Resources Connection, Inc. — Q1 FY2023 10-Q
Business context and period: The quarter ended August 27, 2022, and comprised 13 weeks. Resources Connection primarily provides project-execution consulting and on-demand talent through RGP, with Sitrick reported within Other Segments. The company completed the sale of taskforce on May 31, 2022.
Financial performance
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Revenue | $204.1 million | $183.1 million |
| Gross profit / margin | $83.5 million / 40.9% | $71.4 million / 39.0% |
| Operating income / margin | $25.1 million / 12.3% | $18.0 million / 9.8% |
| Net income / diluted EPS | $18.1 million / $0.53 | $12.9 million / $0.39 |
| Adjusted EBITDA / margin | $30.7 million / 15.0% | $22.4 million / 12.2% |
| Operating cash flow | $(5.3) million | $0.5 million |
Revenue rose 11.4% year over year, or 13.2% on a same-day constant-currency basis. Excluding taskforce, revenue increased 15.2% (17.0% same-day constant currency). Billable hours grew 10.5% and average bill rate rose 1.6%; excluding taskforce, those increases were 12.6% and 3.2%, respectively. Direct costs fell to 59.1% of revenue from 61.0%, reflecting a 230-basis-point improvement in the pay/bill ratio, partly offset by higher benefits costs. SG&A was 27.6% of revenue versus 28.1%.
Cash and cash equivalents were $72.6 million at quarter-end, down from $104.2 million at fiscal year-end. Long-term debt was $20.0 million, down from $54.0 million; $153.8 million of revolving-credit capacity remained. The company paid $4.6 million in dividends and declared a quarterly dividend of $0.14 per share. Current assets were $262.2 million and current liabilities $91.8 million.
Material changes and unusual items
- RGP revenue increased 16.2% to $201.0 million; RGP Adjusted EBITDA rose 32.2% to $38.3 million. Other Segments revenue fell to $3.1 million, mainly reflecting taskforce’s divestiture and lower Sitrick revenue.
- Taskforce’s final sale price was approximately $6.0 million: about $3.0 million received in cash and about $3.0 million due in July 2024. The company recorded a $0.2 million gain.
- Operating cash outflow primarily reflected a $24.8 million decline in accrued salaries and related obligations, mainly from incentive payments and payroll timing, as well as higher receivables.
- Adjusted EBITDA included $1.0 million of technology-transformation costs; restructuring costs were a $0.4 million credit. These are non-GAAP measures and should be considered alongside GAAP results.
- Foreign-currency translation reduced comprehensive income by $5.0 million.
Outlook, risks and contingencies
The filing provides no quantified revenue or earnings guidance. Management said demand remained healthy overall, supported by workforce-agility needs and a tight labor market, while some clients were becoming more cautious amid inflation, rising interest rates, recessionary pressures, currency volatility, supply-chain issues, and the Russia-Ukraine war. A prolonged downturn could reduce billable hours or rates.
The multi-year technology transformation was initially estimated at $20–$25 million, but costs could increase as the deployment roadmap is refined; most investment was expected in FY2023 and FY2024. The company believed cash, operating cash flows, and available credit would cover needs for at least 12 months. It expected to pay the remaining $4.0 million of deferred payroll taxes in late 2022 and receive a $34.8 million federal tax refund before year-end 2022, subject to possible processing delays. Management noted a reasonable possibility of releasing certain foreign deferred-tax valuation allowances within 12 months, dependent on profitability. The company reported compliance with credit-facility covenants; ordinary-course legal matters were not considered likely to have a material adverse effect.
Most important facts for investors to verify
- Whether revenue, billable-hour growth, and pricing momentum persist as macroeconomic uncertainty affects client spending.
- Actual technology-transformation spending and implementation progress versus the initial $20–$25 million estimate.
- Timing and receipt of the expected $34.8 million tax refund, and payment of deferred payroll taxes.
- Cash conversion and working-capital trends, particularly accrued payroll and receivables, alongside variable-rate debt costs.
- Post-divestiture performance of RGP and Sitrick, including the effect of taskforce’s removal from comparisons.