RESOURCES CONNECTION, INC. The following discussion and analysis of our financial condition, results of operations, and liquidity and capital resources for the three and six months endedNovember 26, 2022 should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes and with our Annual Report on Form 10-K for the year endedMay 28, 2022 filed with theSecurities and Exchange Commission ("SEC"). This discussion and analysis 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 (the "Exchange Act"). These statements relate to expectations concerning matters that are not historical facts. For example, statements discussing, among other things, expected costs and liabilities, business strategies, growth strategies and initiatives, acquisition strategies, future revenues and future performance, are forward-looking statements. Such forward-looking statements may be identified by words such as "anticipates," "believes," "can," "continue," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "remain," "should" or "will" or the negative of these terms or other comparable terminology. In this Quarterly Report on Form 10-Q, such statements include statements regarding our growth, operational and strategic plans. 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. Risks and uncertainties include, but are not limited to, the following: risks related to an economic downturn or deterioration of general macroeconomic conditions (including recessionary pressures, decreases in consumer spending power or confidence and significant uncertainty in the global economy and capital markets resulting from rising inflation, volatility in energy and commodity prices, the impact of theRussia -Ukraine war and related supply chain issues), risks arising from epidemic diseases or pandemics, changes in the use of outsourced professional services consultants, the highly competitive nature of the market for professional services, risks related to the loss of a significant number of our consultants, or an inability to attract and retain new consultants, the possible impact on our business from the loss of the services of one or more key members of our senior management, risks related to potential significant increases in wages or payroll-related costs, our ability to secure new projects from clients, our ability to achieve or maintain a suitable pay/bill ratio, our ability to compete effectively in the competitive bidding process, risks related to unfavorable provisions in our contracts which may permit our clients to, among other things, terminate the contracts partially or completely at any time prior to completion, our ability to realize the level of benefit that we expect from our restructuring initiatives, risks that our recent digital expansion and technology transformation efforts may not be successful, our ability to build an efficient support structure as our business continues to grow and transform, our ability to grow our business, manage our growth or sustain our current business, our ability to serve clients internationally, additional operational challenges from our international activities including due to social, political, regulatory, legal and economic risks in the countries and regions in which we operate, possible disruption of our business from our past and future acquisitions, the possibility that our recent rebranding efforts may not be successful, our potential inability to adequately protect our intellectual property rights, risks that our computer hardware and software and telecommunications systems are damaged, breached or interrupted, risks related to the failure to comply with data privacy laws and regulations and the adverse effect it may have on our reputation, results of operations or financial condition, our ability to comply with governmental, regulatory and legal requirements and company policies, the possible legal liability for damages resulting from the performance of projects by our consultants or for our clients' mistreatment of our personnel, risks arising from changes in applicable tax laws or adverse results in tax audits or interpretations, the possible adverse effect on our business model from the reclassification of our independent contractors by foreign tax and regulatory authorities, the possible difficulty for a third party to acquire us and resulting depression of our stock price, the operating and financial restrictions from our credit facility, risks related to the variable rate of interest in our credit facility, the possibility that we are unable to or elect not to pay our quarterly dividend payment, and other factors and uncertainties as are identified in our most recent Annual Report on Form 10-K for the year endedMay 28, 2022 and our other public filings made with theSEC (File No. 0-32113). 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 the forward-looking statements included herein, which speak only as of the date of this filing. 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 filing or to reflect the occurrence of unanticipated events, unless required by law to do so. References in this filing to "Resources Global Professionals," the "Company," "we," "us," and "our" refer toResources Connection, Inc. and its subsidiaries.
Overview
Resources Global Professionals ("RGP") is a global consulting firm focused on
project execution services that power clients' operational needs and change
initiatives utilizing on-demand, experienced and diverse talent. As a
next-generation human capital partner for our clients, we specialize in
co-delivery of enterprise initiatives typically precipitated by business
transformation, strategic transactions or regulatory change. Our engagements are
designed to leverage human connection and collaboration to deliver practical
solutions and more impactful results that power our clients', consultants' and
partners' success.
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-------------------------------------------------------------------------------- A disruptor within the professional services industry since our founding in 1996, today the Company enjoys a favorable macro environment that embraces its differentiated agile delivery model. The trends in today's marketplace favor the flexibility and agility that RGP provides as businesses confront transformation pressures and speed-to-market challenges. While these forces were already at play in 2019, the COVID-19 pandemic (the "Pandemic") has served to significantly transform the modern workplace in ways that offer us a clear competitive advantage. As talent preferences have shifted dramatically in the direction of flexibility, choice and control, employers struggling to compete in today's environment must rethink the way work gets done and consider implementing new, more agile workforce strategies. We expect to continue to evolve our client engagement and talent delivery model to take advantage of these dramatic and important shifts in the direction of flexibility, control and choice. Our unique approach to workforce strategy strongly positions us to help our clients transform their businesses and workplaces, especially at a time when high-quality talent is increasingly scarce and the usage of a flexible workforce to execute transformational projects has become the dominant operating model. We believe that we are continuing to lay a solid foundation for the future. Based inIrvine, California , with offices worldwide, our agile human capital model attracts top-caliber professionals with in-demand skillsets who seek a workplace environment that embraces flexibility, collaboration and human connection. Our agile professional services model allows us to quickly align the right resources for the work at hand with speed and efficiency in ways that bring value to both our clients and talent. See Part 1, Item 1 "Business" of our Fiscal Year 2022 Form 10-K for further discussions about our business and operations.
Fiscal 2023 Strategic Focus Areas
Our enterprise growth drivers and strategic focus areas in fiscal 2023 include:
?Transform digitally;
?Amplify brand voice and optimize solution offerings;
?Deepen client centricity;
?Enhance pricing; and
?Pursue targeted mergers and acquisitions.
Transform digitally - Our first objective is to improve operational efficiency,
scale business growth, transform stakeholder experience and create long-term
sustainability and stockholder value through digital means.
We believe the use of technology platforms to match clients and talent is the
future of professional staffing. HUGO by RGPTM ("HUGO"), our digital engagement
platform, allows such an experience for clients and talent in the professional
staffing space to connect, engage and even transact directly. We piloted the
platform in limited markets in October 2021 , expanded into California in
September 2022 and have continued to enhance its functionality with further
artificial intelligence and machine learning. We also have been developing sales
and marketing strategies to increase client and talent adoption of the platform.
We plan to expand the geographic reach to other key markets within the United
States ("U.S.") such as Texas in the second half of fiscal 2023. Over time, we
expect to be able to drive volume through the HUGO platform by attracting more
small- and medium-sized businesses looking for interim support and by serving a
larger percentage of our current professional staffing business, which we
believe will not only drive top-line growth but also enhance profitability.
We continue to execute on the multi-year project to modernize and elevate our
technology infrastructure globally, including a cloud-based enterprise resource
planning system and talent acquisition and management system. We believe our
investment in these technology transformation initiatives will accelerate our
efficiency and data-led decision-making capabilities, optimize process flow and
automation, improve consultant recruitment and retention, drive business growth
with operational agility, scale our operations and further support our growth,
goals and vision.
As our clients continue to accelerate their digital and workforce paradigm
transformations, the need for automation and self-service has been an increasing
trend, especially in light of the Pandemic. We have been focused on expanding
our digital consulting capabilities and their geographic reach to drive growth
in the business by capturing the market demand and opportunities.
Amplify brand voice and optimize solution offerings - Our second focus area for
this fiscal year is to bring clarity and attention to our brand positioning to
own the opportunity around project execution. RGP has always focused our
business on project execution, which is a distinct space on the continuum
between strategy consulting and interim deployment. Our business model of
utilizing experienced talent to flatten the traditional consulting delivery
pyramid is highly sought after in today's market. Most clients are capable of
formulating business strategy organically or with the help of a strategy firm;
where they need help is in the ownership of executing the strategy.
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In fiscal 2022, we introduced our new tagline - Dare to Work Differently. TM -
to clarify our brand voice to align with hybrid workforce strategy and where our
clients need us most: execution with subject matter expertise. We implemented
further clarification and activation of our new brand positioning in the first
half of fiscal 2023. Our co-delivery ethos is focused around partnering with
clients on project execution. Our brand marketing will continue to emphasize and
accentuate our unique qualifications in this arena. We believe clear
articulation and successful marketing of our distinctive market position is key
to attracting and retaining both clients and talent, enabling us to drive
continued growth.
Key focus areas supporting this initiative include: refining and finalizing our
proposed solution architecture that clearly defines RGP's core service offerings
and streamlines the sales process; validating the proposed messaging and
architecture via roundtables with internal and external stakeholders; and
launching the new brand positioning and messaging through dynamic assets such as
advertising campaigns, videos and events.
Deepen client centricity - The third area of focus for fiscal 2023 is to
continue to deepen and broaden our trusted client relationships through expanded
marquee account and key industry vertical programs to increase our focus on
account penetration. We maintain our Strategic Client Account program to serve a
number of our largest clients with dedicated global account teams. We have
expanded, and will continue to expand, the Strategic Client Account and industry
programs by adding clients and taking a more client-centric and borderless
approach to serving these clients. We believe this focus enhances our
opportunities to develop in-depth knowledge of these clients' needs and the
ability to increase the scope and size of projects with those clients.
In addition, we formed a new Emerging Accounts program, which consists of
smaller clients where demand tends to be more episodic. Our newly formed
dedicated account team will be able to serve this segment of clients with more
focus and attention while nurturing and growing the depth of our relationship.
Our services continue to emphasize a relationship-oriented approach to business
rather than a transaction-oriented or assignment-oriented approach. Client
relationships and needs are addressed from a client-centric, not geographic,
perspective so that our experienced management team and consultants understand
our clients' business issues and help them define their project needs to deliver
an integrated, relationship-based approach to meeting the clients' objectives.
We believe that by continuing to deliver high-quality services and by furthering
our relationships with our clients, we can capture a significantly larger share
of our clients' professional services budgets.
Enhance pricing - Fourth, we continue to evolve and enhance our pricing strategy
to ensure we adopt a value-based approach for our project execution services,
which has become increasingly more relevant and in demand in the current macro
environment. We believe there is ample opportunity to drive further growth in
both our topline revenue and profitability through pricing.
As we deepen our client relationships and raise our clients' perception of our
ability to add value through our services, we anticipate further increasing bill
rates for our services to appropriately capture the value of the talent and
solutions delivered. Key focus areas include: creating more centralized pricing
governance, strategy and approach; conducting a deep pricing analysis to
identify and confront areas that need improvement; and instituting new pricing
training for all sales, talent and go-to-market team members.
Pursue targeted mergers and acquisitions - Lastly, we will seek to accelerate
growth through strategic mergers and acquisitions that drive additional scale or
expand and complement our existing core capabilities. Following the successful
acquisition and integration of Veracity Consulting Group, LLC ("Veracity"),
which accelerated our digital capabilities and our ability to offer
comprehensive digital innovation services, we will continue to pursue highly
targeted acquisition opportunities to add scale to Veracity or augment and
expand the breadth and depth of our digital transformation capabilities. In
addition to digital, we are keenly interested in other consulting capabilities
that would drive and foster growth opportunity for our core business.
Market Trends and Uncertainties
On a macro level, uncertain macroeconomic conditions (including rising inflation, volatility in energy and commodity prices, the impact of theRussia -Ukraine war, supply chain issues and labor shortages) as well as increases in interest rates and fluctuations in currency exchange rates have created significant uncertainty in the global economy, volatility in the capital markets and recessionary pressures. We expect these conditions will continue in the second half of fiscal 2023 and beyond. While we are not able to fully predict the potential impact, we are seeing more caution in spending within some pockets of our client base. If these conditions persist and a prolonged economic downturn or recession develops, it could result in a decline in billable hours and a negative impact on our bill rates that would adversely affect our financial results and operating cash flows. 23
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Critical Accounting Policies and Estimates
The following discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are discussed in Note 2 - Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements included in our Fiscal Year 2022 Form 10-K, and in Note 2 - Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. There have been no material changes in our critical accounting policies, or in the estimates and assumptions underlying those policies, from those described under the heading "Critical Accounting Policies and Estimates" in Item 7 of Part II of our Fiscal Year 2022 Form 10-K.
Non-GAAP Financial Measures
The Company uses certain non-GAAP financial measures to assess our financial and operating performance that are not defined by or calculated in accordance with GAAP. A non-GAAP financial measure is defined as a numerical measure of a company's financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP in the Consolidated Statements of Operations; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable GAAP measure so calculated and presented.
Our primary non-GAAP financial measures are listed below and reflect how we evaluate our operating results.
?Same-day constant currency revenue is adjusted for the following items:
oCurrency impact. In order to remove the impact of fluctuations in foreign currency exchange rates, we calculate same-day constant currency revenue, which represents the outcome that would have resulted had exchange rates in the current period been the same as those in effect in the comparable prior period.
oBusiness days impact. In order to remove the fluctuations caused by comparable periods having a different number of business days, we calculate same-day revenue as current period revenue (adjusted for currency impact) divided by the number of business days in the current period, multiplied by the number of business days in the comparable prior period. The number of business days in each respective period is provided in the "Number of Business Days" section in the table below.
?EBITDA is calculated as net income before amortization expense, depreciation expense, interest and income taxes.
?Adjusted EBITDA is calculated as EBITDA plus or minus stock-based compensation expense, technology transformation costs, restructuring costs, and contingent consideration adjustments. Adjusted EBITDA at the segment level excludes certain shared corporate administrative costs that are not practical to allocate.
?Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by revenue.
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Same-Day Constant Currency Revenue
Same-day constant currency revenue assists management in evaluating revenue
trends on a more comparable and consistent basis. We believe this measure also
provides more clarity to our investors in evaluating our core operating
performance and facilitates a comparison of such performance from period to
period. The following table presents a reconciliation of same-day constant
currency revenue, a non-GAAP financial measure, to revenue as reported in the
Consolidated Statements of Operations, the most directly comparable GAAP
financial measure, by geography (in thousands, except number of business days).
Three Months Ended Six Months Ended
November 26, November 27, November 26, November 27,
Revenue by Geography 2022 (1) 2021 (1) 2022 (1) 2021 (1)
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
North America
As reported (GAAP) $ 176,655 $ 167,154 $ 356,205 $ 319,033
Currency impact (22) 26
Business days impact - -
Same-day constant currency revenue $ 176,633 $ 356,231
Europe
As reported (GAAP) $ 10,401 $ 19,921 $ 21,576 $ 38,786
Currency impact 1,801 3,374
Business days impact 43 106
Same-day constant currency revenue $ 12,245 $ 25,056
Asia Pacific
As reported (GAAP) $ 13,299 $ 13,163 $ 26,636 $ 25,559
Currency impact 2,038 3,473
Business days impact (73) 38
Same-day constant currency revenue $ 15,264 $ 30,147
Total Consolidated
As reported (GAAP) $ 200,355 $ 200,238 $ 404,417 $ 383,378
Currency impact 3,817 6,873
Business days impact (30) 144
Same-day constant currency revenue $ 204,142 $ 411,434
Number of Business Days
North America (2) 62 62 125 125
Europe (3) 64 65 128 129
Asia Pacific (3) 61 61 124 124
(1) Total Consolidated revenue and Europe revenue as reported under GAAP include
taskforce revenue of zero and $7.0 million for the three months ended November
26, 2022 and November 27, 2021 , respectively, and $0.2 million and $13.2 million
for the six months ended November 26, 2022 and November 27, 2021 , respectively.
(2) This represents the number of business days in the
(3) The business days in international regions represents the weighted average number of business days.
?
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EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin assist management in
assessing our core operating performance. We also believe these measures provide
investors with a useful perspective on underlying business results and trends
and facilitate a comparison of our performance from period to period. The
following table presents EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin for
the periods indicated and includes a reconciliation of such measures to net
income and net income margin, the most directly comparable GAAP financial
measures (in thousands, except percentages):
Three Months Ended Six Months Ended
November 26, % of November 27, % of November 26, % of November 27, % of
2022 Revenue 2021 Revenue 2022 Revenue 2021 Revenue
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net income $ 17,432 8.7 % $ 14,305 7.1 % $ 35,572 8.8 % $ 27,228 7.1 %
Adjustments:
Amortization expense 1,216 0.6 1,184 0.6 2,468 0.6 2,287 0.6
Depreciation expense 880 0.4 893 0.5 1,767 0.4 1,812 0.5
Interest expense,
net 199 0.1 222 0.1 515 0.1 438 0.1
Income tax expense 5,877 3.0 5,567 2.8 12,869 3.3 10,752 2.8
EBITDA 25,604 12.8 22,171 11.1 53,191 13.2 42,517 11.1
Stock-based
compensation expense 2,237 1.1 2,019 1.0 4,766 1.1 3,648 0.9
Technology
transformation costs
(1) 1,748 0.9 229 0.1 2,739 0.7 229 0.1
Restructuring costs
(2) 42 - 583 0.3 (355) (0.1) 739 0.2
Contingent
consideration
adjustment - - (54) - - - 167 -
Adjusted EBITDA $ 29,631 14.8 % $ 24,948 12.5 % $ 60,341 14.9 % $ 47,300 12.3 %
(1) Technology transformation costs represent costs included in net income
related to the Company's initiative to upgrade its technology platform globally,
including a cloud-based enterprise resource planning system and talent
acquisition and management system. Such costs primarily include software
licensing costs, third-party consulting fees and costs associated with dedicated
internal resources that are not capitalized.
(2) The Company substantially completed the Restructuring Plans in fiscal 2021.
All employee termination and facility exit costs incurred under the
Restructuring Plans were considered completed as of August 27, 2022 , and as a
result, the remaining accrued restructuring liability on the books was released.
Our non-GAAP financial measures are not measurements of financial performance or
liquidity under GAAP and should not be considered in isolation or construed as
substitutes for revenue, net income or other measures of financial performance
or financial condition prepared in accordance with GAAP for purposes of
analyzing our revenue, profitability or liquidity. Further, a limitation of our
non-GAAP financial measures is that they exclude items detailed above that have
an impact on our GAAP reported results. Other companies in our industry may
calculate these non-GAAP financial measures differently than we do, limiting
their usefulness as a comparative measure. Because of these limitations, these
non-GAAP financial measures should not be considered a substitute but rather
considered in addition to performance measures calculated in accordance with
GAAP.
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Results of Operations
The following table sets forth our Consolidated Statements of Operations data for the three and six months endedNovember 26, 2022 andNovember 27, 2021 , respectively. These historical results are not necessarily indicative of future results. Our operating results for the periods indicated are expressed as a percentage of revenue (in thousands, except percentages). Three Months Ended Six Months Ended November 26, % of November 27, % of November 26, % of November 27, % of 2022 Revenue (1) 2021 Revenue (1) 2022 Revenue (1) 2021 Revenue (1) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenue$ 200,355 100.0 %$ 200,238 100.0 %$ 404,417 100.0 %$ 383,378 100.0 % Direct cost of services 118,005 58.9 121,497 60.7 238,600 59.0 233,204 60.8 Gross profit 82,350 41.1 78,741 39.3 165,817 41.0 150,174 39.2 Selling, general and administrative expenses 56,777 28.3 56,881 28.4 112,964 28.0 108,274 28.2 Amortization expense 1,216 0.6 1,184 0.6 2,468 0.6 2,287 0.6 Depreciation expense 880 0.4 893 0.4 1,767 0.4 1,812 0.5 Income from operations 23,477 11.7 19,783 9.9 48,618 12.0 37,801 9.9 Interest expense, net 199 0.1 222 0.1 515 0.1 438 0.1 Other income (31) - (311) (0.1) (338) (0.1) (617) (0.1) Income before income tax expense 23,309 11.6 19,872 9.9 48,441 12.0 37,980 9.9 Income tax expense 5,877 2.9 5,567 2.8 12,869 3.2 10,752 2.8 Net income$ 17,432 8.7 %$ 14,305 7.1 %$ 35,572 8.8 %$ 27,228 7.1 %
(1) The percentage of revenue may not foot due to rounding.
Consolidated Operating Results - Three Months Ended
Revenue. Revenue remained relatively consistent at$200.4 million in the second quarter of fiscal 2023 compared to$200.2 million in the second quarter of fiscal 2022. We completed the sale of taskforce onMay 31, 2022 . Refer to Note 4 - Dispositions in the Notes to Consolidated Financial Statements for further information. Excluding$7.0 million of revenue contributed by taskforce during the second quarter of fiscal 2022, revenue in the second quarter of fiscal 2023 increased by 3.7% over the prior year quarter, or 5.7% on a same-day constant currency basis. Excluding taskforce, average bill rate and billable hours increased 2.4% (or 4.0% constant currency) and 1.4%, respectively, in the second quarter of 2023. The following table represents our consolidated revenues by geography for the three months endedNovember 26, 2022 andNovember 27, 2021 , respectively (in thousands, except percentages): Three Months Ended November 26 % of November 27 % of 2022 Revenue 2021 Revenue (Unaudited) (Unaudited) North America$ 176,655 88.2 %$ 167,154 83.5 % Europe 10,401 5.2 19,921 9.9 Asia Pacific 13,299 6.6 13,163 6.6 Total consolidated revenue$ 200,355 100.0 %$ 200,238 100.0 %North America experienced revenue growth of 5.7% on both a GAAP basis and a same-day constant currency basis, from the second quarter of fiscal 2022 primarily driven by an improvement in average bill rate of 5.7%. Our efforts over the last fiscal year to raise bill rates have yielded positive impact on revenue growth. We will continue to optimize our pricing strategy to further align our bill rates to the value delivered to our clients. While we see some pockets of apprehension, most clients continue to demand our services in areas such as Finance and Accounting, Technology and Digital, as they advance critical change initiatives, albeit at a more deliberate pace, offsetting certain areas that are softer. The persistently tight labor market and low unemployment rate continued to support growth in our on-demand staffing revenue in theU.S. , as our clients looked to us to supply quality talent to fill their temporary workforce gaps. The continued shift towards workforce agility and the increased acceptance of co-delivery and remote delivery not only enhanced our value proposition to our clients, but also allowed for better and more efficient matching of supply and demand, enabling us to achieve sustained improvement in our operational efficiency. 27
--------------------------------------------------------------------------------Europe revenue decreased 47.8%, or 38.5% on a same-day constant currency basis, from the second quarter of fiscal 2022. Excluding the impact of the taskforce divestiture, revenue inEurope decreased 19.2%, or 4.9% on a same-day constant currency basis. Such decline inEurope's revenue was primarily the result of delayed client buying patterns due to uncertainties in the macro environment.Asia Pacific revenue improved 1.0%, or 16.0% on a same-day constant currency basis, compared to the second quarter of fiscal 2022. Similar toNorth America , revenue growth inAsia Pacific was across most markets, notably inAustralia ,India ,Singapore andPhilippines , driven primarily by healthy demand from our global clients as they execute on large corporate change initiatives. Direct Cost of Services. Direct cost of services decreased$3.5 million , or 2.9%, to$118.0 million for the second quarter of fiscal 2023 from$121.5 million for the second quarter of fiscal 2022. The decrease in direct cost of services was primarily attributable to a 4.8% decrease, or 1.6% on a constant currency basis, in average pay rate and a 0.7% decline in billable hours (attributed to the divestiture of taskforce) during the second quarter of fiscal 2023 compared to the prior year quarter. The decrease in average pay rate was partially attributable to the divesture of taskforce, that has historically carried higher pay rates. Direct cost of services as a percentage of revenue was 58.9% for the second quarter of fiscal 2023 compared to 60.7% for the second quarter of fiscal 2022. The decreased percentage compared to the prior year quarter was primarily attributable to an improvement of 270 basis points in the overall pay/bill ratio. This favorable impact was partially offset by an increase in employee-related benefits, primarily vacation and self-insured medical costs. We seek to continue to drive improvement in the overall pay/bill ratio and indirect cost leverage through strategic pricing, while offering competitive compensation and benefits to our consultants to attract and retain the best talent in the marketplace.
The number of consultants on assignment at the end of the second quarter of fiscal 2023 was 3,255 compared to 3,319 at the end of the second quarter of fiscal 2022.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") was $56.8 million , or 28.3% of revenue, for the
second quarter of fiscal 2023 compared to $56.9 million , or 28.4% of revenue,
for the second quarter of fiscal 2022. The $0.1 million improvement in SG&A
year-over-year was primarily attributed to (1) lower management compensation and
benefits including bonus and commissions of $3.2 million primarily related to
less incentive compensation as a result of more moderate growth in the business,
(2) a decrease of $0.5 million in restructuring costs as we finalized the
adjustment to the previous estimate of restructuring liability and completed our
restructuring activities, and (3) a reduction in occupancy costs of $0.4 million
from real estate footprint reduction. These reductions in costs were offset by
(1) an increase of $1.5 million in technology transformation costs incurred in
the second quarter of fiscal 2023, (2) an increase of $0.9 million in bad debt
expenses incurred in the second quarter of fiscal 2023, (3) a $0.7 million
increase in business and travel expenses as business travel increased in a
post-Pandemic environment to promote more effective go-to-market and business
development activities, (4) a $0.6 million increase in computer software and
consulting costs, and (5) a $0.3 million increase in all other general and
administration expenses to support the growth of the business.
Management and administrative headcount was 907 at the end of the second quarter
of fiscal 2023 and 884 at the end of the second quarter of fiscal 2022.
Management and administrative headcount includes full time equivalent headcount
for our seller-doer group, which is determined by utilization levels achieved by
the seller-doers. Any unutilized time is converted to full time equivalent
headcount.
Restructuring Costs. We substantially completed our global restructuring and
business transformation plan (the "Restructuring Plans") in fiscal 2021. All
employee termination and facility exit costs incurred under the Restructuring
Plans were associated with the RGP segment, and are recorded in selling, general
and administrative expenses in the Consolidated Statements of Operations.
Restructuring costs, including real estate exit costs and adjustments to
employee termination costs, associated with the restructuring activities were
insignificant in the three months ended November 26, 2022 and $0.6 million for
the three months ended November 27, 2021 . All employee termination and facility
exit costs incurred under the Restructuring Plans were considered completed as
of August 27, 2022 , and as a result, the remaining accrued restructuring
liability on the books was released. Restructuring liability was zero and $0.4
million as of November 26, 2022 and May 28, 2022 , respectively.
Amortization and Depreciation Expense. Amortization expense was $1.2 million in
the second quarter of both fiscal 2023 and fiscal 2022. Depreciation expense was
$0.9 million in the second quarter of both fiscal 2023 and fiscal 2022.
Income Taxes. Income tax expense was $5.9 million (effective tax rate of 25.2%)
for the second quarter of fiscal 2023 compared to $5.6 million (effective tax
rate of 28.0%) for the second quarter of fiscal 2022. We record tax expense
based upon actual results versus a forecasted tax rate because of the volatility
in our international operations that span numerous tax jurisdictions. The change
in effective tax rate resulted largely from higher pre-tax income in the second
quarter of fiscal 2023 while permanent book to tax differences were more
favorable due to higher income tax benefits associated with the vesting of
employee stock awards and interest income associated with an income tax refund
from the Internal Revenue Service.
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The Company recognized a tax benefit of approximately
Periodically, we review the components of both book and taxable income to prepare the tax provision. There can be no assurance that our effective tax rate will remain constant in the future because of the lower benefit from theU.S. 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 disqualifying dispositions of certain stock options. Given the current earnings and anticipated future earnings of some of the Company's foreign locations, we believe there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that the valuation allowance on the deferred tax assets of certain foreign entities will no longer be needed. Releasing the valuation allowance would result in the recognition of previously unrecognized deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve. Comparability of Quarterly Results. 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 of our Fiscal Year 2022 Form 10-K and our other public filings made with theSEC . Due to these and other factors, we believe quarter-to-quarter comparisons of our results of operations may not be meaningful indicators of future performance.
Consolidated Operating Results - Six Months Ended
Revenue. Revenue increased$21.0 million , or 5.5%, to$404.4 million for the six months endedNovember 26, 2022 from$383.4 million for the six months endedNovember 27, 2021 . On a same-day constant currency basis, revenue for the first half of fiscal 2023 increased$28.1 million , or 7.3%, compared to the first half of fiscal 2022. Billable hours increased 4.6% and the average bill rate improved 1.6% in the first half of fiscal 2023 compared to the first half of fiscal 2022. Excluding revenue from taskforce ($0.2 million and$13.2 million of revenue contributed by taskforce during the first half of fiscal 2023 and 2022, respectively), revenue in the first half of fiscal 2023 increased by 9.2% compared to the first half of fiscal 2022, or 11.1% on a same-day constant currency basis. Billable hours and average bill rate for the six months endedNovember 26, 2022 , excluding taskforce, increased by 6.8% and 2.4% (4.0% constant currency), respectively.
The following table represents our consolidated revenues by geography for the
six months ended
Six Months Ended
November 26 % of November 27 % of
2022 Revenue 2021 Revenue
(Unaudited) (Unaudited)
North America $ 356,205 88.1 % $ 319,033 83.2 %
Europe 21,576 5.3 38,786 10.1
Asia Pacific 26,636 6.6 25,559 6.7
Total consolidated revenue $ 404,417 100.0 % $ 383,378 100.0 %
Revenue grew in both North America and Asia Pacific during the six months ended
November 26, 2022 compared to the same period in fiscal 2022. By geography,
North America and Asia Pacific experienced year-over-year growth of 11.7% and
4.2%, respectively, or 11.7% and 18.0%, respectively, on a same-day constant
currency basis. We continued to benefit from stable demand for our services as
clients push forward to execute their mission critical initiatives, albeit at a
more deliberate pace. In addition, our sustained operational execution and
efficiency enabled us to capture the broader market opportunities in the first
half of the fiscal 2023. Revenues from our Strategic Client Accounts in North
America and Asia Pacific grew 10.6% and 23.3% compared to the second quarter of
fiscal 2022, respectively. We continue to make strides in improving our bill
rates during fiscal 2023. Average bill rates for the first six months of fiscal
2023 improved by 5.0% in North America while average bill rate in Asia Pacific
on a constant currency basis improved by 4.1%. The powerful combination of both
volume and pricing improvement resulted in sustained revenue growth over the
same prior fiscal year period.
Europe revenue decreased 44.4%, or 35.4% on a same-day constant currency basis,
during the six months ended November 26, 2022 compared to the six months ended
November 27, 2021 . Excluding the impact of the taskforce divestiture, revenue in
Europe decreased 16.5%, or 3.0% on a same-day constant currency basis, during
the six months ended November 26, 2022 compared to the six months ended November
27, 2021 . The decline in Europe's revenue was primarily the result of delayed
client buying patterns due to uncertainties in the macro environment in the
European region.
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Direct Cost of Services. Direct cost of services increased $5.4 million , or
2.3%, to $238.6 million for the six months ended November 26, 2022 from $233.2
million for the six months ended November 27, 2021 . The increase in direct cost
of services year over year was primarily attributable to a 4.6% increase in
billable hours, partially offset by a 4.8% decrease, or 1.6% on a constant
currency basis, in average pay rate in the first six months of fiscal 2023
compared to the first six months of fiscal 2022. The decrease in average pay
rate was partially attributable to the divesture of taskforce, that has
historically carried higher pay rates.
Direct cost of services as a percentage of revenue was 59.0% for the six months
ended November 26, 2022 compared to 60.8% for the six months ended November 27,
2021 . The decreased percentage compared to the prior year was primarily
attributable to an improvement of 310 basis points in the overall pay/bill
ratio. This favorable impact was partially offset by an increase in
employee-related benefits, primarily vacation and self-insured medical costs.
Selling, General and Administrative Expenses. SG&A was $113.0 million , or 28.0%
of revenue, for the six months ended November 26, 2022 compared to $108.3
million , or 28.2% of revenue, for the six months ended November 27, 2021 .
Compared to the first half of fiscal year 2022, SG&A as a percentage of revenue
declined 20 basis points largely as a result of improved operating leverage. The
$4.7 million increase in SG&A year-over-year was primarily attributed to (1) an
increase of $2.5 million in technology transformation costs incurred in the
first half of fiscal 2023, (2) a $1.5 million increase in business and travel
expenses as business travel increased in a post-Pandemic environment to promote
more effective go-to-market and business development activities, (3) a $1.1
million increase in computer software and consulting costs, (4) a $1.1 million
increase in stock-based compensation expense as we continue to evolve our long
term incentive program to incentivize key employees to drive improved business
performance, (5) an increase of $0.7 million in bad debt expenses, and (6) a
$1.3 million increase in all other general and administration expenses to
support the growth in the business. These incremental costs were partially
offset by (1) a reduction in occupancy costs of $1.4 million from real estate
footprint reduction, (2) a decrease of $1.1 million in restructuring costs as we
finalized the adjustment to the previous estimate of restructuring liability and
completed our restructuring activities, and (3) lower management compensation
and benefits including bonus and commissions of $1.0 million due to more
moderate growth in the business.
Restructuring Costs. We substantially completed our Restructuring Plans in
fiscal 2021. Restructuring costs, including real estate exit costs and
adjustments to employee termination costs, associated with the restructuring
activities, were
Amortization and Depreciation Expense. Amortization expense was$2.5 million and$2.3 million in the first six months of fiscal 2023 and fiscal 2022, respectively. Depreciation expense was$1.8 million for the first six months of both fiscal 2023 and fiscal 2022. Income Taxes. Income tax expense was$12.9 million (effective tax rate of 26.6%) for the six months endedNovember 26, 2022 compared to$10.8 million (effective tax rate of 28.3%) for the six months endedNovember 27, 2021 . We record tax expense based upon actual results versus a forecasted tax rate because of the volatility in our international operations that span numerous tax jurisdictions. The change in effective tax rate resulted largely from higher pre-tax income in the first half of fiscal 2023 while permanent book to tax differences were more favorable due to higher income tax benefits associated with the vesting of employee stock awards and interest income associated with an income tax refund from the Internal Revenue Service.
The Company recognized a tax benefit of approximately
Operating Results of Segment
OnMay 31, 2022 , the Company divested taskforce; refer to Note 2 - Summary of Significant Accounting Policies and Note 4 - Dispositions in the Notes to Consolidated Financial Statements for further information. Since the second quarter of fiscal 2021 and prior to the divestment, the business operated by taskforce, along with its parent company,Resources Global Professionals (Germany) GmbH , an affiliate of the Company, represented an operating segment of the Company and was reported as a part of Other Segments.
Effective
?RGP - a global consulting firm focused on project execution services that power
clients' operational needs and change initiatives utilizing on-demand,
experienced and diverse talent; and
?Sitrick - a crisis communications and public relations firm which operates
under the Sitrick brand, providing corporate, financial, transactional and
crisis communication and management services.
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RGP is the Company's only operating segment that meets the quantitative
threshold of a reportable segment. Sitrick does not individually meet the
quantitative thresholds to qualify as a reportable segment. Therefore, Sitrick
is disclosed in Other Segments. Prior-period comparative segment information was
not restated as a result of the divestiture of taskforce as we did not have a
change in internal organization or the financial information our Chief Operating
Decision Maker uses to assess performance and allocate resources.
The following table presents our current operating results by segment for the
three and six months ended November 26, 2022 and November 27, 2021 , respectively
(in thousands, except percentages).
Three Months Ended Six Months Ended
November 26, November 27, November 26, November 27,
2022 2021 2022 2021
Revenue: (Unaudited) (Unaudited) (Unaudited) (Unaudited)
RGP $ 197,584 98.6 % $ 189,400 94.6 % $ 398,579 98.6 % $ 362,333 94.5 %
Other Segments
(1) 2,771 1.4 10,838 5.4 5,838 1.4 21,045 5.5
Total revenue $ 200,355 100.0 % $ 200,238 100.0 % $ 404,417 100.0 %
Adjusted EBITDA: RGP$ 37,664 127.1 %$ 32,121 128.8 %$ 76,011 126.0 %$ 61,177 129.3 % Other Segments (1) 332 1.1 1,232 4.9 648 1.0 2,238 4.7 Reconciling items (2) (8,365) (28.2) (8,405) (33.7) (16,318) (27.0) (16,115) (34.0) Total Adjusted $ $ $ $ EBITDA (3) 29,631 100.0 % 24,948 100.0 % 60,341 100.0 % 47,300 100.0 %
(1) Amounts reported in Other Segments for the three and six months ended
(2) Reconciling items are generally comprised of unallocated corporate administrative costs, including management and board compensation, corporate support function costs and other general corporate costs that are not allocated to segments.
(3) A reconciliation of the Company's net income to Adjusted EBITDA on a consolidated basis is presented above under "Non-GAAP Financial Measures."
Revenue by Segment
RGP - RGP revenue increased$8.2 million , or 4.3%, in the second quarter of fiscal 2023 compared to the second quarter of fiscal 2022, primarily as a result of a 2.4% increase in average bill rate and a 1.5% increase in billable hours from the prior year quarter, as discussed in the consolidated operating results discussion above. For the first half of fiscal 2023, RGP revenue increased$36.3 million , or 10.0%, to$398.6 million compared to$362.3 million for the first half of fiscal 2022, primarily as a result of a 6.9% increase in billable hours and a 3.3% increase in average bill rate year over year. Revenue from RGP represents more than 90% of total consolidated revenue and generally reflects the overall consolidated revenue trend.
The number of consultants on assignment under the RGP segment as of
Other Segments - Other Segments' revenue for the second quarter of fiscal 2023 declined by$8.1 million to$2.8 million , compared to the second quarter of fiscal 2022. The revenue decrease is primarily due to the$7.0 million decline in revenue as a result of the divestiture of taskforce onMay 31, 2022 and a$1.0 million decline in Sitrick's revenue for the second quarter of 2023 compared to the second quarter of fiscal 2022. Sitrick continued to be affected by the lingering impact of the Pandemic on the court system resulting in more settlements, hindering leads for revenue generation in the business. For the first half of fiscal 2023, revenue from Other Segments decreased$15.2 million , or 72.3%, to$5.8 million from$21.0 million for the first half of fiscal 2022, primarily as a result of a$13.0 million decline in revenue from the divestiture of taskforce in the current year and a$2.2 million decline in Sitrick revenue. The number of consultants on assignment under Other Segments as ofNovember 26, 2022 was 17 compared to 107 as ofNovember 27, 2021 . The decrease was related to the divestiture of taskforce. 31
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Adjusted EBITDA by Segment
RGP - RGP's Adjusted EBITDA increased$5.5 million , or 17.3%, to$37.7 million for the second quarter of fiscal 2023, compared to$32.1 million for the second quarter of fiscal 2022. Compared to the prior year quarter, revenue increased$8.2 million for the second quarter of fiscal 2023, which was partially offset by the increase in the related cost of services of$2.0 million and the decrease in other income of$0.3 million . Additionally, SG&A costs attributed to RGP increased$0.4 million for the second quarter of fiscal 2023 as compared to the second quarter fiscal 2022 primarily due to the increase in management compensation expense of$1.9 million as a result of growth in the business as well as employee compensation adjustments to remain competitive in the current labor market; a$0.8 million increase in computer software and consulting costs; an increase of$0.7 million in other business and travel expenses as business travel increased in a post-Pandemic environment to promote more effective go-to-market activities; and a$0.8 million increase in all other general and administration expenses to support the growth in the business. These cost increases were partially offset by reductions in bonus and commissions of$3.5 million as a result of more moderate year over year business growth and a decrease in occupancy costs of$0.3 million from real estate footprint reduction. For the second quarter of fiscal 2023, the material costs and expenses attributable to the RGP segment that are not included in computing the segment measure of Adjusted EBITDA included depreciation and amortization expenses of$2.0 million and stock-based compensation expense of$2.0 million . RGP's Adjusted EBITDA increased$14.8 million , or 24.2%, to$76.0 million for the first half of fiscal 2023, compared to$61.2 million in the first half of fiscal 2022. The increase was primarily attributable to the$36.3 million increase in revenue for the first half of fiscal 2023, which was partially offset by the increase in the cost of services of$15.6 million and the decrease in other income of$0.2 million . Additionally, SG&A costs attributed to RGP increased$5.5 million for the first half of fiscal 2023 as compared to the first half of fiscal 2022 primarily due to the increase in management compensation of$4.1 million as a result of growth in the business as well as employee compensation adjustments to remain competitive in the current labor market; a$1.3 million increase in other business and travel expenses; a$1.3 million increase in computer software and consulting costs; a$0.7 million increase in recruiting expenses; and a$1.4 million increase in all other general and administration expenses to support the growth in the business. These cost increases were partially offset by reductions in bonuses and commissions of$2.5 million as a result of more moderate year over year business growth and a decrease in occupancy costs of$0.8 million from real estate footprint reduction. For the first six months of fiscal 2023, the material costs and expenses attributable to the RGP segment that are not included in computing the segment measure of adjusted EBITDA included depreciation and amortization expenses of$4.1 million and stock-based compensation expense of$4.3 million . The trend in revenue, cost of services and other costs and expenses at RGP compared to the prior year period is generally consistent with those at the consolidated level, as discussed above, with the exception that the SG&A used to derive segment Adjusted EBITDA does not include certain unallocated corporate administrative costs. Other Segments - Other Segments' Adjusted EBITDA declined$0.9 million , or 73.1%, for the second quarter of fiscal 2023 compared to the second quarter of fiscal 2022. The decline was primarily driven by the$8.1 million decrease in revenue due to the divestiture of taskforce and slow business recovery in Sitrick from the Pandemic, which is partially offset by a$5.6 million decrease in the cost of services. In addition, management compensation decreased by$1.1 million , and bonus and commissions decreased by$0.5 million , which are primarily attributed to the divestiture of taskforce. For the second quarter of fiscal 2023, the material costs and expenses attributable to the Other Segments that are not included in computing the segment measure of Adjusted EBITDA included depreciation and amortization expenses of less than$0.1 million and stock-based compensation expense of$0.3 million . Other Segments' Adjusted EBITDA declined$1.6 million , or 71.0%, to$0.6 million in the first six months of fiscal 2023 compared to the same period in fiscal 2022. The decline is attributable to the$15.2 million decrease in revenue due to the divestiture of taskforce at the beginning of fiscal 2023 and slow business recovery in Sitrick from the Pandemic, which is partially offset by a$10.2 million decrease in the cost of services. In addition, management compensation decreased by$1.9 million , bonus and commissions decreased by$1.0 million , and occupancy costs were reduced by$0.5 million , which are primarily attributed to the divestiture of taskforce. For the first six months of fiscal 2023, the material costs and expenses attributable to the Other Segments that are not included in computing the segment measure of adjusted EBITDA included depreciation and amortization expenses of$0.1 million and stock-based compensation of$0.5 million .
Liquidity and Capital Resources
Our primary sources of liquidity are cash provided by operating activities, our$175.0 million senior secured revolving credit facility (as discussed further below) 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. Our ability to generate positive cash flows from operations in the future will depend, at least in part, on global economic conditions and our ability to remain resilient during periods of deteriorating macroeconomic conditions and any economic downturns. As ofNovember 26, 2022 , we had$89.4 million of cash and cash equivalents, including$40.3 million held in international operations. 32
-------------------------------------------------------------------------------- Prior toNovember 12, 2021 , the Company had a$120.0 million secured revolving credit facility (the "Previous Credit Facility") with Bank of America, pursuant to the terms of the Credit Agreement datedOctober 17, 2016 between the Company andResources Connection LLC , as borrowers, andBank of America, N.A . as lender (as amended, the "Previous Credit Agreement"). The Previous Credit Agreement was scheduled to mature onOctober 17, 2022 . OnNovember 12, 2021 , the Company andResources Connection LLC , as borrowers, and all of the Company's domestic subsidiaries, as guarantors, entered into a new credit agreement with the lenders that are party thereto andBank of America, N.A . as administrative agent for the lenders (the "New Credit Agreement"), and concurrently terminated the Previous Credit Facility. The New Credit Agreement provides for a$175.0 million senior secured revolving loan (the "New Credit Facility"), which includes a$10.0 million sublimit for the issuance of standby letters of credit and a swingline sublimit of$20.0 million . The New Credit Facility also includes an option to increase the amount of the revolving loan up to an additional$75.0 million , subject to the terms of the New Credit Agreement. The New Credit Facility matures onNovember 12, 2026 . The obligations under the New Credit Facility are secured by substantially all assets of the Company,Resources Connection LLC and all of the Company's domestic subsidiaries. As ofNovember 26, 2022 , we had$20.0 million outstanding under the New Credit Facility. Borrowings under the New Credit Facility bear interest at a rate per annum of either, at the Company's election, (i) Term SOFR (as defined in the New Credit Agreement) plus a margin ranging from 1.25% to 2.00% or (ii) the Base Rate (as defined in the New Credit Agreement), plus a margin of 0.25% to 1.00% with the applicable margin depending on the Company's consolidated leverage ratio. In addition, the Company pays an unused commitment fee on the average daily unused portion of the New Credit Facility, which ranges from 0.20% to 0.30% depending on the Company's consolidated leverage ratio. OnNovember 2, 2022 ,Resources Global Enterprise Consulting (Beijing) Co., Ltd , (a wholly owned subsidiary of the Company), as borrower, and the Company, as guarantor, entered into aRMB 13.4 million (USD$1.8 million based on the prevailing exchange onNovember 2, 2022 ) revolving credit facility withBank of America, N.A . (Beijing ) as the lender (the "Beijing Revolver"). TheBeijing Revolver bears interest at loan prime rate plus 0.80%. Interest incurred on borrowings will be payable monthly in arrears. As ofNovember 26, 2022 , the Company had no borrowings outstanding under the Beijing Revolver. The New Credit Facility is available for working capital and general corporate purposes, including potential acquisitions, dividend distribution and stock repurchases. Additional information regarding the Company's debt is included in Note 7 - Long-Term Debt in the Notes to Consolidated Financial Statements included in Part I, Item I of this Quarterly Report on Form 10-Q. In addition to cash needs for ongoing business operations, from time to time, we have strategic initiatives that could generate significant additional cash requirements. Our initiative to upgrade our technology platform, as described in "Fiscal 2023 Strategic Focus Areas" above, requires significant investments over multiple years. During the first six months of fiscal 2023, we refined the deployment roadmap and the estimated amount of the investments required for this multi-year initiative to be in the range of$30.0 million to$33.0 million through the completion of the system implementation. Such costs primarily include software licensing fees, third-party implementation and consulting fees, incremental costs associated with additional internal resources needed on the project and other costs in areas including change management and training. The actual amount of investment and the timing will depend on a number of variables, including progress made on the implementation. We expect the majority of the investment will take place in fiscal 2023 and fiscal 2024. In addition to our technology transformation initiative, we expect to continue to invest in digital pathways to enhance the experience and touchpoints with our end users, including current and prospective employees (consultants and management employees) and clients. Such effort will require additional cash outlay and could further elevate our capital expenditures in the near term. We believe our current cash, ongoing cash flows from our operations and funding available under our New Credit Facility will provide sufficient funds for these initiatives. As ofNovember 26, 2022 , we have non-cancellable purchase obligations totaling$13.4 million , which primarily consists of payments pursuant to the licensing arrangements that we have entered into in connection with this initiative:$0.5 million due during the remaining half of fiscal 2023;$4.0 million due during fiscal 2024;$3.7 million due during fiscal 2025;$2.1 million due during fiscal 2026; and$3.1 million due thereafter. We have completed our restructuring initiatives globally and do not expect any future cash requirements for these restructuring initiatives. Other trends impacting our near-term liquidity include the deferral of payroll taxes under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and certain tax planning strategies implemented in the fourth quarter of fiscal 2021. The CARES Act includes provisions, among others, allowing deferral of the employer portion of the social security payroll taxes and addressing the carryback of net operating losses ("NOLs") for specific periods. We previously elected to defer the employer portion of social security payroll taxes throughDecember 31, 2020 totaling$12.6 million . Subsequent to the deferral, we elected to make partial repayments of$8.6 million in calendar year 2021. We paid the remaining$4.0 million of deferred payroll taxes subsequent to the end of the second quarter of fiscal 2023. In addition, as part of our tax planning strategies, we made certain changes related to the capitalization of fixed assets effective for fiscal 2021. This strategy allowed us to carry back the NOLs of fiscal 2021 to fiscal years 2016 to 2018 and allowed us to request refunds for alternative minimum tax ("AMT") credits for fiscal years 2019 and 2020. We recognized a discrete tax benefit of$12.8 million in fiscal 2021 and filed for a federal income tax refund in the amount of$34.8 million (before interest) inApril 2022 . As ofNovember 26, 2022 , we have received a refund of$10.3 million (including interest income). InDecember 2022 , subsequent to the second quarter, we received an additional$9.3 million (including interest income). We expect to 33
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receive the remainder of the refund in the early part of calendar year 2023; however, there may be unanticipated processing delays that postpone receipt.
As described under Market Trends and Uncertainties, uncertain macroeconomic conditions and increases in interest rates have created significant uncertainty in the global economy, volatility in the capital markets and recessionary pressures, which may adversely impact our financial results, operating cash flows and liquidity needs. If we are required to raise additional capital or incur additional indebtedness for our operations or to invest in our business, we can provide no assurances that we would be able to do so on acceptable terms or at all. Our ongoing operations and growth strategy may require us to continue to make investments in critical markets and further expand our internal technology and digital capabilities. In addition, we may consider making strategic acquisitions or initiating additional restructuring initiatives, which could require significant liquidity and adversely impact our financial results due to higher cost of borrowings. We believe that our current cash, ongoing cash flows from our operations and funding available under our New Credit Facility will be adequate to meet our working capital and capital expenditure needs for at least the next 12 months. Beyond the next 12 months, if we require additional capital resources to grow our business, either organically or through acquisitions, we may seek to sell additional equity securities, increase use of our New Credit Facility, expand the size of our New Credit Facility or raise additional debt. In addition, if we decide to make additional share repurchases, we may fund these through existing cash balances or use of our New Credit Facility. The sale of additional equity securities or certain forms of debt financing could result in additional dilution to our stockholders. Our ability to secure additional financing in the future, if needed, will depend on several factors. These include our future profitability and the overall condition of the credit markets. Notwithstanding these considerations, we expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements.
Other than as described herein, there have been no material changes to our material cash requirements, including commitments for capital expenditures, described under the heading "Liquidity and Capital Resources" in Item 7 of Part II of our Fiscal Year 2022 Form 10-K.
Operating Activities
Operating activities for the first six months of fiscal 2023 provided cash of$23.7 million compared to$3.5 million cash provided for the first six months of fiscal 2022. In the first six months of fiscal 2023, cash provided by operations resulted from net income of$35.6 million and non-cash adjustments of$6.2 million . Additionally, net unfavorable changes in operating assets and liabilities totaled$18.2 million , primarily consisting of a$20.5 million decrease in accrued salaries and related obligations, mainly due to the timing of our pay cycle and the payout of the annual incentive during the first six months of fiscal 2023; a$4.8 million decrease in other liabilities (which included a$2.7 million settlement of the previously recorded deposit liability at the completion of the sale of taskforce onMay 31, 2022 ); and a$3.3 million increase in trade accounts receivable. These unfavorable changes are partially offset by a$6.2 million decrease in prepaid income taxes, largely due to the receipt of a$10.3 million of tax refund, and a$3.9 million increase in accounts payable and other accrued expenses. In the first six months of fiscal 2022, cash provided by operations resulted from net income of$27.2 million and non-cash adjustments of$8.8 million . Additionally, for the first half of fiscal 2022, net unfavorable changes in operating assets and liabilities totaled$32.5 million , primarily consisting of a$29.2 million increase in trade accounts receivable, mainly attributable to accelerated revenue growth throughout the first half of fiscal 2022, the final Veracity contingent consideration payment, of which$3.7 million was categorized as operating (the remaining$3.3 million of the total$7.0 million contingent consideration payment was categorized as financing cash flow) and a$3.1 million increase in income taxes receivable due to timing of estimated quarterly tax payments. Investing Activities Net cash provided by investing activities was$1.8 million for the first six months of fiscal 2023 compared to the net cash used of$2.3 million for the first six months of fiscal 2022. Net cash provided by investing activities in the first six months of fiscal 2023 was primarily related to the cash proceeds from the divestiture of taskforce partially offset by the cost incurred for the development of internal-use software and acquisition of property and equipment. Net cash used in investing activities in the first six months of fiscal 2022 was primarily for the development of internal-use software and acquisition of property and equipment. 34
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Financing Activities
Net cash used in financing activities totaled$38.4 million in the first six months of fiscal 2023 compared to$3.3 million in the first six months of fiscal 2022. Net cash used in financing activities during the first six months of fiscal 2023 consisted of net repayments on the New Credit Facility of$34.0 million (consisting of$49.0 million of repayments and$15.0 million of proceeds), cash dividend payments of$9.4 million , and$5.3 million to purchase 318,438 shares of common stock on the open market; these uses were partially offset by$10.3 million in proceeds received from ESPP share purchases and employee stock option exercises. Net cash used in financing activities during the first six months of fiscal 2022 consisted of$9.3 million in cash dividends paid, the final Veracity contingent consideration payment, of which$3.3 million was categorized as financing, and the Expertence contingent consideration payment of$0.3 million , partially offset by$0.4 million of net borrowings under both the Previous Credit Facility and the New Credit Facility, and$9.2 million in proceeds received from ESPP share purchases and employee stock option exercises.
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