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Resources nection(RGP) - 2019 Q4 - Annual Report

Part I Item 1. Business 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 professionals1416 - 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 brand252930 - 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 States323335 - 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 agreements54 - In fiscal 2019, no single client accounted for more than 10% of revenue, and the top 10 clients represented approximately 15% of total revenues41 Item 1A. Risk Factors 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 impairment5860 - The professional services market is highly competitive and fragmented. Many competitors have greater financial resources, revenue, and name recognition62 - The business depends on attracting and retaining highly qualified consultants. The loss of a significant number of consultants could adversely affect operating results77 - IT systems are vulnerable to security breaches, including cyber-attacks. Unauthorized access could lead to disclosure of confidential information, legal liability, and reputational harm78 - 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 debt85 - 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-compliance8889 Item 1B. Unresolved Staff Comments Not applicable - Not applicable92 Item 2. Properties 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 agreements93 - 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 parties93 Item 3. Legal Proceedings The company is not currently subject to any material legal proceedings - The company is not currently subject to any material legal proceedings94 Item 4. Mine Safety Disclosures Not applicable - Not applicable95 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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 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 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 Fiscal 2019 saw revenue grow 11.5% to $729.0 million, with improved profitability and positive operating cash flow Results of Operations 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 costs140 - 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 Liquidity and Capital Resources 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 facility160162 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 facility166167 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 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 expense177 - 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 risk179 - The company does not currently use financial hedging techniques to mitigate risks associated with foreign currency fluctuations181 Item 8. Financial Statements and Supplementary Data 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 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 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 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 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 recognition207 - 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 stock241244 - The company has a $120 million secured revolving credit facility expiring in October 2021. As of May 25, 2019, borrowings were $43.0 million250253 - 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 million256260 - 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 repurchases272 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None reported - None298 Item 9A. Controls and Procedures 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, 2019299 - 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 effectiveness302303 - 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 controls303 Item 9B. Other Information None reported - None312 Part III Item 10. Directors, Executive Officers and Corporate Governance 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 statement314 Item 11. Executive Compensation 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 statement315 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 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 statement316 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 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 statement322 Item 14. Principal Accounting Fees and Services 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 statement323 Part IV Item 15. Exhibits, Financial Statement Schedules 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 8325 - Financial Statement Schedule II (Valuation and Qualifying Accounts) is included within the Notes to Consolidated Financial Statements326 - An index of all exhibits filed with the Form 10-K is provided, including corporate governance documents, material contracts, and certifications328329 Item 16. Form 10-K Summary Not applicable - Not applicable331