Resources nection(RGP) - 2021 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents the company's unaudited financial statements, management's analysis of operations, market risk exposures, and internal control effectiveness Consolidated Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, including balance sheets, income statements, and cash flows, reflecting a decline in revenue and net income due to the pandemic and restructuring Consolidated Balance Sheets The balance sheet as of November 28, 2020, shows a decrease in total assets and liabilities, primarily driven by lower receivables and reduced long-term debt Consolidated Balance Sheet Highlights (in thousands) | Account | Nov 28, 2020 | May 30, 2020 | | :--- | :--- | :--- | | Total current assets | $218,558 | $230,999 | | Total assets | $511,966 | $529,181 | | Total current liabilities | $91,636 | $94,901 | | Long-term debt | $68,000 | $88,000 | | Total liabilities | $205,019 | $225,520 | | Total stockholders' equity | $306,947 | $303,661 | Consolidated Statements of Operations Revenue declined 17.0% for the quarter and 15.7% for the six-month period, leading to a net loss for the quarter and a significant drop in six-month net income Three Months Ended Financial Performance (in thousands, except per share data) | Metric | Nov 28, 2020 | Nov 23, 2019 | | :--- | :--- | :--- | | Revenue | $153,222 | $184,507 | | Gross Profit | $58,178 | $74,377 | | Income from Operations | $1,249 | $17,688 | | Net (Loss) Income | $(992) | $12,337 | | Diluted EPS | $(0.03) | $0.38 | Six Months Ended Financial Performance (in thousands, except per share data) | Metric | Nov 28, 2020 | Nov 23, 2019 | | :--- | :--- | :--- | | Revenue | $300,567 | $356,732 | | Gross Profit | $116,074 | $141,880 | | Income from Operations | $5,453 | $25,750 | | Net Income | $1,292 | $17,276 | | Diluted EPS | $0.04 | $0.54 | - Cash dividends declared per common share remained consistent at $0.14 for the quarter and $0.28 for the six-month period, year-over-year[11] Consolidated Statements of Cash Flows Net cash from operations significantly increased to $29.6 million, while investing activities decreased and financing activities primarily focused on debt repayment and dividends Six Months Ended Cash Flow Summary (in thousands) | Activity | Nov 28, 2020 | Nov 23, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $29,577 | $17,218 | | Net cash used in investing activities | $(1,634) | $(25,471) | | Net cash (used in) provided by financing activities | $(29,097) | $8,485 | | Net increase (decrease) in cash | $1,571 | $(12) | Notes to Consolidated Financial Statements Key notes detail the initiation of a European restructuring plan, a change in segment reporting, and the amendment of the credit facility to $120 million - Effective Q2 2021, the company revised its segment reporting structure to 'RGP' and 'Other Segments' following a change in internal management structure related to its European restructuring[27][69] - The company initiated a European restructuring plan in September 2020, incurring $6.0 million in costs as of November 28, 2020, with total restructuring costs for Q2 2021, including North America and APAC plans, at $6.8 million[57][58][59] - On September 3, 2020, the company amended its Credit Agreement, increasing the Revolving Commitment to $120.0 million, with $68.0 million outstanding as of November 28, 2020[48][53] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial results, attributing the revenue decline to COVID-19, outlining strategic priorities, and confirming strong liquidity despite restructuring costs Overview and Strategic Focus The company, a global consulting firm, focuses its fiscal 2021 strategy on digital expansion, core business growth, and global cost structure optimization through restructuring - The company's strategic priorities for fiscal 2021 include furthering digital expansion, growing the core business through strategic client programs, and right-sizing the global cost structure for optimal efficiency[82][84] COVID-19 Impact and Outlook The COVID-19 pandemic led to a 15.7% revenue decline in H1 FY2021, though weekly revenue improved in Q2, and the sales pipeline strengthened - During the first six months of fiscal 2021, revenue declined 15.7% compared to the prior year period due to disruptions from the COVID-19 pandemic[88] - Despite the pandemic's impact, the company observed steady weekly revenue growth throughout Q2 and a strengthening pipeline, indicating improved client buying patterns[90] Results of Operations Q2 FY2021 revenue decreased 17.0% to $153.2 million, with gross margin contracting to 38.0% and SG&A expenses including $6.8 million in restructuring costs, resulting in a net loss - Q2 revenue decreased 17.0% year-over-year to $153.2 million, driven by a 16.9% decrease in billable hours, while sequentially increasing 4.0% from Q1 2021[111] - Gross margin for Q2 decreased to 38.0% from 40.3% in the prior year, primarily due to a 90-basis-point decline in the bill/pay spread and higher holiday pay costs[96][116] - SG&A expenses for Q2 included $6.8 million in restructuring costs related to the company's global transformation plans[117][119] Liquidity and Capital Resources The company maintains strong liquidity with $97.2 million in cash and access to a $120 million credit facility, anticipating $6.5 million to $9.5 million for remaining restructuring actions - As of November 28, 2020, the company had $97.2 million in cash and cash equivalents and $68.0 million in outstanding borrowings under its $120.0 million credit facility[150][151] - Net cash provided by operating activities for the first six months of fiscal 2021 was $29.6 million, a significant improvement from $17.2 million in the prior-year period, mainly due to favorable working capital changes and a payroll tax deferral[155] - The company estimates a cash requirement of $6.5 million to $9.5 million to complete its remaining restructuring actions[152] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate fluctuations on variable-rate debt and foreign currency exchange rate movements, with no current hedging strategies employed - The company is primarily exposed to market risks from interest rate fluctuations on its variable-rate debt and foreign currency exchange rate movements[162][165] - A 10% change in interest rates on the $68.0 million of borrowings would result in an approximate $0.2 million change in annual interest expense[164] - For the six months ended November 28, 2020, approximately 20.4% of the company's revenues were generated outside of the U.S., exposing results to currency translation risk[165] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of November 28, 2020[168] - No changes occurred in the company's internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[168] PART II—OTHER INFORMATION This section provides additional disclosures, including legal proceedings, risk factors, and a list of exhibits filed with the report Legal Proceedings The company is not currently a party to any material legal proceedings, with no ordinary course matters expected to have a material adverse effect - The company is not a party to any material legal proceedings, and any ongoing matters from the ordinary course of business are not expected to have a material adverse effect[76][169] Risk Factors There have been no material changes to the company's risk factors from those disclosed in its Annual Report on Form 10-K for the fiscal year ended May 30, 2020 - There have been no material changes in risk factors from those disclosed in the Annual Report on Form 10-K for the fiscal year ended May 30, 2020[170] Exhibits This section provides an index of exhibits filed with the report, including the 2020 Performance Incentive Plan and officer certifications - The report includes several exhibits, such as the Resources Connection, Inc. 2020 Performance Incentive Plan and officer certifications pursuant to the Sarbanes-Oxley Act of 2002[171][173]