20recognition) This section explains the company's revenue recognition policy, where revenue is recognized over time based on hours worked and variable consideration is estimated - Revenue is recognized over time, based on hours worked by the company's professionals, reflecting the transfer of control of promised services to clients[94](index=94&type=chunk) - Variable consideration (e.g., volume discounts, rebates) is estimated using the most likely amount method and recognized net of revenue to prevent significant reversals[94](index=94&type=chunk) [Valuation of long-lived assets](index=19&type=section&id=Valuation%20of%20long-lived%20assets) This section details the company's policy for assessing impairment of long-lived tangible and intangible assets, including annual goodwill impairment tests - The company assesses potential impairment of long-lived tangible and intangible assets periodically or when circumstances indicate carrying value may not be recoverable[95](index=95&type=chunk) - Goodwill is not amortized but is assessed for impairment at least annually, with future market value fluctuations potentially leading to impairment reductions[95](index=95&type=chunk) [Allowance for doubtful accounts](index=19&type=section&id=Allowance%20for%20doubtful%20accounts) This section describes the company's policy for maintaining an allowance for estimated losses from uncollectible client payments, based on financial condition and historical trends - An allowance for doubtful accounts is maintained for estimated losses from clients failing to make required payments[96](index=96&type=chunk) - Estimates are based on client financial condition, historical trends, and other pertinent information, with potential for material impact from significant changes in client liquidity[96](index=96&type=chunk) [Income taxes](index=19&type=section&id=Income%20taxes) This section outlines the company's approach to estimating income taxes, including assessing current tax exposure and deferred tax assets and liabilities - Estimates of income taxes are required in each operating jurisdiction, assessing current tax exposure and temporary differences for deferred tax assets and liabilities[97](index=97&type=chunk) - A valuation allowance is established for deferred tax assets if recovery is not likely, and changes could materially affect future financial results[97](index=97&type=chunk) [Stock-based compensation](index=20&type=section&id=Stock-based%20compensation) This section explains the valuation of employee stock options using the Black-Scholes model and the accounting for stock-based compensation expense - Employee stock options are valued using the Black-Scholes option-pricing model, which considers variables such as expected stock price volatility, employee exercise behaviors, expected term, dividends, and risk-free interest rates[99](index=99&type=chunk)[100](index=100&type=chunk) - Stock-based compensation expense is reduced for estimated forfeitures, which are based on historical experience and revised if actual forfeitures differ[99](index=99&type=chunk) [Results of Operations](index=20&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's financial performance, including revenue, expenses, and profitability metrics for the current and prior periods | Metric (in thousands) | 3 Months Ended Nov 24, 2018 | 3 Months Ended Nov 25, 2017 | YoY Change (%) | 6 Months Ended Nov 24, 2018 | 6 Months Ended Nov 25, 2017 | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Net income | $10,564 | $8,138 | 29.8% | $16,305 | $10,250 | 59.1% | | EBITDA | $18,462 | $11,921 | 54.9% | $30,247 | $18,204 | 66.1% | | Adjusted EBITDA | $19,984 | $13,371 | 49.4% | $33,227 | $21,266 | 56.2% | | Revenue | $188,799 | $156,738 | 20.5% | $367,357 | $297,924 | 23.3% | | Adjusted EBITDA Margin | 10.6% | 8.5% | 24.7% | 9.0% | 7.1% | 26.8% | - EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin are non-GAAP financial measures used by management to assess core operating performance and provide useful information to investors, but should not be considered substitutes for GAAP measures[105](index=105&type=chunk) [Three Months Ended November 24, 2018 Compared to Three Months Ended November 25, 2017](index=22&type=section&id=Three%20Months%20Ended%20November%2024%2C%202018%20Compared%20to%20Three%20Months%20Ended%20November%2025%2C%202017) This section compares the company's financial results for the three months ended November 24, 2018, against the same period in the prior year, highlighting key changes in revenue and expenses [Revenue](index=22&type=section&id=Revenue_3M) This section analyzes revenue performance for the three-month period, including growth rates, bill rate improvements, and regional contributions | Metric | 3 Months Ended Nov 24, 2018 | 3 Months Ended Nov 25, 2017 | YoY Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :------------- | | Revenue | $188,799 | $156,738 | 20.5% | | Revenue (Constant Currency) | N/A | N/A | 21.3% | | Bill rates improvement | 0.8% | N/A | N/A | | Hours worked increase | 19.6% | N/A | N/A | | Region | Revenue (Nov 24, 2018) | Revenue (Nov 25, 2017) | % Change | % of Total (Nov 24, 2018) | % of Total (Nov 25, 2017) | | :----------- | :--------------------- | :--------------------- | :--------- | :------------------------ | :------------------------ | | North America | $153,823 | $122,458 | 25.6% | 81.5% | 78.1% | | Europe | $23,163 | $22,961 | 0.9% | 12.3% | 14.7% | | Asia Pacific | $11,813 | $11,319 | 4.4% | 6.2% | 7.2% | [Direct Cost of Services](index=22&type=section&id=Direct%20Cost%20of%20Services_3M) This section examines the direct cost of services for the three-month period, explaining changes primarily due to increased hours worked and acquisitions | Metric | 3 Months Ended Nov 24, 2018 | 3 Months Ended Nov 25, 2017 | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | | Direct cost of services | $115,378 | $97,319 | 18.6% | | Direct cost of services as % of revenue | 61.1% | 62.1% | -1.0 ppt | - The increase in direct cost of services was primarily due to a **19.6% increase in hours worked**, partially attributable to the Accretive acquisition[115](index=115&type=chunk) [Selling, General and Administrative Expenses](index=23&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses_3M) This section details changes in selling, general, and administrative expenses for the three-month period, attributing increases to payroll, commissions, and marketing costs | Metric | 3 Months Ended Nov 24, 2018 | 3 Months Ended Nov 25, 2017 | YoY Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :------------- | | Selling, general and administrative expenses | $54,959 | $47,498 | 15.7% | | S, G & A as a percentage of revenue | 29.1% | 30.3% | -1.2 ppt | - The year-over-year increase in S, G & A was primarily due to **$3.9 million** in additional payroll and benefit costs from acquisitions and new headcount, **$3.0 million** in increased commission and bonus expenses, and **$0.8 million** in marketing costs[118](index=118&type=chunk) [Amortization and Depreciation Expense](index=23&type=section&id=Amortization%20and%20Depreciation%20Expense_3M) This section discusses the increase in amortization and depreciation expense for the three-month period, primarily due to intangible assets from recent acquisitions | Metric (in thousands) | 3 Months Ended Nov 24, 2018 | 3 Months Ended Nov 25, 2017 | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | | Amortization of intangible assets | $952 | $322 | 195.7% | | Depreciation expense | $1,197 | $947 | 26.4% | - The increase in amortization is due to identifiable intangible assets acquired in the December 2017 Accretive and September 2017 taskforce acquisitions[123](index=123&type=chunk) [Interest Expense](index=23&type=section&id=Interest%20Expense_3M) This section analyzes the increase in interest expense for the three-month period, attributing it to incremental borrowings and higher interest rates | Metric (in thousands) | 3 Months Ended Nov 24, 2018 | 3 Months Ended Nov 25, 2017 | YoY Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :------------- | | Interest expense | $642 | $397 | 61.7% | - The increase in interest expense is attributed to incremental borrowings of **$15.0 million** for the Accretive acquisition and generally higher interest rates[125](index=125&type=chunk) [Income Taxes](index=23&type=section&id=Income%20Taxes_3M) This section explains the changes in income tax provision and effective tax rate for the three-month period, driven by improved income and prior year valuation allowance reversal | Metric | 3 Months Ended Nov 24, 2018 | 3 Months Ended Nov 25, 2017 | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | | Provision for income taxes | $5,141 | $2,149 | 139.2% | | Effective tax rate | 33% | 21% | 12 ppt | - The increase in tax provision was due to improved global income and the absence of a **$2.4 million** valuation allowance reversal that occurred in the prior year quarter[130](index=130&type=chunk) [Six Months Ended November 24, 2018 Compared to Six Months Ended November 25, 2017](index=24&type=section&id=Six%20Months%20Ended%20November%2024%2C%202018%20Compared%20to%20Six%20Months%20Ended%20November%2025%2C%202017) This section compares the company's financial results for the six months ended November 24, 2018, against the same period in the prior year, detailing changes in revenue and expenses [Revenue](index=25&type=section&id=Revenue_6M) This section analyzes revenue performance for the six-month period, including growth rates, bill rate improvements, and regional contributions | Metric | 6 Months Ended Nov 24, 2018 | 6 Months Ended Nov 25, 2017 | YoY Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :------------- | | Revenue | $367,357 | $297,924 | 23.3% | | Revenue (Constant Currency) | N/A | N/A | 23.8% | | Bill rates improvement | 1.6% | N/A | N/A | | Hours worked increase | 21.5% | N/A | N/A | | Region | Revenue (Nov 24, 2018) | Revenue (Nov 25, 2017) | % Change | % of Total (Nov 24, 2018) | % of Total (Nov 25, 2017) | | :----------- | :--------------------- | :--------------------- | :--------- | :------------------------ | :------------------------ | | North America | $299,994 | $238,395 | 25.8% | 81.7% | 80.0% | | Europe | $43,847 | $38,110 | 15.1% | 11.9% | 12.8% | | Asia Pacific | $23,516 | $21,419 | 9.8% | 6.4% | 7.2% | [Direct Cost of Services](index=25&type=section&id=Direct%20Cost%20of%20Services_6M) This section examines the direct cost of services for the six-month period, explaining changes primarily due to increased hours worked and acquisitions | Metric | 6 Months Ended Nov 24, 2018 | 6 Months Ended Nov 25, 2017 | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | | Direct cost of services | $225,785 | $184,807 | 22.2% | | Direct cost of services as % of revenue | 61.5% | 62.0% | -0.5 ppt | - The increase in direct cost of services was primarily due to a **21.5% increase in hours worked** and a **1.6% increase in the average consultant pay rate per hour**, partially attributable to acquisitions[139](index=139&type=chunk) [Selling, General and Administrative Expenses](index=25&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses_6M) This section details changes in selling, general, and administrative expenses for the six-month period, attributing increases to payroll, commissions, and marketing costs | Metric | 6 Months Ended Nov 24, 2018 | 6 Months Ended Nov 25, 2017 | YoY Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :------------- | | Selling, general and administrative expenses | $111,325 | $94,913 | 17.3% | | S, G & A as a percentage of revenue | 30.3% | 31.9% | -1.6 ppt | - The year-over-year increase in S, G & A was primarily due to **$10.5 million** in additional payroll and benefit costs from acquisitions and new headcount, **$5.6 million** in increased commission and bonus expenses, and **$1.6 million** in marketing costs[142](index=142&type=chunk) [Amortization and Depreciation Expense](index=25&type=section&id=Amortization%20and%20Depreciation%20Expense_6M) This section discusses the increase in amortization and depreciation expense for the six-month period, primarily due to intangible assets from recent acquisitions | Metric (in thousands) | 6 Months Ended Nov 24, 2018 | 6 Months Ended Nov 25, 2017 | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | | Amortization of intangible assets | $1,907 | $322 | 492.2% | | Depreciation expense | $2,266 | $1,887 | 20.1% | - The increase in amortization is due to identifiable intangible assets acquired in the December 2017 Accretive and September 2017 taskforce acquisitions[143](index=143&type=chunk) [Interest Expense](index=25&type=section&id=Interest%20Expense_6M) This section analyzes the increase in interest expense for the six-month period, attributing it to incremental borrowings and higher interest rates | Metric (in thousands) | 6 Months Ended Nov 24, 2018 | 6 Months Ended Nov 25, 2017 | YoY Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :------------- | | Interest expense | $1,247 | $734 | 70.0% | - The increase in interest expense is attributed to incremental borrowings of **$15.0 million** for the Accretive acquisition and generally higher interest rates[145](index=145&type=chunk) [Income Taxes](index=25&type=section&id=Income%20Taxes_6M) This section explains the changes in income tax provision and effective tax rate for the six-month period, driven by improved income and prior year valuation allowance reversal | Metric | 6 Months Ended Nov 24, 2018 | 6 Months Ended Nov 25, 2017 | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | | Provision for income taxes | $8,635 | $5,071 | 70.3% | | Effective tax rate | 35% | 33% | 2 ppt | - The increase in tax provision was due to improved global income and the absence of a **$2.4 million** valuation allowance reversal that occurred in the prior year period[147](index=147&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's sources of liquidity, cash and cash equivalents, and its revolving credit facility, assessing adequacy for future needs - The company's primary liquidity sources are cash provided by operations and its **$120 million** secured revolving credit facility with Bank of America[149](index=149&type=chunk)[150](index=150&type=chunk) - As of November 24, 2018, the company had **$40.8 million** of cash and cash equivalents, including **$16.8 million** held in international operations, and **$58.0 million** of borrowings under the Facility[149](index=149&type=chunk)[151](index=151&type=chunk) - The company expects its current cash, ongoing cash flows, and available funding under the Facility to be adequate for its working capital and capital expenditure needs for at least the next 12 months[152](index=152&type=chunk) [Operating Activities](index=26&type=section&id=Operating%20Activities) This section details cash flows from operating activities, explaining changes primarily due to accounts receivable, net income, and deferred income taxes | Metric (in thousands) | 6 Months Ended Nov 24, 2018 | 6 Months Ended Nov 25, 2017 | Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :----- | | Net cash provided by operating activities | $1,665 | $1,640 | $25 | - Cash used in operations was primarily due to an increase in accounts receivable, reflecting increasing revenue, offset by increased net income and favorable changes in deferred income taxes[153](index=153&type=chunk) [Investing Activities](index=27&type=section&id=Investing%20Activities) This section outlines cash flows from investing activities, including cash used for acquisitions and expenditures for property and equipment | Metric (in thousands) | 6 Months Ended Nov 24, 2018 | 6 Months Ended Nov 25, 2017 | Change | | :-------------------------- | :-------------------------- | :-------------------------- | :----- | | Net cash used in investing activities | $(3,408) | $(4,206) | $798 | - Fiscal 2018 included **$3.4 million** cash used for the taskforce acquisition, while fiscal 2019 had no entity acquisitions[155](index=155&type=chunk) - Expenditures for property and equipment increased by **$2.6 million** in the current year due to office relocations or refurbishments[155](index=155&type=chunk) [Financing Activities](index=27&type=section&id=Financing%20Activities) This section presents cash flows from financing activities, including cash dividends paid, stock repurchases, and borrowings under the credit facility | Metric (in thousands) | 6 Months Ended Nov 24, 2018 | 6 Months Ended Nov 25, 2017 | Change | | :-------------------------- | :-------------------------- | :-------------------------- | :----- | | Net cash used in financing activities | $(13,298) | $(2,907) | $(10,391) | | Cash dividends paid | $(7,887) | $(6,833) | $(1,054) | | Purchase of common stock | $(13,002) | $0 | $(13,002) | | Repayment on Revolving Credit Facility | $(5,000) | $0 | $(5,000) | | Proceeds from exercise of stock options & ESPP | $12,591 | $3,926 | $8,665 | [Recent Accounting Pronouncements](index=27&type=section&id=Recent%20Accounting%20Pronouncements_MD%26A) This section refers to Note 12 for information on recent accounting pronouncements and their impact on the company's financial statements - Information regarding recent accounting pronouncements is contained in Note 12 to the Consolidated Financial Statements[159](index=159&type=chunk) [Off-Balance Sheet Arrangements](index=27&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms that the company has no off-balance sheet arrangements that would materially affect its financial condition or results of operations - The company has no off-balance sheet arrangements[160](index=160&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section outlines the company's exposure to market risks, primarily from fluctuations in interest rates affecting its cash and variable-rate borrowings, and from foreign currency exchange rates impacting its international revenues and expenses [Interest Rate Risk](index=28&type=section&id=Interest%20Rate%20Risk) This section discusses the company's exposure to interest rate fluctuations on its cash and variable-rate borrowings, estimating the impact of rate changes - The company is primarily exposed to market risks from fluctuations in interest rates affecting its cash, cash equivalents, and **$58.0 million** in variable-rate borrowings under its Facility[161](index=161&type=chunk)[162](index=162&type=chunk) - A **10% change** in interest rates would result in approximately a **$0.2 million** change in annual interest expense at the current borrowing level[163](index=163&type=chunk) [Foreign Currency Exchange Rate Risk](index=28&type=section&id=Foreign%20Currency%20Exchange%20Rate%20Risk) This section addresses the company's exposure to foreign currency exchange rate fluctuations due to international operations and its policy on hedging - Approximately **21%** of the company's revenues for the three months ended November 24, 2018, were generated outside the United States, exposing it to foreign currency exchange rate fluctuations[164](index=164&type=chunk) - Assets and liabilities of non-U.S. operations are translated at period-end exchange rates, with differences recorded in accumulated other comprehensive income or loss[165](index=165&type=chunk) - The company does not currently use financial hedging techniques to mitigate foreign currency risks[166](index=166&type=chunk) [ITEM 4. Controls and Procedures](index=28&type=section&id=ITEM%204.%20Controls%20and%20Procedures) The company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective as of November 24, 2018, and reported no material changes in internal control over financial reporting during the quarter - The company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of November 24, 2018[167](index=167&type=chunk) - There was no change in the company's internal control over financial reporting during the quarter ended November 24, 2018, that materially affected, or is reasonably likely to materially affect, internal control over financial reporting[167](index=167&type=chunk) [PART II—OTHER INFORMATION](index=29&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) This part includes disclosures on legal proceedings, risk factors, unregistered sales of equity securities, and exhibits [ITEM 1. Legal Proceedings](index=29&type=section&id=ITEM%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings, although it is a party to legal matters that arise in the ordinary course of business - The company is not a party to any material legal proceedings[170](index=170&type=chunk) - The company is from time to time party to legal proceedings that arise in the ordinary course of business[170](index=170&type=chunk) [ITEM 1A. Risk Factors](index=29&type=section&id=ITEM%201A.%20Risk%20Factors) This section updates the risk factors from the company's Annual Report on Form 10-K, with no material changes except for the risk related to computer hardware, software, and telecommunications systems. Key risks include economic downturns, intense competition, inability to secure new projects, legal liabilities, challenges in growth management, international operational complexities, acquisition risks, and reliance on key personnel [Economic Downturn or Change in Outsourced Services Demand](index=29&type=section&id=Economic%20Downturn%20or%20Change%20in%20Outsourced%20Services%20Demand) This section highlights risks from global economic deterioration, which could reduce demand for services, affect client payments, and potentially lead to asset impairment - Deterioration or increased uncertainty in the global economy could reduce demand for services, adversely affecting the business[172](index=172&type=chunk) - Economic deterioration at clients may require additional allowances for doubtful accounts, materially affecting future financial results[173](index=173&type=chunk) - Softening economies could adversely affect the recoverability of deferred tax assets and goodwill, potentially leading to impairment reductions[174](index=174&type=chunk) [Competitive Market](index=29&type=section&id=Competitive%20Market) This section discusses the risks associated with operating in a highly competitive and fragmented market, facing competitors with greater resources and potential pricing advantages - The company operates in a competitive, fragmented market, competing with consulting firms, accounting firms, staffing firms, and in-house resources[175](index=175&type=chunk)[176](index=176&type=chunk) - Many competitors have significantly greater financial resources, revenues, and name recognition, potentially giving them an advantage in attracting clients and consultants and offering pricing concessions[177](index=177&type=chunk) [Inability to Secure New Projects](index=30&type=section&id=Inability%20to%20Secure%20New%20Projects) This section addresses the risk of not securing new client projects due to the absence of long-term agreements, competition, or economic factors, which could materially affect the business - The company does not have long-term agreements with clients, and clients may terminate engagements at any time[178](index=178&type=chunk) - The business's success depends on securing new projects, and failure to do so due to competition, regulatory changes, or economic downturns could materially affect the business[178](index=178&type=chunk) [Legal Liability for Services or Personnel Mistreatment](index=30&type=section&id=Legal%20Liability%20for%20Services%20or%20Personnel%20Mistreatment) This section outlines potential legal liabilities and reputational damage from failing to meet contractual obligations or from claims related to personnel conduct - The company could face legal liability or reputational damage if it fails to meet contractual obligations on critical client projects[179](index=179&type=chunk) - The company is subject to potential claims from its personnel alleging discrimination, sexual harassment, or negligence by clients, or similar claims from clients regarding its personnel[180](index=180&type=chunk) [Inability to Grow or Manage Growth](index=30&type=section&id=Inability%20to%20Grow%20or%20Manage%20Growth) This section discusses the challenges and risks associated with achieving and managing business growth, including expanding client base, services, and internal resources - The company's ability to grow depends on factors such as expanding its client base, entering new geographies, providing additional professional services, hiring qualified consultants, and maintaining margins[181](index=181&type=chunk)[183](index=183&type=chunk) - Rapid growth would increase responsibilities for management and demands on internal systems, procedures, and resources, with failure to respond adequately potentially affecting business and financial results[184](index=184&type=chunk) [International Operational Challenges](index=31&type=section&id=International%20Operational%20Challenges) This section details risks associated with international operations, including staffing difficulties, foreign currency fluctuations, and political or economic instability - International activities expose the company to risks such as difficulties in staffing and managing foreign offices due to distance, language, and cultural differences[185](index=185&type=chunk)[187](index=187&type=chunk) - Other international risks include less flexible labor laws, foreign currency exchange rate fluctuations, protectionist laws, political/economic instability, and potentially adverse tax consequences[187](index=187&type=chunk) [Acquisition Risks](index=31&type=section&id=Acquisition%20Risks) This section outlines the risks inherent in acquisitions, such as integration difficulties, loss of key employees, and potential impairment of relationships or goodwill - Acquisitions entail risks including difficulties in integration, failure to motivate or loss of key employees, and failure to identify certain risks or liabilities during due diligence[186](index=186&type=chunk)[187](index=187&type=chunk) - Other risks include potential impairment of existing relationships, additional operating expenses, incurrence of debt, goodwill impairment, and dilution of stock through equity issuance[187](index=187&type=chunk) [Loss of Key Consultants](index=32&type=section&id=Loss%20of%20Key%20Consultants) This section emphasizes the company's reliance on highly qualified consultants and the risks associated with attracting and retaining them in a competitive market - The company's success depends on its ability to provide highly qualified and experienced consultants[189](index=189&type=chunk) - The ability to attract and retain consultants depends on factors such as providing competitive compensation and benefits, challenging projects, and flexibility in work arrangements[192](index=192&type=chunk) [Decreased Effectiveness of Equity Compensation](index=32&type=section&id=Decreased%20Effectiveness%20of%20Equity%20Compensation) This section discusses the risk that equity compensation, particularly stock options priced above market value, may lose its incentive value, affecting employee attraction and retention - The company uses stock options as a component of its employee compensation program to align interests, encourage retention, and provide competitive packages[190](index=190&type=chunk) - Approximately **35%** of outstanding options as of Q2 fiscal 2019 are priced above the current market value, limiting their incentive value and potentially affecting the ability to attract and retain employees[190](index=190&type=chunk) [Computer System Damage, Breach or Interruption](index=32&type=section&id=Computer%20System%20Damage%2C%20Breach%20or%20Interruption) This section highlights the risks of security breaches, cyber-attacks, and system interruptions to the company's computer and telecommunication systems, potentially leading to data loss or reputational harm - The company's computer and telecommunication systems are vulnerable to security breaches, natural disasters, computer viruses, and other interruptions[191](index=191&type=chunk) - Security breaches, including cyber-attacks, could disable or damage networks, lead to unauthorized disclosure of confidential information, result in third-party claims, and cause reputational harm[191](index=191&type=chunk) [Economic Risk of Cash and Short-Term Investments](index=33&type=section&id=Economic%20Risk%20of%20Cash%20and%20Short-Term%20Investments) This section addresses the risks associated with the company's investments in cash, cash equivalents, and short-term instruments, including credit, liquidity, market, and interest rate risks - The company invests cash, cash equivalents, and short-term investments in various instruments subject to general credit, liquidity, market, and interest rate risks[193](index=193&type=chunk) - A decline in the value of these investments could adversely affect the company's financial condition[193](index=193&type=chunk) [Loss of Senior Management](index=33&type=section&id=Loss%20of%20Senior%20Management) This section discusses the critical dependence on senior management and the potential disruption to operations from unforeseen departures or inability to attract new qualified staff - The company's future success depends on the continued employment of its senior management team, and unforeseen departures could significantly disrupt operations[194](index=194&type=chunk) - The company generally does not have non-compete agreements with employees, and the inability to retain key personnel or attract new qualified staff could adversely affect the business[195](index=195&type=chunk) [Quarterly Financial Fluctuations](index=33&type=section&id=Quarterly%20Financial%20Fluctuations) This section highlights the potential for significant quarterly fluctuations in financial results due to various factors, which may not be indicative of future performance - Quarterly results can fluctuate significantly due to factors such as client demand, project mix, competition, consultant availability, pricing, and foreign exchange rates[196](index=196&type=chunk)[197](index=197&type=chunk) - Quarter-to-quarter comparisons of operating results may not be meaningful indicators of future performance, and results below expectations could lead to a decline in stock price[196](index=196&type=chunk) [Sarbanes-Oxley Compliance](index=34&type=section&id=Sarbanes-Oxley%20Compliance) This section addresses the ongoing requirements of Sarbanes-Oxley Section 404 for internal control evaluation and the potential impact of future material weaknesses - Section 404 of Sarbanes-Oxley requires periodic evaluation of internal control over financial reporting[198](index=198&type=chunk) - A control system can only provide reasonable assurance, and inherent limitations mean errors or fraud may occur and not be detected[199](index=199&type=chunk) - While controls were effective as of May 26, 2018, a future material weakness could lead to a loss of public confidence and adversely affect the business and stock price[200](index=200&type=chunk) [Laws and Regulations Compliance](index=34&type=section&id=Laws%20and%20Regulations%20Compliance) This section discusses the risks associated with compliance with industry-specific regulations and the potential for increased costs or operational burdens from non-compliance - The company is subject to industry-specific regulations (e.g., licensing, reporting) in regulated industries like gaming, energy, and healthcare[201](index=201&type=chunk) - Non-compliance or changes in regulations could increase costs, prevent service rendering, or impose additional financial and operational burdens[201](index=201&type=chunk)[202](index=202&type=chunk) [Difficulty in Company Acquisition](index=34&type=section&id=Difficulty%20in%20Company%20Acquisition) This section outlines provisions in corporate law and company documents that could deter or prevent a change of control, potentially affecting shareholder value - Delaware corporate law and the company's charter/bylaws contain provisions that could delay, defer, or prevent a change of control, potentially limiting the price future investors are willing to pay for shares[203](index=203&type=chunk) - Provisions include authorized undesignated preferred stock, a classified board of directors (staggered three-year terms), and prohibition of cumulative voting[204](index=204&type=chunk) - Other provisions restrict stockholder actions to meetings, limit who can call special meetings, establish advance notice requirements, and allow directors to fill board vacancies[204](index=204&type=chunk)[205](index=205&type=chunk) [Stock-Based Compensation Expense Impact](index=35&type=section&id=Stock-Based%20Compensation%20Expense%20Impact) This section discusses the non-cash charge for stock-based compensation and the subjective nature of its valuation, which could impact the stock price - The company recognizes a non-cash charge for stock-based compensation expense based on estimated values using an option-pricing model[206](index=206&type=chunk) - The determination of value is affected by subjective variables, and existing valuation models may not accurately measure the value of employee stock options, potentially causing the stock price to decline[206](index=206&type=chunk) [Credit Facility Restrictions](index=35&type=section&id=Credit%20Facility%20Restrictions) This section details the operating and financial covenants imposed by the company's credit facility and the severe consequences of non-compliance on liquidity and business - The company's **$120 million** secured revolving credit facility imposes operating covenants restricting its ability to incur liens, additional indebtedness, and make certain restricted payments[207](index=207&type=chunk) - Financial covenants require compliance with limits on total funded debt, minimum interest coverage ratio, and maximum leverage ratio[207](index=207&type=chunk) - Non-compliance could result in a breach, acceleration of outstanding indebtedness, and termination of credit commitments, materially and adversely affecting liquidity and business[207](index=207&type=chunk) [Inability to Pay Quarterly Dividend](index=35&type=section&id=Inability%20to%20Pay%20Quarterly%20Dividend) This section highlights that future dividend payments are at the board's discretion and not guaranteed, with potential adverse effects on stock price if reduced or ceased - The payment and continuation of the quarterly dividend are at the discretion of the board of directors, dependent on financial condition, results of operations, capital requirements, and other factors[208](index=208&type=chunk) - There is no assurance that dividends will be declared and paid in the future, and failure to pay or a reduction could adversely affect the trading price of common stock[208](index=208&type=chunk) [Data Privacy Laws and Regulations](index=35&type=section&id=Data%20Privacy%20Laws%20and%20Regulations) This section addresses the costs and risks associated with complying with various data privacy laws, including potential penalties and reputational harm from non-compliance - The company is subject to federal, state, and foreign data privacy laws (e.g., GDPR) regulating the collection, hosting, transfer, disclosure, use, storage, and security of personal information[209](index=209&type=chunk)[210](index=210&type=chunk) - Compliance with these laws is costly, and non-compliance or future restrictive laws could lead to increased costs, regulatory penalties, significant legal liability, and adverse impacts on reputation[210](index=210&type=chunk) [Intellectual Property Protection](index=36&type=section&id=Intellectual%20Property%20Protection) This section discusses the importance of protecting the company's brand and intellectual property, and the risks of infringement or failure to adequately safeguard these assets - Establishing, maintaining, and enhancing the RGP and Resources Global Professionals brand name is important to the business[211](index=211&type=chunk) - The company owns U.S. trademark registrations for its RGP service marks and the Countsy word and design marks[211](index=211&type=chunk) - Failure to adequately protect intellectual property rights or infringement claims from other parties could diminish the value of such rights and adversely affect operations and financial condition[213](index=213&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=37&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the three months ended November 24, 2018, the company repurchased 338,536 shares of its common stock for approximately $5.5 million under its July 2015 stock repurchase program, with $107.0 million remaining authorization | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet be Purchased Under Announced Program | | :------------------------------------ | :----------------------------- | :--------------------------- | :-------------------------------------------------------------------------- | | August 26, 2018 — November 24, 2018 | 338,536 | $16.36 | $106,985,857 | - The purchases were made under the July 2015 stock repurchase program, which authorized up to **$150 million** and ha