Resources Connection, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended May 29, 2021 (52 weeks), with fiscal 2020 comparison ended May 30, 2020 (53 weeks). The filing also reports fourth-quarter results. Although the request metadata says “2020 Q4,” this filing covers fiscal 2021.
Business context
Resources Connection provides project-based consulting and professional staffing, mainly through RGP, with taskforce (German interim management) and Sitrick (crisis communications) comprising Other Segments. RGP generated 93.3% of fiscal 2021 revenue. The company served more than 2,100 clients in 42 countries; no client contributed over 10% of annual revenue.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $629.5 million | $703.4 million |
| Gross profit / margin | $241.4 million / 38.3% | $275.5 million / 39.2% |
| Operating income / margin | $23.0 million / 3.6% | $36.7 million / 5.2% |
| Net income | $25.2 million | $28.3 million |
| Diluted EPS | $0.78 | $0.88 |
| Adjusted EBITDA / margin (non-GAAP) | $52.8 million / 8.4% | $59.9 million / 8.5% |
| Operating cash flow | $39.9 million | $49.5 million |
Fourth-quarter revenue was $172.3 million, down 3.5% year over year, while net income was $23.2 million versus $4.1 million. Fourth-quarter adjusted EBITDA was $20.7 million, compared with $18.6 million; adjusted EBITDA margin was 12.0% versus 10.4%.
At year-end, cash and cash equivalents were $74.4 million, total assets $520.6 million, and total liabilities $191.1 million. Revolver borrowings were $43.0 million, with $75.7 million of remaining capacity under the $120 million facility; the company repaid a further $10 million on June 9, 2021. Operating lease liabilities totaled $30.9 million, with $33.2 million of undiscounted minimum lease payments.
Changes versus the prior period
- Annual revenue declined 10.5% reported, or 10.2% on a same-day constant-currency basis. Billable hours fell 10.4%; average bill rates were relatively consistent.
- Gross margin fell 0.9 percentage points. Direct costs increased to 61.7% of revenue from 60.8%, reflecting pay rates rising faster than bill rates, non-billable pay, and healthcare costs.
- SG&A declined to $209.3 million from $228.1 million, but rose as a share of revenue to 33.3% from 32.4%. Excluding restructuring and contingent-consideration costs, SG&A decreased 11.6%.
- Revenue recovered sequentially after a first-quarter trough; fourth-quarter revenue exceeded the first-quarter level by 16.9%. RGP revenue fell 11.3% for the year; Other Segments revenue increased 2.5%.
- Cash declined to $74.4 million from $95.6 million, in part as the company repaid $45 million of facility borrowings and paid $18.2 million of dividends. Operating cash flow also decreased.
Outlook, risks and unusual items
- Management reported improving revenue momentum, sales pipeline and bill rates heading into fiscal 2022, and expressed optimism about recovery. It provided no specific revenue or earnings guidance.
- Management expects some lingering pandemic effects into fiscal 2022. Key risks include renewed COVID-19 disruption, economic weakness and discretionary-spending delays, consultant recruitment and retention, pricing/pay-rate pressure, and the ability to win and retain projects.
- The company substantially completed global workforce and real-estate restructuring. Fiscal 2021 restructuring costs were $8.3 million; management estimated a further $2 million to $4 million in cash needs to complete remaining actions and noted lease exits may take longer or cost more than expected.
- A tax-method change and CARES Act NOL carryback produced a $12.8 million discrete tax benefit in the fourth quarter and a reported effective tax benefit rate of 11.2%. Management expected to file for a $34 million federal tax refund within 12 months; timing and realization should be monitored.
- Veracity contributed $26.2 million of fiscal 2021 revenue. Its remaining contingent-consideration liability was $6.8 million; total contingent consideration liabilities were $7.1 million, expected to be paid before the end of calendar 2021.
- Goodwill was $216.8 million. No impairment was recorded, though goodwill valuation was identified as a critical audit matter because it depends on forecasts and discount-rate assumptions. The auditor gave unqualified opinions on the financial statements and internal controls.
- The company reported no material legal proceedings and was in compliance with its credit-facility financial covenants at year-end. The quarterly dividend was $0.14 per share, subject to board approval and credit-agreement restrictions.
Most important facts for investors to verify
- Whether the sequential revenue recovery and pipeline conversion continued after fiscal year-end, and whether billable hours and bill rates improved.
- Whether gross margin stabilizes as consultant pay, pricing, utilization and healthcare costs evolve.
- Receipt and timing of the expected $34 million federal tax refund, and the sustainability of the unusually favorable FY2021 tax result.
- Cash required for lease exits, restructuring completion and contingent-consideration payments, alongside revolver repayment and dividend commitments.
- Goodwill valuation assumptions and progress of the human cloud platform, digital expansion and Veracity integration.