Company Quick10K Filing
Quick10K
Resources Connection
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$16.21 32 $519
10-K 2019-05-25 Annual: 2019-05-25
10-Q 2019-02-23 Quarter: 2019-02-23
10-Q 2018-11-24 Quarter: 2018-11-24
10-Q 2018-08-25 Quarter: 2018-08-25
10-K 2018-05-26 Annual: 2018-05-26
10-Q 2018-02-24 Quarter: 2018-02-24
10-Q 2017-11-25 Quarter: 2017-11-25
10-Q 2017-08-26 Quarter: 2017-08-26
10-K 2017-05-27 Annual: 2017-05-27
10-Q 2017-02-25 Quarter: 2017-02-25
10-Q 2016-11-26 Quarter: 2016-11-26
10-Q 2016-08-27 Quarter: 2016-08-27
10-K 2016-05-28 Annual: 2016-05-28
10-Q 2016-02-27 Quarter: 2016-02-27
10-Q 2015-11-28 Quarter: 2015-11-28
10-Q 2015-08-29 Quarter: 2015-08-29
10-K 2015-05-30 Annual: 2015-05-30
10-Q 2015-02-28 Quarter: 2015-02-28
10-Q 2014-11-29 Quarter: 2014-11-29
10-Q 2014-08-30 Quarter: 2014-08-30
10-K 2014-05-31 Annual: 2014-05-31
10-Q 2014-02-22 Quarter: 2014-02-22
10-Q 2013-11-23 Quarter: 2013-11-23
8-K 2019-08-05 Officers, Exhibits
8-K 2019-07-26 Other Events, Exhibits
8-K 2019-07-18 Earnings, Exhibits
8-K 2019-04-22 Other Events, Exhibits
8-K 2019-04-03 Earnings, Officers, Exhibits
8-K 2019-01-17 Other Events, Exhibits
8-K 2019-01-03 Earnings, Officers, Exhibits
8-K 2018-11-14 Other Events
8-K 2018-10-16 Shareholder Vote, Other Events, Exhibits
8-K 2018-10-03 Exhibits
8-K 2018-07-31 Other Events, Exhibits
8-K 2018-07-18
8-K 2018-07-07 Officers, Regulation FD, Exhibits
8-K 2018-04-25 Other Events, Exhibits
8-K 2018-04-04 Earnings
8-K 2018-02-14 Officers, Exhibits
8-K 2018-01-18 Officers, Regulation FD, Other Events, Exhibits
8-K 2018-01-03 Earnings, Exhibits
EIX Edison 19,500
VIV Telefonica Brasil 19,390
TSU TIM Participacoes 6,680
VC Visteon 1,740
AC Associated Capital Group 898
AWSM Cool Holdings 19
PAYD Paid 0
FSNN Fusion Connect 0
FDMG Frontier Digital Media Group 0
PETV Petvivo Holdings 0
RECN 2019-05-25
Part I
Item 1. Business.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Mine Safety Disclosures.
Part II
Item 5. Market for Registrant’S Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Item 6. Selected Financial Data.
Item 7. Management’S Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
Part III
Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14. Principal Accounting Fees and Services.
Part IV
Item 15. Exhibits, Financial Statement Schedules.
Item 16. Form 10-K Summary.
EX-4.2 recn-20190525xex4_2.htm
EX-10.24 recn-20190525xex10_24.htm
EX-21.1 recn-20190525xex21_1.htm
EX-23.1 recn-20190525xex23_1.htm
EX-31.1 recn-20190525xex31_1.htm
EX-31.2 recn-20190525xex31_2.htm
EX-32.1 recn-20190525xex32_1.htm
EX-32.2 recn-20190525xex32_2.htm

Resources Connection Earnings 2019-05-25

RECN 10K Annual Report

Balance SheetIncome StatementCash Flow

10-K 1 recn-20190525x10k.htm 10-K recn-20190525 10K_Taxonomy2018



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

________________________

Form 10-K

(Mark One)





 

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the fiscal year ended May 25, 2019



OR

 



 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from                     to                     



Commission File Number: 0-32113

________________________

 

RESOURCES CONNECTION, INC.

(Exact Name of Registrant as Specified in Its Charter)

________________________





 

 



 

 

Delaware

 

33-0832424

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)



17101 Armstrong Avenue, Irvine, California 92614

(Address of principal executive offices) (Zip Code)



Registrant’s telephone number, including area code: (714) 430-6400

 

Securities registered pursuant to Section 12(b) of the Act:

 



 

 



 

 

Title of Each Class

Trading Symbol(s)

Name of Exchange on Which Registered

Common Stock, par value $0.01 per share

RECN

The Nasdaq Stock Market LLC (Nasdaq Global Select Market)



Securities registered pursuant to Section 12(g) of the Act:



None (Title of Class)

________________________



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes       No  

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes       No  

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”  “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:





 

 

 

 

 

 

Large accelerated filer  

  

 

  

 

  

Accelerated filer  

Non-accelerated filer  

  

 

  

 

 

Smaller reporting company  

Emerging growth company  

 

 

 

 

 

 



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes       No  

 

As of November 23, 2018 (the last business day of the registrant’s most recently completed second fiscal quarter), the approximate aggregate market value of common stock held by non-affiliates of the registrant was $483,816,000  (based upon the closing price for shares of the registrant’s common stock as reported by The Nasdaq Global Select Market). As of July 8, 2019, there were approximately 31,847,394 shares of common stock, $.01 par value, outstanding.



________________________



DOCUMENTS INCORPORATED BY REFERENCE



The registrant’s definitive proxy statement for the 2019 Annual Meeting of Stockholders is incorporated by reference in Part III of this Form 10-K to the extent stated herein. 

 


 



RESOURCES CONNECTION, INC.



TABLE OF CONTENTS





 

 



 

Page

No.



 

 



PART I

 



 

 

ITEM 1.

BUSINESS

3



 

 

ITEM 1A.

RISK FACTORS

8



 

 

ITEM 1B.

UNRESOLVED STAFF COMMENTS

14



 

 

ITEM 2.

PROPERTIES

14



 

 

ITEM 3.

LEGAL PROCEEDINGS

14



 

 

ITEM 4.

MINE SAFETY DISCLOSURES

14



 

 



PART II

 



 

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

15



 

 

ITEM 6.

SELECTED FINANCIAL DATA

17



 

 

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

17



 

 

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

27



 

 

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

29



 

 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

53



 

 

ITEM 9A.

CONTROLS AND PROCEDURES

53



 

 

ITEM 9B.

OTHER INFORMATION

55



 

 



PART III

 



 

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

55



 

 

ITEM 11.

EXECUTIVE COMPENSATION

55



 

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

55



 

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

56



 

 

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

56



 

 



PART IV

 



 

 

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

57



 

 

ITEM 16.

FORM 10-K SUMMARY

59



 

 



SIGNATURES

60

 

1

 


 



In this Annual Report on Form 10-K, “Resources,” “Resources Connection,” “Resources Global Professionals,” “RGP,” “Resources Global,” “Company,” “we,” “us” and “our” refer to the business of Resources Connection, Inc. and its subsidiaries. References in this Annual Report on Form 10-K to “fiscal,” “year” or “fiscal year” refer to our fiscal year that consists of the 52- or 53-week period ending on the Saturday in May closest to May 31. The fiscal years ended May 25, 2019,  May 26, 2018 and May 27, 2017 consisted of 52 weeks.



FORWARD LOOKING STATEMENTS



This Annual Report on Form 10-K, 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. Such forward-looking statements may be identified by words such as “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. You are urged to review carefully the disclosures we make concerning risks, uncertainties and other factors that may affect our business or operating results, including those identified in Item 1A of this Annual Report on Form 10-K, as well as our other reports filed with the Securities and Exchange Commission (“SEC”). 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.

 

 

 

2

 


 



PART I

 

ITEM 1.    BUSINESS.



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 Business Transformation, Governance, Risk and Compliance and Technology and Digital Innovation. 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 created by workforce gaps. Our first-to-market, agile human capital model disrupted the professional services industry at a time when traditional talent models prevailed. Today’s new ecosystem for work embraces our founding principle – quickly align the right resources for the work at hand with a premium placed on value, efficiency and ease of use.



Our pioneering approach to workforce strategy uniquely positions us to support our clients on their transformation journeys. With more than 3,800 professionals, we annually engage with over 2,400 clients around the world from more than 70 practice offices. We are their partner in delivering on the future of work. Headquartered in Irvine, California, RGP is proud to have served 86 of the Fortune 100.



Industry Background



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 plan for their workforce needs in more flexible ways. We believe the growing trend in the future of work will be project-based and not role based. Permanent headcount is being reduced as clients purposely engage agile talent for project initiatives and transformation work.



While the market for professional services is broad and fragmented and independent data on the size of the market is not readily available, we believe companies may be more willing to choose alternatives to permanent headcount and traditional professional service providers because of evolving economic competitive pressure and continuing compliance with increases in government-led regulatory requirements. We believe RGP is positioned as a viable alternative to traditional accounting, consulting and law firms in numerous instances because, by using project consultants, companies can:

 

· Strategically access specialized skills, expertise for projects of set duration

· Move quickly

· Blend independent and fresh points of view

· Effectively supplement internal resources

· Increase labor flexibility

· Reduce their overall hiring, training and termination costs



Typically, companies use a variety of alternatives to fill their project needs. Companies 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. Companies also supplement their internal resources with employees from the Big Four accounting firms or other traditional professional services firms. Companies 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, some companies rely solely on their own employees who may lack the requisite time, experience or skills.

 

Supply of Project Consultants



Based on discussions with our consultants, we believe the number of professionals seeking to work on an agile basis has historically increased due to a desire for:

 

· More flexible hours and work arrangements, coupled with a professional culture that offers competitive wages and benefits

· The ability to learn and contribute in different environments

3

 


 

· 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



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, 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.



Resources Global Professionals’ Solution



We believe RGP is positioned to capitalize on the confluence of the industry trends described above. We believe, based on discussions with our clients, that RGP provides the agility companies desire in today’s competitive and quickly evolving environment. We are able to combine all of the following:

 

· A relationship-oriented and collaborative approach with our clients

· A professional dedicated talent acquisition and management team who excel at developing a project-based workforce

· Client service teams with Big Four, consulting and/or industry backgrounds to assess our clients’ project needs and customize solutions to meet those needs

· Highly qualified 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



Resources Global Professionals’ Strategy



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:





 

Business strategy and transformation

     Program and project management

     Change management

     Transaction advisory

     Executive search

     Human resources

     Supply chain

     Legal

Finance and accounting

     Lease accounting

     Revenue recognition

     Financial operations

     Equity administration and accounting

     Tax

 

 

Risk and compliance

     Information security and privacy

     Internal audit and compliance

     Operational risk management

 

 

Technology and digital.

     Business technology

     Data analytics

     Robotics process automation

Our objective is to build RGP’s reputation as the premier provider of agile consulting services for companies facing transformation, change and compliance challenges. We have developed the following business strategies to achieve our objectives:

 

· 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 solving 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, while offering flexible work schedules and more control over choosing client engagements.

· 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, virtually all of whom are Big Four, management consulting and/or Fortune 500 alumni, has created a culture that combines the commitment to quality and the client service focus of a Big Four firm with

4

 


 

the entrepreneurial energy of an innovative, high-growth company. Our culture continues to evolve to meet the new challenges facing consultants, clients and management and so our original acronym “TIEL” (talent, integrity, enthusiasm and loyalty), representing the traits expected of our people, has evolved.  In today’s marketplace, we believe that focus and accountability are key traits that help to strengthen our team and support our ability to provide clients with high-quality services and solutions. Thus, our culture has evolved to “LIFE AT RGP”, representing Loyalty, Integrity, Focus, Enthusiasm, Accountability and Talent. We believe our culture has created a circle of quality; our culture is instrumental to our success in hiring and retaining highly qualified employees who, in turn, attract quality clients.

· 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 office, perspective. We regularly meet with our existing and prospective clients to understand their business issues and help them define their project needs. Once our revenue team helps define the client’s project needs, our talent team 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 two key statistics: 1) during fiscal 2019, 46 of our 50 largest clients in terms of revenue engaged our consultants in more than one practice area and 40 of those largest 50 clients used three or more practice areas; and 2) 44 of our largest 50 clients in fiscal 2013 remained clients in fiscal 2019 while 38 of our largest 50 clients in 2008 were still clients in 2019.

· Build the RGP brand.  Our objective is to build RGP’s reputation as the premier provider of agile consulting services 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 is by consistently providing high-quality, value-added services to our clients. We have also focused on building a significant referral network through our 2,965 consultants and 931 management and administrative employees working from offices in 20 countries as of May 25, 2019. In addition, we have global, regional and local marketing efforts that reinforce the RGP brand.



Our Growth Strategy



Since inception, our growth has been primarily organic rather than via acquisition. We believe we have significant opportunity for continued organic growth in our core business and also to grow opportunistically through strategic acquisitions as the global economy strengthens and economic uncertainties decrease. In both our core and acquired businesses, key elements of our growth strategy include:

 

· Expanding work from existing clients.  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 receive from many of our clients represents a relatively small percentage of the amount they spend on professional services, and, consistent with historic industry trends, they may continue to increase the amount they spend on these services as the global economy 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’ expenditures for professional services. 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 opportunity to develop in-depth knowledge of these clients’ needs and the ability to increase the scope and size of projects with those clients.

· Growing our client base.  We will 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 name 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.

· Expanding geographically.  We have expanded geographically to meet the demand for agile professional services around the world and currently have offices in 20 countries. We believe, based upon our clients’ requests, there are future opportunities to promote growth globally. Consequently, we intend to continue to expand our international presence on a strategic and opportunistic basis. We may also add to our existing domestic office network when our existing clients have a need or if there is a significant new client opportunity.

· Strategic acquisitions.  Since fiscal 2009, we grew organically, as we had not identified a target acquisition that fit one of our primary acquisition goals: either addressing an identified gap in our geographic presence or in our solution offerings. In fiscal 2018, we identified and 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.

5

 


 

· Providing additional professional service offerings.  We will 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 human capital; information management; governance, risk and compliance; supply chain management; legal and regulatory services; and corporate advisory, strategic communications and restructuring services. In fiscal 2017, we formed our Integrated Solutions group to identify project opportunities that we can market at an enterprise level with talent, tools and methodologies. This group commercializes projects into solution offerings. Currently, our solutions practice is focused on business technology, data analytics and robotic process automation. 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.



Consultants



We believe an important component of our success has been our highly qualified and experienced consultants. As of May 25, 2019, we employed or contracted 2,965 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 the Company’s Employee Stock Purchase Plan (“ESPP”), which enables them to purchase shares of the Company’s 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. 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 utilize the partial “bench model” described above.



Clients



We provide our services and solutions to a diverse client base in a broad range of industries. In fiscal 2019, we served over 2,400 clients from offices located in 20 countries. Our revenues are not concentrated with any particular client. No single customer accounted for more than 10% of revenue for the 2019, 2018 an 2017 fiscal years, and in fiscal 2019, our 10 largest clients accounted for approximately 15% of our revenues. 



Operations



We generally provide our professional services to clients at a local level, with the oversight of our market vice presidents and consultation of our corporate management team. The vice presidents 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. Throughout this process, the corporate management team and regional vice presidents are available to consult with the vice presidents with respect to client services. 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 revenue 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 or 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. Talent focuses 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 that our offices most often compete with other professional services providers on a local or regional basis. As the marketplace for professional services has evolved, we continue to believe our local market leaders are in the best position to understand the local and regional outsourced professional services market. However, 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, is important for employee and client satisfaction. 

6

 


 



For projects requiring intimate knowledge and thought leadership on particular client concerns, our integrated solutions group consists of individuals with requisite skills 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, often working jointly on client projects. To build a sense of team effort 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 potential reward tied to the 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 spend time in other markets, partnering with experienced sales and recruiting personnel 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 the culture of the Company 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, HR, 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 focused on client and consultant development.



Business Development



Our business development initiatives are composed of:



· 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 serve as a tool to enhance our local and worldwide business development efforts.



We believe our national marketing efforts have been effective in generating incremental revenues from existing clients and developing new client relationships. Our brand marketing initiatives help develop RGP’s image 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:

 

· consulting firms

· local, regional, national and international accounting and other traditional professional services firms

· independent contractors

· traditional and Internet-based staffing firms

7

 


 

· the in-house or former in-house resources of our clients



We compete for clients on the basis of the quality of professionals, the knowledge base they possess, the timely availability of professionals with requisite skills, 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 differentiate ourselves from our competitors. Although we believe we compete favorably with our competitors, many of our competitors have significantly greater financial resources, generate greater revenues and have greater name recognition than we do.



Employees



As of May 25, 2019, we had 3,896 employees, including 931 management and administrative employees and 2,965 consultants. Our employees are not covered by any collective bargaining agreements.



Available Information



The Company’s principal executive offices are located at 17101 Armstrong Avenue, Irvine, California 92614. The Company’s telephone number is (714) 430-6400 and its website address is http://www.rgp.com. The information set forth in the website does not constitute part of this Annual Report on Form 10-K. We file our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 with the SEC electronically. These reports are maintained on the SEC’s website at http://www.sec.gov.



A free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K and amendments to those reports may also be obtained on our website at http://www.rgp.com as soon as reasonably practicable after we file such reports with the SEC.

 

ITEM 1A.    RISK FACTORS.



You should carefully consider the risks described below before making a decision to buy shares of our common stock. The order of the risks is not an indication of their relative weight or importance. The risks and uncertainties described below are not the only ones facing us but do represent those risks and uncertainties we believe are material to us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also adversely impact and impair our business. If any of the following risks actually occur, our business could be harmed. In that case, the trading price of our common stock could decline, and you might lose all or part of your investment. When determining whether to buy our common stock, you should also refer to the other information in this Annual Report on Form 10-K, including our financial statements and the related notes.



A future economic downturn or change in the use of outsourced professional services consultants could adversely affect our business.



While we believe general economic conditions continue to improve in most parts of the world, there is some uncertainty regarding general economic conditions within some regions and countries in which we operate, leading to reluctance on the part of some multinational companies to spend on discretionary projects. Deterioration of or increased uncertainty related to the global economy or tightening credit markets could result in a reduction in the demand for our services and adversely affect our business in the future. In addition, the use of professional services consultants on a project-by-project basis could decline for non-economic reasons. In the event of a reduction in the demand for our consultants, our financial results would suffer.



Economic deterioration at one or more of our clients may also affect our allowance for doubtful accounts. Our estimate of losses resulting from our clients’ failure to make required payments for services rendered has historically been within our expectations and the provisions established. However, 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 cash flows and additional allowances may be required. These additional allowances could materially affect the Company’s future financial results.



In addition, we are required to periodically, but at least annually, assess the recoverability of certain assets, including deferred tax assets and goodwill. Softening of the United States economy and international economies could adversely affect our evaluation of the recoverability of deferred tax assets, requiring us to record additional tax valuation allowances. Our assessment of impairment of goodwill is currently based upon comparing our market capitalization to our net book value. Therefore, a significant downturn in the future market value of our stock could potentially result in impairment reductions of goodwill and such an adjustment could materially affect the Company’s future financial results and financial condition.



8

 


 

The market for professional services is highly competitive, and if we are unable to compete effectively against our competitors, our business and operating results could be adversely affected.



We operate in a competitive, fragmented market, and we compete for clients and consultants with a variety of organizations that offer similar services. The competition is likely to increase in the future due to the expected growth of the market and the relatively few barriers to entry. Our principal competitors include:



· 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 cannot assure you we will be able to compete effectively against existing or future competitors. Many of our competitors have significantly greater financial resources, greater revenues and greater name recognition, which may afford them an advantage in attracting and retaining clients and consultants and in offering pricing concessions. Some of our competitors in certain markets do not provide medical and other benefits to their consultants, thereby allowing them to potentially charge lower rates to clients. In addition, our competitors may be able to respond more quickly to changes in companies’ needs and developments in the professional services industry.



Our business depends upon our ability to secure new projects from clients and, therefore, we could be adversely affected if we fail to do so.



We do not have long-term agreements with our clients for the provision of services and our clients may terminate engagements with us at any time. The success of our business is dependent on our ability to secure new projects from clients. For example, if we are unable to secure new client projects because of improvements in our competitors’ service offerings, or because of a change in government regulatory requirements, or because of an economic downturn decreasing the demand for outsourced professional services, our business is likely to be materially adversely affected. New impediments to our ability to secure projects from clients may develop over time, such as the increasing use by large clients of in-house procurement groups that manage their relationship with service providers.



We may be legally liable for damages resulting from the performance of projects by our consultants or for our clients’ mistreatment of our personnel.



Many of our engagements with our clients involve projects or services critical to our clients’ businesses. If we fail to meet our contractual obligations, we could be subject to legal liability or damage to our reputation, which could adversely affect our business, operating results and financial condition. While we are not currently subject to any client-related legal claims which we believe are material, it remains possible, because of the nature of our business, we may be involved in litigation in the future that could materially affect our future financial results. Claims brought against us could have a serious negative effect on our reputation and on our business, financial condition and results of operations.



Because we are in the business of placing our personnel in the workplaces of other companies, we are subject to possible claims by our personnel alleging discrimination, sexual harassment, negligence and other similar activities by our clients. We may also be subject to similar claims from our clients based on activities by our personnel. The cost of defending such claims, even if groundless, could be substantial and the associated negative publicity could adversely affect our ability to attract and retain personnel and clients.



We may not be able to grow our business, manage our growth or sustain our current business.



Historically, we have grown by opening new offices and by increasing the volume of services provided through existing offices. Beginning late in fiscal 2017, we embarked on several new strategic initiatives, including the implementation of a new operating model to drive growth. Our ability to execute on those strategies or the disruptions related to implementation of the new operating model may impact or limit our ability to grow our business. There can be no assurance we will be able to maintain or expand our market presence in our current locations or to successfully enter other markets or locations. Our ability to continue to grow our business will depend upon an improving global economy and a number of factors, including our ability to:



· grow our client base

· expand profitably into new geographies

· provide additional professional services offerings

9

 


 

· hire qualified and experienced consultants

· maintain margins in the face of pricing pressures

· manage costs;

· maintain or grow revenues and increase other service offerings from existing clients



Even if we are able to resume more rapid growth in our revenue, the growth will result in new and increased responsibilities for our management as well as increased demands on our internal systems, procedures and controls, and our administrative, financial, marketing and other resources. For instance, a limited number of clients are requesting certain engagements be of a fixed fee nature rather than our traditional hourly time and materials approach, thus shifting a portion of the burden of financial risk and monitoring to us. Failure to adequately respond to these new responsibilities and demands may adversely affect our business, financial condition and results of operations.



Our ability to serve clients internationally is integral to our strategy and our international activities expose us to additional operational challenges we might not otherwise face.



Our international activities require us to confront and manage a number of risks and expenses we would not face if we conducted our operations solely in the United States. Any of these risks or expenses could cause a material negative effect on our operating results. These risks and expenses include:



· difficulties in staffing and managing foreign offices as a result of, among other things, distance, language and cultural differences

· less flexible or future changes in labor laws and regulations in the U.S. and in foreign countries

· expenses associated with customizing our professional services for clients in foreign countries

· foreign currency exchange rate fluctuations when we sell our professional services in denominations other than United States dollars

· protectionist laws and business practices that favor local companies

· political and economic instability in some international markets

· multiple, conflicting and changing government laws and regulations

· trade barriers

· reduced protection for intellectual property rights in some countries

· potentially adverse tax consequences



We have acquired, and may continue to acquire, companies, and these acquisitions could disrupt our business.



We have acquired several companies, including two during the 2018 fiscal year, and we may continue to acquire companies in the future. Entering into an acquisition entails many risks, any of which could harm our business, including:



· diversion of management’s attention from other business concerns

· failure to integrate the acquired company with our existing business

· failure to motivate, or loss of, key employees from either our existing business or the acquired business

· failure to identify certain risks or liabilities during the due diligence process

· potential impairment of relationships with our existing employees and clients

· additional operating expenses not offset by additional revenue

· incurrence of significant non-recurring charges

· incurrence of additional debt with restrictive covenants or other limitations

· addition of significant amounts of intangible assets, including goodwill, that are subject to periodic assessment of impairment, primarily through comparison of market value of our stock to our net book value, with such impairment potentially resulting in a material impact on our future financial results and financial condition

· dilution of our stock as a result of issuing equity securities

· assumption of liabilities of the acquired company

10

 


 



Our failure to be successful in addressing these risks or other problems encountered in connection with our past or future acquisitions could cause us to fail to realize the anticipated benefits of such acquisitions, incur unanticipated liabilities and harm our business generally.



We must provide our clients with highly qualified and experienced consultants, and the loss of a significant number of our consultants, or an inability to attract and retain new consultants, could adversely affect our business and operating results.



Our business involves the delivery of professional services, and our success depends on our ability to provide our clients with highly qualified and experienced consultants who possess the skills and experience necessary to satisfy their needs. At various times, such professionals can be in great demand, particularly in certain geographic areas or if they have specific skill sets. Our ability to attract and retain consultants with the requisite experience and skills depends on several factors including, but not limited to, our ability to:



· provide our consultants with either full-time or flexible-time employment

· obtain the type of challenging and high-quality projects our consultants seek

· pay competitive compensation and provide competitive benefits

· provide our consultants with flexibility as to hours worked and assignment of client engagements



There can be no assurance we will be successful in accomplishing any of these factors and, even if we are, we cannot assure we will be successful in attracting and retaining the number of highly qualified and experienced consultants necessary to maintain and grow our business.



Our computer hardware and software and telecommunications systems are susceptible to damage, breach or interruption.



The management of our business is aided by the uninterrupted operation of our computer and telecommunication systems. These systems are vulnerable to security breaches, natural disasters or other catastrophic events, computer viruses, or other interruptions or damage stemming from power outages, equipment failure or unintended usage by employees. In particular, our employees may have access or exposure to personally identifiable or otherwise confidential information and customer data and systems, the misuse of which could result in legal liability. In addition, we rely on information technology systems to process, transmit and store electronic information and to communicate among our locations around the world and with our clients, partners and consultants. The breadth and complexity of this infrastructure increases the potential risk of security breaches. Security breaches, including cyber-attacks or cyber-intrusions by computer hackers, foreign governments, cyber terrorists or others with grievances against the industry in which we operate or us in particular, may disable or damage the proper functioning of our networks and systems. We review and update our systems and have implemented processes and procedures to protect against security breaches and unauthorized access to our data. Despite our implementation of security controls, our systems and networks are vulnerable to computer viruses, malware, worms, hackers and other security issues, including physical and electronic break-ins, router disruption, sabotage or espionage, disruptions from unauthorized access and tampering (including through social engineering such as phishing attacks), impersonation of authorized users and coordinated denial-of-service attacks. For example, in the past we have experienced cyber security incidents resulting from unauthorized access to our systems, which to date have not had a material impact on our business or results of operations; however, there is no assurance that such impacts will not be material in the future. It is also possible our security controls over personal and other data may not prevent unauthorized access to, or destruction, loss, theft, misappropriation or release of personally identifiable or other proprietary, confidential, sensitive or valuable information of ours or others; this access could lead to potential unauthorized disclosure of confidential personal, Company or client information others could use to compete against us or for other disruptive, destructive or harmful purposes and outcomes. Any such disclosure or damage to our networks and systems could subject us to third party claims against us and reputational harm. If these events occur, our ability to attract new clients may be impaired or we may be subjected to damages or penalties. In addition, system-wide or local failures of these information technology systems could have a material adverse effect on our business, financial condition, results of operations or cash flows.



Our business could suffer if we lose the services of one or more key members of our senior management.



Our future success depends upon the continued employment of our senior management team. The unforeseen departure of one or more key members of our senior management team could significantly disrupt our operations if we are unable to successfully manage the transition. The replacement of members of senior management can involve significant time and expense and create uncertainties that could delay, prevent the achievement of, or make it more difficult for us to pursue and execute on our business opportunities, which could have an adverse effect on our business, financial condition and operating results.



Further, we generally do not have non-compete agreements with our employees and, therefore, they could terminate their employment with us at any time. Our ability to retain the services of members of our senior management and other key employees could

11

 


 

be impacted by a number of factors, including competitors’ hiring practices or the effectiveness of our compensation programs. If members of our senior management or other key employees leave our employ for any reason, they could pursue other employment opportunities with our competitors or otherwise compete with us. If we are unable to retain the services of these key personnel or attract and retain other qualified and experienced personnel on acceptable terms, our business, financial condition and operating results could be adversely affected.



We may be subject to laws and regulations that impose difficult and costly compliance requirements and subject us to potential liability and the loss of clients.



In connection with providing services to clients in certain regulated industries, such as the gaming, energy and healthcare industries, we are subject to industry-specific regulations, including licensing and reporting requirements. Complying with these requirements is costly and, if we fail to comply, we could be prevented from rendering services to clients in those industries in the future. Additionally, changes in these requirements, or in other laws applicable to us, in the future could increase our costs of compliance.



In addition, we may face challenges from certain state regulatory bodies governing the provision of certain professional services, such as legal services or audit services. The imposition of such regulations could require additional financial and operational burdens on our business.



It may be difficult for a third party to acquire the Company, and this could depress our stock price.



Delaware corporate law and our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay, defer or prevent a change of control of the Company or our management. These provisions could also discourage proxy contests and make it difficult for you and other stockholders to elect directors and take other corporate actions. As a result, these provisions could limit the price future investors are willing to pay for your shares. These provisions:



· authorize our board of directors to establish one or more series of undesignated preferred stock, the terms of which can be determined by the board of directors at the time of issuance

· divide our board of directors into three classes of directors, with each class serving a staggered three-year term. Because the classification of the board of directors generally increases the difficulty of replacing a majority of the directors, it may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us and may make it difficult to change the composition of the board of directors

· prohibit cumulative voting in the election of directors which, if not prohibited, could allow a minority stockholder holding a sufficient percentage of a class of shares to ensure the election of one or more directors

· require that any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing

· state that special meetings of our stockholders may be called only by the chairman of the board of directors, by our chief executive officer, by the board of directors after a resolution is adopted by a majority of the total number of authorized directors, or by the holders of not less than 10% of our outstanding voting stock

· establish advance notice requirements for submitting nominations for election to the board of directors and for proposing matters that can be acted upon by stockholders at a meeting

· provide that certain provisions of our certificate of incorporation and bylaws can be amended only by supermajority vote (a 66 2/3 % majority) of the outstanding shares. In addition, our board of directors can amend our bylaws by majority vote of the members of our board of directors;

· allow our directors, not our stockholders, to fill vacancies on our board of directors

· provide that the authorized number of directors may be changed only by resolution of the board of directors



The terms of our credit facility impose operating and financial restrictions on us, which may limit our ability to respond to changing business and economic conditions.



We currently have a $120.0 million secured revolving credit facility which is available through October 17, 2021. We are subject to various operating covenants under the credit facility which restrict our ability to, among other things, incur liens, incur additional indebtedness, make certain restricted payments, merge or consolidate and make dispositions of assets. The credit facility also requires us to comply with financial covenants limiting our total funded debt, minimum interest coverage ratio and maximum leverage ratio. Any failure to comply with these covenants may constitute a breach under the credit facility, which could result in the acceleration of all or a substantial portion of any outstanding indebtedness and termination of revolving credit commitments under the credit facility. Our inability to maintain our credit facility could materially and adversely affect our liquidity and our business.



12

 


 

We may be unable to or elect not to pay our quarterly dividend payment.



The Company currently pays a regular quarterly dividend, subject to quarterly board of director approval. The payment of, or continuation of, the quarterly dividend is at the discretion of our board of directors and is dependent upon our financial condition, results of operations, capital requirements, general business conditions, tax treatment of dividends in the United States, contractual restrictions contained in credit agreements and other agreements and other factors deemed relevant by our board of directors. We can give no assurance that dividends will be declared and paid in the future. The failure to pay the quarterly dividend, reduction of the quarterly dividend rate or the discontinuance of the quarterly dividend could adversely affect the trading price of our common stock.



Failure to comply with data privacy laws and regulations could have a materially adverse effect on our reputation, results of operations or financial condition, or have other adverse consequences.



The collection, hosting, transfer, disclosure, use, storage and security of personal information required to provide our services is subject to federal, state and foreign data privacy laws. These laws, which are not uniform, do one or more of the following: regulate the collection, transfer (including in some cases, the transfer outside the country of collection), processing, storage, use and disclosure of personal information, require notice to individuals of privacy practices; give individuals certain access and correction rights with respect to their personal information; and prevent the use or disclosure of personal information for secondary purposes such as marketing. Under certain circumstances, some of these laws require us to provide notification to affected individuals, data protection authorities and/or other regulators in the event of a data breach. In many cases, these laws apply not only to third-party transactions, but also to transfers of information among the Company and its subsidiaries. In addition, the European Union adopted a comprehensive General Data Protection Regulation (the “GDPR”) that replaced the current EU Data Protection Directive and related country-specific legislation. The GDPR became fully effective in May 2018. Complying with the enhanced obligations imposed by the GDPR may result in additional costs to our business and require us to amend certain of our business practices.



Laws and regulations in this area are evolving and generally becoming more stringent. For example, the New York State Department of Financial Services has issued cybersecurity regulations that outline a variety of required security measures for protection of data. Other U.S. states, including California and South Carolina, have also recently enacted cybersecurity laws requiring certain security measures of regulated entities that are broadly similar to GDPR requirements, and we expect that other states will continue to do so. As these laws continue to evolve, we may be required to make changes to our services, solutions and/or products so as to enable the Company and/or our clients to meet the new legal requirements, including by taking on more onerous obligations in our contracts, limiting our storage, transfer and processing of data and, in some cases, limiting our service and/or solution offerings in certain locations. Changes in these laws, or the interpretation and application thereof, may also increase our potential exposure through significantly higher potential penalties for non-compliance. The costs of compliance with, and other burdens imposed by, such laws and regulations and client demand in this area may limit the use of, or demand for, our services, solutions and/or products, make it more difficult and costly to meet client expectations, or lead to significant fines, penalties or liabilities for noncompliance, any of which could adversely affect our business, financial condition, and results of operations.



Our recent rebranding efforts may not be successful. In addition, we may be unable to adequately protect our intellectual property rights, including our brand name.



We believe establishing, maintaining and enhancing the RGP and Resources Global Professionals brand name is important to our business.  We rely on trademark registrations and common law trademark rights to protect the distinctiveness of our brand. After the end of fiscal year 2019, we launched a significant global rebranding initiative.  However, there can be no assurance that our rebranding initiative will result in a positive return on investment.  In addition, there can be no assurance that the actions we have taken to establish and protect our trademarks will be adequate to prevent use of our trademarks by others.  Further, not all of our trademarks were able to successfully register in all of the desired countries.  Accordingly, we may not be able to claim or assert trademark or unfair competition claims against third parties for any number of reasons. For example, a judge, jury or other adjudicative body may find that the conduct of competitors does not infringe or violate our trademark rights. In addition, third parties may claim that the use of our trademarks and branding infringe, dilute or otherwise violate the common law or registered marks of that party, or that our marketing efforts constitute unfair competition. Such claims could result in injunctive relief prohibiting the use of our marks, branding and marketing activities as well as significant damages, fees and costs.  If such a claim was made and we were required to change our name or any of our marks, the value of our brand may diminish and our results of operations and financial condition could be adversely affected.



 



13

 


 

ITEM 1B.    UNRESOLVED STAFF COMMENTS.



Not applicable.

 

ITEM 2.    PROPERTIES.



As of May 25, 2019, we maintained 48 domestic offices, all under operating lease agreements (except for the Irvine, California location), in the following metropolitan areas:

 



 

 



 

 

Phoenix, Arizona

Tampa, Florida

Cincinnati, Ohio

Irvine, California

Atlanta, Georgia

Cleveland, Ohio

Los Angeles, California (2)

Honolulu, Hawaii

Columbus, Ohio

Mountain View, California

Chicago, Illinois

Tulsa, Oklahoma

Sacramento, California (2)

Oakbrook Terrace, Illinois

Portland, Oregon

Santa Clara, California

Indianapolis, Indiana

Cranberry Township, Pennsylvania

San Diego, California

Boston, Massachusetts

Philadelphia, Pennsylvania

San Francisco, California (2)

Detroit, Michigan

Pittsburgh, Pennsylvania

Walnut Creek, California

Minneapolis, Minnesota

Nashville, Tennessee

Woodland Hills, California

Kansas City, Missouri

Austin, Texas

Denver, Colorado

Las Vegas, Nevada

Dallas, Texas

Hartford, Connecticut

Parsippany, New Jersey

Houston, Texas

Stamford, Connecticut

Princeton, New Jersey

San Antonio, Texas

Fort Lauderdale, Florida

New York, New York

Seattle, Washington

Jacksonville, Florida

Charlotte, North Carolina

Washington, D.C. (McLean, Virginia)



As of May 25, 2019, we maintained 25 international offices under operating lease agreements, located in the following cities and countries:







 

 



 

 

Sydney, Australia

Dublin, Ireland

Shanghai, People’s Republic of China

Brussels, Belgium

Milan, Italy

Manila, Philippines

Toronto, Canada

Tokyo, Japan

Singapore

Paris, France

Mexico City, Mexico

Seoul, South Korea

Frankfurt, Germany

Amsterdam (Utrecht), Netherlands

Stockholm, Sweden

Muenster, Germany

Beijing, People’s Republic of China

Zurich, Switzerland

Munich, Germany

Hong Kong, People’s Republic of China

Taipei, Taiwan

Bangalore, India

Guangzhou, People's Republic of China

London, United Kingdom

Mumbai, India

 

 



Our corporate offices are located in Irvine, California. We own an approximately 57,000 square foot office building in Irvine, California, of which we occupied approximately 44,000 square feet as of May 25, 2019, including space occupied by our Orange County, California practice. Approximately 13,000 square feet is leased to independent third parties. 

 

ITEM 3.    LEGAL PROCEEDINGS.



We are not currently subject to any material legal proceedings; however, we are a party to various legal proceedings arising in the ordinary course of our business.

 

ITEM 4.    MINE SAFETY DISCLOSURES.



Not applicable. 

14

 


 



PART II

 

ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.



Price Range of Common Stock



Our common stock has traded on the Nasdaq Global Select Market under the symbol “RECN” since December 15, 2000. As of July 8, 2019, the last reported sales price on Nasdaq of the Company’s common stock was $15.88 per share and the approximate number of holders of record of our common stock was 48 (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). 



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 $0.13 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 18, 2019, our board of directors declared a regular quarterly dividend of $0.13 per share of our common stock. The dividend was paid on June 13, 2019 to stockholders of record at the close of business on May 16, 2019. 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.



Issuances of Unregistered Securities



None.



Issuer 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.



The following summarizes shares of common stock repurchased by the Company during the fourth quarter of fiscal 2019:





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

Total Number of

 

 

 



 

 

Average

 

Shares

 

Approximate Dollar



Total

 

Price

 

Purchased as

 

Value of Shares



Number

 

Paid

 

Part of

 

that May Yet be



of Shares

 

per

 

Announced

 

Purchased Under 

Period

Purchased

 

Share

 

Programs (1)

 

Announced Program

February 24, 2019— March 23, 2019

 -

 

$

 -

 

 -

 

$

97,736,690 

March 24, 2019 — April 20, 2019

352,629 

 

$

15.70 

 

352,629 

 

$

92,199,776 

April 21, 2019 — May 25, 2019

131,034 

 

$

16.05 

 

131,034 

 

$

90,096,548 

Total February 24, 2019 — May 25, 2019

483,663 

 

$

15.80 

 

483,663 

 

$

90,096,548 



 

15

 


 

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 nine 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 25, 2019. The graph assumes $100 was invested on May 30, 2014 in our common stock and in each index (based on prices from the close of trading on May 30, 2014), and that all dividends are reinvested. Stockholder returns over the indicated period may not be indicative of future stockholder returns.



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 the Company specifically incorporates it by reference into such filing.



Picture 6







 

 

 

 

 

 



For the Fiscal Years Ended



May 30, 2014

May 30, 2015

May 28, 2016

May 27, 2017

May 26, 2018

May 25, 2019

Resources Connection, Inc.

$       100.00 

$       129.08 

$       130.89 

$       109.89 

$       146.79 

$       144.26 

Russell 3000

$       100.00 

$       111.86 

$       112.11 

$       131.94 

$       151.81 

$       155.60 

SIC Code 8742 - Management Consulting

$       100.00 

$       103.29 

$       100.62 

$       100.07 

$       156.02 

$       159.93 

Peer Group

$       100.00 

$       115.28 

$       132.42 

$       148.04 

$       134.27 

$       163.02 



The Company’s customized peer group includes the following nine professional services companies that we believe reflect the competitive landscape in which the Company operates and acquires talent: CRA International, Inc.; FTI Consulting, Inc.; Heidrick & Struggles International, Inc.; Hudson Global, Inc.; Huron Consulting Group Inc.; ICF International, Inc.; Kforce, Inc.; Korn/Ferry International; and Navigant Consulting, Inc. The Advisory Board Company is no longer included in the Company’s customized peer group due to acquisition by OptumInsight, Inc. in November 2017. The Company’s 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 the Company’s size, practice areas, business model delivery and geographic reach.



16

 


 

ITEM 6.    SELECTED FINANCIAL DATA.



You should read the following selected historical consolidated financial data in conjunction with our Consolidated Financial Statements and related notes in Part II, Item 8. Financial Statements and Supplementary Data and Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 7 of this Annual Report on Form 10-K. The Consolidated Statements of Operations data for the years ended May 28, 2016 and May 30, 2015 and the Consolidated Balance Sheet data at May 27, 2017, May 28, 2016, and May 30, 2015 were derived from our audited Consolidated Financial Statements that are not included in this Annual Report on Form 10-K. The Consolidated Statements of Operations data for the years ended May 25, 2019, May 26, 2018 and May 27, 2017 and the Consolidated Balance Sheet data at May 25, 2019 and May 26, 2018 were derived from our audited Consolidated Financial Statements that are included elsewhere in this Annual Report on Form 10-K. Historical results are not necessarily indicative of results that may be expected for any future periods. All years presented consisted of 52 weeks.







 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended



May 25,

 

May 26,

 

May 27,

 

May 28,

 

May 30,

 

2019

 

2018 (1)

 

2017

 

2016

 

2015



(In thousands, except per common share and other data)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

$

728,999 

 

$

654,129 

 

$

583,411 

 

$

598,521 

 

$

590,589 

Income from operations

$

50,159 

 

$

30,624 

 

$

34,402 

 

$

53,803 

 

$

50,258 

Net income

$

31,470 

 

$

18,826 

 

$

18,651 

 

$

30,443 

 

$

27,508 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

1.00 

 

$

0.61 

 

$

0.57 

 

$

0.82 

 

$

0.73 

Diluted

$

0.98 

 

$

0.60 

 

$

0.56 

 

$

0.81 

 

$

0.72 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

31,596 

 

 

30,741 

 

 

32,851 

 

 

37,037 

 

 

37,825 

Diluted

 

32,207 

 

 

31,210 

 

 

33,471 

 

 

37,608 

 

 

38,248 

Cash dividends declared per common share

$

0.52 

 

$

0.48 

 

$

0.44 

 

$

0.40 

 

$

0.32 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of offices open at end of year

 

73 

 

 

74 

 

 

67 

 

 

68 

 

 

68 

Number of consultants on assignment at end of year

 

2,965 

 

 

3,247 

 

 

2,569 

 

 

2,511 

 

 

2,516 

Cash dividends paid

$

16,158 

 

$

14,269 

 

$

14,157 

 

$

14,085 

 

$

11,748 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 25,

 

May 26,

 

May 27,

 

May 28,

 

May 30,



2019

 

2018

 

2017

 

2016

 

2015



(Amounts in thousands)

Total assets

$

428,370 

 

$

432,674 

 

$

364,128 

 

$

417,255 

 

$

416,981 

Long-term debt

$

43,000 

 

$

63,000 

 

$

48,000 

 

$

 -

 

$

 -

Stockholders' equity

$

282,396 

 

$

268,825 

 

$

238,142 

 

$

342,649 

 

$

340,452 



(1)

See Note 3 – Acquisitions in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for discussions on the Company’s acquisitions of taskforce and Accretive during fiscal 2018.







 

ITEM 7.    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 contains 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.” and elsewhere in this Annual Report on Form 10-K.  See “Forward Looking Statements.”



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 Business Transformation, Governance, Risk and Compliance and Technology and Digital Innovation. 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 the Company’s business and operations. 



The Company announced certain strategic initiatives in April 2017. The first initiative focused on cultivating a more sophisticated and robust sales culture. The Company has now completed this initiative. Among the features of the initiative are enhanced

17

 


 

training activities; the alignment of the Company’s sales process using tools such as Salesforce.com and the establishment of an enterprise-wide business development function; and the initiation of a new incentive compensation program for individuals focused on profitable revenue generation and gross margin. The new incentive compensation program rewards individuals for achieving or exceeding pre-determined sales goals, with bonus multipliers applicable for exceeding goals; the rewards for sales achievement are tied to both gross margin goals and qualitative goals associated with the Company’s culture of “LIFE AT RGP”. Finally, to complete this initiative, the Company expanded its Strategic Client Program, which involves a dedicated account team for certain high profile clients with global operations.



The second initiative redesigned the Company’s business model to enhance its client offerings, with a focus on building its integrated solutions capabilities and delivering multi-disciplinary offerings to its clients in three areas of focus –Business Strategy and Transformation,  Finance and Accounting, and Technology and Digital. During fiscal 2018, the Company implemented the new operating model for sales, talent and integrated solutions within RGP for all of North America; that is, reporting relationships are now largely defined by functional area rather than on an office location basis. While we believe this effort has already delivered improved revenue growth and improved customer experience into fiscal 2019, we are focused on continued improvement from this initiative. The Company completed the redesigned operating model in Europe and Asia Pacific during the third quarter of fiscal 2019.



The third initiative focuses on cost containment. Goals of this initiative include (i) improving leverage of selling, general and administrative expenses (“S, G & A”) as a percentage of revenue and (ii) realizing cost synergies in the core business and with the Accretive acquisition. S, G & A as a percentage of revenue decreased to 30.7%  during fiscal 2019 as compared to 32.0%  and 31.4% in fiscal years 2018 and 2017, respectively.  



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 difficult, 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 the Company’s 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 the Company’s 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 the Company’s future financial results and financial condition.



Revenue recognitionRevenues 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 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

18

 


 

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, 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 ESPP, eligible officers and employees may purchase our common stock in accordance with the terms of the plan. 



The Company estimates the fair value of share-based payment awards on the date of grant using an option-pricing model. The Company determines 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 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.



The Company uses its historical volatility over the expected life of the stock option award and ESPP to estimate the expected volatility of the price of its 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 ($0.13 per share for each quarter during fiscal 2019 and $0.12 per share for each quarter of fiscal 2018) is also incorporated in determining the estimated value per share of employee stock option grants and ESPP. Such dividends are subject to quarterly board of director approval. The Company’s expected life of stock option grants is 5.7 years for non-officers and 8.3 years for officers and expected life of ESPP is 6 months. The Company reviews the underlying assumptions related to stock-based compensation at least annually or more frequently if the Company believes 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. Identifiable intangible assets are amortized over their lives, typically ranging from three to ten years. Goodwill is not subject to amortization. This asset is considered to have an indefinite life and its carrying value is required to be assessed by us for impairment at least annually. Depending on future market values of our stock, our operating performance and other factors, these assessments could potentially result in impairment reductions of this intangible asset in the future and this adjustment may materially affect the Company’s 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 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. The estimated fair value of these contingent consideration arrangements are classified as accrued liabilities or other long-term liabilities on our Consolidated Balance Sheets. The fair value is remeasured 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.



19

 


 

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.





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended

 

 



May 25,

 

May 26,

 

May 27,

 



2019

 

2018

 

2017

 



(Amounts in thousands, except percentages)

 

Revenue

$

728,999  100.0 

%

$

654,129  100.0 

%

$

583,411  100.0 

%

Direct cost of services

 

446,560  61.3 

 

 

408,074  62.4 

 

 

362,086  62.1 

 

Gross margin

 

282,439  38.7 

 

 

246,055  37.6 

 

 

221,325  37.9 

 

Selling, general and administrative expenses

 

223,802  30.7 

 

 

209,042  32.0 

 

 

183,471  31.4 

 

Amortization of intangible assets

 

3,799  0.5 

 

 

2,298  0.4 

 

 

 -

 -

 

Depreciation expense

 

4,679  0.6 

 

 

4,091  0.6 

 

 

3,452  0.6 

 

Income from operations

 

50,159  6.9 

 

 

30,624  4.6 

 

 

34,402  5.9 

 

Interest expense

 

2,190  0.3 

 

 

1,735  0.3 

 

 

629  0.1 

 

Income before provision for income taxes

 

47,969  6.6 

 

 

28,889  4.3 

 

 

33,773  5.8 

 

Provision for income taxes

 

16,499  2.3 

 

 

10,063  1.5 

 

 

15,122  2.6 

 

Net income

$

31,470  4.3 

%

$

18,826  2.8 

%

$

18,651  3.2 

%



We also assess the results of our operations using Adjusted EBITDA and Adjusted EBITDA Margin. We define Adjusted EBITDA as net income before amortization of intangible assets, depreciation expense, interest and income taxes plus stock-based compensation expense and plus or minus contingent consideration adjustments. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by revenue. These measures assist management in assessing our core operating performance. 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:









 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended

 



May 25,

 

 

May 26,

 

 

May 27,

 



2019

 

 

2018

 

 

2017

 



(Amounts in thousands, except percentages)

 

Net income

$

31,470 

 

 

$

18,826 

 

 

$

18,651 

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets

 

3,799 

 

 

 

2,298 

 

 

 

 -

 

Depreciation expense

 

4,679 

 

 

 

4,091 

 

 

 

3,452 

 

Interest expense

 

2,190 

 

 

 

1,735 

 

 

 

629 

 

Provision for income taxes

 

16,499 

 

 

 

10,063 

 

 

 

15,122 

 

Stock-based compensation expense

 

6,570 

 

 

 

6,033 

 

 

 

6,068 

 

Contingent consideration adjustment

 

(590)

 

 

 

 -

 

 

 

 -

 

Adjusted EBITDA

$

64,617 

 

 

$

43,046 

 

 

$

43,922 

 

Revenue

$

728,999 

 

 

$

654,129 

 

 

$

583,411 

 

Adjusted EBITDA Margin

 

8.9 

%

 

 

6.6 

%

 

 

7.5 

%



The financial measures and key performance indicators we use to assess our financial and operating performance above 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 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 measure so calculated and presented.



Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. We believe Adjusted EBITDA and Adjusted EBITDA Margin provide useful information to our investors because they are financial measures used by management to assess the core performance of the Company. Adjusted EBITDA and Adjusted EBITDA Margin are not measurements of financial performance or liquidity under GAAP and should not be considered in isolation or construed as substitutes for net income or other cash flow data prepared in accordance with GAAP for purposes of analyzing our profitability or liquidity. These measures should be considered in addition to, and not as a substitute for, net income, earnings per share, cash flows or other measures of financial performance prepared in conformity with GAAP.

 

20

 


 

Further, Adjusted EBITDA and Adjusted EBITDA Margin have the following limitations:

 

· Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA do not reflect any cash requirements for such replacements;

· Equity based compensation is an element of our long-term incentive compensation program, although we exclude it as an expense from Adjusted EBITDA when evaluating our ongoing operating performance for a particular period; 

· We exclude the changes in the fair value of the contingent consideration obligation related to a business acquisition from Adjusted EBITDA; and

· Other companies in our industry may calculate Adjusted EBITDA and Adjusted EBITDA Margin differently than we do, limiting their usefulness as a comparative measure.



Because of these limitations, Adjusted EBITDA and Adjusted EBITDA Margin should not be considered a substitute for performance measures calculated in accordance with GAAP.



21

 


 

Year Ended May 25, 2019 Compared to Year Ended May 26, 2018



Amounts are in millions unless otherwise stated. Percentage change computations are based upon amounts in thousands.



Revenue.  Revenue increased $74.9 million, or 11.5%, to $729.0 million for the year ended May 25, 2019 from $654.1 million for the year ended May 26, 2018. The increase in revenue is primarily attributable to the full year impact of our acquisitions of Accretive and taskforce, which were completed during the third and second quarter of fiscal 2018, respectively.  In addition, bill rates improved 0.8% and hours worked increased 10.7% between the two periods; a portion of the increase in hours worked is due to the Accretive and taskforce acquisitions. Revenue and hours worked resulting from both acquisitions are not possible to isolate due to the completion of the integration of Accretive operations into RGP at the beginning of the first quarter of 2019.



We believe the improvement in revenue for the current period compared to the prior year period is in part the product of the operational changes made throughout fiscal 2018 and into fiscal 2019, including the use of Salesforce.com as a tool to directly measure individual productivity and structuring reporting lines with a function and client focus. In addition, we believe a portion of the revenue growth is attributable to client service and technical teams spending more time interacting with clients and prospects, improved alignment of our incentive systems to sales growth and an increase in sales efforts delivered by a focused business development team.



Revenue for the Company’s major geographies across the globe consisted of the following (dollars in thousands):



 





 

 

 

 

 

 

 

 

 

 



Revenue for the

 

 

 



Years Ended

 

 

 



May 25,

 

May 26,

 

%  



2019

 

2018

 

Change

 



 

 

% of Total

 

 

 

% of Total

 

 

 

North America

$

593,799  81.5 

%

$

524,872  80.3 

%

13.1 

%

Europe

 

86,355  11.8 

 

 

84,705  12.9 

 

1.9 

%

Asia Pacific

 

48,845  6.7 

 

 

44,552  6.8 

 

9.6 

%

Total

$

728,999  100.0 

%

$

654,129  100.0 

%

11.4 

%





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 2018 conversion rates, international revenues would have been higher than reported under GAAP by $5.9 million for the year ended May 25, 2019. Using these constant currency rates, which we believe provides a more comprehensive view of trends in our business, our revenue increased by 12.4% overall and by 13.3%, 6.4% and 12.7% in North America, Europe and Asia Pacific, respectively. Average bill rates increased 1.6% on a constant currency basis in fiscal 2019.



The number of consultants on assignment at the end of fiscal 2019 was 2,965 compared to 3,247 at the end of fiscal 2018. 



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.



On a sequential quarter basis, fiscal 2019 fourth quarter revenue increased $2.6 million, or 1.5%, to $182.1 million from $179.5 million. The slight increase in fourth quarter revenue was partially because there are no significant compensated holidays in the quarter as compared to the third quarter which included the Christmas, New Year’s and Chinese New Year’s holidays. The remaining increase is attributable primarily to increases in non-hourly revenue. Total hours worked increased 0.9% while average bill rates remained the same between the third and fourth quarter. The Company’s sequential revenue increased in North America (0.1%), Asia Pacific (15.2%) and Europe (3.3%). On a constant currency basis, using the comparable third quarter fiscal 2019 conversion rates, sequential revenue increased in North America (0.1%), Asia Pacific (15.0%) and Europe (4.0%).



Direct Cost of Services.  Direct cost of services increased $38.5 million, or 9.4%, to $446.6 million for the year ended May 25, 2019 from $408.1 million for the year ended May 26, 2018. The primary reason for the change is an increase in hours worked of 10.7% between the two periods (partially attributable to the Accretive and taskforce acquisitions), while the average consultant pay rates per hour remained consistent in both periods.



Direct cost of services as a percentage of revenue was 61.3% and 62.4% for the during fiscal 2019 and 2018, respectively. The direct cost of services as a percentage of revenue improved in the current period primarily because of improvement in the bill/pay ratio and a reduction in cost of the Company’s self-insured medical program as compared to the prior year.

22

 


 



Our target direct cost of services percentage is 60% for all of our markets.



On a sequential quarter basis, the direct cost of services percentage improved to 59.9% in the fourth quarter of fiscal 2019 from 62.2% in the third quarter of fiscal 2019. This improvement is primarily attributable improved bill pay ratio, driven by internal initiatives to improve pricing, and an improvement in the cost of the Company’s self-insured medical coverage of consultants. 



Selling, General and Administrative Expenses.  S, G & A increased $14.8 million, or 7.1%, to $223.8 million for the year ended May 25, 2019 from $209.0 million for the year ended May 26, 2018 and a decreased as a percentage of revenue to 30.7% in fiscal 2019 from 32.0% in fiscal 2018. The increase in SG&A is primarily due to the following: (1) $12.9 million of additional payroll and benefit costs from taskforce and Accretive personnel and new headcount to support the growth of critical markets, including approximately $0.5 million of compensation benefits related to the loan forgiveness of our recently appointed Chief Operating Officer (“COO”); (2) $5.5 million related to increased commission and bonus expenses tied to the revenue growth of the business; (3) $1.8 million of marketing costs associated with driving revenue growth; and (4) increases of $1.8 million in rent, stock-based compensation expense, bad debt and other categories. These costs were partially offset by lower acquisition, severance and integration costs of $7.2 million incurred in the comparable prior period.



On a sequential quarter basis, S, G & A as a percentage of revenue was 31.2% and 31.0% for the fourth and third quarters of fiscal 2019, respectively. S, G & A in the fourth quarter increased $1.3 million to $56.9 million from $55.6 million in the previous quarter. The primary reasons for the change were: (1) $0.8 million of additional payroll and benefit costs from new headcount to support the growth of critical markets, including approximately $0.5 million of compensation benefits related to the loan forgiveness of our recently appointed COO; (2) $0.6 million related to increased severance, acquisition and integration costs; and (3) $0.4 million related to increased commission and bonus expenses tied to the revenue growth of the business. These costs were partially offset by lower marketing and legal costs of $0.5 million.



Amortization and Depreciation Expense.  Amortization of intangible assets was $3.8  million in fiscal 2019 compared to $2.3 million in fiscal 2018. The increase is primarily due to the full year impact of amortization related to identifiable intangible assets acquired in the December 4, 2017 acquisition of Accretive and the September 1, 2017 acquisition of taskforce.  



Depreciation expense was $4.7 million and $4.1 million in fiscal 2019 and 2018, respectively. The increase is primarily the result of depreciation on fixed assets acquired in the acquisition of Accretive. 



Interest Expense.  Total interest expense for fiscal 2019, including commitment fees, was approximately $2.5 million compared to $1.9 million in fiscal 2019. The increase in the 2019 period is the result of interest on incremental borrowings of $15.0 million in fiscal 2018 to finance a portion of the acquisition of Accretive and generally higher interest rates in fiscal 2019. Interest income was approximately $0.3 million and $0.1 million in fiscal 2019 and 2018, respectively.



Income Taxes.   On December 22, 2017, Congress enacted H.R.1, the “Tax Cuts and Jobs Act” (“Tax Reform Act”), which made significant changes to U.S. federal income tax laws including reducing the corporate rate from 35% to 21% effective January 1, 2018.  In December 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) which allowed the Company to record provisional amounts related to the expected impact of the Tax Reform Act and adjust those amounts during a measurement period not to extend more than one year from date of enactment.  The Company completed its accounting for the impact of Tax Reform Act during fiscal 2019.



The Tax Reform Act also included the Global Intangible Low-Tax Income (“GILTI”) provision, a new mechanism for taxing certain foreign profits, the Base Erosion Anti-Abuse Tax, a minimum tax on payments to related parties, and the Foreign-Derived Intangible Income provision, a tax incentive to earn income abroad.  The Company was permitted to make an accounting policy election to account for GILTI as either a period charge when the tax arises or as a part of deferred taxes.  The Company determined to account for GILTI as a period cost and has recognized the tax impacts associated with GILTI as a current expense for fiscal 2019. 



The provision for income taxes increased to $16.5 million (effective rate of approximately 34%) for the year ended May 25, 2019 from $10.1 million (effective rate of approximately 35%) for the year ended May 26, 2018. The provision for income taxes increased due to improved global income. The reduction in the U.S. statutory federal tax rate contributed to the lower effective tax rate.



The provision for taxes in both fiscal 2019 and fiscal 2018 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.



23

 


 

Periodically, the Company reviews the components of both book and taxable income to analyze the adequacy of the tax provision. There can be no assurance that the Company’s 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.



The Company cannot recognize a tax benefit for certain ISO grants unless and until the holder exercises his or her option and then sells the shares within a certain period of time. In addition, the Company can only recognize a potential tax benefit for employees’ acquisition and subsequent sale of shares purchased through the ESPP if the sale occurs within a certain defined period. As a result, the Company’s provision for income taxes is likely to fluctuate from these factors for the foreseeable future. The Company recognized a benefit of approximately $31,000 and $0.3 million related to stock-based compensation for nonqualified stock options expensed and for eligible disqualifying ISO exercises during fiscal 2019 and 2018, respectively. The proportion of expense related to non-qualified stock option grants (for which the Company may recognize a tax benefit in the same quarter as the related compensation expense in most instances) is significant as compared to expense related to ISOs (including ESPPs). However, the timing and amount of eligible disqualifying ISO exercises cannot be predicted. The Company predominantly grants nonqualified stock options to employees in the United States.



The Company has maintained a position of being indefinitely reinvested in its 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:



· 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.

· RGP in the United States has no debt or any other current or known obligations that require cash to be remitted from foreign subsidiaries.

· 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.

· The consequences of distributing foreign earnings have historically been deemed to be tax inefficient for RGP or not materially beneficial.



Year Ended May 26, 2018 Compared to Year Ended May 27, 2017



For a comparison of our results of operations for the fiscal years ended May 26, 2018 and May 27, 2017, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended May 26, 2018, filed with the SEC on July 23, 2018 (File No. 0-32113).



24

 


 

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 25, 2019. 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.





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended



May 25,

 

Feb. 23,

 

Nov. 24,

 

Aug. 25,

 

May 26,

 

Feb. 24,

 

Nov. 25,

 

Aug. 26,

 

2019

 

2019

 

2018

 

2018

 

2018

 

2018

 

2017

 

2017



(In thousands, except net income per common share)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

$

182,144 

 

$

179,498 

 

$

188,799 

 

$

178,558 

 

$

183,791 

 

$

172,414 

 

$

156,738 

 

$

141,186 

Direct cost of services, primarily

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

payroll and related taxes for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

professional services employees

 

109,188 

 

 

111,587 

 

 

115,378 

 

 

110,407 

 

 

113,363 

 

 

109,904 

 

 

97,319 

 

 

87,488 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

72,956 

 

 

67,911 

 

 

73,421 

 

 

68,151 

 

 

70,428 

 

 

62,510 

 

 

59,419 

 

 

53,698 

Selling, general and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

administrative expenses

 

56,890 

 

 

55,587 

 

 

54,959 

 

 

56,366 

 

 

58,861 

 

 

55,268 

 

 

47,498 

 

 

47,415 

Amortization of intangible assets

 

944 

 

 

948 

 

 

952 

 

 

955 

 

 

972 

 

 

1,004 

 

 

322 

 

 

 -

Depreciation expense

 

1,250 

 

 

1,163 

 

 

1,197 

 

 

1,069 

 

 

1,115 

 

 

1,089 

 

 

947 

 

 

940 

Income from operations

 

13,872 

 

 

10,213 

 

 

16,313 

 

 

9,761 

 

 

9,480 

 

 

5,149 

 

 

10,652 

 

 

5,343 

Interest expense

 

461 

 

 

595 

 

 

608 

 

 

526 

 

 

553 

 

 

508 

 

 

365 

 

 

309 

Income before provision for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

income taxes

 

13,411 

 

 

9,618 

 

 

15,705 

 

 

9,235 

 

 

8,927 

 

 

4,641 

 

 

10,287 

 

 

5,034 

Provision for income taxes

 

4,042 

 

 

3,822 

 

 

5,141 

 

 

3,494 

 

 

4,946 

 

 

46 

 

 

2,149 

 

 

2,922 

Net income

$

9,369 

 

$

5,796 

 

$

10,564 

 

$

5,741 

 

$

3,981 

 

$

4,595 

 

$

8,138 

 

$

2,112 

Net income per common share (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.30 

 

$

0.18 

 

$

0.33 

 

$

0.18 

 

$

0.13 

 

$

0.15 

 

$

0.27 

 

$

0.07 

Diluted

$

0.29 

 

$

0.18 

 

$

0.33 

 

$

0.18 

 

$

0.12 

 

$

0.14 

 

$

0.27 

 

$

0.07 



(1)    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.



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.” 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 and our $120 million secured revolving credit facility (“Facility”) with Bank of America 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 25, 2019. 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. As of May 25, 2019, the Company had $43.0 million of cash and cash equivalents including $25.6 million held in international operations.



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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 the Company to choose the interest rate applicable to advances. Borrowings under the Facility bear interest at a rate per annum of either, at the Company’s 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 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 October 17, 2021. The Company’s borrowings on the Facility were $43.0 million as of May 25, 2019 and the Company had $1.3 million of outstanding letters of credit issued under the Facility as of May 25, 2019. Subsequent to year end, on June 28, 2019, the Company made a $5.0 million principal payment on the Facility. The Facility contains both affirmative and negative covenants. The Company was in compliance with all financial covenants under the Facility as of May 25, 2019. Additional information regarding the Facility is included in Note 6 — Long Term Debt in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.



Our ongoing operations and anticipated growth in the geographic markets we currently serve will require us to continue to make investments in office premises and capital equipment, primarily technology hardware and software. In addition, we may consider making strategic acquisitions. 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 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 2019 and 2018



Operating activities provided $43.6 million and $15.4 million in cash in fiscal 2019 and fiscal 2018, respectively. Cash provided by operations in fiscal 2019 resulted from net income of $31.5 million and net favorable non-cash reconciling adjustments of $22.6 million. Other balance sheet account changes in fiscal 2019, including working capital balances, were a net use of cash of $10.4 million. The primary drivers of the increase in working capital are the increase in the balance of accounts receivable as of the end of the fiscal year 2019, reflecting increasing revenue during the fourth quarter, and the unfavorable increase in the balance of income taxes due during fiscal 2019.  In fiscal 2018, cash provided by operations resulted from net income of $18.8 million and net favorable non-cash reconciling adjustments of $8.2 million. Other balance sheet account changes in fiscal 2018, including working capital balances, were a net use of cash of $11.7 million, due primarily to the increase in the balance of accounts receivable as of the end of the fiscal year, reflecting increasing revenue during the fourth quarter; the accounts receivable increase was offset by an increase in bonus obligations, payable in the first quarter of fiscal 2019.  



Investing Activities, fiscal 2019 and 2018



Net cash used in investing activities was $12.9 million for fiscal 2019, compared to $25.7 million in fiscal 2018. Fiscal 2018 included cash used to acquire Accretive and taskforce of approximately $23.5 million, net of cash acquired; the Company did not make any business acquisitions during fiscal 2019. Purchases of property and equipment increased approximately $4.7 million between the two periods as the Company relocated or refurbished certain offices during fiscal 2019. Included in fiscal 2019 was a purchase of $6.0 million of short-term investments.



Financing Activities, fiscal 2019 and 2018



Net cash used by financing activities totaled $43.6 million compared to net cash provided of $3.5 million for the years ended May 25, 2019 and May 26, 2018, respectively. Financing activities for fiscal 2019 include dividends paid on the Company’s common stock of $16.2 million, approximately $1.9 million higher than in the comparable prior fiscal year. Additional information regarding dividends is included in Note 10 —  Stockholders’ Equity in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.



The Company used $29.9 million to purchase approximately 1.8 million shares of common stock on the open market during fiscal 2019. In fiscal 2018, the Company used $5.1 million to purchase 321,000 shares of common stock on the open market. Proceeds from the exercise of employee stock options and issuance of shares via the ESPP were approximately $24.3 million in fiscal 2019 as compared to $10.4 million in fiscal 2018. The Company also repaid $20.0 million of its obligation on the Facility during fiscal 2019. In fiscal 2018, the Company borrowed $15.0 million under the Facility as part of the Accretive acquisition.



26

 


 

As described in Note 3 – Acquisitions in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, the purchase agreement for taskforce requires earn-out payments to be made. The Company paid the portion related to Adjusted EBITDA for calendars 2018 and 2017 of €1.6 million (approximately $1.9 million) and €2.1 million (approximately $2.6 million) on March 27, 2019 and March 28, 2018, respectively.



For a comparison of our cash flow activities for the fiscal years ended May 26, 2018 and May 27, 2017, see “Part II, Item 7. Management’s Discussion and Analysis of Finan