Part I Business RGP is a global consulting firm providing agile human capital solutions for transactions, regulations, and transformations to a diverse client base Overview RGP is a global consulting firm providing human capital solutions to over 2,400 clients, including 88 of the Fortune 100 - RGP is a global consulting firm specializing in solving business problems across transactions, regulations, and transformations by providing human capital solutions15 - As of July 2020, RGP has served 88 of the Fortune 100 companies and engages with over 2,400 clients worldwide annually, supported by a professional team of more than 3,400 individuals16 Industry Background and Trends The professional services market is shifting towards flexible, project-based workforce strategies, a trend accelerated by the COVID-19 pandemic - There is a growing trend of corporations adopting more flexible workforce strategies, moving away from permanent professional roles towards engaging agile talent for project initiatives, which may be accelerated by the COVID-19 pandemic17 - The supply of professionals seeking agile work is increasing due to a desire for flexible hours, diverse and challenging engagements, and more control over their client projects19 RGP's Strategic Priorities RGP's strategy focuses on hiring high-caliber consultants, building consultative client relationships, and driving growth through client penetration and strategic acquisitions - The company's business strategy is centered on hiring experienced consultants, fostering a unique corporate culture (LIFE AT RGP), building relationship-oriented client services, and enhancing the RGP brand as a premier provider of agile human capital23242829 - Key growth strategies include deeper penetration of the existing client base, attracting new clients through networking and marketing, making strategic acquisitions like Veracity and Expertence in fiscal 2020, and expanding service offerings in areas like finance and digital transformation30313233 COVID-19 Impact The COVID-19 pandemic adversely impacted operating results in the second half of fiscal 2020 and is expected to continue this impact into fiscal 2021 - The COVID-19 pandemic adversely affected operating results in the second half of fiscal 2020, and this negative impact is expected to persist into fiscal 202135 - The company initiated a strategic business review and reduction in force in North America and Asia Pacific in early March 2020, which it believes has increased its agility to handle the challenges posed by the pandemic35 Consultants, Clients, and Operations RGP engages nearly 2,500 consultants to serve over 2,400 clients, with operations managed locally and supported by centralized administrative functions - As of May 30, 2020, RGP employed or contracted 2,495 consultants, with U.S. consultants typically being employees and international consultants being a mix of employees and independent contractors363738 - In fiscal 2020, RGP served over 2,400 clients across 37 countries, with no single client exceeding 10% of revenues39 - The company operates on a local market level with centralized support for administrative, marketing, finance, HR, IT, and legal functions from its Irvine, CA headquarters and a European support center in Utrecht, Netherlands4045 Competition RGP operates in a fragmented and competitive market, competing on quality, speed, and price against a diverse range of professional services firms - The company competes with a diverse range of organizations, including consulting firms, accounting firms, independent contractors, staffing firms, and clients' internal teams4956 Risk Factors The company faces significant risks from the COVID-19 pandemic, economic conditions, market competition, and challenges in retaining personnel and managing cybersecurity - The COVID-19 pandemic poses a significant risk, having already caused reduced demand, project cancellations, and a 9.1% decline in average weekly revenue in the latter part of Q4 fiscal 2020, with potential for goodwill impairment545557 - The business is vulnerable to economic downturns, which can reduce demand for services and impact the collectability of receivables, potentially triggering goodwill impairment596061 - The company operates in a highly competitive and fragmented market, facing pressure from consulting firms, accounting firms, and staffing agencies with greater resources62 - The success of the business depends on retaining highly qualified consultants and key senior management, the loss of whom could adversely affect operating results7483 - Cybersecurity breaches, system interruptions, and failure to comply with evolving data privacy laws like GDPR pose significant risks, potentially leading to legal liability and financial penalties7781 - The reclassification of independent contractors as employees by foreign authorities could negatively impact the business model and result in significant retroactive costs92 Properties RGP maintains 62 offices globally, mostly leased, and owns its 57,000 square foot corporate headquarters in Irvine, California - As of May 30, 2020, the company maintained 39 domestic and 23 international offices, primarily through operating leases95 - The company owns its corporate office building in Irvine, California, which is approximately 57,000 square feet95 Legal Proceedings The company is not currently subject to any material legal proceedings - The company is not currently involved in any material legal proceedings96 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company changed its ticker to 'RGP', maintained its quarterly dividend, and made no stock repurchases in Q4 fiscal 2020 - On April 2, 2020, the company's ticker symbol changed from 'RECN' to 'RGP' to align with its trade name100 - The company declared a quarterly dividend of $0.14 per share in fiscal 2020, up from $0.13 in fiscal 2019101 - The company has a $150.0 million stock repurchase program authorized in July 2015, with no repurchases made in the fourth quarter of fiscal 2020103104 Selected Financial Data The company presents a five-year summary of key financial data, showing a revenue decrease to $703.4 million in fiscal 2020 Selected Financial Data (FY2016-FY2020) | | FY 2020 (53 wks) | FY 2019 (52 wks) | FY 2018 (52 wks) | FY 2017 (52 wks) | FY 2016 (52 wks) | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $703,353 | $728,999 | $654,129 | $583,411 | $598,521 | | Income from operations | $36,652 | $50,159 | $30,624 | $34,402 | $53,803 | | Net income | $28,285 | $31,470 | $18,826 | $18,651 | $30,443 | | Diluted EPS | $0.88 | $0.98 | $0.60 | $0.56 | $0.81 | | Total assets | $529,181 | $428,370 | $432,674 | $364,128 | $417,255 | | Long-term debt | $88,000 | $43,000 | $63,000 | $48,000 | $ - | | Stockholders' equity | $303,661 | $282,396 | $268,825 | $238,142 | $342,649 | All amounts in thousands, except per share data. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Fiscal 2020 revenue decreased 3.5% due to COVID-19, while a global restructuring plan aims for future savings and liquidity remains sufficient Fiscal 2020 Strategic Focus and Restructuring RGP acquired Veracity Consulting to enhance digital offerings and initiated a global restructuring plan expected to generate significant cost savings - Acquired Veracity Consulting Group, a digital transformation firm, to offer end-to-end digital solutions120 - Initiated a global restructuring plan, which included a reduction in force (RIF) eliminating 73 positions and a plan to shrink the global real estate footprint by 26%122123124 Fiscal 2020 Restructuring Costs | Cost Type | Amount (in millions) | Note | | :--- | :--- | :--- | | Employee Termination Costs | $3.9 | For RIF in North America & Asia Pacific | | Real Estate Exit Costs | $1.1 | Non-cash charges for lease terminations | | Total FY2020 Costs | $5.0 | | - The restructuring plan is expected to yield savings of $10.0 million to $12.0 million in fiscal 2021125 COVID-19 Impact and Outlook The pandemic negatively impacted Q4 fiscal 2020 revenue and consultant count, but the company believes its strong liquidity position is sufficient to manage uncertainty - Average weekly revenue declined 9.1% during the last 12 non-holiday weeks of Q4 fiscal 2020 compared to the first eight non-holiday weeks of the 2020 calendar year127 - The number of consultants on assignment decreased from 2,965 at the end of fiscal 2019 to 2,495 at the end of fiscal 2020127 - As of May 30, 2020, the company had $95.6 million in cash and cash equivalents and an additional $30.7 million available under its credit facility128 - The company deferred $2.9 million in U.S. payroll tax payments under the CARES Act but does not intend to file for other funding129 Critical Accounting Policies The company's critical accounting policies require significant management judgment, particularly for goodwill, income taxes, and revenue recognition - Key areas requiring significant management estimates include allowance for doubtful accounts, income taxes, revenue recognition, stock-based compensation, and valuation of goodwill, long-lived assets, and business combinations133 - Goodwill is tested for impairment annually by comparing the fair value of the single reporting unit to its carrying value; no impairment was recorded in fiscal 2020142 - Contingent consideration from acquisitions is recorded at fair value at the acquisition date and remeasured each reporting period, with changes in fair value recognized in the results of operations144 Results of Operations (FY2020 vs. FY2019) Fiscal 2020 revenue and operating income declined due to the pandemic and project wind-downs, though gross margin improved and the tax rate fell significantly Fiscal 2020 vs. 2019 Results of Operations | Metric | FY 2020 | FY 2019 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $703.4M | $729.0M | (3.5)% | | Same Day Organic Revenue | $671.0M | $716.9M | (6.4)% | | Gross Margin | 39.2% | 38.7% | +0.5 ppt | | SG&A as % of Revenue | 32.4% | 30.7% | +1.7 ppt | | Income from Operations | $36.7M | $50.2M | (26.9)% | | Net Income | $28.3M | $31.5M | (10.1)% | | Effective Tax Rate | 19.7% | 34.4% | -14.7 ppt | - The decrease in revenue was attributed to the adverse impact of the COVID-19 pandemic and the wind-down of large projects, particularly related to lease accounting implementation159 - The increase in SG&A was primarily driven by $5.0 million in restructuring costs and a $1.4 million swing in contingent consideration adjustments164 - The effective tax rate decreased significantly from 34.4% to 19.7% mainly due to a $6.6 million net tax benefit from a worthless stock deduction related to exiting certain European markets167 Liquidity and Capital Resources The company maintains sufficient liquidity through cash from operations and its credit facility, despite increased borrowings and cash outlays for acquisitions and dividends Cash Flow Summary (in millions) | Cash Flow Activity | FY 2020 | FY 2019 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $49.5 | $43.6 | | Net Cash used in Investing Activities | ($26.8) | ($12.9) | | Net Cash from (used in) Financing Activities | $30.9 | ($43.6) | - As of May 30, 2020, the company had $95.6 million in cash and cash equivalents and $88.0 million outstanding on its $120.0 million credit facility176178 - Key investing activities in FY2020 included the $30.3 million net cash used for the Veracity acquisition180 - Key financing activities in FY2020 included net borrowings of $45.0 million from the credit facility, $17.6 million in dividend payments, and $5.0 million in share repurchases182 Contractual Obligations As of May 30, 2020, the company had future minimum commitments totaling $138.6 million, primarily for long-term debt and operating leases Contractual Obligations as of May 30, 2020 (in thousands) | Obligation Type | Total | Fiscal 2021 | Fiscal 2022-2023 | Fiscal 2024-2025 | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating lease obligations | $45,762 | $12,610 | $19,526 | $10,458 | $3,168 | | Purchase obligations | $4,855 | $2,797 | $2,058 | $ - | $ - | | Long-term debt | $88,000 | $ - | $88,000 | $ - | $ - | Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rate fluctuations on its variable-rate debt and foreign currency exchange rates - The company is exposed to interest rate risk on its $88.0 million of variable-rate debt, where a 10% change in rates would impact annual interest expense by approximately $0.2 million194 - The company is exposed to foreign currency exchange rate risk, as approximately 19.1% of its fiscal 2020 revenues were generated outside the United States, and does not currently use financial hedges195197 Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements and accompanying notes for the three years ended May 30, 2020 Consolidated Financial Statements The consolidated financial statements present the company's financial position, results of operations, and cash flows for the last three fiscal years Consolidated Balance Sheet Highlights (in thousands) | | May 30, 2020 | May 25, 2019 | | :--- | :--- | :--- | | Total Current Assets | $230,999 | $191,657 | | Total Assets | $529,181 | $428,370 | | Total Current Liabilities | $94,901 | $91,416 | | Total Liabilities | $225,520 | $145,974 | | Total Stockholders' Equity | $303,661 | $282,396 | Consolidated Statement of Operations Highlights (in thousands) | | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | Revenue | $703,353 | $728,999 | $654,129 | | Gross Margin | $275,483 | $282,439 | $246,055 | | Income from Operations | $36,652 | $50,159 | $30,624 | | Net Income | $28,285 | $31,470 | $18,826 | Notes to Consolidated Financial Statements The notes detail key accounting policies and events, including the adoption of a new lease standard, acquisitions, restructuring, and debt facilities - Adopted new lease standard ASC 842 on May 26, 2019, recognizing $43.2 million of ROU assets and $51.0 million of operating lease liabilities on the balance sheet261 - Acquired Veracity on July 31, 2019, for total consideration of $38.6 million, including $32.3 million in cash and $6.3 million in estimated contingent consideration, adding $23.0 million in goodwill268271273 - In fiscal 2020, the company initiated a global restructuring plan, incurring $3.9 million in employee termination costs and $1.1 million in facility exit costs322324325 - As of May 30, 2020, borrowings under the $120.0 million credit facility were $88.0 million, with the facility expiring on October 17, 2021300303 - The company has foreign net operating loss carryforwards of $53.2 million, of which $44.1 million have an unlimited carryforward period308309 Controls and Procedures Management and the independent auditor concluded that the company's disclosure controls, procedures, and internal control over financial reporting were effective - Management concluded that the company's disclosure controls and procedures were effective as of May 30, 2020345 - Management concluded that the company's internal control over financial reporting was effective as of May 30, 2020, based on the COSO 2013 framework348 - The independent auditor, RSM US LLP, provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of May 30, 2020349352 - There were no material changes in internal control over financial reporting during the fourth quarter of fiscal 2020349 Part III Directors, Executive Officers and Corporate Governance This section incorporates by reference information on directors, officers, and governance from the company's 2020 proxy statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the forthcoming 2020 proxy statement361 - The company has adopted a code of business conduct and ethics applicable to all directors and employees, available on its website360 Executive Compensation This section incorporates by reference all information regarding executive and director compensation from the company's 2020 proxy statement - All information related to executive compensation is incorporated by reference from the company's 2020 proxy statement362 Security Ownership and Related Stockholder Matters Information on security ownership is incorporated by reference, and details of equity compensation plans are provided Equity Compensation Plan Information as of May 30, 2020 | Plan Category | Securities to Be Issued Upon Exercise (a) | Weighted-Average Exercise Price (b) | Securities Remaining Available for Future Issuance (c) | | :--- | :--- | :--- | :--- | | Approved by security holders | 5,755,018 | $16.07 | 3,093,776 | | Not approved by security holders | - | - | - | | Total | 5,755,018 | $16.07 | 3,093,776 | - The 3,093,776 shares available for future issuance consist of 1,640,778 shares under the ESPP and 1,452,998 shares under the 2014 Performance Incentive Plan367 Certain Relationships and Related Transactions, and Director Independence This section incorporates by reference information on related party transactions and director independence from the 2020 proxy statement - Information regarding related party transactions and director independence is incorporated by reference from the 2020 proxy statement368 Principal Accounting Fees and Services This section incorporates by reference information regarding fees paid to the independent accounting firm from the 2020 proxy statement - Information on principal accounting fees and services is incorporated by reference from the 2020 proxy statement369 Part IV Exhibit and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed with the Form 10-K, including material contracts and certifications - Lists the consolidated financial statements included in Item 8 of the report370 - Provides an index of all exhibits filed with the report, including the company's bylaws, credit agreement, key employment agreements, and Sarbanes-Oxley certifications373374
Resources nection(RGP) - 2020 Q4 - Annual Report