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Resources nection(RGP) - 2020 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION 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) 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 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 liabilities103439 Consolidated Statements of Operations 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 quarter12 Consolidated Statements of Cash Flows 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 year17 - Investing activities used $24.8 million, driven by the $30.3 million acquisition of Veracity (net of cash acquired)17 - 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 acquisition17 Notes to Consolidated Financial Statements 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 goodwill3639 - 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 sheet323334 - The company divested its business in Sweden and closed its office in Belgium during the quarter, incurring $0.7 million in exit costs43 - As of August 24, 2019, borrowings on the secured revolving credit facility were $73.0 million58 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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 brand75 - 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 solutions81 - 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 202082 Results of Operations 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 projects93 - 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 acquisition99 - The effective tax rate decreased to approximately 35% from 38% in the prior year quarter, attributed to lower global income and fewer stock option expirations105106 Liquidity and Capital Resources 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 facility110 - 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 facility110112 - The company borrowed an additional $35.0 million during the quarter to finance the acquisition of Veracity117 - No shares of common stock were repurchased during the quarter, with approximately $90.1 million remaining available under the stock repurchase program60118 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 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 million122124 - 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 risk125129 ITEM 4. Controls and Procedures 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, 2019130 - 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 controls130 PART II—OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and a list of exhibits filed with the report ITEM 1. Legal Proceedings 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 proceedings131 ITEM 1A. Risk Factors 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-K132 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 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 2020133 ITEM 6. Exhibits 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 Act137