Resources Connection, Inc. (RGP) — Form 10-K Summary
Reporting period: Fiscal year ended May 30, 2020 (53 weeks), compared with fiscal 2019 ended May 25, 2019 (52 weeks). The filing also reports fiscal Q4 results; Q4 2020 comprised 14 weeks versus 13 weeks in Q4 2019. Although the request identifies “2019 Q4,” this filing covers fiscal 2020.
Business context
RGP is a global consulting firm providing project-based professional services in transactions, regulations, and transformations. It served more than 2,400 clients in 37 countries during fiscal 2020. No client represented more than 10% of annual revenue.
Financial and operating results
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $703.4 million | $729.0 million | Down 3.5% |
| Gross margin | $275.5 million (39.2%) | $282.4 million (38.7%) | Margin up 0.5 percentage points |
| Operating income | $36.7 million (5.2%) | $50.2 million (6.9%) | Down 26.9% |
| Net income | $28.3 million (4.0%) | $31.5 million (4.3%) | Down 10.1% |
| Diluted EPS | $0.88 | $0.98 | Down 10.2% |
| Adjusted EBITDA (non-GAAP) | $59.9 million (8.5% margin) | $64.6 million (8.9% margin) | Down 7.3% |
Annual billable hours fell 3.3%, while average bill rates were relatively consistent; constant-currency average bill rates increased 0.4%. Same-day organic revenue declined 6.4% overall (6.9% North America, 5.1% Europe, and 2.0% Asia Pacific). The extra fiscal week partly offsets the underlying revenue decline. Consultant headcount on assignment fell to 2,495 from 2,965.
Fiscal Q4: Revenue was $178.6 million versus $182.1 million a year earlier; net income was $4.1 million versus $9.4 million. Management said average weekly revenue in the final 12 non-holiday weeks declined 9.1% compared with the first eight non-holiday weeks of calendar 2020.
Cash flow and liquidity: Operating cash flow was $49.5 million, up from $43.6 million. Investing activities used $26.8 million, including $30.3 million (net of acquired cash) for Veracity. Financing activities provided $30.9 million. Year-end cash and cash equivalents were $95.6 million, including $31.7 million held internationally; debt under the revolving facility was $88.0 million, with $30.7 million additional availability and $1.3 million in letters of credit. The company reported compliance with facility covenants and believed available liquidity would cover needs for at least 12 months.
Balance sheet and capital returns: Total assets were $529.2 million, total liabilities $225.5 million, and stockholders’ equity $303.7 million. Operating lease liabilities totaled $41.9 million. Dividends declared were $0.56 per share for the year; $17.6 million of dividends were paid. Share repurchases were $5.0 million, leaving approximately $85.1 million authorized under the repurchase program.
Material changes and unusual items
- COVID-19 adversely affected results and cash flows in the second half of fiscal 2020, weakened the sales pipeline, and was expected to continue affecting fiscal 2021. Management gave no quantified revenue or earnings forecast.
- Fiscal 2020 SG&A included $5.0 million of restructuring costs: $3.9 million of personnel costs and $1.1 million of facility-exit costs. The company eliminated 73 positions in North America and Asia Pacific and targeted a 26% reduction in its global real estate footprint.
- Management expected $10–$12 million of fiscal 2021 savings from the restructuring plan, while warning that lease exits and subleasing could take longer and cost more than expected. Additional fiscal 2021 restructuring costs were anticipated.
- The July 2019 Veracity acquisition contributed $18.8 million of revenue and $4.1 million of operating income in fiscal 2020. RGP also acquired Expertence in Germany and exited or discontinued operations in Sweden, Belgium, Luxembourg, and Norway.
- The effective tax rate fell to 19.7% from 34.4%, primarily reflecting tax benefits associated with worthless-stock deductions; these reduced the fiscal 2020 rate by 17.4 percentage points. A tax benefit related to a worthless-loan deduction was fully reserved as an uncertain tax position.
- The company recorded no goodwill impairment. It cautioned that a sustained stock-price decline or adverse conditions could trigger a future assessment and potentially a material non-cash impairment.
Outlook, risks, and contingencies
Management emphasized balance-sheet and liquidity discipline while continuing selective investment in core markets and digital capabilities. The digital engagement platform was expected to launch in fiscal 2021. The $120 million secured revolving credit facility expires October 17, 2021 and includes financial and operating covenants. Other material risks include uncertain client demand and project cancellations, collection and credit risk, consultant retention, competition and pricing pressure, execution of restructuring and acquisitions, foreign-exchange exposure, and cybersecurity and data-privacy compliance. The company reported no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether post-year-end demand, weekly revenue trends, and the consultant count stabilized or deteriorated further.
- Whether the projected $10–$12 million in fiscal 2021 savings was achieved and the final cost and timing of office exits and restructuring.
- Whether operating cash flow, receivable collections, and facility availability remained sufficient as the credit facility approached its October 2021 maturity.
- Whether Veracity met performance conditions for contingent consideration; the recorded contingent-consideration liability was $7.9 million, including $5.0 million potentially due before the end of calendar 2020 if conditions were met.
- The sustainability of earnings excluding the unusual tax deductions, restructuring costs, and acquisition-related adjustments; adjusted EBITDA is a non-GAAP measure.
- Whether the quarterly dividend remained approved and affordable; continuation is at the board’s discretion and subject to financial and contractual conditions.