Resources Connection, Inc. (Nasdaq: RGP) (the “Company”), a global consulting firm, today announced its financial results for its fourth quarter and full fiscal year ended May 27, 2023.
Fourth Quarter Fiscal 2023 Highlights Compared to Prior Year Quarter:
- Revenue of $184.4 million declined 15.0% compared to $217.0 million, which included $7.7 million of revenue attributed to taskforce, divested at the beginning of fiscal 2023
- Same-day constant currency revenue, a non-GAAP measure, declined 11.5% excluding taskforce
- Gross margin remained strong at 41.1% compared to 41.3%
- Selling, general and administrative expenses (“SG&A”) of $56.5 million, including $1.9 million of technology transformation costs, or 30.6% of revenue, up 330 basis points
- Net income of $11.8 million (net income margin of 6.4%) compared to $20.5 million (net income margin of 9.5%)
- Diluted earnings per common share of $0.35 compared to $0.61
- Adjusted EBITDA, a non-GAAP measure, was $23.2 million, or 12.6% Adjusted EBITDA margin compared to 15.4%
- Cash dividends declared of $0.14 per share consistent with the prior year quarter
- Available financial liquidity of $291.0 million, up from $224.0 million at fiscal year-end 2022
Full Fiscal Year 2023 Highlights Compared to Prior Year:
- Revenue of $775.6 million declined 3.6% compared to $805.0 million, which included $27.6 million of revenue attributed to taskforce
- Same-day constant currency revenue, a non-GAAP measure, was up 1.1% excluding taskforce
- Gross margin of 40.4%, an improvement of 110 basis points
- SG&A of $228.8 million, including $6.4 million of technology transformation costs, or 29.5% of revenue, compared to 27.9%
- Net income of $54.4 million (net income margin of 7.0%), including goodwill impairment charge of $3.0 million related to Sitrick, compared to $67.2 million (net income margin of 8.3%)
- Diluted earnings per common share of $1.59 compared to $2.00
- Adjusted EBITDA, a non-GAAP measure, of $100.2 million, or 12.9% Adjusted EBITDA margin, up 10 basis points
Management Commentary
“We finished the year with organic revenue growth year over year, while also delivering strong profitability,” said Kate W. Duchene, Chief Executive Officer. “These results – produced in a challenging macroenvironment – are a testament to our employees’ hard work and client receptivity to our agile co-execution model, which is purpose built to be an alternative to traditional partnership consulting models. We deliver experts who execute and help businesses transform with agility. We are excited to continue improving the company for the long term with investments in consultant experience, client services and technology, including a cloud-based enterprise resource planning system, a talent acquisition and management system, and our digital engagement platform, HUGO by RGP®. We stand ready to accelerate our growth as the economy improves with inflation moderating and interest rates stabilizing.”
Fourth Quarter Fiscal 2023 Results
Revenue of $184.4 million decreased by $32.6 million or 15%, compared to the fourth quarter of fiscal 2022. Excluding $7.7 million of revenue from taskforce, which was divested at the beginning of fiscal 2023, and on a constant currency basis, revenue decreased by 11.5%, reflecting slower buying patterns from clients as a result of a softer macroeconomic environment. Compared to the prior year quarter on the same basis (i.e., excluding taskforce), billable hours decreased by 12.6%, while average bill rate improved by 0.9% on a constant currency basis.
Gross margin was 41.1%, compared to 41.3% in the prior year quarter. The change was primarily due to lower leverage on indirect cost of service as a result of softer topline performance, offset by a 150 basis points improvement in pay/bill ratio driven by the successful execution of ongoing pricing initiative to raise bill rates and the divestiture of taskforce which historically had less favorable pay/bill ratios.
SG&A for the fourth quarter of fiscal 2023 was $56.5 million, an improvement of $2.8 million compared to the prior year quarter. The decrease in SG&A costs was primarily due to lower management incentive compensation expense, partially offset by higher technology transformation costs as the Company continued to execute its technology implementation project.
The fourth quarter had a provision for income taxes of $5.4 million (an effective tax rate of 31.4%) compared to $7.2 million (an effective tax rate of 26.1%) for the fourth quarter of fiscal 2022. The effective tax rate for the fourth quarter of fiscal 2023 was attributed to lower international pre-tax income. The lower international pre-tax income causes the effective rate to increase, especially where there is a full valuation allowance that negates the tax benefit of losses.
Net income was $11.8 million (net income margin of 6.4%), compared to $20.5 million (net income margin of 9.5%) in the prior year quarter, primarily due to lower topline revenue and higher SG&A as a percentage of revenue as the Company continued to execute on its technology implementation project to drive long-term growth and efficiency. Despite continued challenges posed by the macro environment, the Company delivered a solid Adjusted EBITDA margin of 12.6% in the fourth quarter.
Full Fiscal Year 2023 Results
Annual revenue declined 3.6% versus a year ago to $775.6 million but increased by 1.1% on a same-day constant currency basis excluding taskforce. Gross margin improved by 110 basis points to 40.4%, driven by the 220 basis points improvement in pay/bill ratio as the Company’s pricing initiative continued to yield positive results and as a result of taskforce divestiture. The Company’s continued focus on operational efficiency supported a healthy ratio of SG&A to revenue of 29.5%, with SG&A of $228.8 million including $6.4 million of technology transformation costs. Despite a challenging macro environment throughout the fiscal year, the Company delivered net income of $54.4 million (net income margin of 7.0%) including a goodwill impairment charge of $3.0 million related to Sitrick, diluted earnings per common share of $1.59, and a strong Adjusted EBITDA margin of 12.9%.
RESOURCES CONNECTION, INC. SUMMARY OF CONSOLIDATED FINANCIAL RESULTS (In thousands, except per share amounts) | |||||||||||||||||||
Three Months Ended | For the Years Ended | ||||||||||||||||||
May 27, | May 28, | May 27, | May 28, | May 29, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | 2021 | |||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||
Revenue | $ | 184,449 | $ | 217,031 | $ | 775,643 | $ | 805,018 | $ | 629,516 | |||||||||
Direct cost of services | 108,731 | 127,356 | 462,501 | 488,376 | 388,112 | ||||||||||||||
Gross profit | 75,718 | 89,675 | 313,142 | 316,642 | 241,404 | ||||||||||||||
Selling, general and administrative expenses | 56,507 | 59,356 | 228,842 | 224,721 | 209,326 | ||||||||||||||
Amortization expense | 1,275 | 1,300 | 5,018 | 4,908 | 5,228 | ||||||||||||||
Depreciation expense | 887 | 881 | 3,539 | 3,575 | 3,897 | ||||||||||||||
Goodwill impairment | - | - | 2,955 | - | - | ||||||||||||||
Income from operations | 17,049 | 28,138 | 72,788 | 83,438 | 22,953 | ||||||||||||||
Interest (income) expense, net | (110 | ) | 320 | 552 | 1,064 | 1,600 | |||||||||||||
Other (income) expense | (1 | ) | 59 | (382 | ) | (594 | ) | (1,331 | ) | ||||||||||
Income before income tax expense (benefit) | 17,160 | 27,759 | 72,618 | 82,968 | 22,684 | ||||||||||||||
Income tax expense (benefit) | 5,392 | 7,232 | 18,259 | 15,793 | (2,545 | ) | |||||||||||||
Net income | $ | 11,768 | $ | 20,527 | $ | 54,359 | $ | 67,175 | $ | 25,229 | |||||||||
Net income per common share: | |||||||||||||||||||
Basic | $ | 0.35 | $ | 0.62 | $ | 1.63 | $ | 2.04 | $ | 0.78 | |||||||||
Diluted | $ | 0.35 | $ | 0.61 | $ | 1.59 | $ | 2.00 | $ | 0.78 | |||||||||
Weighted average number of common and common equivalent shares outstanding: | |||||||||||||||||||
Basic | 33,374 | 32,957 | 33,407 | 32,953 | 32,444 | ||||||||||||||
Diluted | 33,886 | 33,499 | 34,185 | 33,556 | 32,552 | ||||||||||||||
Cash dividends declared per common share | $ | 0.14 | $ | 0.14 | $ | 0.56 | $ | 0.56 | $ | 0.56 | |||||||||
Revenue by Geography | |||||||||||||||||||
North America | $ | 160,999 | $ | 183,817 | $ | 680,993 | $ | 676,419 | $ | 512,777 | |||||||||
Europe | 10,757 | 19,433 | 42,509 | 76,075 | 72,496 | ||||||||||||||
Asia Pacific | 12,693 | 13,781 | 52,141 | 52,524 | 44,243 | ||||||||||||||
Total consolidated revenue | $ | 184,449 | $ | 217,031 | $ | 775,643 | $ | 805,018 | $ | 629,516 | |||||||||
Cash dividend | |||||||||||||||||||
Total cash dividends paid | $ | 4,819 | $ | 4,635 | $ | 18,784 | $ | 18,600 | $ | 18,230 | |||||||||
Conference Call Information
RGP will hold a conference call for analysts and investors at 5:00 p.m., ET, today, July 24, 2023. A live webcast of the call will be available on the Events section of the Company’s Investor Relations website. To access the call by phone, please go to this link (registration link), and you will be provided with dial in details. To avoid delays, we encourage participants to dial into the conference call fifteen minutes ahead of the scheduled start time. A replay of the webcast will also be available for 30 days by visiting the Events section of the Company’s Investor Relations website.
About RGP
RGP is a global consulting firm focused on project execution services that power clients’ operational needs and change initiatives utilizing on-demand, experienced and diverse talent. As a next-generation human capital partner for our clients, we specialize in co-delivery of enterprise initiatives typically precipitated by business transformation, strategic transactions or regulatory change. Our engagements are designed to leverage human connect
