Resources nection(RGP) - 2024 Q4 - Annual Report

Part I Business Overview RGP is a global consulting firm delivering enterprise initiatives through a flexible talent model and strategic growth strategies - RGP is a global consulting firm serving 1,800 clients, including 88% of the Fortune 100, with approximately 3,400 professionals[56][58] - The company operates through two main segments: RGP, accounting for over 90% of consolidated revenue, and Sitrick, a crisis communications firm[59][60] - RGP's strategy emphasizes retaining highly qualified consultants and fostering long-term client relationships, evidenced by a 75% retention rate for its top 100 clients over five years[92][94][96] - Growth strategy focuses on brand marketing, client base expansion, optimizing digital service offerings, and strategic acquisitions[98][99][100][101] - As of May 25, 2024, the company had 3,376 employees, including 2,585 consultants, with a strong emphasis on culture and DE&I[129][130][133] Risk Factors The company faces multiple risks including economic downturns, intense competition, human capital challenges, operational dependencies, and cybersecurity threats - The business faces risks from economic downturns, geopolitical conflicts, and high interest rates, potentially reducing client spending and impacting receivables[219][220][221] - The highly competitive professional services market includes consulting, accounting, and staffing firms, many with greater resources and recognition[224][225][226] - Success depends on attracting and retaining highly qualified consultants and key senior management; failure could adversely affect operations[234][237] - Business relies on securing new projects and contract renewals; automation and AI could reduce demand, and an unsuitable pay/bill ratio could compress gross margins[257][258][262] - Systems are vulnerable to security breaches and cyber-attacks, risking data loss, reputational harm, and significant costs[330][333][336] - Compliance with evolving data privacy laws (e.g., GDPR, CCPA) and other regulations is critical; non-compliance could result in penalties and reputational damage[338][344][346] Unresolved Staff Comments The company reports no unresolved staff comments - Not applicable[367] Cybersecurity The company maintains an enterprise-wide cybersecurity strategy, overseen by the CIO and Audit Committee, to manage evolving threats - The company has an enterprise-wide strategy to manage cybersecurity threats, including an Information Assurance Program and a Cybersecurity Incident Response Plan[370][371] - Cybersecurity governance is overseen by the Audit Committee, receiving quarterly updates from the CIO who leads the Cybersecurity Incident Response Team[377][378] - As of the report date, known cybersecurity risks are not believed to have materially affected or likely to materially affect business, operations, or financial condition[375] Properties The company owns its Irvine headquarters, which is being sold for $13.0 million, and leases offices globally, deeming current facilities adequate - The company owns its 57,000 sq. ft. principal executive office in Irvine, California, with an agreement to sell it for $13.0 million by August 15, 2024[379] - The company leases facilities in over 36 cities across 13 countries, including major global business centers[380] Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not currently a party to any material legal proceedings[382] Mine Safety Disclosures This item is not applicable to the company - Not applicable[384] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq, pays a $0.14 quarterly dividend, and has $42.2 million remaining for repurchases, though its stock has underperformed peers - The company's common stock is listed on The Nasdaq Global Select Market under the symbol "RGP"[388] - A quarterly dividend of $0.14 per share was declared in each quarter of fiscal 2024, 2023, and 2022, subject to Board approval[389] Issuer Purchases of Equity Securities (Q4 FY2024) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | March 24, 2024 – April 20, 2024 | 252,396 | $11.89 | | Total | 252,396 | $11.89 | - As of May 25, 2024, approximately $42.2 million remained available for future repurchases under the stock repurchase program[11] - The 5-year cumulative total return for the company's stock was 86.85, underperforming the Russell 3000 (196.98), SIC Code 8742 (164.41), and a customized Peer Group (221.84), based on a $100 investment on May 24, 2019[14] Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2024 revenue decreased 18.4% to $632.8 million and net income fell to $21.0 million, driven by reduced client spending amid strategic focus areas Fiscal 2024 Strategic Focus Areas The company's fiscal 2024 strategy focused on digital transformation, brand amplification, operating model evolution, value-based pricing, and targeted M&A - The company's five strategic focus areas for fiscal 2024 included digital transformation, brand amplification, operating model evolution, value-based pricing, and targeted M&A[313] - Digital transformation efforts include a multi-year global technology project, with a new talent management system launched and a new enterprise financial system planned for late 2024[312] - Strategic M&A included the acquisition of CloudGo in November 2023 and Reference Point, which closed on July 1, 2024[1][3][21] Critical Accounting Policies and Estimates Key accounting policies involve significant estimates for revenue, credit losses, income taxes, stock-based compensation, and asset valuations, with no goodwill impairment in fiscal 2024 - Key critical accounting policies requiring significant estimates include revenue recognition, allowance for credit losses, income taxes, stock-based compensation, and valuation of long-lived assets, goodwill, and business combinations[6] - The allowance for credit losses was $2.8 million as of May 25, 2024, compared to $3.3 million in the prior year[8] - A valuation allowance of $8.6 million was established on deferred tax assets as of May 25, 2024, compared to $6.5 million in the prior year[26] - Stock-based compensation expense was $5.7 million in fiscal 2024, down from $9.5 million in fiscal 2023[32] - The annual goodwill impairment assessment for the RGP reporting unit in Q4 fiscal 2024 concluded no impairment[41] Non-GAAP Financial Measures The company uses non-GAAP measures like Same-Day Constant Currency Revenue and Adjusted EBITDA to assess performance, providing a clearer view of core operating trends Reconciliation of Revenue to Same-Day Constant Currency Revenue (FY 2024) | (In thousands) | As reported (GAAP) | Currency impact | Business days impact | Same-day constant currency revenue | | :--- | :--- | :--- | :--- | :--- | | North America | $543,926 | $(2,153) | - | $541,773 | | Europe | $38,383 | $(1,687) | $(639) | $36,057 | | Asia Pacific | $50,492 | $1,915 | $(624) | $51,783 | | Total Consolidated | $632,801 | $(1,925) | $(1,263) | $629,613 | Reconciliation of Net Income to Adjusted EBITDA (Fiscal Years Ended) | (In thousands) | May 25, 2024 | May 27, 2023 | May 28, 2022 | | :--- | :--- | :--- | :--- | | Net income | $21,034 | $54,359 | $67,175 | | EBITDA | $37,193 | $81,727 | $92,515 | | Adjusted EBITDA | $51,483 | $100,194 | $103,131 | | Adjusted EBITDA Margin | 8.1% | 12.9% | 12.8% | Results of Operations Fiscal 2024 revenue decreased 18.4% to $632.8 million and net income fell to $21.0 million, driven by reduced billable hours and lower average bill rates Consolidated Statements of Operations Summary | (In thousands) | FY 2024 | % of Revenue | FY 2023 | % of Revenue | | :--- | :--- | :--- | :--- | :--- | | Revenue | $632,801 | 100.0% | $775,643 | 100.0% | | Gross profit | $246,068 | 38.9% | $313,142 | 40.4% | | Income from operations | $28,776 | 4.5% | $72,788 | 9.5% | | Net income | $21,034 | 3.3% | $54,359 | 7.0% | - Fiscal 2024 revenue decreased by $142.8 million (18.4%) year-over-year, driven by a 13.8% decrease in billable hours and a 4.7% decline in average bill rate due to reduced client spending[103] - Revenue declined across all geographic regions in fiscal 2024, with North America most impacted, showing a 20.1% decrease (20.4% on a same-day constant currency basis)[104] - Direct cost of services as a percentage of revenue increased to 61.1% in fiscal 2024 from 59.6% in fiscal 2023, partly due to higher employee health benefit expenses[107] - SG&A expenses decreased by $20.0 million in fiscal 2024, primarily due to a $17.1 million reduction in bonuses and commissions and a $4.4 million favorable contingent consideration adjustment[109] - The effective tax rate for fiscal 2024 was 29.5%, higher than 25.1% in fiscal 2023, primarily due to a non-recurring increase in forfeiture of stock options[113] Operating Results of Segments In fiscal 2024, the RGP segment's revenue decreased 18.5% to $622.9 million and Adjusted EBITDA fell 36.0%, while Other Segments also saw revenue and EBITDA declines Revenue and Adjusted EBITDA by Segment (FY 2024 vs FY 2023) | (In thousands) | FY 2024 Revenue | FY 2023 Revenue | FY 2024 Adj. EBITDA | FY 2023 Adj. EBITDA | | :--- | :--- | :--- | :--- | :--- | | RGP | $622,895 | $764,511 | $84,677 | $132,377 | | Other Segments | $9,906 | $11,132 | $(676) | $1,179 | | Total | $632,801 | $775,643 | $51,483 | $100,194 | - RGP segment revenue decreased by $141.6 million (18.5%) in fiscal 2024, consistent with the overall consolidated trend[149] - Other Segments' revenue decreased by $1.2 million (11.0%) in fiscal 2024, primarily due to a decline in Sitrick's revenue affected by court proceeding delays[151] - RGP segment's Adjusted EBITDA decreased by $47.7 million (36.0%) in fiscal 2024, mainly due to the significant drop in revenue[153] Liquidity and Capital Resources As of May 25, 2024, the company had $108.9 million in cash and $173.6 million available credit, with cash from operations at $21.9 million for fiscal 2024 - As of May 25, 2024, the company had $108.9 million in cash and cash equivalents and no debt outstanding under its $175.0 million credit facility, with $173.6 million remaining capacity[157][160] - The company is undergoing a multi-year technology platform upgrade, with an estimated $10.0 million to $20.0 million in remaining investments expected, largely in fiscal 2025[163] - In fiscal 2024, the company acquired CloudGo for initial cash consideration of $7.4 million and entered an agreement to acquire Reference Point, which closed on July 1, 2024[165][166] Cash Flow Summary (Fiscal Years Ended) | (In millions) | May 25, 2024 | May 27, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $21.9 | $81.6 | | Net cash (used in) provided by investing activities | $(8.6) | $3.9 | | Net cash used in financing activities | $(20.7) | $(71.9) | - Net cash used in financing activities in fiscal 2024 totaled $20.7 million, consisting mainly of $18.8 million in dividend payments and $8.0 million in common stock repurchases[201] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate and foreign currency exchange rate risks, with 17.8% of fiscal 2024 revenues from outside the U.S - The company is exposed to interest rate risk on cash equivalents and its variable-rate credit facility, with no outstanding borrowings as of May 25, 2024[206][207] - Foreign currency exchange rate risk exists as 17.8% of fiscal 2024 revenues were generated outside the U.S., impacting reported results[208] - The company does not currently use financial hedges to mitigate foreign currency risks, believing the economic exposure has not been material[210] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements and the independent auditor's report, including detailed notes on accounting policies and financial components - The independent auditor, RSM US LLP, issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting as of May 25, 2024[242] - Critical Audit Matters included the valuation of the RGP reporting unit for goodwill impairment testing and the acquisition-date contingent consideration for the CloudGo Pte Ltd acquisition[250][275] Consolidated Financial Statements As of May 25, 2024, total assets were $510.9 million, total liabilities $92.2 million, with fiscal 2024 revenue at $632.8 million and net income at $21.0 million Consolidated Balance Sheet Highlights (as of May 25, 2024) | (In thousands) | Amount | | :--- | :--- | | Cash and cash equivalents | $108,892 | | Total current assets | $240,755 | | Goodwill | $216,579 | | Total assets | $510,914 | | Total current liabilities | $72,433 | | Total liabilities | $92,151 | | Total stockholders' equity | $418,763 | Consolidated Statement of Operations Highlights (Year ended May 25, 2024) | (In thousands, except per share) | Amount | | :--- | :--- | | Revenue | $632,801 | | Gross profit | $246,068 | | Income from operations | $28,776 | | Net income | $21,034 | | Diluted EPS | $0.62 | Consolidated Statement of Cash Flows Highlights (Year ended May 25, 2024) | (In thousands) | Amount | | :--- | :--- | | Net cash provided by operating activities | $21,919 | | Net cash used in investing activities | $(8,554) | | Net cash used in financing activities | $(20,709) | | Net decrease in cash | $(7,892) | Notes to Consolidated Financial Statements Notes detail accounting policies, including the CloudGo acquisition for $7.4 million cash and $12.0 million contingent consideration, $216.6 million goodwill, and a 29.5% effective tax rate - On November 15, 2023, the company acquired CloudGo for $7.4 million cash (net of cash acquired) and up to $12.0 million in contingent consideration, including $9.6 million in goodwill[532][533][546] - Goodwill increased from $206.7 million in fiscal 2023 to $216.6 million in fiscal 2024 due to the CloudGo acquisition; a $3.0 million impairment for Sitrick was recorded in fiscal 2023[443][442] - As of May 25, 2024, operating lease liabilities totaled $13.3 million with a weighted-average remaining lease term of 3.5 years[415][416] - The company has a $175.0 million senior secured revolving credit facility maturing in November 2026, with no debt outstanding and $173.6 million remaining capacity as of May 25, 2024[552][556] - The effective tax rate for fiscal 2024 was 29.5%, compared to 25.1% in fiscal 2023 and 19.0% in fiscal 2022[566] - During fiscal 2024, the company repurchased 606,254 shares of common stock for $8.0 million, with $42.2 million remaining available under the repurchase program as of May 25, 2024[596] - Stock-based compensation expense was $5.7 million in fiscal 2024, a decrease from $9.5 million in fiscal 2023[590] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[640] Controls and Procedures Management and the independent auditor concluded that the company's disclosure controls and internal control over financial reporting were effective as of May 25, 2024 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of May 25, 2024[641] - Management concluded that the company's internal control over financial reporting was effective as of May 25, 2024, a conclusion supported by the independent auditor's audit[654][632] Other Information The company reports no other information for this item - None[656] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - Not applicable[405] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2024 proxy statement - Information for this item is incorporated by reference from the company's 2024 proxy statement[407] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2024 proxy statement - Information for this item is incorporated by reference from the company's 2024 proxy statement[408] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the 2024 proxy statement, detailing outstanding options and available securities under equity plans - Information regarding security ownership is incorporated by reference from the company's 2024 proxy statement[409] Equity Compensation Plan Information (as of May 25, 2024) | Category | Number of Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Number of Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 3,422,166 | $16.36 | 2,518,159 | Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the company's 2024 proxy statement - Information for this item is incorporated by reference from the company's 2024 proxy statement[426] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2024 proxy statement - Information for this item is incorporated by reference from the company's 2024 proxy statement[412] Part IV Exhibit and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K, including an exhibit index - This item includes the consolidated financial statements, notes, and the report of the independent registered public accounting firm[429][434] - An index of exhibits filed with the report is provided, including corporate governance documents, material contracts, and certifications[661][430] Form 10-K Summary This item is not applicable to the company - Not applicable[435]