2020 Annual Report
Nasdaq: RGP
www.rgp.com
Dear Shareholders,
These
Tenacity.
Resilience.
Fortitude.
are
the words that come to
mind when I think about
this past year -- all that
humanity has suffered,
and the grit shown in turn.
A viral pandemic that has
ravaged and brought our
world to its knees, taking
more than 800,000 lives to date. To complicate
matters, we’re not just waging war on COVID-19 –
we’re also fighting an affliction that has plagued us
much longer: systemic racism and racial violence.
Without a doubt, fighting a two-front battle this year
has tested our resolve.
Yet there are glimmers of hope amid all the pain and
anguish that help me believe in a brighter future.
We’ve seen front line healthcare workers risking
everything to care for patients, many traveling to
hotspots to lend an extra hand where it’s needed
most. Corporate America standing in solidarity with
protesters, pledging time and real dollars to social
justice organizations, and vowing to make internal
cultures more inclusive provides inspiration. I also
applaud and appreciate those of us sheltering at home
all this time, wearing masks dutifully and sanitizing our
hands – doing what we can to protect the vulnerable
and elderly. We didn’t ask for this version of 2020 and
we didn’t see it coming, but we did not falter in its
wake either. We faced these challenges head on. And
while recovery is not yet in sight, our human spirit and
its will to fight back remain strong.
Beyond the macro, the theme of perseverance in the
face of adversity resonates strongly at RGP today. While
the business climate has proven challenging these last
several months, we have kept our eye on the ball and
performed solidly through the crisis. Just before the
pandemic hit the U.S. in early March, we initiated a
restructuring of our headcount and real estate footprint
in North America and Asia Pacific. We conducted
this exercise to enhance our organizational health
and agility for an improved customer and employee
experience. Within days of the pandemic reaching the
U.S., we adopted an organization-wide Work-From-
Home order and pivoted to a virtual operating model
nearly overnight. The transition proved seamless and
certainly our work in preparing for the restructuring,
including the adoption of technology tools to support
remote work, put us well ahead of the curve.
and go-to-market strategy and building world-class
sales and talent organizations. The implementations
of Salesforce and Workday have been foundational in
this regard. The nature of our business affords us the
added advantage of a strong balance sheet, healthy
cash flow and a solid debt leverage ratio. It’s hard to
overstate the value of a variable cost operating model
during times of economic uncertainty.
Looking ahead and recognizing that true recovery
is not yet at hand, we know exactly where our
strategic priorities lie for fiscal 2021. Operating model
efficiency and cost optimization remain an important
area of focus. We expect to announce the next wave
of our reorganization – reimagining our European
business – in the coming months. We will continue
to modernize our core systems to support the growth
and evolution of our business, as well as productive
virtual operations. Digital transformation continues to
be high on our agenda, and we look forward to the
launch of our human cloud staffing platform, Hugo,
later this fiscal year to further drive growth. Our go-
to-market leadership is working in close collaboration
with Veracity’s leaders to accelerate the expansion of
its reach and service delivery into RGP’s client base.
The same team is also driving the continued growth
of our strategic account programs through enhanced
focus and penetration.
As a human-first company, diversity, equity and
inclusion (DE&I) are shared values that have long
been deeply ingrained in our culture. That said, we are
actively working this year to increase DE&I awareness,
education and involvement even further throughout
our workforce. Stay tuned for updates on our efforts
and new programs in this arena.
While 2020 has certainly presented us all with a
unique set of trials, I am proud that we’ve risen to the
challenge and ardently believe in better days ahead.
I am very grateful that the business we’ve built has
proven resilient in the face of crisis. And while I’ve
long talked about the Future of Work trend favoring
RGP’s agile human capital model, I am now convinced
that the future is here. The COVID-19 pandemic has
markedly accelerated the shift to agility, propelling
us into the Now of Work. This is our time, and we’re
ready.
Thank you for your support of RGP, and we look
forward to an improving environment ahead.
Best,
The stability of our business is also a function of the
transformational work we’ve completed over the last
several years, including evolving our operating model
Kate W. Duchene
Chief Executive Officer
RESOURCES CONNECTION, INC.
TABLE OF CONTENTS
(cid:3)
FINANCIAL HIGHLIGHTS ................................................................................................................................................................... 2
SERVICES AND STRATEGY OF RESOURCES GLOBAL PROFESSIONALS ................................................................................ 4
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ......... 13
CONSOLIDATED FINANCIAL STATEMENTS ............................................................................................................................... 27
1
FINANCIAL HIGHLIGHTS
2
(Amounts in thousands, except per share and headcount data and percentages)
Total Revenues
Adjusted EBITDA Margin (1)
$703,353
$728,999
$654,129
$583,411
$598,521
10.6%
8.5%
8.9%
7.5%
6.6%
12
10
8
6
4
2
0
2020
2019
2018
2017
2016
2020
2019
2018
2017
2016
Cash Dividends Declared
per Common Share
$0.56
$0.52
$0.48
$0.44
$0.40
Total Number of Consultants on Assignment at
End of Period
3,247
2,965
2,495
2,569
2,511
3,500
3,000
2,500
2,000
1,500
1,000
500
0
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$
$0.60
$0.50
$0.40
$0.30
$0.20
$0.10
$0.00
2020
2020
2019
2019
2018
2018
2017
2017
2016
2016
2020
2019
2018
2017
2016
__________
(1) Adjusted EBITDA is a key performance indicator we use to assess our financial and operating performance. In fiscal 2020,
2019 and 2018, we defined Adjusted EBITDA as net income before amortization of intangible assets, depreciation expense,
interest and income taxes plus stock-based compensation expense, restructuring costs, and plus or minus contingent
consideration adjustments. In 2017, adjusted EBITDA was not adjusted for restructuring costs of $2.4 million. Adjusted
EBITDA is a non-GAAP financial measure. A non-GAAP financial measure is defined as a numerical measure of a company’s
financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are
included in the comparable measure calculated and presented in accordance with generally accepted accounting principles
(“GAAP”) in the statement of operations; or (ii) includes amounts, or is subject to adjustments that have the effect of including
amounts, that are excluded from the comparable measures so calculated and presented. Adjusted EBITDA Margin is calculated
by dividing the Adjusted EBITDA by revenue. For further discussion of Adjusted EBITDA, see page 19.
3
SERVICES AND STRATEGY OF RESOURCES GLOBAL PROFESSIONALS
RGP is a global consulting firm that enables rapid business outcomes by bringing together the right people to create
transformative change. As a human capital partner for our clients, we specialize in solving today’s most pressing business problems
across the enterprise in the areas of transactions, regulations, and transformations. Our engagements are designed to leverage human
connection and collaboration to deliver practical solutions and more impactful results that power our clients, consultants and partners’
success.
RGP was founded in 1996 to help finance executives with operational needs and special projects. Headquartered in Irvine,
California, RGP is proud to have served 88 of the Fortune 100 as of July 2020. Our agile human capital model quickly aligns the right
resources for the work at hand with speed and efficiency. Our pioneering approach to workforce strategy uniquely positions us to
support our clients on their transformation journeys. With more than 3,400 professionals, we annually engage with over 2,400 clients
around the world.
Industry Background and Trends
Changing Market for Project- or Initiative-Based Professional Services
RGP’s services respond to a growing marketplace trend: namely, corporate clients are increasingly choosing to address their
workforce needs in more flexible ways. We believe this growing shift in workforce strategy towards a project-based orientation might
also be accelerated by the COVID-19 pandemic with an enhanced emphasis on business agility. Permanent professional personnel
positions are being reduced as clients engage agile talent for project initiatives and transformation work.
Companies use a mix of alternative resources to execute on projects. Some companies rely solely on their own employees
who may lack the requisite time, experience or skills for specific projects. They may outsource entire projects to consulting firms,
which provides them access to the expertise of the firm but often entails significant cost and less management control of the project.
As a more cost-efficient alternative, companies sometimes use temporary employees from traditional and Internet-based staffing firms,
although these employees may be less experienced or less qualified than employees from professional services firms. Finally,
companies can supplement their internal resources with employees from agile consulting or other traditional professional services
firms, like RGP. The use of project consultants as a viable alternative to traditional accounting, consulting and law firms allows
companies to:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Strategically access specialized skills and expertise for projects of set duration
Access the very best talent across regions and geographies
Be nimble and mobilize quickly
Blend independent and fresh points of view
Effectively supplement internal resources
Increase labor flexibility
Reduce overall hiring, training and termination costs
Supply of Project Consultants
Based on discussions with our consultants, we believe the number of professionals seeking to work on an agile basis has been
increasing due to a desire for:
(cid:120) More flexible hours and work arrangements, including working from home options, coupled with an evolving
professional culture that offers competitive wages and benefits
(cid:120)
(cid:120)
(cid:120)
(cid:120)
The ability to learn and contribute in different environments and collaborate with diverse team members
Challenging engagements that advance their careers, develop their skills and add to their experience base
A work environment that provides a diversity of, and more control over, client engagements
Alternate employment opportunities in regions throughout the world
4
The employment alternatives available to professionals may fulfill some, but not all, of an individual’s career objectives. A
professional working for a Big Four firm or a consulting firm may receive challenging assignments and training; however, he or she
may encounter a career path with less choice and less flexible hours, extensive travel and limited control over work engagements.
Alternatively, a professional who works as an independent contractor faces the ongoing task of sourcing assignments and significant
administrative burdens, including potential tax and legal issues.
RGP’s Solution
We believe RGP is ideally positioned to capitalize on the confluence of the industry shifts described above. We believe, based
on discussions with our clients, that RGP provides the agility companies desire in today’s highly competitive and quickly evolving
business environment. Our solution offers the following elements:
(cid:120)
(cid:120)
A relationship-oriented and collaborative approach to client service
A professional dedicated talent acquisition and management team adept at developing, managing and deploying a
project-based workforce
needs
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Deep functional and/or technical experts who can assess clients’ project needs and customize solutions to meet those
Highly qualified and pedigreed consultants with the requisite expertise, experience and points of view
Competitive rates on an hourly, rather than project, basis
Significant client control of their projects with effective knowledge transfer and change management
RGP’s Strategic Priorities
Our Business Strategy
We are dedicated to serving our clients with highly qualified and experienced talent in support of projects and initiatives in a
broad array of functional areas, including:
Transactions
Regulations
(cid:120) Accounting regulations
(cid:120) Internal audit and compliance
(cid:120) Data privacy and security
(cid:120) Healthcare compliance
(cid:120) Regulatory compliance
(cid:120) Integration and divestitures
(cid:120) Bankruptcy/restructuring
(cid:120) IPO readiness and support
(cid:120) Financial process optimization
(cid:120) System implementation
Transformations
(cid:120) Finance transformation
(cid:120) Digital transformation
(cid:120) Supply chain management
(cid:120) Cloud migration
(cid:120) Data design and analytics
Our objective is to build RGP’s reputation as the premier provider of agile human capital solutions for companies facing
transformation, change and compliance challenges. We have developed the following business strategies to achieve our objectives:
5
(cid:120)
Hire and retain highly qualified, experienced consultants. We believe our highly qualified, experienced consultants
provide us with a distinct competitive advantage. Therefore, one of our priorities is to continue to attract and retain high-caliber
consultants who are committed to serving clients and solving their problems. We believe we have been successful in attracting and
retaining qualified professionals by providing challenging work assignments, competitive compensation and benefits, and continuing
professional development and learning opportunities as well as membership to an exclusive community of likeminded professionals,
while offering flexible work schedules and more control over choosing client engagements.
(cid:120) Maintain our distinctive culture. Our corporate culture is the foundation of our business strategy and we believe it has
been a significant component of our success. Our senior management team, the majority of whom are Big Four, management consulting
and/or Fortune 500 alumni, has created a culture that combines the commitment to quality and client service focus of a Big Four firm
with the entrepreneurial energy of an innovative, high-growth company. We believe our shared values, embodied in “LIFE AT RGP”,
representing Loyalty, Integrity, Focus, Enthusiasm, Accountability and Talent, has created a circle of quality. Our Power of Human
(pH) Competencies also bring the opportunity to help our people develop new mindsets, behaviors and actions that not only allow them
to be successful in their current roles, but also empower them to take on new opportunities and challenges. Our culture is instrumental
to our success in hiring and retaining highly qualified employees who, in turn, attract quality clients.
(cid:120)
Build consultative relationships with clients. We emphasize a relationship-oriented approach to business rather than a
transaction-oriented or assignment-oriented approach. We believe the professional services experience of our management and
consultants enables us to understand the needs of our clients and deliver an integrated, relationship-based approach to meeting those
needs. Client relationships and needs are addressed from a client, not geographic, perspective. Our revenue team regularly meets with
our existing and prospective clients to understand their business issues and help them define their project needs. Our talent team then
identifies consultants with the appropriate skills and experience to meet the client’s objectives. We believe that by establishing
relationships with our clients to solve their professional service needs, we are more likely to identify new opportunities to serve them.
The strength and depth of our client relationships is demonstrated by the approximately 80% retention rate of our top 100 clients over
the last five years.
(cid:120)
Build the RGP brand. Our objective is to build RGP’s reputation in the marketplace as the premier provider of agile
human capital solutions for companies facing transformation, change and compliance challenges. We want to be the preferred provider
in the future of work. Our primary means of building our brand continues to be the consistent and reliable delivery of high-quality,
value-added services to our clients. We have also built a significant referral network through our 2,495 consultants and 938 management
and administrative employees as of May 30, 2020. In addition, we have invested in global, regional and local marketing and brand
activation efforts that reinforce the RGP brand.
Our Growth Strategy
Since inception, our growth has been primarily organic with certain strategic acquisitions along the way that supplemented
our physical presence or solution offerings. We believe we have significant opportunity for continued organic growth in our core
business and also to grow opportunistically through strategic and highly targeted acquisitions as the global economy starts to recover.
In both our core and acquired businesses, key elements of our growth strategy include:
(cid:120)
Increased penetration of existing client base. A principal component of our strategy is to secure additional work from
the clients we have served. We believe, based on discussions with our clients, the amount of revenue we currently generate from many
of our clients represents a relatively small percentage of the total amount they spend on professional services. Consistent with current
industry trends, we believe our clients may also continue to increase that spend as the global economy recovers and evolves. We believe
that by continuing to deliver high-quality services and by further developing our relationships with our clients, we can capture a
significantly larger share of our clients’ professional services budgets. Near the end of fiscal 2017, we launched our Strategic Client
Program to serve a number of our largest clients with dedicated global account teams. We believe this focus enhances our opportunities
to develop in-depth knowledge of these clients’ needs and the ability to increase the scope and size of projects with those clients.
(cid:120)
Growing our client base. We continue to focus on attracting new clients. We strive to develop new client relationships
primarily by leveraging the significant contact networks of our management and consultants and through referrals from existing clients.
We believe we can continue to attract new clients by building our brand identity and reputation, supplemented by our global, regional
and local marketing efforts. We anticipate our growth efforts this year will focus on identifying strategic target accounts especially in
the large and middle market client segments.
6
(cid:120)
Strategic acquisitions. Our acquisition strategy is to engage in targeted M&A efforts that are designed to enhance our
digital transformation and technology consulting capabilities. In fiscal 2018, we acquired taskforce, Management on Demand AG
(“taskforce”) and substantially all of the assets and assumption of certain liabilities of Accretive Solutions, Inc. (“Accretive”). The
acquisitions of taskforce and Accretive satisfied the need to better penetrate the vibrant economic market in Germany and gaps in
serving middle market companies in the United States, respectively, while also harmonizing well with RGP’s culture. In fiscal 2020,
we acquired Veracity Consulting Group, LLC (“Veracity”) and Expertforce Interim GmbH, LLC (“Expertence”). The acquisition of
Veracity accelerated our stated object to enhance our digital capabilities and our ability to offer comprehensive digital innovation
services. With the acquisition of Expertence, we are able to offer a full range of project and management consulting services in the
German market.
(cid:120)
Providing additional professional service offerings. We continue to develop and consider entry into new professional
service offerings. Since our founding, we have diversified our professional service offerings from a primary focus on accounting and
finance to other areas in which our clients have significant needs such as integration and divestitures, bankruptcy and restructuring,
financial process optimization, accounting regulations, internal audit and compliance, healthcare compliance, finance transformation,
digital transformation, and data design and analytics. In fiscal 2017, we formed our Advisory and Project Services group (formerly
known as “Integrated Solutions”) to identify project opportunities we can market at a broader level with our talent, tools and
methodologies. This group commercializes projects into solution offerings. Currently, our solutions practice is focused on finance
transformation, digital transformation, data design and analytics, and system implementation. When evaluating new solutions offerings
to market to current and prospective clients, we consider (among other things) cultural fit, growth potential, profitability, cross-
marketing opportunities and competition.
COVID-19 Impact
Starting in January 2020, the outbreak of COVID-19 (the “Pandemic”) has severely impacted the global economic climate,
creating significant challenges and uncertainty in the operations of organizations around the world. We are closely monitoring the
impact of the Pandemic on all aspects of our business, including how it impacts our employees and client engagements. While the
extent to which our operations may be impacted by the Pandemic is still uncertain and depends largely on future developments, we
believe the Pandemic adversely impacted our operating results in the second half of fiscal 2020 and expect the impact is going to
continue into fiscal 2021. As further described in Management’s Discussion and Analysis of Financial Condition and Results of
Operations below, we initiated our strategic business review in North America and Asia Pacific ahead of the Pandemic, and carried
out a reduction in force in early March. We have substantially completed the restructuring initiatives in these markets in fiscal 2020.
We believe these actions have enabled us to operate with greater agility as we seek to ensure our organizational health and resilience,
and weather the challenges associated with the Pandemic.
Consultants
We believe an important component of our success has been our highly qualified and experienced consultant base. As of May
30, 2020, we employed or contracted 2,495 consultants engaged with clients. Our consultants have professional experience in a wide
range of industries and functional areas. We provide our consultants with challenging work assignments, competitive compensation
and benefits, and continuing professional development and learning opportunities, while offering more choice concerning work
schedules and more control over choosing client engagements.
Almost all of our consultants in the United States are employees of RGP. We typically pay each consultant an hourly rate for
each consulting hour worked and for certain administrative time and overtime premiums, and offer benefits, including: paid time off
and holidays; a discretionary bonus program; group medical and dental programs, each with an approximate 30-50% contribution by
the consultant; a basic term life insurance program; a 401(k) retirement plan with a discretionary company match; and professional
development and career training. Typically, a consultant must work a threshold number of hours to be eligible for all of these benefits.
In addition, we offer our consultants the ability to participate in our Employee Stock Purchase Plan (“ESPP”), which enables them to
purchase shares of our stock at a discount. We intend to maintain competitive compensation and benefit programs. To a much lesser
extent, we utilize a “bench model” for consultants with specialized in-demand skills and experience in our Advisory and Project
Services group. These consultants are paid a weekly salary rather than for each consulting hour worked and have bonus eligibility
based upon utilization.
Internationally, our consultants are a blend of employees and independent contractors. Independent contractor arrangements
are more common abroad than in the United States due to the labor laws, tax regulations and customs of the international markets we
serve. A few international practices also partially utilize the “bench model” described above.
7
Clients
We provide our services and solutions to a diverse client base in a broad range of industries. In fiscal 2020, we served over
2,400 clients in 37 countries. Our revenues are not concentrated with any particular client. No single customer accounted for more than
10% of revenue for the 2020, 2019 or 2018 fiscal years. In fiscal 2020, our 10 largest clients accounted for approximately 16% of our
revenues.
Operations
We generally provide our professional services to clients at a local level, with the oversight of our market leaders and
consultation of our corporate management team. The market leaders and client development directors in each market are responsible
for initiating client relationships, ensuring client satisfaction throughout engagements, coordinating services for clients on a national
and international platform and maintaining client relationships post-engagement. Market revenue leadership and their teams identify,
develop and close new and existing client opportunities, often working in a coordinated effort with other markets on multi-
national/multi-location proposals.
Market level leadership works closely with our regionalized talent management team, who are responsible for identifying,
hiring and cultivating a sustainable relationship with seasoned professionals fitting the RGP profile of client needs. Our consultant
recruiting efforts are regionally and nationally based, depending upon the skill set required; talent management handles both the
identification and hiring of consultants specifically skilled to perform client projects as well as monitoring the satisfaction of consultants
during and post-completion of assignments. The talent teams focus on getting the right talent in the right place at the right time.
We believe a substantial portion of the buying decisions made by our clients are made on a local or regional basis and our
offices most often compete with other professional services providers on a local or regional basis. We continue to believe our local
market leaders are well-positioned to understand the local and regional outsourced professional services market. Additionally, the
complexity of relationships with many of our multinational clients also dictates that in some circumstances a hybrid model, bringing
the best of both locally driven relationships as well as global focus and delivery, is important for employee and client satisfaction.
Through our Borderless Talent Initiative, which we are in the process of implementing, we are seeking to capitalize on our multinational
clients’ needs for a service provider that can partner with them on a global basis by organizing the concerted effort and talent team on
a global basis to serve these clients through one integrated service platform. For projects requiring intimate knowledge and thought
leadership on particular client concerns, our Advisory and Project Services group consists of individuals with requisite depth of
expertise and tools to work with clients.
We believe our ability to deliver professional services successfully to clients is dependent on our leaders in the field working
together as a collegial and collaborative team. To build a sense of team spirit and increase camaraderie among our leaders, we have a
program for field personnel that awards annual incentives based on specific agreed-to goals focused on the performance of the
individual and performance of the Company. We also share across the Company the best and most effective practices of our highest
achieving offices and use this as an introductory tool with new vice presidents and directors. New leadership also spends time in other
markets or otherwise partners with experienced sales and recruiting personnel in those markets to understand, among many skills, how
best to serve current clients, expand our presence with prospects and identify and recruit highly qualified consultants. This allows the
veteran leadership to share their success stories, foster our culture with new vice presidents and directors and review specific client and
consultant development programs. We believe these team-based practices enable us to better serve clients who prefer a centrally
organized service approach.
From our corporate headquarters in Irvine, California, we provide centralized administrative, marketing, finance, human
resources (“HR”), information technology (“IT”), legal and real estate support. Our financial reporting is also centralized in our
corporate service center. This center handles invoicing, accounts payable and collections, and administers HR services including
employee compensation and benefits administration for North American offices. We also have a business support operations center in
our Utrecht, Netherlands office to provide centralized finance, HR, IT, payroll and legal support to our European offices. We share our
Salesforce software platform world-wide, providing a common database of identified opportunities, prospective new clients, and
existing client proposals for additional projects. In addition, in North America, we have a corporate networked IT platform with
centralized financial reporting capabilities and a front office client management system. These centralized functions minimize the
administrative burdens on our office management and allow them to spend more time focusing on client and consultant development.
8
Business Development
Our business development initiatives are composed of:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
local and global initiatives focused on existing clients and target companies
national and international targeting efforts focused on multinational companies
brand marketing activities
national and local advertising and direct mail programs
Our business development efforts are driven by the networking and sales efforts of our management. While local senior
management focus on market-related activities, they are also part of the regional, national and international sales efforts, especially
when the client is part of a multinational entity. In certain markets, sales efforts are also enhanced by management professionals focused
solely on business development efforts on a market and national basis based on firm-wide and industry-focused initiatives. These
business development professionals, teamed with the vice-presidents and client service teams, are responsible for initiating and
fostering relationships with the senior management and decision makers of our targeted client companies. During fiscal 2018, we
completed our implementation of software from Salesforce.com on a world-wide basis to enhance our local and worldwide business
development efforts.
We believe our national marketing efforts have effectively generated incremental revenues from existing clients and developed
new client relationships. Our brand marketing initiatives help bolster RGP’s reputation in the markets we serve. Our brand is reinforced
by our professionally designed website, print, and online advertising, direct marketing, seminars, initiative-oriented brochures, social
media and public relations efforts. We believe our branding initiatives, coupled with our high-quality client service, help to differentiate
us from our competitors and to establish RGP as a credible and reputable global professional services firm.
Competition
We operate in a competitive, fragmented market and compete for clients and consultants with a variety of organizations that
offer similar services. Our principal competitors include:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
consulting firms
local, regional, national and international accounting and other traditional professional services firms
independent contractors
traditional and Internet-based staffing firms
the in-house or former in-house resources of our clients
We compete for clients on the basis of the quality of professionals we bring to our clients, the knowledge base they possess,
our ability to mobilize the right talent quickly, the scope and price of services, and the geographic reach of services. We believe our
attractive value proposition, consisting of our highly qualified consultants, relationship-oriented approach and professional culture,
enables us to compete effectively in the marketplace.
Employees
As of May 30, 2020, we had 3,433 employees, including 938 management and administrative employees and
2,495 consultants. Our employees are not covered by any collective bargaining agreements.
Price Range of Common Stock
Effective April 2, 2020, we changed our ticker symbol from “RECN” to “RGP” and began trading on the Nasdaq Capital
Market under this new ticker symbol. We changed our ticker symbol when RGP became available, as it aligns directly with our trade
name, Resources Global Professionals or RGP. Prior to this change in ticker symbol, our common stock had traded on the Nasdaq
Global Select Market under the symbol “RECN” since December 15, 2000. As of July 8, 2020, the last reported sales price on Nasdaq
of our common stock was $11.40 per share and the approximate number of holders of record of our common stock was 47 (a holder of
record is the name of an individual or entity that an issuer carries in its records as the registered holder (not necessarily the beneficial
owner) of the issuer’s securities).
9
Dividend Policy
Our board of directors has established a quarterly dividend, subject to quarterly board of directors’ approval. Pursuant to
declaration and approval by our board of directors, we declared a dividend of $0.14 per share of common stock during each quarter in
fiscal 2020, $0.13 per share of common stock during each quarter in fiscal 2019, and $0.12 per share of common stock during each
quarter in fiscal 2018. On April 15, 2020, our board of directors declared a regular quarterly dividend of $0.14 per share of our common
stock. The dividend was paid on June 10, 2020 to stockholders of record at the close of business on May 13, 2020. Continuation of the
quarterly dividend will be at the discretion of our board of directors and will depend upon our financial condition, results of operations,
capital requirements, general business condition, contractual restrictions contained in our current or future credit agreements and other
agreements, and other factors deemed relevant by our board of directors.
Purchases of Equity Securities
In July 2015, our board of directors approved a stock repurchase program (the “July 2015 Program”), authorizing the purchase,
at the discretion of our senior executives, of our common stock for an aggregate dollar limit not to exceed $150.0 million. Subject to
the aggregate dollar limit, the currently authorized stock repurchase program does not have an expiration date. Repurchases under the
program may take place in the open market or in privately negotiated transactions and may be made pursuant to a Rule 10b5-1 plan.
There were no repurchases of our common stock during the fourth quarter of fiscal 2020.
Performance Graph
Set forth below is a line graph comparing the annual percentage change in the cumulative total return to the holders of our
common stock with the cumulative total return of the Russell 3000 Index, a customized peer group consisting of eight companies listed
below the following table and a combined classification of companies under Standard Industry Codes as 8742-Management Consulting
Services for the five years ended May 30, 2020. The graph assumes $100 was invested at market close on May 29, 2015 in our common
stock and in each index (based on prices from the close of trading on May 29, 2015), and that all dividends are reinvested. Stockholder
returns over the indicated period may not be indicative of future stockholder returns.
10
The information contained in the performance graph shall not be deemed to be “soliciting material” or to be “filed” with the
SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that we specifically incorporate it by reference into such filing.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Resources Connection, Inc., the Russell 3000 Index,
SIC Code 8742 - Management Consulting and Peer Group
$350
$300
$250
$200
$150
$100
$50
$0
5/29/15
5/28/16
5/27/17
5/26/18
5/25/19
5/30/20
Resources Connection, Inc.
Russell 3000
SIC Code 8742 - Management Consulting
Peer Group
*$100 invested on 5/29/15 in stock or index, including reinvestment of dividends.
Index calculated on a month end basis.
Copyright© 2020 Russell Investment Group. All rights reserved.
Resources Connection, Inc.
Russell 3000
SIC Code 8742 - Management Consulting
Peer Group
$
$
$
$
100.00 $
100.00 $
100.00 $
100.00 $
101.40 $
100.25 $
116.93 $
95.52 $
85.13 $
118.19 $
124.98 $
92.62 $
113.72 $
136.28 $
148.25 $
148.43 $
111.76 $
142.80 $
252.99 $
153.60 $
82.30
155.05
302.85
156.23
May 29, 2015
May 28, 2016
May 27, 2017
May 26, 2018
May 25, 2019
May 30, 2020
For the Fiscal Years Ended
Our customized peer group includes the following eight professional services companies that we believe reflect the
competitive landscape in which we operate and acquire talent: CRA International, Inc.; FTI Consulting, Inc.; Heidrick & Struggles
International, Inc.; Hudson Global, Inc.; Huron Consulting Group Inc.; ICF International, Inc.; Kforce, Inc.; and Korn Ferry. Navigant
Consulting, Inc. is no longer included in our customized peer group due to its acquisition by Veritas Capital-backed Guidehouse in
October 2019. Our compensation committee, a committee of our board of directors comprised of independent directors, reviews the
composition of the peer group annually to ensure its alignment with our size, practice areas, business model delivery and geographic
reach.
SELECTED FINANCIAL DATA
The following selected historical consolidated financial data should be read in conjunction with our Consolidated Financial
Statements and related notes in Item 8 “Financial Statements and Supplementary Data” and Item 7 “Management’s Discussion and
11
Analysis of Financial Condition and Results of Operations” in Part II of this Annual Report. The Consolidated Statements of Operations
data for the years ended May 27, 2017 and May 28, 2016 and the Consolidated Balance Sheet data at May 26, 2018, May 27, 2017 and
May 28, 2016 were derived from our audited Consolidated Financial Statements that are not included in this Annual Report. The
Consolidated Statements of Operations data for the years ended May 30, 2020, May 25, 2019 and May 26, 2018 and the Consolidated
Balance Sheet data at May 30, 2020 and May 25, 2019 were derived from our audited Consolidated Financial Statements that are
included elsewhere in this Annual Report. Historical results are not necessarily indicative of results that may be expected for any future
periods. The fiscal year ended May 30, 2020 consisted of 53 weeks. All other years presented consisted of 52 weeks.
Years Ended
May 25,
May 30,
2020 (1)
May 26,
2018 (1)
(In thousands, except per common share, number of offices and number of consultants)
May 27,
May 28,
2017
2016
2019
$
$
$
$
$
703,353 $
36,652 $
28,285 $
728,999 $
50,159 $
31,470 $
654,129 $
30,624 $
18,826 $
583,411 $
34,402 $
18,651 $
598,521
53,803
30,443
0.88 $
0.88 $
1.00 $
0.98 $
0.61 $
0.60 $
0.57 $
0.56 $
0.82
0.81
Revenue
Income from operations
Net income
Net income per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Cash dividends declared per common share
$
0.56 $
0.52 $
0.48 $
0.44 $
31,989
32,227
31,596
32,207
30,741
31,210
32,851
33,471
37,037
37,608
0.40
Other Data:
Number of offices at end of year
Number of consultants on assignment at end of year
Cash dividends paid
63
2,495
17,581 $
73
2,965
16,158 $
74
3,247
14,269 $
67
2,569
14,157 $
68
2,511
14,085
$
Total assets
Long-term debt
Stockholders' equity
$
$
$
529,181 $
88,000 $
303,661 $
May 30,
2020
May 25,
May 26,
May 27,
May 28,
2019
2018
(Amounts in thousands)
432,674 $
63,000 $
268,825 $
428,370 $
43,000 $
282,396 $
2017
2016
364,128 $
48,000 $
238,142 $
417,255
-
342,649
(1) See Note 3 – Acquisitions and Dispositions in the Notes to Consolidated Financial Statements included in Part II, Item 8 of
this Annual Report for discussions on our acquisitions of Expertence and Veracity during fiscal 2020 and taskforce and
Accretive during fiscal 2018.
12
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with
our financial statements and related notes. This discussion and analysis contain forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain
factors including, but not limited to, those discussed in Part I, Item 1A. “Risk Factors.” in our Annual Report on Form 10-K for the
year ended May 30, 2020 and elsewhere in this Annual Report.
Overview
RGP is a global consulting firm that enables rapid business outcomes by bringing together the right people to create
transformative change. As a human capital partner for our clients, we specialize in solving today’s most pressing business problems
across the enterprise in the areas of transactions, regulations and transformations. Our engagements are designed to leverage human
connection and collaboration to deliver practical solutions and more impactful results that power our clients’, consultants’ and partners’
success. See Part 1, Item 1 “Business” for further discussions about our business and operations.
Key Transformation Initiatives
Starting in fiscal 2017 and continuing through fiscal 2019, we completed a number of transformative enterprise initiatives
including cultivating a more robust sales culture, adopting a new operating model for sales, talent and delivery in North America,
refreshing the RGP brand and establishing a digital innovation function focusing on building and commercializing our digital
engagement platform and product offerings and enhancing our consulting capabilities in the digital transformation space.
To optimize our sales organization, we aligned our sales process using tools such as Salesforce.com and implemented a new
incentive compensation program focused on driving growth in our business with the appropriate metrics. In addition, we expanded our
Strategic Client Program, which assigns dedicated account teams to certain high-profile clients with global operations.
Under the new operating model in North America, we realigned reporting relationships, largely defined by functional area
rather than on an office location basis. We reorganized our Advisory and Project Services function, a team of seller-doer professionals
whose primary responsibility is to shepherd sales pursuits and engagement delivery on our more complex projects. We believe this
team deepens the scoping conversation, achieves value-oriented pricing and improves delivery management through greater
accountability and a more seamless customer experience.
In fiscal 2019, through an extensive brand refresh project led by an outside firm, we adopted a new brand identity focused on
our human-centered approach to serving clients and engaging with our consultants. We believe the development of our new brand will
support future revenue growth.
Fiscal 2020 Strategic Focus Areas
In fiscal 2020, we continued to strengthen our core by further investing in digital innovation, both organically and through a
strategic acquisition, while simultaneously forging ahead in our transformation journey with a deep and global strategic business
review.
In July 2019, we acquired Veracity Consulting Group, LLC (“Veracity”), a fast-growing, digital transformation firm based
in Richmond, Virginia. This important strategic acquisition allows RGP to offer comprehensive end-to-end digital transformation
solutions to clients by combining Veracity’s customer-facing offerings with our depth of experience in back-office solutions. In
addition, during fiscal 2020, we continued to invest in our digital engagement platform which is on track to launch in fiscal 2021.
During the first quarter of fiscal 2020, we evaluated certain European markets and determined that we would no longer operate
in certain markets based on their client base. As a result, we sold certain assets and liabilities of our foreign subsidiary, Resources
Global Professionals Sweden AB (“RGP Sweden”) and exited from the Belgium market, including its wholly own subsidiary in
Luxemburg, as well as Norway.
During the third quarter of fiscal 2020, we further performed a deep and strategic review of our global business beginning in
North America and Asia Pacific, and committed to a global restructuring and business transformation plan (the “Plan”), centered on
strengthening the business for greater agility and resilience in anticipation of macroeconomic volatility. The Plan consists of two key
components: an effort to streamline our management structure and eliminate non-essential positions to focus on core solution offerings,
13
improve efficiency and enhance the employee experience; and a strategic rationalization of our physical geographic footprint and real
estate spend to focus investment dollars in high growth core markets for greater impact.
Through the remainder of fiscal 2020, we completed a reduction in force (“RIF”) pursuant to the first component of the Plan,
eliminating 73 positions in North America and Asia Pacific. In connection with the RIF, we incurred $3.9 million of employee
termination costs in the fourth quarter of fiscal 2020, of which $2.0 million was paid at the end of fiscal 2020. An additional $1.7
million is expected to be paid in fiscal 2021.
The real estate component of the Plan, specifically to shrink our real estate footprint by 26% globally through either lease
termination or subleasing, has afforded us a head start in managing the impact of the Pandemic. As a result of the work we did in the
third quarter of fiscal 2020 preparing for a shift to virtual operations in connection with office closures, we were able to seamlessly
pivot to a virtual operating model when the Pandemic hit in March, supported by a robust array of enhanced technical tools which
enabled remote work. During the fourth quarter of fiscal 2020, we incurred $1.1 million of non-cash charges relating to lease
terminations and other costs associated with exiting the facilities, including $0.6 million in impairment of our operating right-of-use
assets and $0.5 million in loss on disposal of fixed assets. We expect to incur additional restructuring charges in fiscal 2021 as we
continue to exit certain real estate leases in accordance with the Plan. The exact amount and timing will depend on a number of
variables, including market conditions. Given the current macro environment, particularly the current shift away from commercial real
estate occupancy, accelerated by the Pandemic, we are seeing challenges in our effort to sublet our real estate facilities. As a result, we
believe it could take longer and be more costly to terminate and sublet our leases, therefore taking longer to realize the expected savings.
We expect to realize $10.0 million to $12.0 million of savings in fiscal 2021 as a result of the Plan.
All of the employee termination costs and the facility exit costs associated with our restructuring initiatives that we incurred
in fiscal 2020 are recorded in selling, general, and administrative expenses in our Consolidated Statements of Operations for the year
ended May 30, 2020.
During the first quarter of fiscal 2021, we started the strategic business review in Europe, and currently expect to substantially
complete the review and restructuring in Europe in fiscal 2021.
COVID-19 Impact and Outlook
Since the start of calendar 2020, the COVID-19 virus has spread to many of the countries in which we and our customers
conduct business. Governments throughout the world have implemented, and may continue to implement, stay-at-home orders,
proclamations and directives aimed at minimizing the spread of the COVID-19 virus. The impact of the Pandemic and the resulting
restrictions have caused disruptions in the U.S. and global economy and may continue to disrupt financial markets and global economic
activities. We have taken precautions and steps to prevent or reduce infection among our employees, including limiting business travel
and mandating working from home in many of the countries in which we operate. While our overall productivity remained high through
the end of fiscal 2020, these measures may disrupt our normal business operations and negatively impact our productivity and our
ability to efficiently serve our clients. As events relating to COVID-19 continue to develop and evolve globally, there is significant
uncertainty as to the full likely effects of the Pandemic, which may, among other things, reduce demand for or delay client decisions
to procure our services or result in cancellation of existing projects. While the exact impact from the Pandemic is not quantifiable, our
results of operations and cash flows were adversely impacted in the latter half of fiscal 2020. During the last 12 non-holiday weeks in
the fourth quarter of fiscal 2020, which started with the week ended March 7, 2020, our average weekly revenue declined 9.1%
compared to the first eight non-holiday weeks of the 2020 calendar year. Our number of consultants also decreased from 2,965 as of
May 25, 2019 to 2,495 as of May 30, 2020. Due to the disruption of business operations in the U.S. and globally, we have also seen
some softening in our pipeline globally. Although we do not expect the Pandemic to have a permanent impact on our business
operations, we cannot estimate the length or the magnitude of the Pandemic and how this might affect our customers’ demand for our
services and our ability to continue to operate efficiently. We believe the Pandemic could continue to have an adverse impact on our
results of operations and financial position in fiscal 2021. We are uncertain whether future effects of the Pandemic will be similar to
what we have experienced in fiscal 2020. We continue to monitor relevant business metrics, such as daily and weekly revenue run rate,
pipeline activities, rate of consultant attrition and days sales outstanding, and have implemented the appropriate modifications to our
normal operations. Until we have further visibility into the full impact of the pandemic on the global economy, we will remain focused
on the health of our balance sheet and liquidity. We will make prudent decisions to reinvest in the business to drive key growth
initiatives in core markets and the expansion of our digital capabilities. We believe the restructuring initiatives that we took in the
fourth quarter of fiscal 2020 have better prepared us to operate with agility and resilience in this challenging economic environment.
Our primary source of liquidity historically has been cash provided by our operations and our $120.0 million secured revolving
credit facility (“Facility”) which expires on October 17, 2021. As of May 30, 2020, we had cash and cash equivalents of $95.6 million,
and additional availability under our Facility of $30.7 million. During the year ended May 30, 2020, we also continued to generate
14
positive cash flow from operations and we believe the collection and quality of our customer receivables remain strong. Given our
balance sheet and liquidity position, we believe we have the financial flexibility and resources needed to operate in the current uncertain
economic environment. However, if global economic conditions worsen as a result of the Pandemic, it could materially impact our
liquidity position and capital needs, although we believe our variable expense operating model serves to mitigate both operational and
liquidity risk. See “—Liquidity and Capital Resources” below.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in the U.S. in
response to the Pandemic. The CARES Act includes, among other things, direct financial assistance to Americans in the form of cash
payments to individuals, aid to small businesses in the form of loans, and other tax incentives in an effort to stabilize the U.S. economy
and keep Americans employed. We have not filed, and currently do not intend to file, for funding provided by the CARES Act. In the
U.S., we have deferred $2.9 million in payroll tax payments through the end of fiscal 2020. We do not believe the income tax provisions
such as changes to the net operating loss rules included in the CARES Act will have a material impact on us. We have not received,
and do not expect to receive, significant government-provided relief or stimulus funding in other parts of the world.
Critical Accounting Policies
The following discussion and analysis of our financial condition and results of operations are based upon our Consolidated
Financial Statements, which have been prepared in accordance with GAAP in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period.
We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. Actual results
may differ from these estimates under different assumptions or conditions.
The following represents a summary of our critical accounting policies, defined as those policies we believe: (a) are the most
important to the portrayal of our financial condition and results of operations and (b) involve inherently uncertain issues that require
management’s most subjective or complex judgments.
Allowance for doubtful accounts — We maintain an allowance for doubtful accounts for estimated losses resulting from our
clients failing to make required payments for services rendered. We estimate this allowance based upon our knowledge of the financial
condition of our clients (which may not include knowledge of all significant events), review of historical receivable and reserve trends
and other pertinent information. While such losses have historically been within our expectations and the provisions established, we
cannot guarantee we will continue to experience the same credit loss rates we have in the past. A significant change in the liquidity or
financial position of our clients could cause unfavorable trends in receivable collections and additional allowances may be required.
These additional allowances could materially affect our future financial results.
Income taxes — In order to prepare our Consolidated Financial Statements, we are required to make estimates of income
taxes, if applicable, in each jurisdiction in which we operate. The process incorporates an assessment of any current tax exposure
together with temporary differences resulting from different treatment of transactions for tax and financial statement purposes. These
differences result in deferred tax assets and liabilities that are included in our Consolidated Balance Sheets. The recovery of deferred
tax assets from future taxable income must be assessed and, to the extent recovery is not likely, we will establish a valuation allowance.
An increase in the valuation allowance results in recording additional tax expense and any such adjustment may materially affect our
future financial result. If the ultimate tax liability differs from the amount of tax expense we have reflected in the Consolidated
Statements of Operations, an adjustment of tax expense may need to be recorded and this adjustment may materially affect our future
financial results and financial condition. We also evaluate our uncertain tax positions and only recognize the tax benefit from an
uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based
on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are measured based
on the largest benefit that has a greater than 50 percentage likelihood of being realized upon settlement. We record a liability for
unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. Any change in judgment
related to the expected ultimate resolution of uncertain tax positions is recognized in earnings in the period in which such change
occurs.
Revenue recognition — Revenues are recognized when control of the promised service is transferred to our clients, in an
amount that reflects the consideration expected in exchange for the services. Revenue is recorded net of sales or other transaction taxes
collected from clients and remitted to taxing authorities. Revenues from contracts are recognized over time, based on hours worked by
our professionals. The performance of the agreed-upon service over time is the single performance obligation for revenues. Certain
clients may receive discounts (for example, volume discounts or rebates) to the amounts billed. These discounts or rebates are
15
considered variable consideration. Management evaluates the facts and circumstances of each contract and client relationship to
estimate the variable consideration assessing the most likely amount to recognize and considering management’s expectation of the
volume of services to be provided over the applicable period. Rebates are the largest component of variable consideration and are
estimated using the most likely amount method prescribed by Accounting Standards Codification (“ASC”) Topic 606, Revenue from
Contracts with Customers, contracts terms and estimates of revenue. Revenues are recognized net of variable consideration to the
extent that it is probable that a significant reversal of revenues will not occur in subsequent periods.
Stock-based compensation — Under our 2014 Performance Incentive Plan, officers, employees, and outside directors have
received or may receive grants of restricted stock, stock units, options to purchase common stock or other stock or stock-based awards.
Under our Employee Stock Purchase Plan (“ESPP”), eligible officers and employees may purchase our common stock in accordance
with the terms of the plan.
We estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. We determine
the estimated value of restricted stock awards using the closing price of our common stock on the date of grant. We have elected to use
the Black-Scholes option-pricing model for our stock options and stock-based awards as well as stock issued under our ESPP which
takes into account assumptions regarding a number of highly complex and subjective variables. These variables include the expected
stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors. Additional
variables to be considered are the expected term, expected dividends and the risk-free interest rate over the expected term of our
employee stock options. In addition, because stock-based compensation expense recognized in the Consolidated Statements of
Operations is based on awards ultimately expected to vest, it is reduced for estimated forfeitures. Forfeitures are estimated at the time
of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based
on historical experience. If facts and circumstances change and we employ different assumptions in future periods, the compensation
expense recorded may differ materially from the amount recorded in the current period.
We use our historical volatility over the expected life of the stock option award and ESPP to estimate the expected volatility
of the price of our common stock. The risk-free interest rate assumption is based upon observed interest rates appropriate for the term
of our employee stock options. The impact of expected dividends ($0.14 per share for each quarter during fiscal 2020, $0.13 per share
for each quarter during fiscal 2019, and $0.12 per share for each quarter during fiscal 2018) is also incorporated in determining the
estimated value per share of employee stock option grants and purchases under our ESPP. Such dividends are subject to quarterly board
of director approval. Our expected life of stock option grants is 5.6 years for non-officers and 8.1 years for officers, and the expected
life of grants under our ESPP is 6 months. We review the underlying assumptions related to stock-based compensation at least annually
or more frequently if we believe triggering events exist.
Valuation of long-lived assets — We assess the potential impairment of long-lived tangible and intangible assets periodically
or whenever events or changes in circumstances indicate the carrying value may not be recoverable from the estimated undiscounted
expected future cash flows expected to result from their use and eventual disposition. In cases where the estimated undiscounted
expected future cash flows are less than net book value, an impairment loss is recognized equal to the amount by which the net book
value exceeds the estimated fair value of assets. Estimating future cash flows requires significant judgment, and our projections may
vary from the cash flows eventually realized. Future events and unanticipated changes to assumptions could result in an impairment in
the future. Although the impairment is a non-cash expense, it could materially affect our future financial results and financial condition.
Identifiable intangible assets are amortized over their lives, typically ranging from 17 months to ten years.
Valuation of goodwill – Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets
acquired in a business combination. We evaluate goodwill for impairment annually on the last day of the fiscal year, and whenever
events indicate that it is more likely than not that the fair value of a reporting unit could be less than its carrying amount. We operate
under one reporting unit resulting from the combination of our practice offices. We early adopted Accounting Standards Update
(“ASU”) No. 2017-04 Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”)
on May 26, 2019, the first day of fiscal 2020. ASU 2017-04 eliminates step two of the goodwill impairment test and specifies that
goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount. Under ASU 2017-
04, we compare the fair value and the carrying value of our reporting unit to assess and measure goodwill impairment. There was no
goodwill impairment for fiscal 2020. Depending on future market values of our stock, our operating performance and other factors, the
assessment could potentially result in an impairment in the future. Although the impairment is a non-cash expense, it could materially
affect our future financial results and financial condition.
Business combinations — We allocate the fair value of the purchase consideration of our acquisitions to the tangible assets,
liabilities, and intangible assets acquired based on their estimated fair values. Purchase price allocations for business acquisitions
require significant judgments, particularly with regards to the determination of value of identifiable assets, liabilities, and goodwill.
Often third-party specialists are used to assist in valuations requiring complex estimation. The excess of the fair value of purchase
16
consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses are
recognized separately from the business combination and are expensed as incurred.
Purchase agreements related to certain business acquisitions may include provisions for the payment of additional cash
consideration if certain future performance conditions are met. These contingent consideration arrangements are recognized at their
acquisition date fair value and included as part of the purchase price at the acquisition date. These contingent consideration
arrangements are classified as accrued liabilities or other long-term liabilities in our Consolidated Balance Sheets and are remeasured
to fair value at each reporting period, with any change in fair value being recognized in the applicable period’s results of operations.
Measuring the fair value of contingent consideration at the acquisition date, and for all subsequent remeasurement periods, requires a
careful examination of the facts and circumstances to determine the probable resolution of the contingency(ies). The estimated fair
value of the contingent consideration is based primarily on our estimates of meeting the applicable contingency conditions as per the
terms of the applicable agreements. These include estimates of various operating performance and other measures and our assessment
of the probability of meeting such results, with the probability-weighted earn-out then discounted to estimate fair value.
Results of Operations
The following tables set forth, for the periods indicated, our Consolidated Statements of Operations data. These historical
results are not necessarily indicative of future results.
Our operating results for the periods indicated are expressed as a percentage of revenue below. The fiscal year ended May
30, 2020 consisted of 53 weeks. All other fiscal years presented consisted of 52 weeks.
$
Revenue
Direct cost of services
Gross margin
Selling, general and administrative expenses
Amortization of intangible assets
Depreciation expense
Income from operations
Interest expense, net
Other income
Income before provision for income taxes
Provision for income taxes
Net income
$
May 30,
2020
703,353
427,870
275,483
228,067
5,745
5,019
36,652
2,061
(637)
35,228
6,943
28,285
For the Years Ended
May 25,
2019
(Amounts in thousands, except percentages)
100.0 % $
100.0 % $
60.8
39.2
32.4
0.8
0.8
5.2
0.3
(0.1)
5.0
1.0
4.0 % $
728,999
446,560
282,439
223,802
3,799
4,679
50,159
2,190
-
47,969
16,499
31,470
61.3
38.7
30.7
0.5
0.6
6.9
0.3
-
6.6
2.3
4.3 % $
May 26,
2018
654,129
408,074
246,055
209,042
2,298
4,091
30,624
1,735
-
28,889
10,063
18,826
100.0 %
62.4
37.6
32.0
0.4
0.6
4.6
0.3
-
4.3
1.5
2.8 %
Non-GAAP Financial Measures
We use certain non-GAAP financial measures to assess our financial and operating performance that are not defined by, or
calculated in accordance with GAAP. A non-GAAP financial measure is defined as a numerical measure of a company’s financial
performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the
comparable measure calculated and presented in accordance with GAAP in the Consolidated Statements of Operations; or (ii) includes
amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure so
calculated and presented.
Our primary non-GAAP financial measures are listed below and reflect how we evaluate our operating results.
(cid:120) Constant currency applied to both GAAP revenue and Non-GAAP revenue, as defined herein, represents the outcome that
would have resulted had exchange rates in the reported period been the same as those in effect in the comparable prior period.
(cid:120) Organic revenue is calculated as GAAP revenue less revenues from acquired businesses and revenues related to businesses
that the Company disposed of either through sale or abandonment.
(cid:120) Same day organic revenue is calculated as organic revenue, divided by the number of business days in the current period,
multiplied by the number of business days in the comparable prior period. For example, North America organic revenue for
fiscal 2020 on the same day basis as fiscal 2019 is calculated as North America organic revenue for fiscal 2020 of $561.4
17
million divided by the 258 business days in North America in the current year, multiplied by the 254 business days in North
America in fiscal 2019. The number of days in each respective year is provided in “Year Ended May 30, 2020 Compared to
Year Ended May 29, 2019” below.
(cid:120) Adjusted EBITDA is calculated as net income before amortization of intangible assets, depreciation expense, interest and
income taxes plus stock-based compensation expense, restructuring costs, and plus or minus contingent consideration
adjustments.
(cid:120) Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenue.
Organic Revenue and Same Day Organic Revenue
Organic revenue and same day organic revenue assist management in evaluating revenue trends on a more comparable and
consistent basis. We believe these measures also provide more clarity to our investors in evaluating our core operating performance
and facilitate a comparison of such performance from period to period. The following table presents the organic revenue for the periods
indicated and includes a reconciliation of the organic revenue to revenue, the most directly comparable GAAP financial measure.
Amounts are stated in thousands:
Organic Revenue
Revenue (GAAP)
North America
Asia Pacific
Europe
Total revenue
Less: Impact of Acquisitions and Dispositions
North America (1)
Asia Pacific
Europe (2)
Total revenue
Organic Revenue
North America
Asia Pacific
Europe
Total revenue
(1) Related to Veracity
(2) Related to Nordics and Belgium
For the Years Ended
May 30,
2020
May 25,
2019
(Unaudited)
580,185 $
48,622
74,546
703,353 $
18,817 $
-
2,712
21,529 $
561,368 $
48,622
71,834
681,824 $
593,799
48,845
86,355
728,999
-
-
12,136
12,136
593,799
48,845
74,219
716,863
$
$
$
$
$
$
18
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA and Adjusted EBITDA Margin assist management in assessing our core operating performance. We also
believe these measures provide investors with useful perspective on underlying business results and trends and facilitate a comparison
of our performance from period to period. The following table presents Adjusted EBITDA and Adjusted EBITDA Margin for the
periods indicated and includes a reconciliation of such measures to net income, the most directly comparable GAAP financial measure:
Net income
Adjustments:
Amortization of intangible assets
Depreciation expense
Interest expense, net
Provision for income taxes
Stock-based compensation expense
Restructuring costs
Contingent consideration adjustment
Adjusted EBITDA
Revenue
Adjusted EBITDA Margin
May 30,
2020
For the Years Ended
May 25,
2019
May 26,
2018
(Amounts in thousands, except percentages)
$
28,285
$
31,470
$
18,826
5,745
5,019
2,061
6,943
6,057
4,982
794
59,886
703,353
$
$
3,799
4,679
2,190
16,499
6,570
-
(590)
64,617
728,999
$
$
2,298
4,091
1,735
10,063
6,033
-
-
43,046
654,129
8.5 %
8.9 %
6.6%
$
$
Our non-GAAP financial measures are not measurements of financial performance or liquidity under GAAP and should not
be considered in isolation or construed as substitutes for revenue, net income or other cash flow data prepared in accordance with
GAAP for purposes of analyzing our revenue, profitability or liquidity. These measures should be considered in addition to, and not as
a substitute for, revenue, net income, earnings per share, cash flows or other measures of financial performance prepared in conformity
with GAAP.
Further, a limitation of our non-GAAP financial measures is they exclude items detailed above that have an impact on our
GAAP reported results. Other companies in our industry may calculate these non-GAAP financial measures differently than we do,
limiting their usefulness as a comparative measure.
Because of these limitations, these non-GAAP financial measures should not be considered a substitute for performance
measures calculated in accordance with GAAP.
Year Ended May 30, 2020 Compared to Year Ended May 25, 2019
Amounts are in millions unless otherwise stated. Percentage change computations are based upon amounts in thousands.
Revenue. Revenue decreased $25.6 million, or 3.5%, to $703.4 million for the year ended May 30, 2020 from $729.0 million
for the year ended May 25, 2019. Billable hours decreased by 3.3% in fiscal 2020 as compared to fiscal 2019, while average bill rate
remained relatively consistent between the two periods. Results in fiscal 2020 consisted of 53 weeks while fiscal 2019 consisted of 52
weeks.
19
The following table represents revenue, organic revenue, and same day organic revenue for our major geographies across
the globe, and the number of business days in each geography:
GAAP
North America
Europe
Asia Pacific
Total
Organic Revenue
North America
Asia Pacific
Europe
Total revenue
$
$
$
$
Same Day Organic Revenue
North America
Asia Pacific
Europe
Total revenue
Number of Business Days
North America (1)
Asia Pacific (2)
Europe (2)
Revenue For the Years Ended
May 30,
2020
May 25,
2019
%
Change
(Amounts in thousands, except percentages)
580,185
74,546
48,622
703,353
561,368
48,622
71,834
681,824
552,665
47,850
70,442
670,957
258
252
258
82.5 %
10.6
6.9
100.0 %
82.3 %
7.2
10.5
100.0 %
82.4 %
7.1
10.5
100.0 %
$
$
$
$
$
$
593,799
86,355
48,845
728,999
81.5 %
11.8
6.7
100.0 %
(2.3) %
(13.7) %
(0.5) %
(3.5) %
593,799
48,845
74,219
716,863
82.8 %
6.8
10.4
100.0 %
593,799
48,845
74,219
716,863
82.8 %
6.8
10.4
100.0 %
(5.5) %
(0.5) %
(3.2) %
(4.9) %
(6.9) %
(2.0) %
(5.1) %
(6.4) %
254
248
253
(1) This represents the number of business days in the United States.
(2) This represents the number of business days in country or countries in which the revenues are most concentrated within
the geography.
North America same day organic revenue decreased $41.1 million, or 6.9%, in fiscal 2020 compared to fiscal 2019. The
average bill rate in North America improved by 1.0% compared to the prior fiscal year. Europe same day organic revenue decreased
$3.8 million, or 5.1%, in fiscal 2020 compared to fiscal 2019. Asia Pacific same day organic revenue declined by $1.0 million, or 2.0%,
in fiscal 2020. The decline of revenue in all geographies in fiscal 2020 reflected the adverse impact of the Pandemic and particularly
in North America, the wind-down of project revenue related to lease accounting implementation and other large projects.
Our financial results are subject to fluctuations in the exchange rates of foreign currencies in relation to the United States
dollar. Revenues denominated in foreign currencies are translated into U.S. dollars at the monthly average exchange rates in effect
during each period. Thus, as the value of the United States dollar strengthens relative to the currencies of our non-United States based
operations, our translated revenue (and expenses) will be lower; conversely, if the value of the U.S. dollar weakens relative to the
currencies of our non-United States operations, our translated revenue (and expenses) will be higher. Using the comparable fiscal 2019
conversion rates, which we believe provides a more comprehensive view of trends in our business, our same day organic revenue
decreased by 6.0% on an overall global basis during fiscal 2020. By geography, using comparable fiscal 2019 conversion rates, our
same day organic revenue decreased by 6.9%, 2.1% and 1.3% in North America, Europe and Asia Pacific, respectively. Overall average
bill rates increased 0.4% on a constant currency basis in fiscal 2020.
Our clients do not sign long-term contracts with us. As such, there can be no assurance as to future demand levels for the
services that we provide or that future results can be reliably predicted by considering past trends. The number of consultants on
assignment at the end of fiscal 2020 was 2,495 compared to 2,965 at the end of fiscal 2019.
Direct Cost of Services. Direct cost of services decreased $18.7 million, or 4.2%, to $427.9 million for the year ended May
30, 2020 from $446.6 million for the year ended May 25, 2019. The decrease is primarily due to a 3.3% decrease in billable hours
between the two periods and a 0.2% decrease in the average consultant pay rates from fiscal 2019 to fiscal 2020.
20
Direct cost of services as a percentage of revenue was 60.8% and 61.3% during fiscal 2020 and fiscal 2019, respectively.
Direct cost of services as a percentage of revenue improved in the current period primarily attributable to lower passthrough revenue
from client reimbursement and a slight improvement in the bill/pay ratio. Our target direct cost of services percentage is 60% for all of
our markets.
Selling, General and Administrative Expenses (“SG&A”). SG&A increased $4.3 million, or 1.9%, to $228.1 million for the
year ended May 30, 2020 from $223.8 million for the year ended May 25, 2019. SG&A in fiscal 2020 reflected one extra week of
activities as compared to fiscal 2019. SG&A as a percentage of revenue increased from 30.7% in fiscal 2019 to 32.4% in fiscal 2020.
The increase in SG&A is primarily due to the following: (1) $5.0 million of restructuring costs incurred in fiscal 2020, including $3.9
million in personnel-related costs, and $1.1 million in real estate exit related costs; (2) a $2.9 million increase in management
compensation and bonuses and commissions partially driven by the one extra week in fiscal 2020; and (3) a change in contingent
consideration related expense/benefit over the two periods, which was an expense of $0.8 million in fiscal 2020 as compared to a
benefit of $0.6 million in fiscal 2019. The increase in SG&A was partially offset by the following: (1) $2.5 million of savings in general
business expenses, primarily attributable to cost containment measures and reduced business travel during the Pandemic; (2) a $1.7
million decrease in internal consultants costs as we continue to leverage our existing resources more efficiently on various projects and
initiatives; and (3) a $0.5 million decrease in stock-based compensation expense.
Amortization and Depreciation Expense. Amortization of intangible assets was $5.7 million in fiscal 2020 compared to $3.8
million in fiscal 2019. The increase is primarily due to the amortization related to identifiable intangible assets acquired through
Veracity. Depreciation expense was $5.0 million and $4.7 million in fiscal 2020 and 2019, respectively.
Interest Expense, net. Net interest expense for fiscal 2020, including commitment fees, was approximately $2.1 million in
fiscal 2020 compared to $2.2 million in fiscal 2019. The decrease was due to a lower average interest rate in fiscal 2020 as compared
to the prior fiscal year. Interest income was $0.1 million and $0.3 million in fiscal 2020 and 2019, respectively.
Income Taxes. The provision for income taxes was $6.9 million and $16.5 million in fiscal 2020 and 2019, respectively. The
effective tax rate decreased from 34.4% in fiscal 2019 to 19.7% in fiscal 2020. The decrease in the provision for income taxes from the
prior year was primarily due to a fiscal 2020 deduction related to a worthless stock loss in our investment in our wholly owned
subsidiaries. During fiscal 2020, after analyzing the facts and circumstances, we determined to no longer invest in the Belgium,
Luxembourg and the Nordics markets which includes Sweden and Norway. We have maintained a permanent investment position and,
therefore, have not previously recorded a deferred tax asset for the basis differences of these entities. The financial results of these
entities created an excess of tax basis over the book basis in which the worthless stock that was deducted for income tax purposes equal
to approximately $25.8 million, resulting in an estimated net tax benefit of $6.6 million. We analyzed these transactions and determined
that these worthless stock deductions qualify as ordinary losses. In addition, we took a deduction relating to worthless loans of
approximately $4.4 million, which is also treated as an ordinary loss, resulting in a net tax benefit of $0.8 million after the offset of the
estimated global intangible low-taxed income (“GILTI”) tax. While we believe this is a valid income tax deduction, due to the
controversial nature of worthless loan deductions, we have determined this tax benefit to be an uncertain tax position. Accordingly, we
fully reserved for the tax benefit associated with the worthless loan deduction. The reserve includes offsetting the federal and state
benefits, by the estimated GILTI tax increase. The deductions for worthless stock and worthless loans decreased the effective tax rate
for fiscal 2020 by 17.4%. These reductions were partially offset by new valuation allowances set up on some of our foreign deferred
tax assets based on a review of earnings trends in connection with the adverse impact from the Pandemic.
The provision for taxes in both fiscal 2020 and 2019 resulted from taxes on income from operations in the United States and
certain other foreign jurisdictions, a lower benefit for losses in certain foreign jurisdictions with tax rates lower than the United States
statutory rates, and no benefit for losses in jurisdictions in which a valuation allowance on operating loss carryforwards had previously
been established. Based upon current economic circumstances, management will continue to monitor the need to record additional or
release existing valuation allowances in the future, primarily related to certain foreign jurisdictions. Realization of the currently
reserved foreign deferred tax assets is dependent upon generating sufficient future taxable income in those foreign territories.
Periodically, we review the components of both book and taxable income to analyze the adequacy of the tax provision. There
can be no assurance that our effective tax rate will remain constant in the future because of the lower benefit from the United States
statutory rate for losses in certain foreign jurisdictions, the limitation on the benefit for losses in jurisdictions in which a valuation
allowance for operating loss carryforwards has previously been established, and the unpredictability of timing and the amount of
eligible disqualifying incentive stock options (“ISO”) exercises.
We have maintained a position of being indefinitely reinvested in our foreign subsidiaries’ earnings by not expecting to remit
foreign earnings in the foreseeable future. Being indefinitely reinvested does not require a deferred tax liability to be recognized on the
foreign earnings. Management’s indefinite reinvestment position is supported by:
21
(cid:120) RGP in the United States has generated more than enough cash to fund operations and expansion, including acquisitions.
RGP uses its excess cash to, at its discretion, return cash to shareholders through dividend payments and stock
repurchases.
(cid:120) RGP in the United States has no debt or any other current or known obligations that require cash to be remitted from
foreign subsidiaries.
(cid:120) Management’s growth objectives include allowing cash to accumulate in RGP’s profitable foreign subsidiaries with the
expectation of finding strategic expansion plans to further penetrate RGP’s most successful locations.
(cid:120) The consequences of distributing foreign earnings have historically been deemed to be tax inefficient for RGP or not
materially beneficial.
Year Ended May 25, 2019 Compared to Year Ended May 26, 2018
For a comparison of our results of operations for the fiscal years ended May 25, 2019 and May 26, 2018, see Part II, Item 7
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for
the fiscal year ended May 25, 2019, filed with the SEC on July 19, 2019 (File No. 0-32113).
Quarterly Results
The following table sets forth our unaudited quarterly Consolidated Statements of Operations data for each of the eight quarters
in the two-year period ended May 30, 2020. In the opinion of management, this data has been prepared on a basis substantially
consistent with our audited Consolidated Financial Statements appearing elsewhere in this document, and includes all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of the data. The quarterly data should be read together
with our Consolidated Financial Statements and related notes appearing elsewhere in this document. The operating results are not
necessarily indicative of the results to be expected in any future period.
May 30,
2020 (1)
Feb. 22,
Nov. 23,
Aug. 24,
May 25,
Feb. 23,
Nov. 24,
Aug. 25,
Quarters Ended
2020
2019
(In thousands, except net income per common share)
2019
2019
2019
2018
2018
Revenue
Direct cost of services, primarily
payroll and related taxes for
professional services employees
$
Gross margin
Selling, general and
administrative expenses
Amortization of intangible assets
Depreciation expense
Income from operations
Interest expense, net
Other income
Income before income tax
expense (benefit)
Income tax expense (benefit)
Net income
Net income per common share (2):
$
178,569 $
168,052 $
184,507 $
172,225 $
182,144 $
179,498 $
188,799 $ 178,558
106,386
72,183
106,632
61,420
110,130
74,377
104,722
67,503
109,188
72,956
111,587
67,911
115,378
73,421
110,407
68,151
62,035
1,592
1,106
7,450
535
(100)
55,299
1,549
1,120
3,452
493
-
53,755
1,510
1,424
17,688
551
(537)
56,978
1,094
1,369
8,062
482
-
56,890
944
1,250
13,872
461
-
55,587
948
1,163
10,213
595
-
54,959
952
1,197
16,313
608
-
56,366
955
1,069
9,761
526
-
7,015
2,948
4,067 $
2,959
(3,983)
6,942 $
17,674
5,337
12,337 $
7,580
2,641
4,939 $
13,411
4,042
9,369 $
9,618
3,822
5,796 $
15,705
5,141
10,564 $
9,235
3,494
5,741
Basic
Diluted
$
$
0.13 $
0.13 $
0.22 $
0.21 $
0.39 $
0.38 $
0.16 $
0.15 $
0.30 $
0.29 $
0.18 $
0.18 $
0.33 $
0.33 $
0.18
0.18
(1) Fiscal quarter ended May 30, 2020 consisted of 14 weeks. All other quarters presented consisted of 13 weeks.
(2) Net income per common share calculations for each of the quarters were based upon the weighted average number of
shares outstanding for each period, and the sum of the quarters may not necessarily be equal to the full year net income per common
share amount.
22
Our quarterly results have fluctuated in the past and we believe they will continue to do so in the future. Certain factors that
could affect our quarterly operating results are described in Part I, Item 1A “Risk Factors.” of our Annual Report on Form 10-K for
fiscal year ended May 30, 2020, filed with the SEC on July 27, 2020. Due to these and other factors, we believe that quarter-to-quarter
comparisons of our results of operations are not meaningful indicators of future performance.
Liquidity and Capital Resources
Our primary source of liquidity is cash provided by our operations, our $120.0 million secured revolving credit facility with
Bank of America (the “Facility”) and, historically to a lesser extent, stock option exercises and ESPP purchases. On an annual basis,
we have generated positive cash flows from operations since inception, and we continued to do so for the year ended May 30, 2020.
Our ability to generate positive cash flow from operations in the future will be, at least in part, dependent on continued stable global
economic conditions and our ability to remain resilient during economic downturns, such as the one we are currently in caused by the
COVID-19 Pandemic. As of May 30, 2020, we had $95.6 million of cash and cash equivalents including $31.7 million held in
international operations.
We entered into the Facility in October 2016, which is available for working capital and general corporate purposes, including
potential acquisitions and stock repurchases. The Facility allows us to choose the interest rate applicable to advances. Borrowings
under the Facility bear interest at a rate per annum of either, at our option, (i) LIBOR plus a margin of 1.25% or 1.50% or (ii) an
alternate base rate, plus margin of 0.25% or 0.50% with the applicable margin depending on our consolidated leverage ratio. The
alternate base rate is the highest of (i) Bank of America’s prime rate, (ii) the federal funds rate plus 0.50% and (iii) the Eurodollar rate
plus 1.0%. We pay an unused commitment fee on the average daily unused portion of the Facility at a rate of 0.15% to 0.25% depending
upon on our consolidated leverage ratio. The Facility expires on October 17, 2021. The Facility contains both affirmative and negative
covenants. We were in compliance with all financial covenants under the Facility as of May 30, 2020 and do not expect material
uncertainties in our continued ability to be in compliance with all financial covenants through the remaining term of the Facility. As of
May 30, 2020, our borrowings on the Facility were $88.0 million, and we had $1.3 million of outstanding letters of credit issued under
the Facility. Additional information regarding the Facility is included in Note 7 — Long-Term Debt in the Notes to Consolidated
Financial Statements included in Part II, Item 8 of this Annual Report.
Our ongoing operations and anticipated growth in the geographic markets we currently serve will require us to continue to
make investments in critical markets and in systems and technology. In addition, we may consider making strategic acquisitions or
take on restructuring initiatives, which could require significant liquidity. While we have not seen a significant adverse impact on our
overall cash collections as a result of the Pandemic, in an abundance of caution, we borrowed $39.0 million on the Facility in the fourth
quarter, to provide substantial additional liquidity to manage our business as the Pandemic continued to develop globally and impact
the capital markets. We currently believe that our current cash, ongoing cash flows from our operations and funding available under
our Facility will be adequate to meet our working capital and capital expenditure needs and to satisfy our cash requirement in executing
our restructuring initiatives for at least the next 12 months. If we require additional capital resources to grow our business, either
internally or through acquisition, we may seek to sell additional equity securities or to increase our use of our Facility. In addition, if
we decide to make additional share repurchases, we may fund these through existing cash balances or use of our Facility. The sale of
additional equity securities or certain forms of debt financing could result in additional dilution to our stockholders. We may not be
able to obtain financing arrangements in amounts or on terms acceptable to us in the future. In the event we are unable to obtain
additional financing when needed, we may be compelled to delay or curtail our plans to develop our business or to pay dividends on
our capital stock, which could have a material adverse effect on our operations, market position and competitiveness.
Operating Activities, fiscal 2020 and 2019
Operating activities provided $49.5 million and $43.6 million in cash in fiscal 2020 and fiscal 2019, respectively. Cash
provided by operations in fiscal 2020 resulted from net income of $28.3 million and net favorable non-cash reconciling adjustments of
$21.5 million. These amounts were partially offset by a net unfavorable change in operating assets and liabilities of $0.3 million
primarily due to a $7.9 million decrease in accounts payable, a $6.8 million decrease in accrued salaries and related obligations and a
$2.5 million increase in prepaid income taxes, partially offset by a $10.0 million decrease in trade accounts receivable and a $7.3
million increase in other liabilities. In fiscal 2019, cash provided by operations resulted from net income of $31.5 million and net
favorable non-cash reconciling adjustments of $22.6 million, partially offset by a net unfavorable change in operating assets and
liabilities of $10.4 million primarily related to decreases in accounts receivable and income taxes payable.
Investing Activities, fiscal 2020 and 2019
Net cash used in investing activities was $26.8 million for fiscal 2020, compared to $12.9 million in fiscal 2019. We used
$30.3 million of cash (net of cash acquired) to acquire Veracity in fiscal 2020. There were no acquisitions in fiscal 2019. Purchases of
23
property and equipment decreased approximately $4.6 million between the two periods, as we relocated or refurbished certain offices
during fiscal 2019. We also redeemed $6.0 million of short-term investments in fiscal 2020, which we purchased in fiscal 2019.
Financing Activities, fiscal 2020 and 2019
The primary sources of cash in financing activities are borrowings under our Facility, cash proceeds from the exercise of
employee stock options and proceeds from the issuance of shares purchased under our ESPP. The primary uses of cash in financing
activities are repayments under the Facility, repurchases of our common stock and cash dividend payments to our shareholders.
Net cash provided by financing activities totaled $30.9 million in fiscal 2020 compared to net cash used in financing activities
of $43.6 million in fiscal 2019. Financing activities during fiscal 2020 primarily consisted of $74.0 million of proceeds borrowed from
the Facility and $10.3 million from the issuance of shares under ESPP and the exercise of employee stock options, partially offset by
principal repayments of $29.0 million under the Facility, $17.6 million of cash dividend payments and $5.0 million for share
repurchases. Additional information regarding dividends is included in Note 11 — Stockholders’ Equity in the Notes to Consolidated
Financial Statements included in Part II, Item 8 of this Annual Report. The increase in dividends paid in fiscal 2020 compared to fiscal
2019 was due to an increase in quarterly dividends declared from $0.13 per share in fiscal 2019 to $0.14 per share beginning in fiscal
2020. Net cash used by financing activities of $43.6 million in fiscal 2019 consisted of $16.2 million in cash dividends paid, $29.9
million in share repurchases and $20.0 million repaid under our Facility, partially offset by proceeds of $24.3 million from the exercise
of employee stock options and the issuance of shares under ESPP.
As described in Note 3 — Acquisitions and Dispositions, in the Notes to Consolidated Financial Statements included in Part
II, Item 8 of this Annual Report, the purchase agreements for Veracity and Expertence require cash earn-out payments to be made
when certain performance conditions are met. We estimated the fair value of the obligation to pay contingent consideration based on a
number of different projections of the estimated EBITDA and estimated revenue. The estimated fair value of the contingent
consideration as of May 30, 2020 was $7.9 million, of which $5.0 million is due before the end of calendar 2020 if the terms of the
contingent consideration arrangement are met.
For a comparison of our cash flow activities for the fiscal years ended May 25, 2019 and May 26, 2018, see Part II, Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for
the fiscal year ended May 25, 2019, filed with the SEC on July 19, 2019 (File No. 0-32113).
While the Pandemic has created significant uncertainty in the global economy and capital markets, which is expected to
continue into the remainder of 2020 and beyond, we currently believe our existing balance of cash, cash flow expected to be generated
from our future operations, and the additional availability under our Facility will provide sufficient cash needs for working capital and
capital expenditures for at least the next 12 months. However, we could be required, or could elect to seek additional funding prior to
that time. Our future capital requirements will depend on many factors, including our ability to continue to adapt and efficiently serve
our client, our clients’ project needs during this uncertain time, and our clients’ financial health and ability to make timely payments
on our receivables. A material adverse impact from the Pandemic could result in a need for us to raise additional capital or incur
additional indebtedness to fund strategic initiatives or operating activities.
Contractual Obligations
At May 30, 2020, we had operating leases, primarily for office premises, and purchase obligations include payments due under
various types of licenses, expiring at various dates through March 2028. At May 30, 2020, we had no finance leases. The following
table summarizes our future minimum rental commitments under operating leases and our other known contractual obligations as of
May 30, 2020:
Total
Fiscal 2021
Payments Due by Period
Fiscal
2022-2023
(Amounts in thousands)
Fiscal
2024-2025
Thereafter
Operating lease obligations
Purchase obligations
Long-term debt
$
$
$
45,762
4,855
88,000
$
$
$
12,610
2,797
-
$
$
$
19,526
2,058
88,000
$
$
$
10,458
-
-
$
$
$
3,168
-
-
Long-term debt above reflects our outstanding borrowings under the Facility as of May 30, 2020, assumes no future
borrowings under the Facility and does not include any estimated future interest payments.
24
The contractual obligations and commitments table above does not reflect the Company’s total liability for unrecognized gross
tax benefits, which was $848,000 as of May 30, 2020, because we are unable to reasonably estimate the period during which this
obligation may be incurred, if at all.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Inflation
Inflation was not a material factor in either revenue or operating expenses during the fiscal years ended May 30, 2020, May
25, 2019 or May 26, 2018.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. We are primarily exposed to market risks from fluctuations in interest rates and the effects of those
fluctuations on the market values of our cash and cash equivalents and our borrowings under our Facility that bear interest at a variable
market rate.
At the end of fiscal 2020, we had approximately $95.6 million of cash and cash equivalents and $88.0 million of borrowings
under our Facility. The earnings on cash and cash equivalents are subject to changes in interest rates; however, assuming a constant
balance available for investment, a 10% decline in interest rates would reduce our interest income but would not have a material impact
on our consolidated financial position or results of operations.
Borrowings under the Facility bear interest at a rate per annum of either, at our option, (i) LIBOR plus a margin of 1.25% or
1.50% or (ii) an alternate base rate, plus margin of 0.25% or 0.50% with the applicable margin depending on our consolidated leverage
ratio. The alternate base rate is the highest of (i) Bank of America’s prime rate, (ii) the federal funds rate plus 0.50% and (iii) the
Eurodollar rate plus 1.0%. We are exposed to interest rate risk related to fluctuations in the LIBOR rate; at the current level of borrowing
as of May 30, 2020 of $88.0 million, a 10% change in interest rates would have resulted in approximately a $0.2 million change in
annual interest expense.
Foreign Currency Exchange Rate Risk. For the year ended May 30, 2020, approximately 19.1% of our revenues were
generated outside of the United States. As a result, our operating results are subject to fluctuations in the exchange rates of foreign
currencies in relation to the U.S. dollar. Revenues and expenses denominated in foreign currencies are translated into U.S. dollars at
the monthly average exchange rates prevailing during the period. Thus, as the value of the U.S. dollar fluctuates relative to the
currencies in our non-United States based operations, our reported results may vary.
Assets and liabilities of our non-United States based operations are translated into U.S. dollars at the exchange rate effective
at the end of each monthly reporting period. Approximately 66.9% of our fiscal year-end balances of cash and cash equivalents were
denominated in U.S. dollars. The remaining amount of approximately 33.1% was comprised primarily of cash balances translated from
Euros, Japanese Yen, Mexican Pesos, Chinese Yuan, and British Pound Sterling. The difference resulting from the translation in each
period of assets and liabilities of our non-United States based operations is recorded as a component of stockholders’ equity in other
accumulated other comprehensive income or loss.
Although we intend to monitor our exposure to foreign currency fluctuations, we do not currently use financial hedges to
mitigate risks associated with foreign currency fluctuations including in a limited number of circumstances when we may be asked to
transact with our client in one currency but are obligated to pay our consultant in another currency. We cannot provide assurance that
exchange rate fluctuations will not adversely affect our financial results in the future.
CAUTION CONCERNING FORWARD LOOKING STATEMENTS
This Annual Report, including information incorporated herein by reference, contains “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. These statements relate to expectations concerning matters that are not historical facts. For example, statements discussing,
among other things, expected savings, business strategies, growth strategies and initiatives, acquisition strategies, future revenues and
future performance, are forward-looking statements. Such forward-looking statements may be identified by words such as
25
“anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,”
“should” or “will” or the negative of these terms or other comparable terminology.
These statements and all phases of our operations are subject to known and unknown risks, uncertainties and other factors that
could cause our actual results, levels of activity, performance or achievements and those of our industry to differ materially from those
expressed or implied by these forward-looking statements. The disclosures we make concerning risks, uncertainties and other factors
that may affect our business or operating results, including those identified in Item 1A “Risk Factors” of our Annual Report on Form 10-
K for the year ended May 30, 2020, as well as our other reports filed with the Securities and Exchange Commission (“SEC”) should
be reviewed carefully. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also
affect our business or operating results. Readers are cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this Annual Report. We do not intend, and undertake no obligation, to update the forward-looking statements
in this filing to reflect events or circumstances after the date of this Annual Report or to reflect the occurrence of unanticipated events,
unless required by law to do so.
26
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Resources Connection, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Resources Connection, Inc. and its subsidiaries (the Company) as
of May 30, 2020 and May 25, 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity
and cash flows for each of the three years in the period ended May 30, 2020, and the related notes to the consolidated financial
statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of May 30, 2020 and May 25, 2019, and the results of its operations and its cash flows for each
of the three years in the period ended May 30, 2020, in conformity with accounting principles generally accepted in the United States
of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the Company's internal control over financial reporting as of May 30, 2020, based on criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report
dated July 27, 2020 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of
May 26, 2019 due to the adoption of Financial Accounting Standards Board’s Accounting Standards Codification (ASC) Topic 842,
Leases.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
/s/ RSM US LLP
We have served as the Company’s auditor since 2013.
Irvine, California
July 27, 2020
27
RESOURCES CONNECTION, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Trade accounts receivable, net of allowance for doubtful accounts of
$3,067 and $2,520 as of May 30, 2020 and May 25, 2019, respectively
Prepaid expenses and other current assets
Income taxes receivable
Total current assets
Goodwill
Intangible assets, net
Property and equipment, net
Operating right-of-use assets
Deferred income taxes
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses
Accrued salaries and related obligations
Operating lease liabilities, current
Other liabilities
Total current liabilities
Long-term debt
Operating lease liabilities, noncurrent
Deferred income taxes
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 5,000 shares authorized; zero shares
issued and outstanding
Common stock, $0.01 par value, 70,000 shares authorized; 63,910 and
63,054 shares issued, and 32,144 and 31,588 shares outstanding as of
May 30, 2020 and May 25, 2019, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Treasury stock at cost, 31,766 and 31,466 shares as of
May 30, 2020 and May 25, 2019, respectively
Total stockholders’ equity
Total liabilities and stockholders’ equity
May 30,
2020
May 25,
2019
(Amounts in thousands, except
par value per share)
$
95,624 $
-
$
$
124,986
6,222
4,167
230,999
214,067
20,077
23,644
34,287
1,597
4,510
529,181 $
15,799 $
52,407
11,223
15,472
94,901
88,000
30,672
6,215
5,732
225,520
43,045
5,981
133,304
7,103
2,224
191,657
190,815
14,589
26,632
-
1,497
3,180
428,370
21,634
58,628
-
11,154
91,416
43,000
-
5,146
6,412
145,974
-
-
639
477,438
(13,862)
360,534
(521,088)
303,661
529,181 $
$
631
460,226
(12,588)
350,230
(516,103)
282,396
428,370
The accompanying notes are an integral part of these consolidated financial statements.
28
RESOURCES CONNECTION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue
Direct cost of services, primarily payroll and related taxes for
professional services employees
Gross margin
Selling, general and administrative expenses
Amortization of intangible assets
Depreciation expense
Income from operations
Interest expense, net
Other income
Income before provision for income taxes
Provision for income taxes
Net income
Net income per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
May 30,
2020
For the Years Ended
May 25,
2019
(Amounts in thousands, except
per share amounts)
May 26,
2018
$
703,353 $
728,999 $
654,129
427,870
275,483
228,067
5,745
5,019
36,652
2,061
(637)
35,228
6,943
28,285 $
446,560
282,439
223,802
3,799
4,679
50,159
2,190
-
47,969
16,499
31,470 $
408,074
246,055
209,042
2,298
4,091
30,624
1,735
-
28,889
10,063
18,826
0.88 $
0.88 $
1.00 $
0.98 $
0.61
0.60
$
$
$
31,989
32,227
31,596
32,207
30,741
31,210
0.48
Cash dividends declared per common share
$
0.56 $
0.52 $
The accompanying notes are an integral part of these consolidated financial statements.
29
RESOURCES CONNECTION, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
COMPREHENSIVE INCOME:
Net income
Foreign currency translation adjustment, net of tax
Total comprehensive income
May 30,
2020
For the Years Ended
May 25,
2019
(Amounts in thousands)
May 26,
2018
$
$
28,285 $
(1,274)
27,011 $
31,470 $
(2,203)
29,267 $
18,826
1,011
19,837
The accompanying notes are an integral part of these consolidated financial statements.
30
RESOURCES CONNECTION, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Additional
Common Stock
Shares Amount
Paid-in
Capital
Accumulated
Other
Total
Treasury Stock
Comprehensive Retained Stockholders'
Shares
Amount
(Amounts in thousands)
(Loss) Income Earnings
Balances as of May 27, 2017
Exercise of stock options
Stock-based compensation expense
Issuance of common stock under Employee
Stock Purchase Plan
Issuance of restricted stock
Issuance of restricted stock out of treasury
stock to board of director members
Purchase of shares
Issuance of common stock for acquisition of
Accretive
Issuance of common stock for acquisition of
taskforce
Cash dividends declared ($0.48 per share)
Currency translation adjustment
Net income for the year ended May 26, 2018
58,992 $
517
590
6
$ 398,828
6,483
5,978
339
105
3
1
3,947
(1)
1,072
11
11,743
227
2
2,600
29,330 $
(481,904) $
(11,396) $
332,024 $
(13)
321
298
(5,116)
(298)
1,011
(14,811)
18,826
335,741 $
Balances as of May 26, 2018
Exercise of stock options
61,252 $
1,444
613 $
15
429,578
19,794
29,638 $
(486,722) $
(10,385) $
Stock-based compensation expense
Issuance of common stock under Employee
6,358
Stock Purchase Plan
358
3
4,496
Issuance of restricted stock out of treasury
stock to board of director members
Purchase of shares
Cash dividends declared ($0.52 per share)
Currency translation adjustment
Net income for the year ended May 25, 2019
Balances as of May 25, 2019
Exercise of stock options
Stock-based compensation expense
Issuance of common stock under Employee
Stock Purchase Plan
Cancellation of restricted stock
Issuance of restricted stock
Issuance of restricted stock out of treasury
stock to board of director members
Repurchase of shares
Cash dividends declared ($0.56 per share)
Issuance of common stock in connection with the
acquisition of Accretive
Currency translation adjustment
Net income for the year ended May 30, 2020
(21)
1,849
510
(29,891)
(510)
(16,471)
31,470
(2,203)
63,054 $
631 $
460,226
31,466 $
(516,103) $
(12,588) $
350,230 $
376
3
400
(13)
10
4
-
-
5,122
5,833
5,127
(10)
(18)
318
15
(5,000)
83
1
1,140
(5)
(17,976)
(1,274)
28,285
Equity
238,142
6,489
5,978
3,950
-
-
(5,116)
11,754
2,602
(14,811)
1,011
18,826
268,825
19,809
6,358
4,499
-
(29,891)
(16,471)
(2,203)
31,470
282,396
5,125
5,833
5,131
-
-
-
(5,000)
(17,976)
1,141
(1,274)
28,285
Balances as of May 30, 2020
477,438
The accompanying notes are an integral part of these consolidated financial statements.
(521,088) $
63,910 $
31,766 $
639 $
(13,862) $
360,534 $
303,661
31
RESOURCES CONNECTION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
28,285 $
31,470 $
18,826
For the Years Ended
May 30,
2020
May 25,
May 26,
2019
(Amounts in thousands)
2018
Depreciation and amortization
Stock-based compensation expense
Contingent consideration adjustment
Loss on disposal of assets
Impairment of operating right-of-use assets
Bad debt expense
Deferred income taxes
Changes in operating assets and liabilities, net of effects of business combinations:
Trade accounts receivable
Prepaid expenses and other current assets
Income taxes
Other assets
Accounts payable and accrued expenses
Accrued salaries and related obligations
Other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Redemption of short-term investments
Purchase of short-term investments
Proceeds from sale of assets
Acquisition of Expertence, net of cash acquired
Acquisition of Veracity, net of cash acquired
Acquisition of Accretive
Acquisition of taskforce, net of cash acquired
Purchase of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
10,764
6,057
794
484
649
1,840
911
10,010
980
(2,472)
(1,332)
(7,902)
(6,810)
7,265
49,523
5,981
-
105
(254)
(30,258)
-
-
(2,346)
(26,772)
8,478
6,570
(590)
126
-
1,540
6,452
(5,690)
109
(4,324)
(1,147)
(1,469)
547
1,549
43,621
-
(5,981)
-
-
-
-
-
(6,896)
(12,877)
Proceeds from exercise of stock options
Proceeds from issuance of common stock under Employee Stock Purchase Plan
Purchase of common stock
Payment of contingent consideration
Proceeds from Revolving Credit Facility
Repayments on Revolving Credit Facility
Cash dividends paid
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
5,125
5,131
(5,000)
(1,771)
74,000
(29,000)
(17,581)
30,904
(1,076)
52,579
43,045
95,624 $
19,809
4,499
(29,891)
(1,860)
-
(20,000)
(16,158)
(43,601)
(568)
(13,425)
56,470
43,045 $
$
The accompanying notes are an integral part of these consolidated financial statements.
6,389
6,033
-
14
-
826
(5,035)
(19,373)
(1,567)
4,733
(166)
3,332
4,173
(2,815)
15,370
-
-
4
-
-
(20,047)
(3,410)
(2,213)
(25,666)
6,489
3,949
(5,116)
(2,579)
15,000
-
(14,269)
3,474
963
(5,859)
62,329
56,470
32
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the Company and its Business
Resources Connection, Inc. (“Resources Connection”), a Delaware corporation, was incorporated on November 16, 1998. The
Company’s operating entities provide services primarily under the name Resources Global Professionals (“RGP” or the “Company”).
RGP is a global consulting firm that enables rapid business outcomes by bringing together the right people to create transformative
change. As a human capital partner for our clients, the Company specializes in solving today’s most pressing business problems across
the enterprise in the areas of transactions, regulations and transformations. The Company has offices in the United States (“U.S.”),
Asia, Australia, Canada, Europe and Mexico.
The Company’s fiscal year consists of 52 or 53 weeks, ending on the Saturday in May closest to May 31. Fiscal years 2019
and 2018 consisted of four 13-week quarters and included a total of 52 weeks of activity in the fiscal year. For fiscal year 2020, the
first three quarters consisted of 13 weeks each and the fourth quarter consisted of 14 weeks, with a total of 53 weeks of activity in the
fiscal year.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The Consolidated Financial Statements of the Company (“financial statements”) have been prepared in conformity with
accounting principles generally accepted in the U.S. (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”).
The financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Risk and Uncertainties
Since the start of 2020, the COVID-19 pandemic (the “Pandemic”) has spread to many of the countries in which the Company
and its customers conduct businesses. Governments throughout the world have implemented, and may continue to implement, stay-at-
home orders, proclamations and directives aimed at minimizing the spread of the COVID-19 virus. The impact of the Pandemic and
the resulting restrictions have caused disruptions in the U.S. and global economy and may continue to disrupt financial markets and
global economic activities. The Company has taken precautions and steps to prevent or reduce infection among its employees, including
limiting business travel and mandating working from home in many of the countries in which it operates. While overall productivity
remained high through the end of fiscal 2020, these measures may disrupt the Company’s normal business operations and negatively
impact its productivity and ability to efficiently serve its clients. As events relating to COVID-19 continue to develop and evolve
globally, there is significant uncertainty as to the full likely effects of the Pandemic which may, among other things, reduce demand
for or delay client decisions to procure the Company’ services or result in cancellation of existing projects. While the full impact from
the Pandemic is not quantifiable, the Company’s results of operations and cash flows were adversely impacted in the latter half of fiscal
2020. Although management does not expect the Pandemic to have a permanent impact on its business operations, the Company cannot
estimate the length or the magnitude of the Pandemic and how this might affect its customers’ demand for services and the Company’s
ability to continue to operate efficiently. Management believes the Pandemic could continue to have an adverse impact on the
Company’s results of operations and financial position in fiscal 2021. Management is uncertain whether future effects of the Pandemic
will be similar to what the Company has experienced in fiscal 2020. Management continues to monitor relevant business metrics, such
as daily and weekly revenue run rate, pipeline activities, rate of consultant attrition and days sales outstanding, and has implemented
modifications to the Company’s normal operations. Management believes the restructuring initiatives that the Company took in the
fourth quarter of fiscal 2020 have better prepared the Company to operate with agility and resilience in this challenging economic
environment.
The Company’s primary source of liquidity historically has been cash provided by its operations and its $120.0 million secured
revolving credit facility (“Facility”) which expires on October 17, 2021. As of May 30, 2020, the Company had cash and cash
equivalents of $95.6 million, and additional availability under the Facility of $30.7 million. Given its balance sheet and liquidity
position, management believes that the Company has the financial flexibility and resources needed to operate in the current uncertain
economic environment. However, if global economic conditions worsen as a result of the Pandemic, it could materially impact the
Company’s liquidity position and capital needs.
33
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in the U.S. in
response to the Pandemic. The CARES Act includes, among other things, direct financial assistance to Americans in the form of cash
payments to individuals, aid to small businesses in the form of loans, and other tax incentives in an effort to stabilize the U.S. economy
and keep Americans employed. The Company has not filed, and currently does not intend to file, for funding provided by the CARES
Act. The Company has deferred $2.9 million in payroll tax payments as of the end of fiscal 2020 in the U.S. The Company does not
believe the income tax provisions such as changes to the net operating loss rules included in the CARES Act will have a material impact
on it. The Company has not received, and does not expect to receive significant government-provided relief or stimulus funding in
other parts of the world.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Although management believes these
estimates and assumptions are adequate, actual results could differ from the estimates and assumptions used.
Revenue Recognition
Effective May 27, 2018, the Company adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from
Contracts with Customers (“ASC 606”), using the modified retrospective method, which allows companies to apply the new revenue
standard to reporting periods beginning in the year the standard is first implemented, while prior periods continue to be reported in
accordance with previous accounting guidance. The adoption of ASC 606 did not have a significant impact on revenue recognition;
therefore, the Company did not have an opening retained earnings adjustment for the fiscal year ended May 25, 2019.
Revenues are recognized when control of the promised service is transferred to the Company’s clients, in an amount that
reflects the consideration expected in exchange for the services. Revenue is recorded net of sales or other transaction taxes collected
from clients and remitted to taxing authorities. Revenues from contracts are recognized over time, based on hours worked by the
Company’s professionals. The performance of the agreed-to service over time is the single performance obligation for revenues. Certain
clients may receive discounts (for example, volume discounts or rebates) to the amounts billed. These discounts or rebates are
considered variable consideration. Management evaluates the facts and circumstances of each contract and client relationship to
estimate the variable consideration assessing the most likely amount to recognize and considering management’s expectation of the
volume of services to be provided over the applicable period. Rebates are the largest component of variable consideration and are
estimated using the most likely amount method prescribed by ASC 606, contracts terms and estimates of revenue. Revenues are
recognized net of variable consideration to the extent that it is probable that a significant reversal of revenues will not occur in
subsequent periods.
On a limited basis, the Company may have fixed-price contracts, for which revenues are recognized over time using the input
method based on time incurred as a proportion of estimated total time. Time incurred represents work performed, which corresponds
with, and therefore best depicts, the transfer of control to the client. Management uses significant judgments when estimating the total
hours expected to complete the contract performance obligation. It is possible that updated estimates for consulting engagements may
vary from initial estimates with such updates being recognized in the period of determination. Depending on the timing of billings and
services rendered, the Company accrues or defers revenue as appropriate.
The Company recognizes revenues on a gross basis as it acts as a principal for primarily all of its revenue transactions. The
Company has concluded that gross reporting is appropriate because the Company a) has the risk of identifying and hiring qualified
consultants; b) has the discretion to select the consultants and establish the price and responsibilities for services to be provided; and
c) bears the risk for services provided that are not fully paid for by clients. The Company recognizes all reimbursements received from
clients for “out-of-pocket” expenses as revenue and all such expenses as direct cost of services. Reimbursements received from clients
were $9.4 million, $12.3 million and $11.8 million for the years ended May 30, 2020, May 25, 2019 and May 26, 2018, respectively.
The Company’s clients are contractually obligated to pay the Company for all hours billed. We invoice the majority of our clients
on a weekly basis or, in certain circumstances, on a monthly basis, in accordance with our typical arrangement of payment due within
30 days. To a much lesser extent, the Company also earns revenue if one of its consultants is hired by, or if the Company places an
outside candidate with, its client. Conversion fees or permanent placement fees are recognized when one of the Company’s
professionals, or a candidate identified by the Company, accepts an offer of permanent employment from a client and all requisite
terms of the agreement have been met. Such conversion fees or permanent placement fees are recognized when the performance
obligation is considered complete, which the Company considers a) when the consultant or candidate accepts the position; b) the
consultant or candidate has notified either RGP or their current employer of their decision; and c) the start date is within the Company’s
34
current quarter. Conversion fees were 0.4%, 0.5% and 0.4% of revenue for the years ended May 30, 2020, May 25, 2019 and May 26,
2018, respectively. Permanent placement fees were 0.6%, 0.6% and 0.3% of revenue for the years ended May 30, 2020, May 25, 2019
and May 26, 2018, respectively.
The Company’s contracts generally have termination for convenience provisions and do not have termination penalties. While
our clients are contractually obligated to pay the Company for all hours billed, the Company does not have long-term agreements with
its clients for the provision of services and the Company’s clients may terminate engagements at any time. All costs of compensating
the Company’s professionals are the responsibility of the Company and are included in direct cost of services.
Foreign Currency Translation
The financial statements of subsidiaries outside the U.S. are measured using the local currency as the functional currency.
Assets and liabilities of these subsidiaries are translated at current exchange rates, income and expense items are translated at average
exchange rates prevailing during the period and the related translation adjustments are recorded as a component of comprehensive
income or loss within stockholders’ equity. Gains and losses from foreign currency transactions are included in selling, general and
administrative expenses in the Consolidated Statements of Operations.
Per Share Information
The Company presents both basic and diluted earnings per share (“EPS”). Basic EPS is calculated by dividing net income by
the weighted average number of common shares outstanding during the period. Diluted EPS is based upon the weighted average number
of common and common equivalent shares outstanding during the period, calculated using the treasury stock method. Under the
treasury stock method, exercise proceeds include the amount the employee must pay for exercising stock options, the amount of
compensation cost related to stock awards for future services that the Company has not yet recognized and the amount of tax benefits
that would be recorded when the award becomes deductible. Common equivalent shares are excluded from the computation in periods
in which they have an anti-dilutive effect. Stock options for which the exercise price exceeds the average market price over the period
are anti-dilutive and are excluded from the calculation.
The following table summarizes the calculation of net income per share for the years ended May 30, 2020, May 25, 2019 and
May 26, 2018 (in thousands, except per share amounts):
Net income
Basic:
Weighted average shares
Diluted:
Weighted average shares
Potentially dilutive shares
Total dilutive shares
Net income per common share:
Basic
Dilutive
Anti-dilutive shares not included above
Cash and Cash Equivalents
May 30,
2020
For the Years Ended
May 25,
2019
May 26,
2018
$
28,285 $
31,470 $
18,826
31,989
31,596
30,741
31,989
238
32,227
0.88 $
0.88 $
4,731
31,596
611
32,207
1.00 $
0.98 $
3,316
30,741
469
31,210
0.61
0.60
4,619
$
$
The Company considers cash on hand, deposits in banks, and short-term investments purchased with an original maturity date
of three months or less to be cash and cash equivalents. The carrying amounts reflected in the consolidated balance sheets for cash and
cash equivalents approximate the fair values due to the short maturities of these instruments.
35
Financial Instruments
The fair value of the Company’s financial instruments reflects the amounts that the Company estimates it will receive in
connection with the sale of an asset in an orderly transaction between market participants at the measurement date (exit price). The fair
value hierarchy prioritizes the use of inputs used in valuation techniques into the following three levels:
Level 1 – Quoted prices in active markets for identical assets and liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the
full term of the assets.
Level 3 – Unobservable inputs.
The following table shows the Company’s financial instruments that are measured and recorded in the consolidated financial
statements at fair value on a recurring basis (in thousands):
Assets:
Short-term investments
Total assets
$
$
Liabilities:
Contingent consideration liability $
$
Total liabilities
Level 1
May 30, 2020
Level 2
Level 3
Level 1
May 25, 2019
Level 2
Level 3
- $
- $
- $
- $
- $
- $
-
-
- $
- $
7,898
7,898
$
$
$
$
- $
- $
5,981 $
5,981 $
-
-
- $
- $
- $
- $
2,195
2,195
The Company’s short-term investments had original contractual maturities of between three months and one year and are
considered “held-to-maturity” securities. The Company had no investments with a maturity in excess of one year as of the end of either
fiscal year 2020 or 2019. The Company’s investments in commercial paper or money market account are measured using quoted prices
in markets that are not active (Level 2). There were no unrealized holding gains or losses as of May 30, 2020 and May 25, 2019.
Contingent consideration liability presented in the table above is for estimated future contingent consideration cash payments
related to the Company’s acquisitions. Total contingent consideration liabilities were $7.9 million and $2.2 million as of May 30, 2020
and May 25, 2019, respectively. The fair value measurement of the liability is based on significant inputs not observed in the market
and thus represents a Level 3 measurement. The significant unobservable inputs used in the fair value measurement of the contingent
consideration liability are the Company’s measures of the estimated payouts based on internally generated financial projections and
discount rates. The fair value of contingent consideration liability is remeasured on a quarterly basis by the Company using additional
information as it becomes available, and any change in the fair value estimates are recorded in selling, general and administrative
expenses in the Company’s Consolidated Statements of Operations. See Note 3 – Acquisitions and Dispositions.
The Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and long-term debt are carried at cost, which approximates their fair value because of the short-term maturity of these
instruments or because their stated interest rates are indicative of market interest rates.
36
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for estimated losses resulting from its clients’ failure to make
required payments for services rendered. Management estimates this allowance based upon knowledge of the financial condition of the
Company’s clients (which may not include knowledge of all significant events), review of historical receivable and reserve trends and
other pertinent information. If the financial condition of the Company’s clients deteriorates or there is an unfavorable trend in aggregate
receivable collections, additional allowances may be required.
The following table summarizes the activity in our allowance for doubtful accounts (in thousands):
Beginning
Balance
Charged to
Operations
Currency
Rate
Changes
(Write-offs)/
Recoveries
Ending
Balance
Years Ended:
May 26, 2018
May 25, 2019
May 30, 2020
$
$
$
2,517
1,640
2,520
$
$
$
826
1,540
1,840
$
$
$
12
-
(18)
$
$
$
(1,715)
(660)
(1,275)
$
$
$
1,640
2,520
3,067
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation and amortization. Depreciation is computed using the
straight-line method over the following estimated useful lives:
Building
Furniture
Leasehold improvements
Computer, equipment and software
30 years
5 to 10 years
Lesser of useful life of asset or term of lease
3 to 5 years
Costs for normal repairs and maintenance are expensed to operations as incurred, while renewals and major refurbishments
are capitalized.
Long-lived Assets
The Company evaluates the recoverability of long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The impairment test comprises two steps. The first step compares
the carrying amount of the asset to the sum of expected undiscounted future cash flows. If the sum of expected undiscounted future
cash flows exceeds the carrying amount of the asset, no impairment is taken. If the sum of expected undiscounted future cash flows is
less than the carrying amount of the asset, a second step is warranted and an impairment loss is measured as the amount by which the
carrying amount of the asset exceeds its fair value calculated using the present value of estimated net future cash flows. The Company
recorded $0.6 million right-of-use (“ROU”) assets impairment for the year ended May 30, 2020 associated with exiting certain real
estate leases as part of its restructuring and business transformation initiative. The impairment charge is included in selling, general
and administrative expense in the Company’s Consolidated Statements of Operations for the year ended May 30, 2020.
Goodwill and Intangible Assets
Goodwill is recorded at the time of an acquisition and is calculated as the difference between the aggregate consideration paid
for an acquisition and the fair value of the net tangible and intangible assets acquired. Goodwill is not subject to amortization but the
carrying value is tested for impairment on an annual basis in the fourth quarter of the fiscal year, or more frequently if the Company
believes indicators of impairment exist. Impairment evaluations involve management’s assessment of qualitative factors to determine
whether it is more likely than not that goodwill is impaired. If management concludes from its assessment of qualitative factors that it
is more likely than not that impairment exists, then a quantitative impairment test will be performed. Significant management judgment
is required in the forecasts of future operating results that are used in these evaluations. For application of this methodology, the
Company determined that it operates as a single reporting unit resulting from the combination of its practice offices. The Company’s
annual goodwill impairment analysis indicated that there was no related impairment for the fiscal years ended May 30, 2020, May 25,
2019 and May 26, 2018, respectively.
37
The Company’s identifiable intangible assets include customer contracts and relationships, tradenames, backlog, consultant
list, non-compete agreements and computer software. These assets are amortized on a straight-line basis over lives ranging from 17
months to ten years.
See Note 4 — Intangible Assets and Goodwill for a further description of the Company’s intangible assets.
Stock-Based Compensation
The Company recognizes compensation expense for all share-based payment awards made to employees and directors,
including restricted stock awards, employee stock options and employee stock purchases made via the Company’s Employee Stock
Purchase Plan (the “ESPP”), based on estimated fair value at the date of grant.
The Company estimates the fair value of share-based payment awards on the date of grant using an option-pricing model. The
value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods. If
the actual number of forfeitures differs from that estimated by management, additional adjustments to compensation expense may be
required in future periods. Excess income tax benefits and deficiencies from stock-based compensation are recognized as a discrete
item within the provision for income taxes on the Company’s Consolidated Statements of Operations. Stock options vest over four
years and restricted stock award vesting is determined on an individual grant basis under the Company’s 2014 Performance Incentive
Plan (“2014 Plan”). The Company determines the estimated value of stock options using the Black-Scholes valuation model and the
estimated value of restricted stock awards using the closing price of the Company’s common stock on the date of grant. The Company
recognizes stock-based compensation expense on a straight-line basis over the service period for awards that are expected to vest and
records adjustments to compensation expense at the end of the service period if actual forfeitures differ from original estimates.
See Note 13 — Stock-Based Compensation Plans for further information on the 2014 Plan and stock-based compensation.
Income Taxes
The Company recognizes deferred income taxes for the estimated tax consequences in future years of differences between the
tax basis of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory rates
applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established to reduce
deferred tax assets to the amount expected to be realized when, in management’s opinion, it is more likely than not that some portion
of the deferred tax assets will not be realized. The provision for income taxes represents current taxes payable net of the change during
the period in deferred tax assets and liabilities. The Company also evaluates its uncertain tax positions and only recognizes the tax
benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions
are measured based on the largest benefit that has a greater than 50 percentage likelihood of being realized upon settlement. The
Company records a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax
return. Any change in judgment related to the expected ultimate resolution of uncertain tax positions is recognized in earnings in the
period in which such change occurs.
Recent Accounting Pronouncements
Accounting Pronouncements Adopted During Fiscal Year 2020
Effective as of the beginning of fiscal year 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02,
Leases, ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Targeted Improvements to Topic
842, Leases. The guidance is intended to increase transparency and comparability among companies for leasing transactions, including
a requirement for companies that lease assets to recognize on their balance sheets the assets and liabilities for the rights and obligations
created by those leases. The guidance also provides for disclosures that allow the users of financial statements to assess the amount,
timing, and uncertainty of cash flows arising from leases.
The Company adopted the guidance on May 26, 2019, the first day of its fiscal 2020, using the modified retrospective approach
through a cumulative-effect adjustment, which after completing the implementation analysis, resulted in no adjustment to the
Company’s May 26, 2019 beginning retained earnings balance. Periods prior to the date of adoption are presented in accordance with
ASC 840, Leases. As part of the adoption, the Company elected the package of practical expedients, which among other things, permits
the Company to not reassess whether any expired or existing contracts are or contain leases, the lease classification for any expired or
existing leases, and the initial direct costs for any existing leases. The Company also elected the practical expedient to not assess
whether existing land easements that were not previously accounted for as leases are or contain a lease under the new guidance. The
Company did not elect the hindsight practice expedient to use hindsight when determining lease term and assessing impairment of
38
ROU lease assets. On May 26, 2019, the Company recognized $43.2 million of ROU assets and $51.0 million of operating lease
liabilities, including noncurrent operating lease liabilities of $38.5 million, as a result of the adoption. The difference between the ROU
assets and the operating lease liabilities was primarily due to previously accrued rent expense relating to periods prior to May 26, 2019,
and the remaining prepaid rent balance as of May 25, 2019. The adoption did not have an impact on the Company’s consolidated results
of operations or cash flows. Additional information and disclosures required by the new standard are contained in Note 6—Leases.
In January 2017, the Financial Accounting Standards Board issued ASU No. 2017-04 Intangibles-Goodwill and Other (Topic
350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates step two of the goodwill impairment
test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount.
Additionally, the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets should be
disclosed. ASU 2017-04 is effective for annual or interim goodwill impairment tests performed in fiscal years beginning after December
15, 2019; early adoption is permitted. The Company early adopted ASU 2017-04 as of the beginning of fiscal 2020. The adoption of
ASU 2017-04 did not have a material impact on the Company’s Consolidated Financial Statements.
3. Acquisitions and Dispositions
Acquisition of Expertence
On November 30, 2019, the Company acquired Expertforce Interim Projects GmbH, LLC (“Expertence”), a leading provider of
professional interim management services, based in Munich, Germany. With the acquisition of Expertence, the Company is able to
offer a full range of project and management consulting services in the German market. The Company paid an initial cash consideration
of $0.4 million. The initial consideration is subject to final adjustments for the impact of working capital as defined in the purchase
agreement.
In addition, the purchase agreement requires earn-out payments to be made based on performance over an 18-month period
ending on May 31, 2021. The Company is obligated to pay the former owners of Expertence contingent consideration if certain revenue
targets are achieved, up to a maximum of $0.3 million. In determining the fair value of the contingent consideration liability, the
Company used an estimate based on a number of possible projections over the earnout period and applied a probability to each possible
outcome. Given the short duration of the earnout period, the fair value of contingent liability was measured on an undiscounted
basis. The Company remeasures the fair value of the contingent consideration at each reporting period, and any change in fair value
is recognized in the Company’s results of operations in the applicable period. The estimate of the fair value of contingent consideration
requires very subjective assumptions to be made of various potential revenue results. The Company does not expect future revisions
to these assumptions to materially change the estimate of the fair value of contingent consideration and the Company’s future operating
results.
Fair value of consideration transferred (in thousands):
Cash
Estimated initial contingent consideration
Total
Recognized amounts of identifiable assets acquired and liabilities assumed (in thousands):
Cash and cash equivalents
Accounts receivable
Prepaid expenses and other current assets
Intangible assets:
Computer software (24 months useful life)
Total identifiable assets
Accounts payable
Accrued expenses and other current liabilities
Deferred tax liability
Total liabilities assumed
Net identifiable assets acquired
Goodwill
Net assets acquired
39
$
$
$
$
383
305
688
11
215
7
184
417
196
8
59
263
154
534
688
Results of operations of Expertence are included in the Consolidated Statements of Operations from the date of acquisition and
were not material to the Company’s consolidated results of operations. The amount of the acquisition costs incurred as included in
the Consolidated Statements of Operations for the year ended May 30, 2020 was immaterial.
Acquisition of Veracity
On July 31, 2019, the Company acquired Veracity Consulting Group, LLC (“Veracity”), a fast-growing, digital transformation
firm based in Richmond, Virginia, that delivers innovative solutions to the Fortune 500 and leading healthcare organizations. The
acquisition of Veracity is a critical step in accelerating the Company’s stated objective to enhance its digital capabilities and allows the
Company to offer comprehensive end-to-end solutions to its clients by combining Veracity’s customer-facing offerings with the
Company’s depth of experience in transforming the back office. The Company paid an initial cash consideration of $30.3 million (net
of $2.1 million cash acquired). The initial consideration is subject to final adjustments for the impact of the Internal Revenue Code
Section 338(h)(10) joint election between the Company and former owners of Veracity and working capital as defined in the purchase
agreement.
In addition, the purchase agreement requires earn-out payments to be made in cash based on performance after each of the first
and second anniversary of the acquisition date. The Company is obligated to pay the former owners of Veracity contingent
consideration if certain earnings before interest, taxes, depreciation and amortization (“EBITDA”) requirements are achieved. In
determining the fair value of the contingent consideration liability, the Company used the Monte Carlo simulation modeling which
included the application of an appropriate discount rate (Level 3 fair value). The Company remeasures the fair value of the contingent
consideration at each reporting period, and any change in fair value is be recognized in the Company’s results of operations in the
applicable period. The estimate of fair value of contingent consideration requires very subjective assumptions to be made, including
various potential EBITDA results and discount rates. Future revisions to these assumptions could materially change the estimate of the
fair value of contingent consideration and therefore could materially affect the Company’s future operating results.
During the quarter ended August 24, 2019, the Company made an initial provisional allocation of the purchase price for Veracity
based on the fair value of the assets acquired and liabilities assumed, with the residual amount recorded as goodwill, in accordance
with ASC 805, Business Combinations. The Company’s initial purchase price allocation considered a number of factors, including the
valuation of identifiable intangible assets and contingent consideration. During the three months ended November 23, 2019, the
Company adjusted the previously reported provisional allocation of the purchase price to reflect new information obtained during the
quarter, which resulted in changes in expected future performance and cash flows as of the acquisition date. There were no additional
adjustments to the provisional purchase price allocation during the remaining periods in fiscal year ended May 30, 2020.
The following table provides a summary of the adjusted provisional purchase price allocation.
Fair value of consideration transferred (in thousands):
Cash
Estimated initial contingent consideration
Total
Recognized provisional amounts of identifiable assets acquired and liabilities assumed (in thousands):
Cash and cash equivalents
Accounts receivable
Prepaid expenses and other current assets
Intangible assets:
Backlog (17 months useful life)
Customer relationships (7 years useful life)
Trademarks (3 years useful life)
Property and equipment
Total identifiable assets
Accounts payable
Accrued expenses and other current liabilities
Total liabilities assumed
Net identifiable assets acquired
Goodwill
Net assets acquired
40
$
$
$
$
32,314
6,290
38,604
2,056
3,299
116
1,210
9,300
570
117
16,668
305
712
1,017
15,651
22,953
38,604
The remeasured purchase price allocation above may be subject to further adjustments during the measurement period if new
information is obtained about facts and circumstances that existed as of the acquisition date. A final determination of fair value of
assets acquired and liabilities assumed relating to the acquisition could differ from the stated purchase price allocation.
During fiscal 2020, the fair value of the Veracity contingent consideration increased by $1.3 million. Such amounts were
recorded in selling, general and administrative expenses in the Consolidated Statements of Operations. As of May 30, 2020, this
contingent consideration liability was $7.6 million, of which $5.0 million was included in Other current liabilities and $2.6 million was
included in Other long-term liabilities in the Consolidated Balance Sheet.
Results of operations of Veracity are included in the Consolidated Statements of Operations from the date of acquisition.
Veracity contributed $18.8 million to consolidated revenue and $4.1 million to income from operations during fiscal 2020. The
Company incurred $0.6 million in acquisition costs which were recorded in selling, general and administrative expenses in the
Consolidated Statements of Operations during fiscal 2020.
Prior Year Acquisitions
During fiscal 2018, the Company completed two acquisitions. The first acquisition, completed August 31, 2017 (the second
quarter of fiscal 2018), was of taskforce – Management on Demand AG (“taskforce”), a German based professional services firm
founded in 2007, that provided clients with senior interim management and project management expertise. Subsequent to the
acquisition, taskforce continues to operate as a separate brand. The Company paid initial consideration of €5.8 million (approximately
$6.9 million at the date of acquisition) in a combination of cash and restricted stock.
The following table summarizes the consideration for the acquisition of taskforce and the amounts of the identified assets
acquired and liabilities assumed at the acquisition date:
Fair Value of Consideration Transferred (in thousands, except share and per share amounts):
Cash
Working capital adjustment -receivable
Common stock - 226,628 shares @ $11.48 (closing price on acquisition date discounted for restriction on sale)
Estimated initial contingent consideration
Total
$
$
4,384
(123)
2,602
6,514
13,377
Recognized amounts of identifiable assets acquired and liabilities assumed (in thousands):
Cash and cash equivalents
Accounts receivable
Prepaid expenses and other current assets
Intangible assets
Property and equipment
Total identifiable assets
Accounts payable and accrued expenses
Accrued salaries and related obligations
Other current liabilities
Total liabilities assumed
Net identifiable assets acquired
Deferred tax liability
Goodwill
Net assets acquired
$
$
974
1,930
45
5,727
39
8,715
2,116
16
140
2,272
6,443
(1,815)
8,749
13,377
In addition, the purchase agreement for taskforce required additional earn-out payments to be made based on performance in
calendar years 2017, 2018 and 2019. Under accounting rules for business combinations, obligations that are contingently payable to
the sellers based upon the occurrence of one or more future events are recorded as a discounted liability on the Company’s balance
sheet. The Company was obligated to pay the sellers in Euros as follows: for calendar year 2017, Adjusted EBITDA times 6.1 times
20%; and for both calendar years 2018 and 2019, Adjusted EBITDA times 6.1 times 15%; (Adjusted EBITDA is calculated as defined
41
in the purchase agreement). The Company estimated the fair value of the obligation to pay the remaining contingent consideration
based on a number of different projections of the estimated Adjusted EBITDA for the year. Each reporting period, the Company
estimates changes in the fair value of contingent consideration and any change in fair value is recognized in the Company’s
Consolidated Statements of Operations. The estimate of fair value of contingent consideration requires very subjective assumptions to
be made of various potential Adjusted EBITDA results and discount rates. During the year ended May 25, 2019, the Company decreased
the remaining estimated contingent consideration for calendar year 2019 by €523,000 ($590,000) and also recognized accretion expense
on the discounted liability. These amounts are included in SG&A for the respective periods. During the year ended May 30, 2020, the
Company did not have any material adjustment to the contingent consideration liability relating to taskforce. Results of operations of
taskforce are included in the Consolidated Statements of Operations from the date of acquisition.
The payment for calendar year 2017 of €2.1 million (approximately $2.6 million) was made on March 28, 2018. The payment
for calendar year 2018 of €1.6 million (approximately $1.9 million) was made on March 27, 2019. A final contingent consideration
payment of €1.6 million ($1.8 million) was made on March 30, 2020.
The second acquisition occurred December 4, 2017 (the third quarter of fiscal 2018) when the Company acquired substantially
all of the assets and assumed certain liabilities of Accretive Solutions, Inc. (“Accretive”). Accretive was a professional services firm
that provided expertise in accounting and finance, enterprise governance, business technology and business transformation solutions
to a wide variety of organizations in the U.S. and supported startups through its Countsy suite of back office services. The Company
paid consideration of $20.0 million in cash and issued 1,072,000 shares of Resources Connection, Inc. common stock restricted for
sale for four years.
The following table summarizes the consideration paid for Accretive and the amounts of the identified assets acquired and
liabilities assumed at the acquisition date (in thousands, except number of shares and per share amount):
Cash
Common stock - 1,072,474 shares @ $10.96 (closing price on acquisition date discounted for restriction on sale)
Total
$
$
20,047
11,754
31,801
Recognized amounts of identifiable assets acquired and liabilities assumed (in thousands):
Accounts receivable
Prepaid expenses and other current assets
Intangible assets
Property and equipment
Total identifiable assets
Accounts payable and accrued expenses
Accrued salaries and related obligations
Other current liabilities
Total liabilities assumed
Net identifiable assets acquired
Goodwill
Net assets acquired
$
$
11,360
1,084
15,200
979
28,623
3,649
4,562
136
8,347
20,276
11,525
31,801
On October 14, 2019, the Company reached a final settlement on a pre-acquisition claim with the seller of Accretive. As a part
of the settlement, the Company issued 82,762 shares of common stock to the seller and received $0.6 million in cash from the escrow.
The resulting gain of $0.5 million was included in Other income in the Consolidated Statements of Operations for the year ended May
30, 2020.
Dispositions
On September 2, 2019, the Company completed the sale of certain assets and liabilities of its foreign subsidiary, Resources
Global Professionals Sweden AB, to Capacent Holding AB (publ), a Swedish public company, for SEK1,016,862 (approximately
$105,000) in cash, resulting in a loss on sale of assets of approximately $38,000. As a part the sale, the Company transferred the
majority of its local customer contracts, the existing office lease as well as all its employee consultants. As a result of the sale, the
nearby Denmark and Norway markets also discontinued serving local Sweden customer contracts. The Company expects to continue
to serve its global client base and to a lesser extent, its remaining local client contracts, in Sweden and Denmark.
42
In addition, during the fourth quarter of fiscal 2020, the Company discontinued its operations in Belgium, Luxembourg and
Norway. All three legal entities were dissolved as of the end of fiscal 2020. In connection with the foregoing sale of assets and exit
activities, the Company incurred costs of approximately $0.7 million primarily related to employee termination benefits. Such expenses
were included in selling, general and administrative expenses in the Consolidated Statements of Operations for the year ended May 30,
2020. None of the markets sold or exited are considered strategic components of the Company’s operations.
In connection with exiting the above-mentioned entities, the Company analyzed the facts and circumstances regarding its
historical and current investments, along with its associated accounting and tax positions. Based on the analysis, the Company recorded
a tax benefit related to the worthless stock loss in the investment in its wholly owned subsidiaries as well as worthless loans to these
subsidiaries. See Note 8 – Income taxes.
4. Intangible Assets and Goodwill
The following table presents details of the Company’s intangible assets, estimated lives and related accumulated amortization
(in thousands):
Customer contracts and
relationships (3-8 years)
Tradenames (3-10 years)
Backlog (17 months)
Consultant list (3 years)
Non-compete agreements (3 years)
Computer software (2 years)
$
Total
$
As of May 30, 2020
Accumulated
Amortization
Gross
Net
Gross
As of May 25, 2019
Accumulated
Amortization
23,779 $
4,960
1,210
776
888
185
31,798 $
(6,707) $
(2,735)
(694)
(718)
(821)
(46)
(11,721) $
17,072
2,225
516
58
67
139
20,077
$
$
14,495 $
4,407
-
783
896
-
20,581 $
(3,439) $
(1,563)
-
(462)
(528)
-
(5,992) $
Net
11,056
2,844
-
321
368
-
14,589
The weighted-average useful lives of the customer contracts and relationships, tradenames and backlog are approximately 7.2
years, 5.7 years, and 1.4 years, respectively. The weighted-average useful life of all of the Company’s intangible assets is 6.5 years.
The following table summarizes amortization expense for the years stated (in thousands):
May 30,
2020
For the Years Ended
May 25,
2019
May 26,
2018
Amortization expense
$
5,745
$
3,799
$
2,298
The following table presents future estimated amortization expense based on existing intangible assets (in thousands):
Expected amortization expense
$
4,602 $
3,336 $
3,138 $
3,101 $
2021
2022
Fiscal Years
2023
2024
2025
3,101
43
The following table summarizes the activity in the Company’s goodwill balance (in thousands):
Goodwill, beginning of year
Acquisitions (see Note 3)
Impact of foreign currency exchange rate changes
Goodwill, end of period
5. Property and Equipment
Property and equipment consist of the following (in thousands):
Building and land
Computers, equipment and software
Leasehold improvements
Furniture
Less accumulated depreciation and amortization
6. Leases
For the Years Ended
May 30,
2020
May 25,
2019
190,815
23,487
(235)
214,067
$
$
191,950
-
(1,135)
190,815
As of
May 30, 2020
As of
May 25, 2019
14,244
18,102
19,903
10,256
62,505
(38,861)
23,644
$
$
14,227
20,042
22,074
11,260
67,603
(40,971)
26,632
$
$
$
$
The Company currently leases office space, vehicles and certain equipment under operating leases expiring through 2028. At
May 30, 2020, the Company had no finance leases. The Company’s operating leases are primarily for real estates, which include fixed
payments plus, in some cases, scheduled base rent increases over the term of the lease. Certain leases require variable payments of
common area maintenance, operating expenses and real estate taxes applicable to the property. Variable payments are excluded from
the measurements of lease liabilities and are expensed as incurred. Any tenant improvement allowances received from the lessor are
recorded as a reduction to rent expense over the term of the lease. None of the Company’s lease agreements contained residual value
guarantees or material restrictive covenants. The Company has not entered into any real estate lease arrangements where it occupies
the entire building. As such, the Company does not have any separate land lease components embedded within any of its real estate
leases.
The Company determines if an arrangement is a lease at the inception of the contract. Specially, the Company considers
whether it can control the underlying asset and have the right to obtain substantially all of the economic benefits or outputs from the
assets. The ROU assets represent the right to use the underlying assets for the lease term and the lease liabilities represent the
Company’s obligation to make lease payments arising from the leases. The Company’s lease liability is recognized as of the lease
commencement date at the present value of the lease payments over the lease term. The Company’s ROU asset is recognized as of the
lease commencement date at the amount of the corresponding lease liability, adjusted for prepaid lease payments, lease incentives
received, and initial direct costs incurred. The Company evaluates its ROU assets for impairment consistent with its impairment of
long-lived assets policy. See Note 2 – Summary of Significant Accounting Policies. ROU assets are presented as operating right-of-use
assets in the Company’s Consolidated Balance Sheet as of May 30, 2020. Operating lease liabilities are presented as operating lease
liabilities, current or operating lease liabilities, noncurrent in the Company’s Consolidated Balance Sheet based on their contractual
due dates. Operating lease expense is recognized on a straight-line basis over the lease term, and is recognized in selling, general and
administrative expenses in the Company’s Consolidated Statements of Operations.
Most of the Company’s leases do not provide an implicit rate that can be readily determined. Therefore, the Company uses a
discount rate based on its incremental borrowing rate and the information available at the commencement date. The incremental
borrowing rate is the rate of interest that the Company would have to pay to borrow on a fully collateralized basis over a similar term
in an amount equal to the total lease payments in a similar economic environment. The Company has a centrally managed treasury
function; therefore, the portfolio approach is applied in determining the incremental borrowing rate. Application at the portfolio level
is not materially different from applying guidance at the individual lease level.
44
Certain of the Company’s leases include one or more options to renew or terminate the lease at the Company’s discretion.
Generally, the renewal and termination options are not included in the ROU assets and lease liabilities as they are not reasonably certain
of exercise. The Company regularly evaluates lease renewal and termination options and, when they are reasonably certain of exercise,
includes the renewal or termination option in the lease term.
In some instances, the Company subleases excess office space to third party tenants. The Company, as sublessor, continues
to account for the head lease under the provisions of the adopted lease accounting standard described in Note 2 – Summary of Significant
Accounting Policies. If the lease cost for the term of the sublease exceeds the Company’s anticipated sublease income for the same
period, this indicates that the right-of-use asset associated with the head lease should be assessed for impairment under the long-lived
asset impairment provisions. Sublease income is included in selling, general and administrative expenses in the Company’s
Consolidated Statements of Operations.
The Company has elected the practical expedient that allows lessees to choose to not separate lease and non-lease components
by class of underlying asset and is applying this expedient to all real estate asset classes. Additionally, the Company has also made an
accounting policy election to recognize the lease payments under short-term leases as an expense on a straight-line basis over the lease
term without recognizing the lease liability and the ROU asset.
Lease cost components are included within selling, general and administrative expenses in the Consolidated Statements of
Operations were as follows (in thousands):
Operating lease cost
Short-term lease cost
Variable lease cost
Sublease income
Total lease cost
For the Year Ended
May 30, 2020
$
$
12,308
345
2,808
(610)
14,851
The weighted average lease terms and discount rates for operating leases at May 30, 2020 are presented in the following table:
Weighted average remaining lease term
Weighted average discount rate
As of
May 30, 2020
4.3 years
4.09%
Cash flow and other information related to operating leases is included in the following table for the year ended May 30, 2020
(in thousands):
Cash paid for amounts included in the measurement of operating lease liabilities
ROU assets obtained in exchange for new operating lease obligations
For the Year Ended
May 30, 2020
$
$
13,311
3,452
Future maturities of operating lease liabilities at May 30, 2020 are presented in the following table (in thousands):
Years Ending:
May 29, 2021
May 28, 2022
May 27, 2023
May 25, 2024
May 31, 2025
Thereafter
Total minimum payments
Operating Lease Maturity
$
$
12,610
10,942
8,584
7,046
3,412
3,168
45,762
45
Less: interest
Present value of operating lease liabilities
$
(3,867)
41,895
The Company leases approximately 13,000 square feet of the approximately 57,000 square feet of a Company owned building
located in Irvine, California to independent third parties and has operating lease agreements for sub-let space with independent third
parties expiring through fiscal 2025. Rental income received for the years ended May 30, 2020, May 25, 2019 and May 26, 2018 totaled
$210,000, $240,000 and $305,000, respectively. Under the terms of these operating lease agreements, rental income from such third-
party leases is expected to be $204,000, $219,000, $225,000, $232,000 and $78,000 in fiscal 2021 through 2025, respectively.
7. Long-Term Debt
In October 2016, the Company entered into the $120.0 million Facility with Bank of America, consisting of (i) a $90.0 million
revolving loan facility (“Revolving Loan”), which includes a $5.0 million sublimit for the issuance of standby letters of credit, and (ii)
a $30.0 million reducing revolving loan facility (“Reducing Revolving Loan”), any amounts of which may not be reborrowed after
being repaid. The Facility is available for working capital and general corporate purposes, including potential acquisitions and stock
repurchases. The Company’s obligations under the Facility are guaranteed by all of the Company’s domestic subsidiaries and secured
by essentially all assets of the Company, Resources Connection LLC and their respective domestic subsidiaries, subject to certain
customary exclusions. Borrowings under the Facility bear interest at a rate per annum of either, at the Company’s option, (i) a London
Interbank Offered Rate (“LIBOR”) defined in the Facility plus a margin of 1.25% or 1.50% or (ii) an alternate base rate, plus a margin
a of 0.25% or 0.50% with the applicable margin depending on the Company’s consolidated leverage ratio. The alternate base rate is
the highest of (i) Bank of America’s prime rate, (ii) the federal funds rate plus 0.50% and (iii) the Eurodollar rate plus 1.0%. The
Company pays an unused commitment fee on the average daily unused portion of the Facility at a rate of 0.15% to 0.25% depending
upon on the Company’s consolidated leverage ratio. The Facility expires on October 17, 2021.
The Facility contains both affirmative and negative covenants. Covenants include, but are not limited to, limitations on the
Company’s and its subsidiaries’ ability to incur liens, incur additional indebtedness, make certain restricted payments, merge or
consolidate and make dispositions of assets. In addition, the Facility requires the Company to comply with financial covenants limiting
the Company’s total funded debt, minimum interest coverage ratio and maximum leverage ratio. The Company was compliant with all
financial covenants under the Facility as of May 30, 2020.
Upon the occurrence of an event of default under the Facility, the lender may cease making loans, terminate the Facility and
declare all amounts outstanding to be immediately due and payable. The Facility specifies a number of events of default (some of
which are subject to applicable grace or cure periods), including, among other things, non-payment defaults, covenant defaults, cross-
defaults to other material indebtedness, bankruptcy and insolvency defaults and material judgment defaults.
The Company’s borrowings under the Facility were $88.0 million and $43.0 million as of May 30, 2020 and May 25, 2019,
respectively. In addition, the Company had $1.3 million of outstanding letters of credit issued under the Facility as of both May 30,
2020 and May 25, 2019. There was $0.7 million remaining capacity under the Revolving Loan and $30.0 million remaining capacity
under the Reducing Revolving Loan as of May 30, 2020. As of May 30, 2020, the interest rates on the Company’s borrowings under
the Facility ranged from 2.14% to 2.25%.
46
8. Income Taxes
The following table represents the current and deferred income tax provision for federal, state and foreign income taxes
attributable to operations (in thousands):
Current
Federal
State
Foreign
Deferred
Federal
State
Foreign
May 30,
2020
For the Years Ended
May 25,
2019
May 26,
2018
$
$
3,038
1,302
1,686
6,026
874
245
(202)
917
6,943
$
$
5,068
2,278
2,690
10,036
5,890
619
(46)
6,463
16,499
$
$
10,785
2,829
(392)
13,222
(3,011)
367
(515)
(3,159)
10,063
Income before provision for income taxes is as follows (in thousands):
Domestic
Foreign
May 30,
2020
For the Years Ended
May 25,
2019
May 26,
2018
$
$
36,148
(920)
35,228
$
$
41,828
6,141
47,969
$
$
26,774
2,115
28,889
The provision for income taxes differs from the amount that would result from applying the federal statutory rate as follows:
Statutory tax rate
State taxes, net of federal benefit
Non-U.S. rate adjustments
Stock-based compensation
Long-term net capital gains
Foreign tax credit
Valuation allowance
Global Intangible Low-Taxed Income ("GILTI")
Worthless Stock Deduction
Worthless Debt Deduction
FIN48
Permanent items, primarily meals and entertainment
Deferred tax impact of U.S. federal rate changes
Deferred tax impact of foreign rate changes
Other, net
Effective tax rate
May 30,
2020
21.0 %
3.6
0.9
3.2
-
-
4.1
0.9
(14.8)
(2.6)
1.6
2.0
-
(0.2)
-
19.7 %
For the Years Ended
May 25,
2019
21.0 %
4.9
1.3
2.8
(6.1)
9.3
(2.8)
1.1
-
-
-
1.4
0.1
1.2
0.2
34.4 %
May 26,
2018
29.4 %
7.9
(0.8)
4.5
10.1
(16.5)
(4.3)
-
-
-
-
3.2
(2.8)
3.9
0.2
34.8 %
The impact of state taxes, net of federal benefit, and foreign income taxed at other than U.S. rates fluctuates year over year
due to the changes in the mix of operating income and losses amongst the various states and foreign jurisdictions in which the Company
operates.
47
The components of the net deferred tax asset (liability) consist of the following (in thousands):
Deferred tax assets:
Allowance for doubtful accounts
Accrued compensation
Accrued expenses
Stock options and restricted stock
Foreign tax credit
Net operating losses
State taxes
Gross deferred tax asset
Valuation allowance
Gross deferred tax asset, net of valuation allowance
Deferred tax liabilities:
Property and equipment
Outside basis difference - Sweden investment
Goodwill and intangibles
Net deferred tax liability
As of
May 30,
2020
As of
May 25,
2019
1,158
3,716
2,652
4,870
567
12,018
70
25,051
(11,069)
13,982
(547)
(263)
(17,790)
(4,618)
$
$
1,108
3,347
2,418
5,541
498
14,489
208
27,609
(13,190)
14,419
(77)
-
(17,991)
(3,649)
$
$
The Company had a net income tax receivable of $3.5 million and $1.0 million as of May 30, 2020 and May 25, 2019,
respectively.
The tax benefit associated with the exercise of nonqualified stock options and the disqualifying dispositions by employees of
incentive stock options, restricted stock awards and shares issued under the Company’s ESPP reduced income taxes payable by $0.9
million and $1.8 million for the years ended May 30, 2020 and May 25, 2019, respectively.
The Company has foreign net operating loss carryforwards of $53.2 million and foreign tax credit carryforwards of $0.6
million. The foreign tax credits will expire beginning in fiscal 2023. The following table summarizes the net operating loss expiration
periods.
Expiration Periods
Fiscal Years Ending:
2021
2022
2023
2024
2025
2026-2029
Unlimited
Amount of Net
Operating Losses
(in thousands)
$
$
3,936
154
251
2,312
540
1,917
44,083
53,193
The following table summarizes the activity in our valuation allowance accounts (in thousands):
Years Ended:
May 26, 2018
May 25, 2019
May 30, 2020
Beginning
Balance
Charged to
Operations
Currency
Rate
Changes
Ending
Balance
$
$
$
15,971
15,298
13,190
$
$
$
(1,181)
(1,440)
(1,919)
$
$
$
508
(668)
(202)
$
$
$
15,298
13,190
11,069
48
Realization of the deferred tax assets is dependent upon generating sufficient future taxable income. Management believes
that it is more likely than not that all other remaining deferred tax assets will be realized through future taxable earnings or alternative
tax strategies.
Deferred income taxes have not been provided on the undistributed earnings of approximately $21.1 million from the
Company’s foreign subsidiaries as of May 30, 2020 since these amounts are intended to be indefinitely reinvested in foreign operations.
If the earnings of the Company’s foreign subsidiaries were to be distributed, management estimates that the income tax impact would
be immaterial as a result of the transition tax and federal dividends received deduction for foreign source earnings provided under the
US Tax Cuts and Jobs Act of 2017.
The following table summarizes the activity related to the gross unrecognized tax benefits (in thousands):
Unrecognized tax benefits, beginning of year
Gross decreases-tax positions in prior period
Gross increases-current period tax positions
Unrecognized tax benefits, end of year
For the Years Ended
May 30,
2020
May 25,
2019
$
$
42
(42)
848
848
$
$
42
-
-
42
The Company’s total liability for unrecognized gross tax benefits was $848,000 and $42,000 as of May 30, 2020 and May 25,
2019, respectively; which, if ultimately recognized, would impact the effective tax rate in future periods. The unrecognized tax benefits
are included in long-term liabilities in the Consolidated Balance Sheets. None of the unrecognized tax benefits are short-term liabilities
due to the closing of the statute of limitations.
The Company’s major income tax jurisdiction is the U.S., with federal statutes of limitations remaining open for fiscal 2017
and thereafter. For states within the U.S. in which the Company does significant business, the Company remains subject to examination
for fiscal 2016 and thereafter. Major foreign jurisdictions in Europe remain open for fiscal years ended 2015 and thereafter.
The Company recognizes interest and penalties related to unrecognized tax benefits as a part of its provision for income taxes.
During the fiscal year ended May 30, 2020, the Company did not accrue for any interest and penalties as a component of the liability
for unrecognized tax benefits.
9. Accrued Salaries and Related Obligations
Accrued salaries and related obligations consist of the following (in thousands):
Accrued salaries and related obligations
Accrued bonuses
Accrued vacation
10. Concentrations of Credit Risk
As of
May 30,
2020
As of
May 25,
2019
$
$
14,795
17,897
19,715
52,407
$
$
19,667
20,645
18,316
58,628
The Company currently maintains cash and cash equivalents in commercial paper or money market accounts.
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of trade
receivables. However, concentrations of credit risk are limited due to the large number of customers comprising the Company’s
customer base and their dispersion across different business and geographic areas. The Company monitors its exposure to credit losses
and maintains an allowance for anticipated losses. A significant change in the liquidity or financial position of one or more of the
Company’s customers could result in an increase in the allowance for anticipated losses. No single customer accounted for more than
10% of revenue for the years ended May 30, 2020, May 25, 2019 and May 26, 2018. No single customer accounted for more than 10%
of trade accounts receivable as of May 30, 2020 and May 25, 2019.
49
11. Stockholders’ Equity
The Company has 70,000,000 authorized shares of common stock with a $0.01 par value. At May 30, 2020 and May 25, 2019,
there were 32,144,000 and 31,588,000 shares of common stock outstanding, respectively, all of which provide the holders with voting
rights.
The Company has authorized for issuance 5,000,000 shares of preferred stock with a $0.01 par value per share. The board of
directors has the authority to issue preferred stock in one or more series and to determine the related rights and preferences. No shares
of preferred stock were outstanding as of May 30, 2020 and May 25, 2019.
Stock Repurchase Program
The Company’s board of directors has periodically approved a stock repurchase program authorizing the repurchase, at the
discretion of the Company’s senior executives, of the Company’s common stock for a designated aggregate dollar limit. The current
program was authorized in July 2015 (the “July 2015 program”) and set an aggregate dollar limit not to exceed $150 million.
Repurchases under the program may take place in the open market or in privately negotiated transactions and may be made pursuant
to a Rule 10b5-1 plan. During the years ended May 30, 2020 and May 25, 2019, the Company purchased on the open market
approximately 0.3 million and 1.8 million shares of its common stock, respectively, at an average price of $15.70 and $16.17 per share,
respectively, for approximately $5.0 million and $29.9 million, respectively. As of May 30, 2020, approximately $85.1 million
remained available for future repurchases of the Company’s common stock under the July 2015 program.
Quarterly Dividend
Subject to approval each quarter by its board of directors, the Company pays a regular dividend. On April 15, 2020, the board
of directors declared a regular quarterly dividend of $0.14 per share of the Company’s common stock. The dividend, paid on June 10,
2020, was accrued in the Company’s Consolidated Balance Sheet as of May 30, 2020 for $4.5 million. Continuation of the quarterly
dividend is at the discretion of the board of directors and depends upon the Company’s financial condition, results of operations, capital
requirements, general business condition, contractual restrictions contained in the Company’s current credit agreements and other
agreements, and other factors deemed relevant by the board of directors.
12. Restructuring Activities
On February 27, 2020, the Company’s management and board of directors committed to a global restructuring and business
transformation plan (the “Plan”) centered on strengthening the business for greater agility and resilience in anticipation of
macroeconomic volatility. The Plan consists of two key components: an effort to streamline the management structure and eliminate
non-essential positions to focus on core solution offerings, improve efficiency and enhance the employee experience; and a strategic
rationalization of the Company’s physical geographic footprint and real estate spend to focus investment dollars in high growth core
markets for greater impact.
As part of the Plan, the Company completed a reduction in force (the “RIF”) in early March in North America and Asia Pacific
whereby it eliminated 73 positions. In connection with the RIF, the Company incurred $3.9 million of employee termination costs in
the fourth quarter of fiscal 2020, of which $2.0 million was paid at the end of fiscal 2020. An additional $1.7 million is expected to be
paid in fiscal 2021. The majority of employees impacted by the RIF exited the Company before the end of fiscal 2020, with the
remainder expected to exit in the first half of fiscal 2021. The Company expects to incur and pay an additional $1.4 million of employee
termination costs in fiscal 2021.
The real estate component of the Plan is specifically targeted to shrink the Company’s real estate footprint by 26% globally
through either lease termination or subleasing. The Company exited from a number of leases during the fourth quarter resulting in $1.1
million of non-cash charges relating to lease terminations and other costs associated with exiting the facilities, of which $0.6 million
was related to impairment of operating right-of-use assets and $0.5 million was related to loss on disposal of fixed assets. The Company
currently expects to incur additional restructuring charges in fiscal 2021 as it continues to exit certain real estate leases in accordance
with the Plan. The exact amount and timing will depend on a number of variables, including market conditions. Given the current
macro environment, particularly the current shift away from commercial real estate occupancy, accelerated by the Pandemic,
management believes it could take longer and be more costly to terminate and sublet the Company’s leases, therefore taking longer to
realize the expected savings.
All of the employee termination costs and the facility exit costs associated with the Company’s restructuring initiatives are
recorded in selling, general and administrative expenses in the Company’s Consolidated Statement of Operations for the year ended
May 30, 2020. At May 30, 2020, unpaid employee termination benefits were included in accounts payable and accrued expenses in the
50
Company’s Consolidated Balance Sheet. During the first quarter of fiscal 2021, the Company started the strategic business review in
Europe, and currently expects to substantially complete the review and restructuring in Europe in fiscal 2021.
13. Stock-Based Compensation Plans
General
Executive officers and employees, as well as non-employee directors of the Company and certain consultants and advisors to
the Company, are eligible to participate in the 2014 Plan. The 2014 Plan was approved by stockholders on October 23, 2014 and
replaced and succeeded in its entirety the Resources Connection, Inc. 2004 Performance Incentive Plan and the 1999 Long Term
Incentive Plan (together, the “Prior Stock Plans”). As of May 30, 2020, there were 1,453,000 shares available for award grant purposes
under the 2014 Plan, subject to future increases as described in the 2014 Plan.
Awards under the 2014 Plan may include, but are not limited to, stock options, restricted stock units and restricted stock
grants, including restricted stock units under the Company’s Directors Deferred Compensation Plan. Stock option grants generally vest
in equal annual installments over four years and terminate ten years from the date of grant. Restricted stock award vesting is determined
on an individual grant basis. Awards of restricted stock under the 2014 Plan will be counted against the available share limit as two
and a half shares for every one share actually issued in connection with the award. The Company’s policy is to issue shares from its
authorized shares upon the exercise of stock options.
A summary of the share-based award activity during fiscal 2020 under the 2014 Plan and the Prior Stock Plans follows
(amounts in thousands, except weighted average exercise price):
Share-Based
Awards
Available
for Grant
Number of
Shares
Under
Option
Weighted
Average
Exercise
Price
Weighted Average
Remaining
Contractual Life
(in years)
Aggregate
Intrinsic
Value
Awards outstanding at May 25, 2019
Granted, at fair market value
Restricted stock (1)
Exercised
Forfeited (2)
Expired
Awards outstanding at May 30, 2020
Exercisable at May 30, 2020
Vested and expected to vest at May 30, 2020 (3)
1,595
(1,318)
(71)
-
639
608
1,453
6,029 $
1,318
-
(376)
(608)
(608)
5,755 $
3,392 $
5,566 $
15.95
17.37
-
13.63
17.41
17.90
16.07
15.10
16.00
6.06 $
5,482
6.18 $
4.45 $
6.04 $
-
-
-
(1)
Amounts represent restricted shares granted. Share-based awards available for grant are reduced by 2.5 shares for
each share awarded as stock grants from the 2014 Plan.
(2)
Amounts represent both stock options and restricted share awards forfeited. For stock options, represent one share
for each stock option forfeited. For restricted share awards, represents 2.5 shares for each restricted share award forfeited.
(3)
The expected to vest options are the result of applying the pre-vesting forfeiture rate assumptions to options not yet
vested of 2,391,052 and 2,481,959 as of May 30, 2020 and May 25, 2019, respectively.
The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the Company’s closing
stock price of $10.99 as of May 29, 2020 (the last actual trading day of fiscal 2020), which would have been received by the option
holders had all option holders exercised their options as of that date.
The total pre-tax intrinsic value related to stock options exercised during the years ended May 30, 2020, May 25, 2019 and
May 26, 2018 was $1.2 million, $5.2 million and $1.7 million, respectively. The total estimated fair value of stock options that vested
during the years ended May 30, 2020, May 25, 2019 and May 26, 2018 was $3.5 million, $5.4 million and $5.1 million, respectively.
51
Valuation and Expense Information for Stock Based Compensation Plans
The following table summarizes the impact of the Company’s stock-based compensation plans. Stock-based compensation
expense is included in selling, general and administrative expenses and consists of stock-based compensation expense related to
employee stock options, ESPP stock purchase rights and restricted stock (in thousands, except per share amounts):
Income before income taxes
Net income
Net income per share:
Basic
Diluted
May 30,
2020
For the Years Ended
May 25,
2019
May 26,
2018
$
$
$
$
(6,057)
(5,865)
(0.18)
(0.18)
$
$
$
$
(6,570)
(6,539)
(0.21)
(0.20)
$
$
$
$
(6,033)
(5,697)
(0.19)
(0.18)
Stock-based compensation expense in the table above includes compensation for restricted shares of $1.1 million, $1.7 million
and $1.4 million for the years ended May 30, 2020, May 25, 2019 and May 26, 2018, respectively.
The weighted average estimated fair value per share of employee stock options granted during the years ended May 30, 2020,
May 25, 2019 and May 26, 2018 was $3.88, $4.74 and $3.61, respectively, using the Black-Scholes model with the following
assumptions:
Expected volatility
Risk-free interest rate
Expected dividends
Expected life
May 30, 2020
30.9% - 32.9%
1.5% - 1.8%
3.4% - 3.7%
5.6 - 8.1 years
For the Years Ended
May 25, 2019
31.6% - 34.7%
3.1% - 3.2%
3.2%
5.7 - 8.3 years
May 26, 2018
30.3% - 34.5%
2.1% - 2.4%
3.1%
5.7 - 8.2 years
The following table summarizes the activity for restricted stock during fiscal 2020:
Unvested restricted shares outstanding at May 25, 2019
Granted
Vested
Forfeited
Unvested restricted shares outstanding at May 30, 2020
Total Number of
Shares
158,926
28,372
(84,891)
(12,500)
89,907
As of May 30, 2020, there was $7.6 million of total unrecognized compensation cost related to non-vested employee stock
options granted. That cost is expected to be recognized over a weighted-average period of 1.76 years. At May 30, 2020, there was
approximately $1.9 million of total unrecognized compensation cost related to restricted shares, which is expected to be recognized
over a weighted-average period of 1.70 years.
Employee Stock Purchase Plan
On October 15, 2019, the Company’s stockholders approved the 2019 Employee Stock Purchase Plan (the “2019 ESPP” or
the “ESPP”) which supersedes the 2014 Employee Stock Purchase Plan (the “2014 ESPP” or the “ESPP”). The maximum number of
shares of the Company’s common stock authorized for issuance under the 2019 ESPP is 1,825,000. The remaining 6,000 unissued
shares under the 2014 ESPP are no longer available for issuance.
The Company’s ESPP allows qualified employees (as defined in the ESPP) to purchase designated shares of the Company’s
common stock at a price equal to 85% of the lesser of the fair market value of common stock at the beginning or end of each semi-
annual stock purchase period. The Company issued 400,000, 358,000 and 339,000 shares of common stock pursuant to the ESPP for
the years ended May 30, 2020, May 25, 2019 and May 26, 2018, respectively. There were 1,641,000 shares of common stock available
for issuance under the 2019 ESPP as of May 30, 2020.
52
14. Benefit Plan
The Company has a defined contribution 401(k) plan (“the plan”) which covers all employees in the U.S. who have completed
90 days of service and are age 21 or older. Participants may contribute up to 50% of their annual salary up to the maximum amount
allowed by statute. As defined in the plan agreement, the Company may make matching contributions in such amount, if any, up to a
maximum of 6% of individual employees’ annual compensation. The Company, at its sole discretion, determines the matching
contribution made from quarter to quarter. To receive matching contributions, the employee must be employed on the last business day
of the fiscal quarter. For the years ended May 30, 2020, May 25, 2019 and May 26, 2018, the Company contributed $6.5 million,
$6.4 million and $5.6 million, respectively, to the plan as Company matching contributions.
15. Supplemental Disclosure of Cash Flow Information
Additional information regarding cash flows is as follows (in thousands):
Income taxes paid
Interest paid
Non-cash investing and financing activities:
Capitalized leasehold improvements paid directly by landlord
Acquisition of Veracity:
Liability for contingent consideration
Acquisition of Expertence:
Liability for contingent consideration
Acquisition of taskforce:
Issuance of common stock
Liability for contingent consideration
Acquisition of Accretive:
Issuance of common stock
Dividends declared, not paid
16. Commitments and Contingencies
Legal Proceedings
$
$
$
$
$
$
$
$
$
May 30,
2020
For the Years Ended
May 25,
2019
14,229 $
2,440 $
8,258 $
2,191 $
May 26,
2018
10,601
1,769
137 $
2,312 $
65
7,570 $
328 $
- $
- $
-
-
- $
- $
- $
2,195 $
2,602
4,289
1,141 $
4,512 $
- $
4,105 $
11,754
3,791
The Company is involved in certain legal matters in the ordinary course of business. In the opinion of management, all such
matters, if disposed of unfavorably, would not have a material adverse effect on the Company’s financial position, cash flows or results
of operations.
53
17. Segment Information and Enterprise Reporting
The Company discloses information regarding operations outside of the U.S. The Company operates as one segment. The
accounting policies for the domestic and international operations are the same as those described in Note 2 -- Summary of Significant
Accounting Policies. Summarized information regarding the Company’s domestic and international operations is shown in the
following table. Amounts are stated in thousands:
May 30,
2020
Revenue for the Years Ended
May 25,
2019
May 26,
2018
Long-Lived Assets (1) as of
May 30,
2020
United States
International
Total
$
$
568,725 $
134,628
703,353 $
575,641 $
153,358
728,999 $
510,935 $
143,194
654,129 $
254,649 $
37,426
292,075 $
(1) Long-lived assets are comprised of goodwill, intangible assets, property and equipment, and ROU assets.
May 25,
2019
200,385
31,651
232,036
Evaluation of Disclosure Controls and Procedures
As required by SEC Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the
Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the
Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) as of May 30, 2020. Based on
this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls
and procedures were effective as of May 30, 2020.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Exchange Act Rule 13a-15(f). We maintain internal control over financial reporting designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief
Financial Officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on
the criteria established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. This evaluation included an assessment of the design of the Company’s internal control over financial
reporting and testing of the operational effectiveness of its internal control over financial reporting. Based on this evaluation,
management has concluded that the Company’s internal control over financial reporting was effective as of May 30, 2020.
The Company’s independent registered public accounting firm, RSM US LLP, has audited the effectiveness of the Company’s
internal control over financial reporting as of May 30, 2020, as stated in their report which is included in this Item 9A under the heading
“Report of Independent Registered Public Accounting Firm.”
Changes in Internal Control Over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the fiscal quarter ended May 30,
2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
54
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Resources Connection, Inc.
Opinion on the Internal Control Over Financial Reporting
We have audited Resources Connection, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of May 30,
2020, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of May 30, 2020, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the consolidated balance sheets of the Company as of May 30, 2020 and May 25, 2019, and the related consolidated statements of
operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended May 30, 2020,
and our report dated July 27, 2020, expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company
in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ RSM US LLP
Irvine, California
July 27, 2020
55
Domestic Locations
Phoenix, Arizona
Irvine, California
Los Angeles, California (2)
Mountain View, California
Sacramento, California (2)
Santa Clara, California
San Diego, California
San Francisco, California (2)
Walnut Creek, California
Woodland Hills, California
Denver, Colorado
Stamford, Connecticut
Tampa, Florida
Atlanta, Georgia
Honolulu, Hawaii
Chicago, Illinois
Oakbrook Terrace, Illinois
Indianapolis, Indiana
International Locations
Sydney, Australia
Toronto, Canada
Paris, France
Frankfurt, Germany
Muenster, Germany
Munich, Germany
Bangalore, India
Mumbai, India
Dublin, Ireland
Milan, Italy
Tokyo, Japan
Mexico City, Mexico
Shareholder Information
Corporate Publications
Minneapolis, Minnesota
Kansas City, Missouri
Las Vegas, Nevada
Parsippany, New Jersey
New York, New York
Charlotte, North Carolina
Cleveland, Ohio
Columbus, Ohio
Tulsa, Oklahoma
Portland, Oregon
Cranberry Township, Pennsylvania
Philadelphia, Pennsylvania
Pittsburgh, Pennsylvania
Nashville, Tennessee
Dallas, Texas
San Antonio, Texas
Seattle, Washington
Richmond, Virginia
Amsterdam (Utrecht), Netherlands
Beijing, People’s Republic of China
Hong Kong, People’s Republic of China
Guangzhou, People's Republic of China
Shanghai, People’s Republic of China
Manila, Philippines
Singapore
Seoul, South Korea
Zurich, Switzerland
Taipei, Taiwan
London, United Kingdom
Copies of Resources Connection Inc.’s Annual Report on Form 10-K for the year ended May 30, 2020 (excluding
exhibits thereto), as well as historical Resources Connection, Inc. quarterly reports on Form 10-Q and other Securities
and Exchange Commission filings (excluding exhibits thereto) are available without charge upon request to the
Investor Relations Department, Resources Connection Inc., 17101 Armstrong Avenue, Irvine, CA 92614, or from the
Company’s Investor Relations website at http://ir.rgp/com.
Forward-Looking Statements
Please refer to the section entitled “Caution Concerning Forward-Looking Statements” included in this Annual
Report.
Transfer Agent
Independent Registered Public Accounting Firm
American Stock Transfer & Trust Company
800-937-5449
Address: 6201 15th Avenue
Brooklyn, NY 11219
RSM US, LLP
Irvine, CA
Resources Connection, Inc. Board of Directors
Donald B. Murray
Chairman
Resources Connection, Inc.
Anthony Cherbak
Retired Chief Executive Officer
Resources Connection, Inc.
Retired Partner
Deloitte & Touche LLP
Susan J. Crawford
Senior Judge
United States Court of Appeals for the Armed Forces
Neil Dimick
Retired Chief Financial Officer
AmerisourceBergen Corporation
Retired Partner
Deloitte & Touche LLP
Kate W. Duchene
Chief Executive Officer
Resources Connection, Inc.
Robert Kistinger
Executive Advisor and Former Chief Operating Officer
Bonita Banana Company
Former President and Chief Operating Officer
The Fresh Group of Chiquita Brands International, Inc.
Senior Corporate Executives
Kate W. Duchene
President and Chief Executive Officer
Timothy Brackney
President and Chief Operating Officer
Jennifer Ryu
Chief Financial Officer
Marco von Maltzan
Business Consultant and Independent Director
Former Chief Executive and Chief Financial Officer
BERU AG, Germany
A. Robert Pisano
Business Consultant
Former President and Chief Operating Officer
Motion Picture Association of America
Jolene Sykes Sarkis
Former Executive Vice President
CFS Restaurant Group, Inc.
Former Publisher and President
Fortune Magazine Group
Anne Shih
Chairwoman
Board of Governors of Bowers Museum
Honorary President
Chinese Cultural Arts Association
Michael H. Wargotz
Co-Founder & Executive
Residence at Axcess Worldwide
Former Chief Financial Officer
The Milestone Aviation Group
Anthony Gutierrez
Senior Vice President, Head of Asia Pacific
Dan Hindman
Senior Vice President, Head of Europe
Robert Castle
Interim Chief Information Officer, Corporate Operations
Katy Conway
Senior Vice President, Chief People Officer
Thomas Schember
Executive Vice President, Global Client Services
Corporate Headquarters
714-430-6400
17101 Armstrong Avenue
Irvine, CA 92614
Investor Relations
714-430-6313
http://ir.rgp.com