RESOURCES CONNECTION, INC. 
By IRVINE, Calif., Jan. 4, 2012 /PRNewswire/ -- Resources Connection, Inc. (NASDAQ: RECN), a multinational professional services firm that provides to clients - through its operating subsidiary, Resources Global Professionals ("Resources") - accomplished professionals in accounting, finance, risk management and internal audit, corporate advisory, strategic communications and restructuring, information management, human capital, supply chain management, actuarial and legal and regulatory services, today announced financial results for its fiscal second quarter ended November 26, 2011.
Total revenue for the second quarter of fiscal 2012 was $145.0 million, up 4.7% from last year's second quarter revenue of $138.5 million and up 5.1% on a sequential quarter basis. Revenues in the U.S. were up 1.3% quarter-over-quarter and 2.6% sequentially, while international revenues increased 13.8% quarter-over-quarter and 11.4% sequentially (up 11.1% quarter-over-quarter and 14.8% sequentially on a constant dollar basis).
The Company's pre-tax income for the second quarter was $43.3 million, including a non-cash adjustment of $33.9 million reducing the estimated fair value of contingent consideration liability (including the employee portion of contingent consideration) related to the Sitrick Brincko Group acquisition. Accounting standards require the Company to record increases or decreases in the estimated fair value of contingent consideration to earnings. Due to the inherent difficulties in projecting the future operating results of the episodic Sitrick Brincko business, significant increases over the current estimated future adjusted EBITDA(1) (earnings before interest, income taxes, depreciation, amortization, stock based compensation and contingent consideration adjustments) could result in an increase in the estimated fair value of the Sitrick Brincko contingent consideration which would materially impact our future operating results.
The Company's net income for the second quarter ended November 26, 2011, was $25.3 million, or $0.58 per diluted share, which includes the after tax impact of the adjustment of the estimated fair value of contingent consideration expense of $20.4 million or $0.47 per share. This compares with a net income for the second quarter ended November 27, 2010 of $17.5 million, or $0.38 per diluted share, which included the after tax impact of the adjustment of the estimated fair value of contingent consideration expense of $14.0 million or $0.30 per share.
Gross margin was 37.9% in the second quarter of fiscal 2012, up 10 basis points from the first quarter of fiscal 2012. Selling, general and administrative expenses for the second quarter of fiscal 2012 were $43.0 million, up $400,000 from $42.6 million in the first quarter of fiscal 2012 as the Company ramped up its branding campaign during the second quarter.
Cash flow from operations and adjusted EBITDA were $5.4 million and $14.3 million (9.9% of revenue), respectively, for the second quarter of fiscal 2012.
"I am pleased our client service focused strategy continues to yield growth in a challenging global economy," said Don Murray, chief executive officer of Resources. "Despite the reduction in the Sitrick Brincko contingent consideration, we remain committed to growing this practice in the coming years and believe we have an excellent team to do so."
The Company's revenue for the six months ended November 26, 2011 was $283.0 million compared with $262.2 million for the six months ended November 27, 2010. The Company's net income for the six months ended November 26, 2011 was $27.9 million, or $0.63 per diluted share (including the after tax impact of the adjustment of the estimated fair value of contingent consideration expense of $20.4 million or $0.46 per share), compared with a net income for the six months ended November 27, 2010 of $18.7 million, or $0.40 per diluted share (including the after tax impact of the adjustment of the estimated fair value of contingent consideration expense of $14.0 million or $0.30 per share).
During the second quarter of fiscal 2012, the Company purchased 1,002,000 shares of common stock for $10.9 million. On December 22, 2011, the Company paid its quarterly dividend of $2.2 million to shareholders, representing a dividend of $0.05 per share.
"Our business model continues to produce positive cash flows as evidenced by our 9.9% cash flow margin for the quarter," said Tony Cherbak, chief operating officer. "Our strong cash position allowed us to purchase over 1 million shares of our stock during our second quarter and, along with our dividend program, we returned $13.1 million to our shareholders."
ABOUT RESOURCES GLOBAL PROFESSIONALS
Resources Global Professionals, the operating subsidiary of Resources Connection, Inc. (NASDAQ: RECN), is a multinational professional services firm that helps business leaders execute internal initiatives. Partnering with business leaders, we drive internal change across all parts of a global enterprise - accounting, finance, risk management and internal audit, corporate advisory, strategic communications and restructuring, information management, human capital, supply chain management, actuarial and legal and regulatory services.
Resources Global was founded in 1996 within a Big Four accounting firm. Today, we are a publicly traded company with over 3,000 professionals, annually serving over 1,900 clients around the world from 80 practice offices.
Headquartered in Irvine, California, Resources Global has served 86 of the Fortune 100 companies.
The Company is listed on the NASDAQ Global Select Market, the exchange's highest tier by listing standards. More information about Resources Global is available at http://www.resourcesglobal.com.
Resources will hold a conference call for interested analysts and investors at 5:00 p.m., ET today, January 4, 2012. This conference call will be available for listening via a webcast on the Company's website: http://www.resourcesglobal.com.
Certain statements in this press release are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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 press release, such statements include beliefs regarding the strength of our team. Such statements and all phases of Resources Connection's operations are subject to known and unknown risks, uncertainties and other factors, including seasonality, overall economic conditions and other factors and uncertainties as are identified in our most recent Annual Report on Form 10-K and our other public filings made with the Securities and Exchange Commission (File No. 0-32113). Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Resources Connection's, and its industry's, actual results, levels of activity, performance or achievements may be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. The Company undertakes no obligation to update the forward-looking statements in this press release.
RESOURCES CONNECTION, INC.
STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
Quarter Ended Six Months Ended
------------- ----------------
November 26, 2011 November 27, 2010 November 26, 2011 November 27, 2010
----------------- -----------------
(unaudited) (unaudited)
Revenue $144,955 $138,534 $282,962 $262,242
Direct costs of
services 90,034 83,787 175,869 158,210
------ ------ ------- -------
Gross profit 54,921 54,747 107,093 104,032
Selling, general and
administrative
expenses (2) 42,980 42,732 85,589 83,607
Employee portion of
contingent
consideration (1) (500) - (500) -
Contingent
consideration
adjustment (1) (33,440) (23,700) (33,440) (22,413)
------- ------- ------- -------
Operating income
before amortization
and depreciation (1),
(2) 45,881 35,715 55,444 42,838
Amortization of 1,186 1,310 2,394 2,600
intangible assets
Depreciation expense 1,471 1,870 3,020 3,715
----- ----- ----- -----
Operating income (1),
(2) 43,224 32,535 50,030 36,523
Interest income (65) (114) (153) (242)
--- ---- ---- ----
Income before
provision for income
taxes (1), (2) 43,289 32,649 50,183 36,765
17,968 15,178 22,266 18,064
Provision for income
taxes (3)
Net income (1), (2),
(3) $25,321 $17,471 $27,917 $18,701
======= ======= ======= =======
Basic net income per
share (1) $0.58 $0.38 $0.63 $0.41
===== ===== ===== =====
Diluted net income per
share (1) $0.58 $0.38 $0.63 $0.40
===== ===== ===== =====
Basic shares 43,760 46,048 44,468 46,156
====== ====== ====== ======
Diluted shares 43,797 46,283 44,512 46,347
====== ====== ====== ======
EXPLANATORY NOTES
The contingent consideration
adjustment is a favorable
adjustment of approximately $33.4
million for the three and six
months ended November 26, 2011 and
$23.7 million and $22.4 million for
the three and six months ended
November 27, 2010, respectively, in
recognition of the change in the
fair value of the contingent
consideration liability associated
with the acquisition of the Sitrick
Brincko Group in November 2009. The
adjustment in both fiscal years
results in a reduction in the
anticipated contingent
consideration payable in November
2013. As required by accounting
rules for acquisitions under
generally accepted accounting
principles ("GAAP") that include
earn-out provisions, the Company
periodically assesses the likely
fair value to be paid at the earn-
out date. The Sitrick Brincko
Group earn-out is based upon an
annual assessment of actual EBITDA
of the Sitrick Brincko Group and an
updated assessment of various
probability weighted projected
EBITDA scenarios over the remaining
two years of the earn-out period.
This assessment requires very
subjective assumptions to be made
of various potential operating
results scenarios. Based upon the
first two years of actual results
and an updated probability weighted
assessment of various projected
EBITDA scenarios of the Sitrick
Brincko Group for the two years
remaining in the earn-out period,
the Company believes it is more
likely than not that there will not
be a contingent consideration
payment payable in November 2013
and has reduced the estimated
liability by $33.9 million.
Although the Company currently
believes that there will be no
earn-out payment due, it will
continue to periodically review
actual EBITDA results of the
Sitrick Brincko Group and an
updated assessment of various
probability weighted projected
EBITDA scenarios; if circumstances
change and the Company determines
that an earn-out payment may be
due, it would result in a non-cash
charge to operations and would
materially impact operating
1. results.
The employee portion of contingent
consideration is a $500,000
reduction of the estimate of the
compensation owed to employees
related to the Sitrick Brincko
Group acquisition (and as
compensation, it is treated as an
operating expense). Similar to
contingent consideration, the
estimate of the amount of employee
portion of contingent consideration
payable requires very subjective
assumptions to be made of future
operating results and based upon
the first two years of actual
results and an updated probability
weighted assessment of various
projected EBITDA scenarios of the
Sitrick Brincko Group for the two
years remaining in the earn-out
period, the Company currently
believes it is more likely than not
that the employee portion of
contingent consideration will not
be earned.
The after-tax impact of the
adjustments to contingent
consideration and the employee
portion of contingent consideration
were $0.47 per share and $0.30 per
share for the three months ended
November 26, 2011 and November 27,
2010, respectively.
Selling, general and administrative
expenses ("SG&A") include non-cash
compensation expense for employee
stock option grants and employee
stock purchases of $1.9 million and
$2.6 million for the three months
ended November 26, 2011 and
November 27, 2010, respectively,
and $3.8 million and $5.3 million
for the six months ended November
26, 2011 and November 27, 2011,
2. respectively.
The Company's effective tax rate was
41.5% and 46.5% for the three
months ended November 26, 2011 and
November 27, 2010, respectively and
44.4% and 49.1% for the six months
ended November 26, 2011 and
November 27, 2010, respectively.
Without the benefit of the
contingent consideration
adjustments recorded for the three
months ended November 26, 2011 and
November 27, 2010, the effective
tax rate would have been 47.8% and
61.0%. For all periods presented,
the Company is unable to benefit
from, or has limitations on the
benefit of, tax losses in certain
foreign jurisdictions. For the
three months ended November 27,
2010, the Company established
valuation allowances against
deferred tax assets in certain
foreign locations of $769,000. To a
lesser extent, the accounting
treatment under GAAP for the cost
associated with incentive stock
options and shares purchased
through the Employee Stock Purchase
Plan have caused volatility in the
3. Company's effective tax rate.
RESOURCES CONNECTION, INC.
Reconciliation of Net Income to Adjusted EBITDA
(in thousands, except Adjusted EBITDA Margin)
Quarter Ended Six Months Ended
------------- ----------------
November 26, November 27, November 26, November 27,
2011 2010 2011 2010
(unaudited) (unaudited)
Net income $25,321 $17,471 $27,917 $18,701
Adjustments:
Amortization of
intangible assets 1,186 1,310 2,394 2,600
Depreciation expense 1,471 1,870 3,020 3,715
Interest income (65) (114) (153) (242)
Provision for income
taxes 17,968 15,178 22,266 18,064
------ ------ ------ ------
EBITDA 45,881 35,715 55,444 42,838
Stock-based
compensation
expense 1,876 2,589 3,808 5,269
Contingent
consideration
adjustment (33,440) (23,700) (33,440) (22,413)
------- ------- ------- -------
Adjusted EBITDA $14,317 $14,604 $25,812 $25,694
======= ======= ======= =======
Revenue $144,955 $138,534 $282,962 $262,242
======== ======== ======== ========
Adjusted EBITDA
Margin 9.9% 10.5% 9.1% 9.8%
=== ==== === ===
The Company utilizes certain financial measures and key performance indicators that are not defined by, or calculated in accordance, with GAAP to assess our financial and operating performance. 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 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, a non-GAAP financial measure, is calculated as net income before amortization of intangible assets, depreciation expense, interest income, income taxes, stock-based compensation expense and contingent consideration expense. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by Revenue. We believe that Adjusted EBITDA and Adjusted EBITDA Margin provide useful measures to our investors because they are financial measures used by management to assess the performance of our 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 to, net income, earnings per share, cash flows or other measures of financial performance prepared in accordance with GAAP.
RESOURCES CONNECTION, INC.
SELECTED BALANCE SHEET INFORMATION
(in thousands)
November 26, 2011 May 28, 2011
----------------- ------------
(unaudited)
Cash, cash
equivalents
and short-
term
investments $120,663 $144,873
Accounts
receivable,
less
allowances $87,924 $87,162
Total assets $434,845 $476,397
Current
liabilities $60,882 $67,199
Total
stockholders'
equity $370,913 $372,726
SOURCE Resources Connection, Inc.
