Resources Connection, Inc. Reports Financial Results for Third Quarter Fiscal 2021

Post to Reddit
Do NOT follow this link!

Resources Connection, Inc. (Nasdaq: RGP), a multinational business consulting firm operating as RGP (the "Company"), today announced financial results for its fiscal third quarter ended February 27, 2021.

Third Quarter Fiscal 2021 Highlights:

  • Revenue up 2.2% sequentially to $156.6 million compared to $153.2 million in the second quarter and as compared to $168.1 million in the prior year quarter
  • Same day constant currency revenue up 3.4% sequentially and off 10.4% from the prior year quarter
  • SG&A improved 4.5% to $52.8 million compared to $55.3 million in the prior year quarter
  • Net income of $0.7 million, or $0.02 diluted earnings per common share, compared to $6.9 million in the prior year quarter, or $0.21 diluted earnings per common share, which included a discrete tax benefit of $6.6 million or $0.18 per diluted share
  • Adjusted diluted earnings per common share of $0.14 compared to $0.25 in the prior year quarter
  • Adjusted EBITDA margin of 6.0%, up 200 basis points compared to 4.0% in the prior year quarter
  • Available financial liquidity of $149.7 million as of February 27, 2021, up from $126.3 million as of May 30, 2020
  • Cash dividends declared of $0.14 per share, consistent with the prior year quarter

Management Commentary

"We again delivered sequential growth despite the typical holiday impact during our fiscal third quarter," said Kate W. Duchene, chief executive officer. "I am especially proud of our progress expanding Adjusted EBITDA margin by 200 basis points year over year. As we look forward, we are rapidly strengthening our business reach especially in digital transformation, healthcare and financial advisory services. As the macro environment continues to evolve, we are experiencing increased interest from both new and existing clients around implementing an agile workforce strategy, and we are well-positioned to capture the multitude of opportunities as clients seek more cost flexibility in their human capital requirements and as talent demands more radical flexibility. RGP is truly built for the Now of Work."

Third Quarter Fiscal 2021 Results

Revenue increased 2.2% sequentially, or 3.4% on a same day constant currency basis, compared to the second quarter of fiscal 2021, and declined 6.8% year-over-year. The sequential revenue improvement was led by strong demand in Technology and Digital solution offerings as well as other key solution offerings within the healthcare industry vertical. With sustained strength in our pipeline, we believe we are well-positioned to capitalize on the positive dynamic of clients resuming engagements and committing to larger spend on initiatives, including initiatives that have been driven by changes to the workforce paradigm as a result of the pandemic.

Gross margin was 36.4%, compared to 36.5% in the prior year quarter. The change was mostly due to a slight reduction in bill/pay spread primarily caused by more opportunistic pricing and lower consultant utilization in our crisis management business, which operates on a bench model. Additionally, lower conversion and professional search revenue in the third quarter of fiscal 2021 further contributed to the change in gross margin. These impacts were partially offset by lower pass-through revenue from client reimbursement and less holiday pay due to Thanksgiving being included in the third quarter of fiscal 2020 but not in the third quarter of fiscal 2021. The Company continues to take a balanced approach to maximize and capture revenue opportunities while supporting gross margin.

SG&A of $52.8 million included the impact of $2.7 million of contingent consideration expense and $0.7 million of restructuring costs. Excluding contingent consideration and restructuring costs, SG&A expense improved $6.7 million, or 11.9%, compared to the third quarter of fiscal 2020. Management compensation and bonus and occupancy costs were reduced by $3.8 million and $0.9 million, or 10.0% and 19.1%, respectively, compared to the prior year quarter, as a result of the restructuring initiatives the Company began at the end of fiscal 2020. In addition, the Company continues to benefit from its virtual work environment and effective cost containment measures, reducing general business expenses by $1.6 million or 72.6% compared to the prior year quarter.

Net income of $0.7 million in the third quarter of fiscal 2021 reflected the impact of the contingent consideration expense and restructuring costs, coupled with a higher effective tax rate. Net income of $6.9 million in the prior year quarter included a discrete tax benefit of $6.6 million as a result of the deduction of the investment basis in four European entities upon their dissolutions. While withstanding continued challenges posed by the COVID-19 pandemic and inclement weather that caused project delays in certain key markets, the Company delivered a 6.0% adjusted EBITDA margin, a year-over-year improvement of 200 basis points.

SUMMARY OF CONSOLIDATED FINANCIAL RESULTS

(Amounts in thousands, except per share amounts)

Three Months Ended

Nine Months Ended

February 27,

November 28,

February 22,

February 27,

February 22,

2021

2020

2020

2021

2020

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Revenue

$

156,631

$

153,222

$

168,052

$

457,199

$

524,784

Direct cost of services

99,584

$

95,044

$

106,632

$

284,078

$

321,484

Gross profit

57,047

58,178

61,420

173,121

203,300

Selling, general and administrative expenses

52,838

54,552

55,299

158,544

166,032

Amortization of intangible assets

1,202

1,393

1,549

4,125

4,153

Depreciation expense

963

984

1,120

2,954

3,913

Operating income

2,044

1,249

3,452

7,498

29,202

Interest expense, net

361

460

493

1,316

1,526

Other income (1)

(64)

(475)

-

(1,069)

(537)

Income before income tax expense (benefit)

1,747

1,264

2,959

7,251

28,213

Income tax expense (benefit) (2)

1,057

2,256

(3,983)

5,270

3,995

Net income (loss)

$

690

$

(992)

$

6,942

$

1,981

$

24,218

Net income (loss) per common share:

Basic

$

0.02

$

(0.03)

$

0.22

$

0.06

$

0.76

Diluted

$

0.02

$

(0.03)

$

0.21

$

0.06

$

0.75

Weighted average common shares outstanding:

Basic

32,520

32,356

32,159

32,353

31,954

Diluted

32,659

32,356

32,498

32,422

32,350

Cash dividends declared per common share

$

0.14

$

0.14

$

0.14

$

0.42

$

0.42

Revenue by Geography

Revenue

North America

$

127,913

$

122,732

$

138,819

$

371,259

$

431,617

Europe

17,751

19,082

18,031

53,125

56,163

Asia Pacific

10,967

11,408

11,202

32,815

37,004

Total revenue

$

156,631

$

153,222

$

168,052

$

457,199

$

524,784