Business context and reporting period
Resources Connection, Inc. (Nasdaq: RGP) filed this Form 10-K for the fiscal year ended May 28, 2022; fiscal 2021 ended May 29, 2021. The company provides project-based consulting and professional services through RGP, alongside smaller taskforce and Sitrick businesses. RGP generated about 95% of fiscal 2022 revenue. The filing is an annual report, not a standalone fiscal fourth-quarter report.
Financial performance and liquidity
Amounts are in U.S. dollars; financial figures below are in millions unless noted.
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $805.0 | $629.5 |
| Gross profit / margin | $316.6 / 39.3% | $241.4 / 38.3% |
| Operating income / margin | $83.4 / 10.4% | $23.0 / 3.6% |
| Net income | $67.2 | $25.2 |
| Diluted EPS | $2.00 | $0.78 |
| Adjusted EBITDA / margin | $103.1 / 12.8% | $52.8 / 8.4% |
| Cash from operations | $49.4 | $39.9 |
- Revenue rose 27.9% reported and 28.7% on a same-day, constant-currency basis. Billable hours increased 25.0%; average bill rates increased 2.4%.
- Direct costs were 60.7% of revenue versus 61.7%; management attributed the improvement to higher bill rates and a 100-basis-point improvement in the pay/bill ratio.
- Cash and cash equivalents were $104.2 million at year-end, versus $74.4 million. Current assets were $308.5 million and current liabilities $124.3 million.
- Debt under the revolving credit facility was $54.0 million, with $119.8 million of remaining capacity. The facility totals $175 million, matures in November 2026, and bears variable-rate interest; the company reported covenant compliance.
- Investing activities used $3.0 million; financing activities used $13.4 million. Operating cash flow was affected by a $44.8 million increase in receivables amid revenue growth.
- The company declared dividends of $0.14 per share each quarter ($0.56 for the year). Dividend continuation remains subject to board approval.
Material changes versus the prior comparable year
- Revenue grew across all geographies; North America increased 31.9%, Europe 4.9%, and Asia Pacific 18.7% on a reported basis.
- SG&A increased to $224.7 million from $209.3 million, but declined to 27.9% of revenue from 33.3%, reflecting operating leverage. Restructuring costs fell to $0.8 million from $8.3 million.
- RGP revenue increased 30.1% to $764.4 million; Other Segments revenue declined 2.9% to $40.7 million, primarily due to lower Sitrick revenue.
- Net income and margins improved substantially. The comparison also reflects an FY2021 income-tax benefit of $2.5 million, versus FY2022 tax expense of $15.8 million.
- The company repurchased 1.16 million shares for $19.7 million in a privately negotiated transaction and retired 31.7 million previously held treasury shares. Year-end shares outstanding were 33.2 million.
Outlook, commentary, risks and unusual items
- Management cited favorable demand for flexible talent, transformation projects and digital services, alongside tighter labor supply. It gave no specific numerical revenue or earnings guidance for fiscal 2023.
- Management expects $20–$25 million of total investment through completion of its global technology and ERP transformation, primarily in fiscal 2023 and 2024. It stated that cash, operating cash flow and credit availability should cover needs for at least the next 12 months.
- The company expects a $34.8 million federal tax refund in the first half of fiscal 2023 and expects to pay the remaining $4.0 million of deferred payroll taxes in late calendar 2022.
- Taskforce was sold on May 31, 2022, immediately after fiscal year-end, for approximately €5.5 million (about $5.9 million), subject to working-capital adjustments. The filing says half the consideration was payable in cash and half on July 1, 2024; approximately $2.7 million had been received before closing. The transaction was not classified as discontinued operations.
- FY2022 tax expense included benefits associated with foreign operations, including a $4.9 million valuation-allowance reversal and a $2.6 million benefit from dissolution of the France entity. The auditor identified the Netherlands deferred-tax valuation allowance reversal as a critical audit matter, citing forecast assumptions.
- Key disclosed risks include economic downturn and inflation, competition for clients and consultants, wage and payroll-cost increases, project cancellations and pricing pressure, variable-rate debt, foreign-exchange movements, cybersecurity and privacy exposure, and execution risk for digital and technology initiatives. Management reported no material legal proceedings and effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions.
Important facts for investors to verify
- Whether revenue growth, utilization and bill-rate gains persist, especially if labor costs rise or demand for discretionary projects weakens.
- Receivables collection and operating cash conversion, given the large receivables increase during the year.
- Progress, total cost and expected returns from the $20–$25 million technology transformation and HUGO platform rollout.
- Receipt and timing of the expected tax refund, the remaining payroll-tax payment, and realization of deferred tax assets reliant on future taxable income.
- Final taskforce sale proceeds and working-capital adjustment, and the effect of its removal from future reporting periods.
- Debt levels, variable interest expense, covenant headroom, dividend affordability and any further share repurchases.