UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended February ~~22, 2020~~ 27, 2021

☐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	RGP	The Nasdaq Stock Market LLC (Nasdaq Global Select Market)

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 Exchange Act). Yes  No ☒ 

As of March ~~27, 2020,~~31, 2021, there were approximately ~~32,144,373~~32,823,022 shares of the registrant’s common stock, $0.01 par value per share, outstanding.

RESOURCES CONNECTION, INC.

INDEX


		Page
		No.

PART I—FINANCIAL INFORMATION
~~PART I—FINANCIAL INFORMATION~~

ITEM 1.	Consolidated Financial Statements (Unaudited)	3

	Consolidated Balance Sheets as of February ~~22, 2020~~27, 2021 and May ~~25, 2019~~30, 2020	3

	Consolidated Statements of Operations for the Three and Nine Months Ended February ~~22, 2020~~27, 2021 and February ~~23, 2019~~22, 2020	4

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended February ~~22, 2020~~27, 2021 and February ~~23, 2019~~22, 2020	5

	Consolidated ~~Statement~~Statements of Stockholders’ Equity for the Three and Nine Months Ended February ~~22, 2020~~27, 2021 and February ~~23, 2019~~22, 2020	6

	Consolidated Statements of Cash Flows for the Nine Months Ended February ~~22, 2020~~27, 2021 and February ~~23, 2019~~22, 2020	8

	Notes to Consolidated Financial Statements	9

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	2933
ITEM 4.	Controls and Procedures	33
~~ITEM 4.~~			~~Controls and Procedures~~	30
				PART II—OTHER INFORMATION
~~PART II—OTHER INFORMATION~~
ITEM 1A.	Risk Factors	33
ITEM 1.6.	~~Legal Proceedings~~Exhibits	3033
Signatures.
~~ITEM 1A.~~	~~Risk Factors~~	30

~~ITEM 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	31

~~ITEM 5.~~	~~Other Information~~	31

~~ITEM 6.~~	~~Exhibits~~	32

~~Signatures.~~		3435

‎

PART I—FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL ~~STATEMENTS~~STATEMENTS.

RESOURCES CONNECTION, INC.

CONSOLIDATED BALANCE SHEETS

~~(Unaudited)~~

(Amounts in thousands, except par value per share)



					February 27,		May 30,
					2021			2020
	February 22,		May 25,			(Unaudited)
	2020		2019
ASSETS			(Audited)
Current assets:
Cash and cash equivalents	$	35,944	$	43,045	$	84,008	$	95,624
Short-term investments		-		5,981
Trade accounts receivable, net of allowance for doubtful accounts of
$2,560 and $2,520 as of February 22, 2020 and May 25, 2019, respectively		130,908		133,304
Trade accounts receivable, net of allowance for doubtful accounts of $2,406
and $3,067 as of February 27, 2021 and May 30, 2020, respectively						108,429		124,986
Prepaid expenses and other current assets		8,014		7,103		8,141		6,222
Income taxes receivable		7,123		2,224		11,467		4,167
Total current assets		181,989		191,657		212,045		230,999
Goodwill		213,451		190,815		216,497		214,067
Intangible assets, net		21,623		14,589		20,568		20,077
Property and equipment, net		24,873		26,632		21,252		23,644
Operating right-of-use assets		38,176		-		27,702		34,287
Deferred income taxes		1,686		1,497		1,726		1,597
Other assets		4,176		3,180		1,812		4,510
Total assets	$	485,974	$	428,370	$	501,602	$	529,181

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	18,606	$	21,634	$	17,450	$	15,799
Accrued salaries and related obligations		47,024		58,628		57,878		52,407
Operating lease liabilities, current		11,459		-		10,636		11,223
Other liabilities		13,677		11,154		17,427		15,472
Total current liabilities		90,766		91,416		103,391		94,901
Long-term debt		49,000		43,000		53,000		88,000
Operating lease liabilities, noncurrent		33,317		-		23,996		30,672
Deferred income taxes		5,997		5,146		5,915		6,215
Other long-term liabilities		4,092		6,412		7,709		5,732
Total liabilities		183,172		145,974		194,011		225,520
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 5,000 shares authorized; zero shares
Preferred stock, $0.01 par value, 5,000 shares authorized; 0 shares
issued and outstanding		-		-		-		-
Common stock, $0.01 par value, 70,000 shares authorized; 63,910 and
63,054 shares issued, and 32,144 and 31,588 shares outstanding as of
February 22, 2020 and May 25, 2019, respectively		639		631
Common stock, $0.01 par value, 70,000 shares authorized; 64,540 and
63,910 shares issued, and 32,799 and 32,144 shares outstanding as of
February 27, 2021 and May 30, 2020, respectively						646		639
Additional paid-in capital		476,032		460,226		487,339		477,438
Accumulated other comprehensive loss		(13,748)		(12,588)		(8,216)		(13,862)
Retained earnings		360,967		350,230		348,676		360,534
Treasury stock at cost, 31,766 and 31,466 shares as of
February 22, 2020 and May 25, 2019, respectively		(521,088)		(516,103)
Treasury stock at cost, 31,741 and 31,766 shares as of February 27, 2021 and
May 30, 2020, respectively						(520,854)		(521,088)
Total stockholders’ equity		302,802		282,396		307,591		303,661
Total liabilities and stockholders’ equity	$	485,974	$	428,370	$	501,602	$	529,181

The accompanying notes are an integral part of these consolidated financial statements

RESOURCES CONNECTION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in thousands, except per share amounts)



	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	February 22,		February 23,		February 22,		February 23,		February 27,		February 22,		February 27,		February 22,
	2020		2019		2020		2019		2021		2020		2021		2020
Revenue	$	168,052	$	179,498	$	524,784	$	546,855	$	156,631	$	168,052	$	457,199	$	524,784
Direct cost of services, primarily payroll and related taxes for professional
services employees		106,632		111,587		321,484		337,372
Gross margin		61,420		67,911		203,300		209,483
Direct cost of services, primarily payroll and related taxes
for professional services employees										99,584		106,632		284,078		321,484
Gross profit										57,047		61,420		173,121		203,300
Selling, general and administrative expenses		55,299		55,587		166,032		166,912		52,838		55,299		158,544		166,032
Amortization of intangible assets		1,549		948		4,153		2,855		1,202		1,549		4,125		4,153
Depreciation expense		1,120		1,163		3,913		3,429		963		1,120		2,954		3,913
Income from operations		3,452		10,213		29,202		36,287		2,044		3,452		7,498		29,202
Interest expense		493		595		1,526		1,729
Other (income)/expense		-		-		(537)		-
Income before income tax (benefit) expense		2,959		9,618		28,213		34,558
Income tax (benefit) expense		(3,983)		3,822		3,995		12,457
Interest expense, net										361		493		1,316		1,526
Other income										(64)		-		(1,069)		(537)
Income before income tax expense (benefit)										1,747		2,959		7,251		28,213
Income tax expense (benefit)										1,057		(3,983)		5,270		3,995
Net income	$	6,942	$	5,796	$	24,218	$	22,101	$	690	$	6,942	$	1,981	$	24,218
Net income per common share:
Basic	$	0.22	$	0.18	$	0.76	$	0.70	$	0.02	$	0.22	$	0.06	$	0.76
Diluted	$	0.21	$	0.18	$	0.75	$	0.68	$	0.02	$	0.21	$	0.06	$	0.75
Weighted average common shares outstanding:
Basic		32,159		31,890		31,954		31,784		32,520		32,159		32,353		31,954
Diluted		32,498		32,370		32,350		32,428		32,659		32,498		32,422		32,350
Cash dividends declared per common share	$	0.14	$	0.13	$	0.42	$	0.39	$	0.14	$	0.14	$	0.42	$	0.42

The accompanying notes are an integral part of these consolidated financial statements

‎

~~RESOURCES~~RESOURCES CONNECTION, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Amounts in thousands)


									Three Months Ended					Nine Months Ended
	Three Months Ended				Nine Months Ended				February 27,		February 22,			February 27,	February 22,
	February 22,		February 23,		February 22,		February 23,		2021		2020			2021	2020
	2020		2019		2020		2019
COMPREHENSIVE INCOME:
Net income	$	6,942	$	5,796	$	24,218	$	22,101	$	690	$	6,942	$	1,981	$	24,218
Foreign currency translation adjustment, net of tax		(522)		577		(1,160)		(1,451)		390		(522)		5,646		(1,160)
Total comprehensive income	$	6,420	$	6,373	$	23,058	$	20,650	$	1,080	$	6,420	$	7,627	$	23,058

The accompanying notes are an integral part of these consolidated financial statements

‎

RESOURCES CONNECTION, INC.

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(Amounts in thousands)




	For the Three Months Ended February 27, 2021
									Accumulated
				Additional					Other				Total
	Common Stock			Paid-in		Treasury Stock			Comprehensive		Retained		Stockholders'
	Shares	Amount		Capital		Shares	Amount		Loss		Earnings		Equity
Balances as of November 28, 2020	64,199	$	642	$	483,087	31,766	$	(520,892)	$	(8,606)	$	352,716	$	306,947
Exercise of stock options	5		-		54									54
Stock-based compensation expense					1,490									1,490
Issuance of common stock under Employee
Stock Purchase Plan	261		3		2,600									2,603
Issuance of restricted stock	75		1		(1)	(25)								-
Amortization of restricted stock issued out of
treasury stock to board of director members					(12)			38				(18)		8
Cash dividends declared ($0.14 per share)												(4,591)		(4,591)
Dividend equivalents on restricted stock					121							(121)		-
Currency translation adjustment										390				390
Net income for the three months ended February 27, 2021												690		690
Balances as of February 27, 2021	64,540	$	646	$	487,339	31,741	$	(520,854)	$	(8,216)	$	348,676	$	307,591


	For the Three Months Ended February 22, 2020
									Accumulated
				Additional					Other				Total
	Common Stock			Paid-in		Treasury Stock			Comprehensive		Retained		Stockholders'
	Shares	Amount		Capital		Shares	Amount		Loss		Earnings		Equity
Balances as of November 23, 2019	63,604	$	636	$	470,427	31,466	$	(516,103)	$	(13,226)	$	358,531	$	300,265
Exercise of stock options	119		1		1,658									1,659
Stock-based compensation expense					1,428									1,428
Issuance of common stock under Employee
Stock Purchase Plan	184		2		2,529									2,531
Cancellation of restricted stock	(7)		-		-									-
Issuance of restricted stock	10		-		-									-
Amortization of restricted stock issued out of
treasury stock to board of director members					(10)	(18)		15				(5)		-
Repurchase of shares						318		(5,000)						(5,000)
Cash dividends declared ($0.14 per share)												(4,501)		(4,501)
Currency translation adjustment										(522)				(522)
Net income for the three months ended February 22, 2020												6,942		6,942
Balances as of February 22, 2020	63,910	$	639	$	476,032	31,766	$	(521,088)	$	(13,748)	$	360,967	$	302,802


	For the Nine Months Ended February 27, 2021
									Accumulated
				Additional					Other				Total
	Common Stock			Paid-in		Treasury Stock			Comprehensive		Retained		Stockholders'
	Shares	Amount		Capital		Shares	Amount		Loss		Earnings		Equity
Balances as of May 30, 2020	63,910	$	639	$	477,438	31,766	$	(521,088)	$	(13,862)	$	360,534	$	303,661
Exercise of stock options	49		1		557									558
Stock-based compensation expense					4,314									4,314
Issuance of common stock under Employee
Stock Purchase Plan	506		5		5,058									5,063
Issuance of restricted stock	75		1		(1)	(25)				-		-		-
Amortization of restricted stock issued out of
treasury stock to board of director members					(148)	-		234				(78)		8
Cash dividends declared ($0.42 per share)												(13,640)		(13,640)
Dividend equivalents on restricted stock					121							(121)		-
Currency translation adjustment										5,646				5,646
Net income for the nine months ended February 27, 2021												1,981		1,981
Balances as of February 27, 2021	64,540	$	646	$	487,339	31,741	$	(520,854)	$	(8,216)	$	348,676	$	307,591

‎

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Treasury Stock

Comprehensive

Retained

Stockholders'

Shares

Amount

Capital

Shares

Amount

Loss

Earnings

Equity
Balances as of May 25, 2019

63,054

$
631

$
460,226

31,466

$
(516,103)

$
(12,588)

$
350,230

$
282,396
Exercise of stock options

172

1

2,250

2,251
Stock-based compensation expense

1,408

1,408
Issuance of common stock under Employee

Stock Purchase Plan

215

2

2,597

2,599
Cancellation of restricted stock

(5)

-

-

-
Cash dividends declared ($0.14 per share)

(4,476)

(4,476)
Currency translation adjustment

(686)

(686)
Net income for the three months ended

August 24, 2019

4,939

4,939
Balances as of August 24, 2019

63,436

$
634

$
466,481

31,466

$
(516,103)

$
(13,274)

$
350,693

$
288,431
Exercise of stock options

85

1

1,215

1,216
Stock-based compensation expense

1,591

1,591
Cash dividends declared ($0.14 per share)

(4,499)

(4,499)
Issuance of common stock in connection with

acquisition of Accretive

83

1

1,140

1,141
Currency translation adjustment

48

48
Net income for the three months ended

November 23, 2019

12,337

12,337
Balances as of November 23, 2019

63,604

$
636

$
470,427

31,466

$
(516,103)

$
(13,226)

$
358,531

$
300,265
Exercise of stock options

119

1

1,658

1,659
Stock-based compensation expense

1,428

1,428
Issuance of common stock under Employee

Stock Purchase Plan

184

2

2,529

2,531
Cancellation of restricted stock

(7)

-

-
Issuance of restricted stock

10

-

-
Issuance of restricted stock out of treasury

stock to board of director members

(10)

(18)

15

(5)

-
Repurchase of shares

318

(5,000)

(5,000)
Cash dividends declared ($0.14 per share)

(4,501)

(4,501)
Currency translation adjustment

(522)

(522)
Net income for the three months ended

February 22, 2020

6,942

6,942
Balances as of February 22, 2020

63,910

$
639

$
476,032

31,766

$
(521,088)

$
(13,748)

$
360,967

$
302,802

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Treasury Stock

Comprehensive

Retained

Stockholders'

Shares

Amount

Capital

Shares

Amount

Loss

Earnings

Equity
Balances as of May 26, 2018

61,252

$
613

$
429,578

29,638

$
(486,722)

$
(10,385)

$
335,741

$
268,825
Exercise of stock options

186

2

2,407

2,409
Stock-based compensation expense

1,327

1,327
Issuance of common stock under Employee

Stock Purchase Plan

166

1

2,177

2,178
Purchase of shares

468

(7,462)

(7,462)
Cash dividends declared ($0.13 per share)

(4,095)

(4,095)
Currency translation adjustment

(602)

(602)
Net income for the three months ended

August 25, 2018

5,741

5,741
Balances as of August 25, 2018

61,604

$
616

$
435,489

30,106

$
(494,184)

$
(10,987)

$
337,387

$
268,321
Exercise of stock options

565

6

7,998

8,004
Stock-based compensation expense

1,611

1,611
Purchase of shares

339

(5,540)

(5,540)
Cash dividends declared ($0.13 per share)

(4,124)

(4,124)
Currency translation adjustment

(1,426)

(1,426)
Net income for the three months ended

November 24, 2018

10,564

10,564
Balances as of November 24, 2018

62,169

$
622

$
445,098

30,445

$
(499,724)

$
(12,413)

$
343,827

$
277,410
Exercise of stock options

641

6

8,720

8,726
Stock-based compensation expense

1,866

1,866
Issuance of common stock under Employee

Stock Purchase Plan

192

2

2,319

2,321
Issuance of restricted stock out of treasury

stock to board of director members

(21)

510

(510)

-
Purchase of shares

558

(9,249)

(9,249)
Cash dividends declared ($0.13 per share)

(4,147)

(4,147)
Currency translation adjustment

577

577
Net income for the three months ended

February 23, 2019

5,796

5,796
Balances as of February 23, 2019

63,002

$
630

$
458,003

30,982

$
(508,463)

$
(11,836)

344,966

$
283,300


	For the Nine Months Ended February 22, 2020
									Accumulated
				Additional					Other				Total
	Common Stock			Paid-in		Treasury Stock			Comprehensive		Retained		Stockholders'
	Shares	Amount		Capital		Shares	Amount		Loss		Earnings		Equity
Balances as of May 25, 2019	63,054	$	631	$	460,226	31,466	$	(516,103)	$	(12,588)	$	350,230	$	282,396
Exercise of stock options	376		3		5,123									5,126
Stock-based compensation expense					4,427									4,427
Issuance of common stock under Employee
Stock Purchase Plan	399		4		5,126									5,130
Cancellation of restricted stock	(12)		-		-									-
Issuance of restricted stock	10		-		-									-
Amortization of restricted stock issued out of
treasury stock to board of director members					(10)	(18)		15				(5)		-
Repurchase of shares						318		(5,000)						(5,000)
Cash dividends declared ($0.42 per share)												(13,476)		(13,476)
Issuance of common stock in connection with the
acquisition of Accretive	83		1		1,140									1,141
Currency translation adjustment										(1,160)				(1,160)
Net income for the nine months ended February 22, 2020												24,218		24,218
Balances as of February 22, 2020	63,910	$	639	$	476,032	31,766	$	(521,088)	$	(13,748)	$	360,967	$	302,802

The accompanying notes are an integral part of these consolidated financial statements

‎

RESOURCES CONNECTION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)


	Nine Months Ended
	February 27,		February 22,
	2021		2020
Cash flows from operating activities:
Net income	$	1,981	$	24,218
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,079		8,066
Stock-based compensation expense		4,939		4,649
Contingent consideration adjustment		3,052		(1,120)
Loss on disposal of assets		559		67
Impairment of operating right-of-use assets		821		-
Adjustment to allowance for doubtful accounts		(136)		1,226
Non-cash benefit		-		(46)
Deferred income taxes		(318)		604
Changes in operating assets and liabilities, net of effects of business combinations:
Trade accounts receivable		19,141		4,684
Prepaid expenses and other current assets		(1,850)		(812)
Income taxes		(7,208)		(5,298)
Other assets		193		(997)
Accounts payable and accrued expenses		19		(3,276)
Accrued salaries and related obligations		(1,146)		(12,192)
Other liabilities		8,245		1,790
Net cash provided by operating activities		35,371		21,563
Cash flows from investing activities:
Redemption of short-term investments		-		5,981
Proceeds from sale of assets		3		105
Acquisition of Expertence, net of cash acquired		-		(254)
Acquisition of Veracity, net of cash acquired		-		(30,258)
Acquisition of property and equipment and internal-use software		(2,849)		(2,043)
Net cash used in investing activities		(2,846)		(26,469)
Cash flows from financing activities:
Proceeds from exercise of stock options		576		5,126
Proceeds from issuance of common stock under Employee Stock Purchase Plan		5,063		5,130
Purchase of common stock		-		(5,000)
Payment of contingent consideration		(3,020)		-
Proceeds from Revolving Credit Facility		-		35,000
Repayments on Revolving Credit Facility		(35,000)		(29,000)
Cash dividends paid		(13,625)		(13,080)
Net cash used in financing activities		(46,006)		(1,824)
Effect of exchange rate changes on cash		1,865		(371)
Net decrease in cash		(11,616)		(7,101)
Cash and cash equivalents at beginning of period		95,624		43,045
Cash and cash equivalents at end of period	$	84,008	$	35,944

Nine Months Ended

February 22,

February 23,

2020

2019

Cash flows from operating activities:

Net income
$
24,218

$
22,101

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

8,066

6,284

Stock-based compensation expense

4,649

4,961

Contingent consideration adjustment

(1,120)

(374)

Loss on disposal of assets

67

346

Bad debt expense

1,226

477

Non-cash benefit

(46)

-

Deferred income taxes

604

5,699

Changes in operating assets and liabilities, net of effects of business combinations:

Trade accounts receivable

4,684

(9,416)

Prepaid expenses and other current assets

(812)

(848)

Income taxes

(5,298)

(4,988)

Other assets

(997)

(1,186)

Accounts payable and accrued expenses

(3,276)

(407)

Accrued salaries and related obligations

(12,192)

(11,608)

Other liabilities

1,790

2,455

Net cash provided by operating activities

21,563

13,496

Cash flows from investing activities:

Redemption of short-term investments

5,981

-

Proceeds from sale of assets

105

-

Acquisition of Expertence, net of cash acquired

(254)

-

Acquisition of Veracity, net of cash acquired of $2.1 million

(30,258)

-

Purchase of property and equipment

(2,043)

(5,939)

Net cash used in investing activities

(26,469)

(5,939)

Cash flows from financing activities:

Proceeds from exercise of stock options

5,126

19,139

Proceeds from issuance of common stock under Employee Stock Purchase Plan

5,130

4,499

Purchase of common stock

(5,000)

(22,251)

Proceeds from Revolving Credit Facility

35,000

-

Repayment on Revolving Credit Facility

(29,000)

(5,000)

Cash dividends paid

(13,080)

(12,011)

Net cash used in financing activities

(1,824)

(15,624)

Effect of exchange rate changes on cash

(371)

(436)

Net decrease in cash

(7,101)

(8,503)

Cash and cash equivalents at beginning of period

43,045

56,470

Cash and cash equivalents at end of period
$
35,944

$
47,967

The accompanying notes are an integral part of these consolidated financial statements

‎

RESOURCES CONNECTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Three and nine months ended February 22, 2020 and February 23, 2019~~

1. Description of the Company and its Business

Resources Connection, Inc. (“Resources Connection” or the “Company”), a Delaware corporation, was incorporated on November 16, 1998. ~~The Company’s~~Resources Connection’s operating entities provide services primarily under the name Resources Global ~~Professionals (“RGP”, the “Company,” “we,” “our” or “us”)). RGP~~Professionals. Resources Connection 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~~to its ~~clients,~~global client base, the Company ~~specializes in solving today’s most pressing business problems across the enterprise~~supports its clients’ needs through both professional staffing and project execution in the areas of ~~Business Strategy & Transformation, Finance & Accounting, Risk & Compliance~~transactions, regulations and ~~Technology & Digital Innovation.~~transformations. The ~~Company has offices in~~Company’s principal markets of operation are the United States (“U.S.”), Asia, Europe, Australia, Canada ~~Europe~~ and Mexico.

The Company’s fiscal year consists of 52 or 53 weeks, ending on the ~~last~~ Saturday in ~~May.~~May closest to May 31. The third quarters of fiscal ~~2020~~2021 and ~~2019~~2020 each consisted of 13 weeks. The Company’s fiscal ~~2020~~2021 will consist of 5352 weeks.

2. Summary of Significant Accounting Policies

Interim Financial Information

The accompanying unaudited financial ~~information~~statements of the Company as of and for the three and nine months ended February 27, 2021 and February 22, 2020 have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”) for interim financial information and ~~February 23, 2019 is unaudited but includes~~the instructions to Form 10-Q and Article 10 of Regulation S-X. These financial statements include all adjustments (consisting only of normal recurring adjustments) management of the Company considers necessary for a fair presentation of its financial position at such dates and the operating results and cash flows for those periods. The fiscal ~~2019~~2020 year-end balance sheet data was derived from audited consolidated financial statements, and certain information and note disclosures normally included in annual financial statements prepared in accordance with ~~generally accepted accounting principles in the U.S. (“GAAP”)~~GAAP have been condensed or omitted pursuant to Securities and Exchange Commission (“SEC”) rules or regulations; however, the Company believes the disclosures made are adequate to make the information presented not misleading.

The unaudited consolidated results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for the full fiscal year. These interim financial statements should be read in conjunction with the audited consolidated financial statements for the year ended May ~~25, 2019,~~30, 2020, which are included in the Company’s Annual Report on Form 10-K (“Fiscal Year ~~2019~~2020 Form 10-K”) ~~which was~~ filed with the SEC on July ~~19, 2019~~27, 2020 (File No. ~~000-32113)~~0-32113).

The ~~Company's~~Company’s significant accounting policies are described in Note 2 to the audited consolidated financial statements included in the Fiscal Year ~~2019~~2020 Form 10-K. The Company has reviewed its accounting policies ~~identifying~~and identified those that it believes to be critical to the preparation and understanding of its consolidated financial statements in the list set forth below. See the disclosure under the heading ~~"Critical~~“Critical Accounting ~~Policies"~~Policies” in Item 7 of Part II of the Fiscal Year ~~2019~~2020 Form 10-K for a detailed description of these policies and their potential effects on the Company’s results of operations and financial condition.

Allowance for doubtful accounts

Income taxes

Revenue recognition

Stock-based compensation

Valuation of long-lived assets

Valuation of goodwill

Business combinations

Effective in the second quarter of fiscal 2021, the Company revised its segment reporting to align with changes made in its internal management structure and its reporting structure of financial information used to assess performance and allocate resources. These changes impacted the Company’s reportable segments but did not impact the Company’s consolidated financial statements. See Note 13 – Segment Information for additional information about the segment change.

Principles of Consolidation

The consolidated financial statements of the Company include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

~~Allowance for doubtful accounts~~

~~Income taxes~~

~~Revenue recognition~~

~~Stock-based compensation~~

~~Valuation of long-lived assets~~

~~Business combinations~~

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates and assumptions are adequate, actual results could differ from the estimates and assumptions used.

Net Income Per Share Information

The Company presents both basic and diluted earnings per common share (“EPS”). Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS is based upon the weighted average number of common and common equivalent shares outstanding during the period, calculated using the treasury stock ~~method for stock options and unvested restricted stock.~~method. Under the treasury stock method, assumed proceeds include the amount the employee

must pay for exercising stock options and the amount of compensation cost for future services the Company has not yet ~~recognized.~~recognized for the Company’s share-based payment awards. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect. Stock options for which the exercise price exceeds the average market price ~~per common share~~ over the period are anti-dilutive and are excluded from the calculation.

The following table summarizes the calculation of net income per common share for the periods indicated (in thousands, except per share amounts):



	Three Months Ended				Nine Months Ended
	February 27,		February 22,		February 27,		February 22,
	2021		2020		2021		2020

Net income	$	690	$	6,942	$	1,981	$	24,218
Basic:
Weighted average shares		32,520		32,159		32,353		31,954
Diluted:
Weighted average shares		32,520		32,159		32,353		31,954
Potentially dilutive shares		139		339		69		396
Total dilutive shares		32,659		32,498		32,422		32,350

Basic	$	0.02	$	0.22	$	0.06	$	0.76
Dilutive	$	0.02	$	0.21	$	0.06	$	0.75
Anti-dilutive shares not included above		4,657		4,274		5,200		3,749

Three Months Ended

Nine Months Ended

February 22,

February 23,

February 22,

February 23,

2020

2019

2020

2019

Net income
$
6,942

$
5,796

$
24,218

$
22,101

Basic:

Weighted average shares

32,159

31,890

31,954

31,784

Diluted:

��

Weighted average shares

32,159

31,890

31,954

31,784

Potentially dilutive shares

339

480

396

644

Total dilutive shares

32,498

32,370

32,350

32,428

Net income per common share:

Basic
$
0.22

$
0.18

$
0.76

$
0.70

Dilutive
$
0.21

$
0.18

$
0.75

$
0.68

Anti-dilutive shares not included above

4,274

3,716

3,749

3,313

Financial Instruments

The fair value of the Company’s financial instruments reflects the amounts that the Company estimates it will receive in connection with the sale of an asset in an orderly transaction between market participants at the measurement date (exit price). The fair value hierarchy prioritizes the use of inputs used in valuation techniques into the following three levels:

Level 1 – Quoted prices in active markets for identical assets and liabilities.

Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets.

Level 3 – Unobservable inputs.

Contingent consideration liability is for estimated future contingent consideration payments related to the Company’s acquisitions. Total contingent consideration liabilities were ~~$7.8~~$5.7 million and ~~$2.2~~$7.9 million as of February ~~22, 2020~~27, 2021 and May ~~25, 2019,~~30, 2020, respectively. The fair value measurement of the liability is based on significant inputs not observed in the market and thus represents a Level 3 measurement. The significant unobservable inputs used in the fair value measurement of the contingent consideration liability are the Company’s measures of the estimated payouts based on internally generated financial projections and discount rates. The fair value of contingent consideration liability is reassessed on a quarterly basis by the Company using additional information as it becomes available, and any change in the fair value estimates are recorded in selling, general and administrative expenses in the

Company’s Consolidated Statements of Operations. See Note 34 – ~~Acquisitions and Dispositions~~Acquisition.

The Company’s short-term investments were $6.0 million as of May 25, 2019. The short-term investments represented commercial papers with original contractual maturities between three months and one year and were considered “held-to-maturity” securities. The investments were measured using quoted prices in markets that are not active (Level 2).

~~The Company's~~ financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and long-term debt are carried at cost, which approximates their fair value because of the ~~short‑~~short-term maturity of these instruments or because their stated interest rates are indicative of market interest rates.

Recent Accounting Pronouncements Adopted

~~Effective as of~~In June 2016, the ~~beginning of fiscal year 2020, the Company adopted~~Financial Accounting Standards Board issued Accounting Standards Update ~~(“ASU”)~~ No. ~~2016-02, Leases,~~ 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU ~~No. 2018-10, Codification Improvements~~2016-13”). Under ASU 2016-13, companies are required to ~~Topic 842 (Leases)~~present financial assets, measured at amortized cost basis, at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis, such as trade receivables. The measurement of expected credit loss will be based on historical experience, current conditions, and ~~ASU No. 2018-11, Targeted Improvements to Topic 842 (Leases). The guidance is intended to increase transparency~~reasonable and ~~comparability among companies for leasing transactions, including a requirement for companies~~supportable forecasts that ~~lease assets to recognize on their balance sheets~~affect the ~~assets and liabilities for~~collectability of the ~~rights and~~

obligations created by those leases. The guidance also provides for disclosures that allow the users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

reported amount. The Company adopted ~~the~~this guidance on ~~May 26, 2019~~ using the modified retrospective adoption method ~~without restatement~~beginning with its first quarter of ~~comparative periods. As such, periods prior~~fiscal 2021, and applied it to ~~the date~~all applicable accounts. The application of ~~adoption are presented in accordance with~~ ~~ASC~~ 840 - Leases. The Company utilized the available practical expedient that allowed the Company to not reassess whether existing contracts contain a lease under the new definition of a lease, the lease classification for existing leases, whether previously capitalized initial direct costs would qualify for capitalization under thethis new guidance ~~and recognize leases with an initial term of 12 months or less on a straight-line basis without recognizing a right-of-use (“ROU”) asset or operating lease liability.~~

~~The adoption of this guidance had~~did not have a material impact on the ~~Consolidated Balance Sheet beginning May 26, 2019 due to~~Company’s consolidated financial condition, results of operations or cash flows.

3. Revenue Recognition

The timing of revenue recognition, billings and cash collections affects the recognition of ~~ROU~~accounts receivable, contract assets and ~~lease liabilities~~contract liabilities.

Contract assets represent the Company’s rights to consideration for completed performance under the ~~Company's portfolio of operating leases. The adoption~~contract (e.g., unbilled receivables), in which the Company has transferred control of the ~~guidance had~~product or services before there is an ~~immaterial impact on~~unconditional right to payment. Contract assets were $35.0 million and $30.6 million as of February 27, 2021 and May 30, 2020, respectively.

Contract liabilities represent deferred revenue when cash is received in advance of performance and are presented in Other Liabilities in the Consolidated ~~Statements~~Balance Sheets. Contract liabilities were $4.9 million and $2.9 million as of ~~Operations, Consolidated Statements of Comprehensive Income~~February 27, 2021 and ~~Consolidated Statements of Cash Flows for~~May 30, 2020, respectively. Revenues recognized during the three and nine months ended February ~~22, 2020.~~

~~Additional information and disclosures required by the new standard are contained in Note 5,Leases~~.

~~3. Acquisitions and Dispositions~~

~~Acquisition of Expertence~~

On November 30, 2019, the Company acquired Expertforce Interim Projects GmBH, LLC (“Expertence”), a leading provider of professional interim management services, based in Munich Germany. With the acquisition of Expertence, the Company is able to offer a full range of project and management consulting services in the Germany market. The Company paid initial cash consideration of $0.4 million. The initial consideration is subject to final adjustments for the impact of working capital as defined in the purchase agreement.

In addition, the purchase agreement requires earn-out payments to be made based on performance over an 18-month period ending on May 31, 2021. The Company is obligated to pay the former owners of Expertence contingent consideration if certain revenue targets are achieved, up to a maximum of $0.3 million. In determining the fair value of the contingent consideration liability, the Company used an estimate based on a number of possible projections over the earnout period and applied a probability to each possible outcome. Given the short duration of the earnout period, the fair value of contingent liability was measured on an undiscounted basis. Each reporting period, the Company will estimate changes in the fair value of contingent consideration and any change in fair value will be recognized in the Company’s Consolidated Statements of Operations. The estimate of fair value of contingent consideration requires very subjective assumptions to be made of various potential revenue results. We do not expect future revisions to these assumptions to materially change the estimate of the fair value of contingent consideration and the Company’s future operating results.

~~Fair value of consideration transferred (in thousands):~~



~~Cash~~	$	~~383~~
~~Estimated initial contingent consideration~~		~~305~~
~~Total~~	$	~~688~~



~~Cash and cash equivalents~~	$	11
~~Accounts receivable~~		~~215~~
~~Prepaid expenses and other current assets~~		7
~~Intangible assets:~~
~~Computer software (24 months useful life)~~		~~184~~
~~Total identifiable assets~~		~~417~~
~~Accounts payable~~		~~196~~
~~Accrued expenses and other current liabilities~~		8
~~Deferred tax liability~~		59
~~Total liabilities assumed~~		~~263~~
~~Net identifiable assets acquired~~		~~154~~
~~Goodwill~~		~~534~~
~~Net assets acquired~~	$	~~688~~

~~Results of operations of Expertence are~~27, 2021 that were included in ~~the Consolidated Statements~~deferred revenues as of ~~Operations from the date of acquisition~~May 30, 2020 were $0.2 million and ~~were not material to the Company’s consolidated results. During the third quarter of fiscal 2020, the Company incurred $0.1~~$1.4 million, ~~in acquisition costs which were recorded in selling, general and administrative expenses in the Consolidated Statement of Operations.~~respectively.

4. Acquisition ~~of Veracity~~

On July 31, 2019, the Company acquired VeracityConsulting Group, LLC (“Veracity”), with a total purchase price of approximately $38.6 million. Veracity is a fast-growing, digital transformation firm based in Richmond, Virginia, that delivers innovative solutions to the Fortune 500 and leading healthcare organizations. The acquisition of Veracity is a step in accelerating the Company’s stated objective to enhance its digital capabilities and allows the Company to offer comprehensive end-to-end solutions to its clients by combining Veracity’s customer-facing offerings with the Company’s depth of experience in transforming the back office. The Company paid initial cash consideration of $30.3 million (net of $2.1 million cash acquired). The initial consideration is subject to final adjustments for the impact of the Internal Revenue Code Section 338(h)(10) joint election between the Company and former owners of Veracity and working capital as defined in the purchase agreement.

~~In addition, the~~ purchase agreement requires earn-out payments to be made based on performance after each of the first and second anniversary of the acquisition date. The Company is obligated to pay the former owners of Veracity contingent consideration if certain earnings before interest, taxes, depreciation and amortization (“EBITDA”) requirements are achieved. In determining the fair value of the contingent consideration liability, the Company ~~used~~uses the Monte Carlo simulation modeling which ~~included~~includes the application of an appropriate discount rate (Level 3 fair value). Each reporting period, the Company ~~will estimate~~estimates changes in the fair value of contingent consideration and records any change in fair value ~~will be recognized~~in selling, general and administrative expense in the Company’s Consolidated Statements of Operations. The estimate of fair value of contingent consideration requires very subjective assumptions to be made of various potential EBITDA results and discount rates. Future revisions to these assumptions could materially change the estimate of the fair value of contingent consideration and therefore could materially affect the Company’s future operating results.

~~During the quarter ended August 24, 2019,~~ ~~the Company made an initial provisional allocation of the purchase price for Veracity based on the~~The fair value of the ~~assets acquired~~Veracity contingent consideration increased $2.7 million and liabilities assumed, with the residual amount recorded as goodwill, in accordance with Accounting Standards Codification (“ASC”) 805. The Company’s initial purchase price allocation considered a number of factors, including the valuation of identifiable intangible assets and contingent consideration. During the three months ended November 23, 2019, the Company adjusted the previously reported provisional allocation of the purchase price to reflect new information obtained$3.1 million during the quarter, which resulted in changes in expected future performance and cash flows as of the acquisition date. There were no additional adjustments to the provisional purchase price allocation during the three months ended February 22, 2020.

~~The following table provides a summary of the adjusted provisional purchase price allocation.~~

~~Fair value of consideration transferred (in thousands):~~



~~Cash~~	$	~~32,314~~
~~Estimated initial contingent consideration~~		~~6,290~~
~~Total~~	$	~~38,604~~

~~Recognized provisional amounts of identifiable assets acquired and liabilities assumed (in thousands):~~


~~Cash and cash equivalents~~	$	~~2,056~~
~~Accounts receivable~~		~~3,299~~
~~Prepaid expenses and other current assets~~		~~116~~
~~Intangible assets:~~
~~Backlog (17 months useful life)~~		~~1,210~~
~~Customer relationships (7 years useful life)~~		~~9,300~~
~~Trademarks (3 years useful life)~~		~~570~~
~~Property and equipment~~		~~117~~
~~Total identifiable assets~~		~~16,668~~
~~Accounts payable~~		~~305~~
~~Accrued expenses and other current liabilities~~		~~712~~
~~Total liabilities assumed~~		~~1,017~~
~~Net identifiable assets acquired~~		~~15,651~~
~~Goodwill~~		~~22,953~~
~~Net assets acquired~~	$	~~38,604~~

The remeasured purchase price allocation above may be subject to further adjustments during the measurement period if new information is obtained about facts and circumstances that existed as of the acquisition date. A final determination of fair value of assets acquired and liabilities assumed relating to the acquisition could differ from the stated purchase price allocation. As of the acquisition date, the gross contractual amount of accounts receivable of $3.3 million was expected to be fully collected.

~~During~~ the three and nine months ended February ~~22,~~27, 2021, respectively, due to the remeasurement to fair value each period. In November 2020, the ~~fair value of~~Company paid $5.3 million in contingent consideration ~~decreased by $0.8 million and $0.6 million, respectively. Such amounts were recorded in selling, general and administrative expense in~~to the ~~Consolidated Statements~~former owners of ~~Operations.~~Veracity relating to the first earn-out period. As of February ~~22, 2020,~~27, 2021, the contingent consideration liability related to Veracity for the second and final earn-out period was ~~$5.6~~$5.3 million, of which ~~$3.0 million was~~is included in Other current liabilities ~~and $2.6 million was included in Long-term liabilities~~ in the Consolidated Balance Sheet. The change in fair value of contingent consideration from the remeasurement was recorded in selling, general and administrative expense in the Consolidated Statement of Operations for the three months ended February 22, 2020.

~~Results of operations of Veracity are included in the Consolidated Statements of Operations from the date of acquisition.~~ Veracity contributed $5.4 million and $12.6 million to consolidated revenue and $1.1 million and $2.5 million to income from operations in the three and nine months ended February 22, 2020, respectively. T~~he Company incurred~~ ~~$0.6 million~~ ~~in acquisition costs which were recorded in selling, general and administrative expenses in the Consolidated Statement of Operations for the nine months ended February 22, 2020.~~

~~Prior Period Acquisitions~~
‎

~~During fiscal 2018, the Company completed two acquisitions, the acquisition of Taskforce – Management on Demand AG (“Taskforce”) and Accretive Solutions, Inc. (“Accretive”).~~ ~~See Note 3 to the consolidated financial statements included in Part II, Item 8 in the Fiscal Year 2019 Form 10-K for additional detail.~~

During the three months ended February 22, 2020, the Company did not have any material adjustment to the contingent consideration liability relating to Taskforce. A final contingent consideration payment of €1.6 million ($1.8 million) was paid to the sellers of Taskforce on March 30, 2020.

In addition, on October 14, 2019, the Company reached a final settlement on a pre-acquisition claim with the seller of Accretive. As a part of the settlement, the Company issued 82,762 shares of common stock to the seller and received $0.6 million in cash from the escrow. The resulting gain of $0.5 million was included in Other (income) expense in the Consolidated Statements of Operations for the nine months ended February 22, 2020.

~~Dispositions~~

On September 2, 2019, the Company completed the sale of certain assets and liabilities of its foreign subsidiary, Resources Global Professionals Sweden AB, to Capacent Holding AB (publ), a Swedish public company, for SEK1,016,862 (approximately $105,000) in cash resulting in a loss on sale of assets of approximately $38,000. As a part the sale, the Company transferred the majority of its local customer contracts, the existing office lease as well as all its employee consultants. As a result of the sale, the nearby Denmark and Norway markets also discontinued serving local Sweden customer contracts. The Company expects to continue to serve its global client base and to a lesser extent, its remaining local client contracts, in Sweden and Denmark.

In addition, during the quarter ended February 22, 2020, the Company continued to wind down business in the Belgium, (including its wholly owned subsidiary in Luxembourg) and Norway markets. The Company expects to fully dissolve all three entities by the end of fiscal 2020. In connection with the foregoing sale of assets and exit activities, the Company incurred costs of approximately $0.7 million primarily related to employee termination benefits. Such expenses were included in selling, general and administrative expenses in the Consolidated Statements of Operations for the nine months ended February 22, 2020. None of the markets sold or exited are considered strategic components of the Company’s operations.

In connection with exiting the above-mentioned entities, the Company analyzed the facts and circumstances regarding its historical and current investments, along with its associated accounting and tax positions. Based on the analysis, the Company recorded a tax benefit related to the worthless stock loss in the investment in its wholly owned subsidiaries as well as worthless loans to these subsidiaries. See Note 6 – ~~Income taxes.~~

1311

4.5. Intangible Assets and Goodwill

The following table ~~summarizes details of~~sets forth the Company’s intangible assets, including acquired intangible assets and ~~related accumulated amortization~~internal-use software (amounts in thousands):


	As of February 22, 2020						As of May 25, 2019						As of February 27, 2021						As of May 30, 2020
			Accumulated						Accumulated						Accumulated						Accumulated
	Gross		Amortization		Net		Gross		Amortization		Net		Gross		Amortization		Net		Gross		Amortization		Net
Customer contracts and relationships (3-8 years)	$	23,738	$	(5,780)	$	17,958	$	14,495	$	(3,439)	$	11,056	$	23,932	$	(9,181)	$	14,751	$	23,779	$	(6,707)	$	17,072
Tradenames (3-10 years)		4,916		(2,399)		2,517		4,407		(1,563)		2,844		5,123		(3,525)		1,598		4,960		(2,735)		2,225
Backlog (17 months)		1,210		(468)		742		-		-		-		1,210		(1,210)		-		1,210		(694)		516
Consultant list (3 years)		757		(642)		115		783		(462)		321		845		(845)		-		776		(718)		58
Non-compete agreements (3 years)		866		(733)		133		896		(528)		368		966		(966)		-		888		(821)		67
Computer software (2 years)		181		(23)		158		-		-		-
Computer software (2-3.5 years)														4,683		(464)		4,219		185		(46)		139
Total	$	31,668	$	(10,045)	$	21,623	$	20,581	$	(5,992)	$	14,589	$	36,759	$	(16,191)	$	20,568	$	31,798	$	(11,721)	$	20,077

The Company recorded amortization expense of ~~$1.5~~$1.2 million and ~~$0.9~~$1.5 million for the three months ended February 27, 2021 and February 22, 2020, ~~and February 23, 2019,~~ respectively, and ~~$4.2~~$4.1 million and ~~$2.9~~$4.2 million for the nine months ended February 27, 2021 and February 22, 2020, ~~and February 23, 2019,~~ respectively.

The following table summarizes future estimated amortization expense related to intangible assets (in thousands):

Fiscal Years Ending

2020

2021

2022

2023

2024
Expected amortization expense

$
5,741

$
4,589

$
3,331

$
3,133

$
3,097


2021 (remaining 3 months)	$	1,184
2022		4,690
2023		4,480
2024		4,285
2025		3,123
2026		2,329
Thereafter		477
Total	$	20,568

The estimates of future intangible asset amortization expense do not incorporate the potential impact of future currency fluctuations when translating the financial results of the Company’s international operations that have amortizable intangible assets into U.S. dollars.

As further described in Note 13 – Segment Information, the Company changed its segment reporting effective in the second quarter of fiscal 2021, and reallocated goodwill to the new reporting units on the relative fair value basis. Concurrent with the segment change, the Company completed a goodwill impairment assessment, and concluded that 0 goodwill impairment existed immediately before and after the change in segment reporting.

The following table summarizes the activity in the Company’s goodwill balance. The balance ~~(in thousands):~~as of May 30, 2020 was recast to reflect the impact of the preceding segment change. Amounts are in thousands.

February 22,

February 23,

2020

2019
Goodwill, beginning of year
$
190,815

$
191,950
Acquisitions- (see Note 3)

23,487

-
Impact of foreign currency exchange rate changes

(851)

(801)
Goodwill, end of period
$
213,451

$
191,149


	RGP		Other Segments		Total Company
Balance as of May 30, 2020	$	208,958	$	5,109	$	214,067
Impact of foreign currency exchange rate changes		-		2,430		2,430
Balance as of February 27, 2021	$	208,958	$	7,539	$	216,497

‎

6. Leases

The Company currently leases office space, vehicles and certain equipment under operating ~~leases expiring through 2028. Operating leases include fixed payments plus, in some cases, scheduled base rent increases over the term~~leases. The following table summarizes components of the ~~lease. Certain leases require variable payments of common area maintenance, operating expenses and real estate taxes applicable to the property. Variable payments are excluded from the measurements of~~total lease ~~liabilities and are expensed as incurred.~~ ~~Any tenant improvement allowances received from the lessor are recorded as a reduction to rent expense over the term of the lease.~~ ~~No lease agreements contain any residual value guarantees or material restrictive covenants.~~

Certain of the Company's leases include one or more options to renew or terminate the lease at the Company’s discretion. Generally, the renewal and termination options are not included in the right-of-use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates lease renewal and termination options and, when they are reasonably certain of exercise, includes the renewal or termination option in the lease term.

~~The Company measures the lease liability for each leased asset at the present value of lease payments, as defined in ASC 842, discounted using an incremental borrowing rate.~~ As most of the Company’s leases do not provide an implicit interest rate, the Company utilizes its incremental borrowing rate based on the information available at the commencement date of the lease in determining the present value of lease payments. The Company has a centrally managed treasury function; therefore, a portfolio approach is applied in determining the incremental borrowing rate. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a fully collateralized basis over a similar term in an amount equal to the total lease

~~payments in a similar economic environment. The Company’s right-of-use~~ ~~assets are equal to the lease liabilities, adjusted for lease incentives received, including tenant improvement allowances, deferred rent, and prepayments made to the lessor.~~

In some instances, the Company sublease excess office space to third party tenants. The Company does not recognize liabilities or right-of-use assets for leases with an initial term of 12 months or less.

~~Lease~~ cost, ~~components~~which were included within selling, general and administrative expenses in the Consolidated Statements of Operations ~~were as follows~~ (in thousands):


	Three Months Ended		Nine Months Ended		Three Months Ended				Nine Months Ended
	February 22, 2020		February 22, 2020		February 27, 2021		February 22, 2020		February 27, 2021		February 22, 2020
Operating lease cost	$	3,159	$	9,275	$	2,583	$	3,159	$	8,201	$	9,275
Short-term lease cost		124		322		43		124		135		322
Variable lease cost		562		1,762		756		562		2,004		1,762
Sublease income		(230)		(536)		(227)		(230)		(671)		(536)
Total lease cost	$	3,615	$	10,823	$	3,155	$	3,615	$	9,669	$	10,823

Supplemental cash flow information related to the ~~Company's~~Company’s operating leases were as follows (in thousands):


	~~Nine Months Ended~~
	~~February 22, 2020~~
~~Cash paid for amounts included in the measurement of operating lease liabilities~~	$	~~9,783~~
~~Right-of-use assets obtained in exchange for lease obligations~~	$	~~5,101~~


	Three Months Ended				Nine Months Ended
	February 27, 2021		February 22, 2020		February 27, 2021		February 22, 2020
Cash paid for amounts included in the measurement of operating lease liabilities	$	3,209	$	3,224	$	10,166	$	9,783
Right-of-use assets obtained in exchange for new operating lease obligations	$	363	$	717	$	1,918	$	5,101

The weighted average remaining lease term and weighted average discount rate for ~~our~~the Company’s operating leases were as follows:


	~~As of~~
	~~February 22, 2020~~
~~Weighted average remaining lease term~~		~~4.5 years~~
~~Weighted average discount rate~~		~~4.12%~~

The maturities of operating lease liabilities were as follows as of February ~~22, 2020~~27, 2021 (in thousands):


Years Ending:	Operating Lease Maturity
May ~~30, 2020 (excluding the nine months ended February 22, 2020)~~29, 2021	$	~~3,299~~ 3,032
May ~~29, 2021~~28, 2022		~~12,696~~ 11,343
May ~~28, 2022~~27, 2023		~~10,955~~ 8,986
May ~~27, 2023~~25, 2024		~~8,561~~ 7,177
May ~~25, 2024~~31, 2025		~~7,057~~ 3,459
Thereafter		~~6,570~~ 3,377
Total ~~operating lease~~minimum payments	$	~~49,138~~ 37,374
Less: ~~Imputed interest~~discount		~~(4,361)~~ (2,742)
Present value of operating lease liabilities	$	~~44,777~~ 34,632

6.The Company owns its headquarters office building located in Irvine, California and leases approximately 13,000 square feet of the approximately 57,000 square feet building to independent third parties under operating lease agreements expiring through fiscal 2025. Rental income recognized totaled $55,000 and $53,000 for the three months ended February 27, 2021 and February 22, 2020, respectively, and $164,000 and $159,000 for the nine months ended February 27, 2021 and February 22, 2020, respectively. Under the terms of these operating lease agreements, rental income is expected to be $47,000, $199,000, $226,000, $232,000 and $78,000 in the remaining three months of fiscal 2021 and fiscal years 2022 through 2025, respectively. Rental income is included in selling, general and administrative expenses in the Consolidated Statements of Operations.

‎

7. Income Taxes

~~In general,~~For the three months ended February 27, 2021 and February 22, 2020, respectively, the Company’s income tax ~~provision primarily includes tax~~ expense (benefit) on operating results of the Company’s U.S. and foreign entities, all taxed at different statutory rates applicable in the various tax jurisdictions, changes in valuation allowances related to tax benefits of certain foreign locations and tax expense (benefit) related to stock-based compensation for nonqualified stock options and for disqualifying dispositions under the Company’s Employee Stock Purchase Plan (“ESPP”). The Company records income tax expense (benefit) based upon actual results versus a forecasted tax rate because of the volatility in its international operations that span numerous tax jurisdictions.

~~Income tax (benefit) expense~~ was ~~($4.0) million, an effective tax benefit rate of (135%), and $3.8~~$1.1 million, an effective tax rate of ~~40%, for the three months ended February 22, 2020 and February 23, 2019, respectively. Income tax expense was $4.0 million,~~

~~an effective tax rate of 14%~~60.5%, and ~~$12.5~~$(4.0) million, an effective tax rate of ~~36%~~(134.6%). For the nine months ended February 27, 2021 and February 22, 2020, respectively, the Company’ income tax expense was $5.3 million, an effective tax rate of 72.7%, and $4.0 million, an effective tax rate of 14%.

The Company operates in an international environment. Accordingly, the consolidated effective tax rate is a composite rate reflecting the earnings (losses) in various locations and the applicable tax rates in those jurisdictions, and fluctuations in the consolidated effective tax rate reflect the changes in the mix of earnings (losses) in these jurisdictions.

Income tax expense of $1.1 million and $5.3 million for the three and nine months ended February 27, 2021, respectively, were predominantly associated with pre-tax income from North America and Asia Pacific. For the three and nine months ended February 27, 2021, a significant portion of the restructuring costs were incurred in the Company’s European entities. NaN tax benefits were recognized due to the required valuation allowances. Additionally, a new valuation allowance on certain deferred tax assets of $0.2 million was established in the third quarter of fiscal 2021, further contributing to the effective tax rate for the three and nine months ended February 27, 2021.

The income tax (benefit) expense for the three and nine months ended February 22, 2020 ~~and February 23, 2019, respectively.~~

benefited from a discrete tax benefit of $6.6 million resulting from the deduction of the investment basis in four European entities upon their dissolutions. The ~~income tax (benefit) for the three months ended February 22, 2020 compared to the income tax expense for the prior year quarter was primarily the result of a deduction related to~~Company took a worthless stock ~~loss in~~deduction of $25.8 million related to the ~~Company’s investment in its wholly owned subsidiaries as well as lower operating results.~~ The Company, after analyzing the facts and circumstances, determined to no longer invest in the Belgium, Luxembourg and the Nordics markets which includes Sweden and Norway. The Company has maintained a permanent investment position and, therefore, has not previously recorded a deferred tax asset for the basis differences of these entities. The financial results of these entities have created an excess of the tax basis over the book basis in ~~which the worthless stock that will be deducted for income tax purposes is approximately $25.8 million, resulting~~those four entities, as it determined to no longer invest in ~~an estimated~~these markets.

The Company recognized a net tax benefit of ~~$6.6 million. Management has analyzed these transactions~~approximately $0.4 million and ~~determined that these worthless~~a net tax expense of $0.7 million from compensation expense related to stock ~~deductions qualify as ordinary losses. In addition,~~options, restricted stock awards, restricted stock units and disqualifying dispositions under our Employee Stock Purchase Plan (“ESPP”) during the third quarter of fiscal 2021 and fiscal 2020, respectively. The Company ~~took a deduction relating to worthless loans of approximately $4.5 million which is also treated as ordinary losses, resulting in~~recognized a net tax benefit of $0.7 million after the offset of the estimated global intangible low-taxed income (“GILTI”) tax. While management believes this is a proper income tax deduction, the deduction may be subject to examination by tax authorities and thus, management has determined this tax benefit to be an uncertain tax position. Accordingly, the Company fully reserved for the tax benefit associated with the worthless loan deduction. The reserve includes offsetting the federal and state benefits, by the estimated GILTI tax increase.

~~The income tax~~breakeven from compensation expense for the nine months ended February 22, 2020 compared to the income tax expense for the prior year nine months was primarily the result of a deduction discussed above as well as lower operating results.

~~The Company recognized a net tax expense of approximately of $0.7 million and $0.2 million~~ related to ~~stock-based compensation for nonqualified~~ stock options, ~~expensed~~restricted stock awards, restricted stock units and ~~for~~ disqualifying dispositions under the Company’s ESPP during the three months ended February 22, 2020 and February 23, 2019, respectively. The Company recognized a tax expense of approximately breakeven and $0.2 million related to stock-based compensation for nonqualified stock options expensed and for disqualifying dispositions under theour ESPP during the first nine months of fiscal ~~2020~~2021 and fiscal ~~2019,~~2020, respectively.

The ~~net~~Company’s total liability for unrecognized tax ~~expense results from expiring stock options during these periods.~~

~~Periodically,~~benefits was $0.9 million and $0.8 million as of February 27, 2021 and May 30, 2020, respectively, which, if ultimately recognized, would impact 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 future periods. The unrecognized tax benefits are included in long-term liabilities in the ~~future because~~Consolidated Balance Sheets based on the closing of the ~~lower benefit from~~statute of limitations.

8. Long-Term Debt

Pursuant to the ~~U.S. statutory rate for losses in certain foreign jurisdictions,~~terms of the ~~limitation on~~Credit Agreement dated October 17, 2016 between the ~~benefit for losses in jurisdictions in which a valuation allowance for operating loss carryforwards has previously been established,~~Company and Resources Connection LLC, as borrowers, and Bank of America, N.A. as lender (as amended, the ~~unpredictability of timing and~~“Credit Agreement”), the ~~amount of eligible disqualifying incentive stock options exercises.~~

~~7. Long-Term Debt~~

~~The~~ Company has a ~~$120~~$120.0 million secured revolving credit facility (“Facility”) with Bank of America, ~~consisting~~which, until September 3, 2020, consisted of (i) a ~~$90~~$90.0 million revolving loan facility (“Revolving ~~Loan”~~Commitment”), which includes a $5$5.0 million sublimit for the issuance of standby letters of credit, and (ii) a ~~$30~~$30.0 million reducing revolving loan facility (“Reducing Revolving ~~Loan”~~Commitment”), any amounts of which ~~may~~could not be reborrowed after being repaid. On September 3, 2020, the Company and Resources Connection LLC, as borrowers, entered into the Fifth Amendment to the Credit Agreement (the “Fifth Amendment”) with Bank of America, N.A. as lender, which amended the terms of the Facility pursuant to the Credit Agreement. The Fifth Amendment, among other things, (1) eliminates the $30.0 million Reducing Revolving Commitment, (2) increases the Revolving Commitment by $30.0 million to $120.0 million, (3) increases the applicable margin by 0.25%, and (4) increases the London Interbank Offered Rate (“LIBOR”) interest rate floor from 0% to 0.25%.The Facility ~~is available for working capital~~expires on October 17, 2022.

The Company had $1.3 million of outstanding letters of credit issued and ~~general corporate purposes, including potential acquisitions and stock repurchases. The Company’s obligations~~$65.7 million remaining capacity under the Facility ~~are guaranteed by all~~as of the Company’s domestic subsidiaries and secured by essentially all assets of the Company, Resources Connection LLC and their respective domestic subsidiaries, subject to certain customary exclusions.February 27, 2021. Borrowings under the Facility bear interest at ~~a rate per annum of either, at the Company’s option, (i) a London Interbank Offered~~LIBOR or Base Rate, ~~(“LIBOR”)~~as defined in the ~~Facility~~Credit Agreement, plus ~~a margin of 1.25% or 1.50% or (ii)~~ an ~~alternate base rate, plus a 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~~which resulted in interest rates ranging from 2.00% to 2.02% as 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,February 27, 2021.

The Facility contains both affirmative and negative covenants. Covenants include, but are not limited to, limitations on the Company’s and its subsidiaries’ ability to incur liens, incur additional indebtedness, make certain restricted payments, merge or consolidate and make dispositions of assets. In addition, the Facility requires the Company to comply with financial covenants limiting the Company’s total funded debt, minimum interest coverage ratio and maximum leverage ratio. The Company was compliant with all financial covenants under the Facility as of February ~~22, 2020.~~27, 2021.

Upon the occurrence of an event of default under the Facility, the lender may cease making loans, terminate the Facility and declare all amounts outstanding to be immediately due and payable. The Facility specifies a number of events of default (some of which are subject to applicable grace or cure periods), including, among other things, non-payment defaults, covenant defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults and material judgment defaults.

~~The Company’s borrowings on the Facility were $~~49.0 million as of February 22, 2020, all of which were under the Revolving Loan. In addition, the Company had $1.5 million of outstanding letters of credit issued under the Revolving Loan as of February 22, 2020. The Company has $39.5 million remaining to borrow under the Revolving Loan and $30.0 million remaining under the Reducing Revolving Loan as of February 22, 2020. As of February 22, 2020, the interest rate on the Company’s borrowings were as follows (amounts in thousands, except percentages):

Principal Balance
Base Rate
Libor Rate
Interest Rate
$
25,000 1.25%
6-month
1.93% 3.18%

24,000 1.25%
2-month
1.81% 3.06%
$
49,000

8.9. Stockholders’ Equity

Stock Repurchase Program

In July 2015, the Company’s board of directors approved a stock repurchase program (the “July 2015 program”), authorizing the repurchase, at the discretion of the Company’s senior executives, of the Company’s common stock for an aggregate dollar limit not to exceed $150 million. Repurchases under the program may take place in the open market or in privately negotiated transactions and may be made pursuant to a Rule 10b5-1 plan. During the three and nine months ended February ~~22, 2020,~~27, 2021, the Company ~~purchased 318,430 shares~~made 0

repurchase of its common ~~stock on the open market at an average price of $15.70 per share, for approximately $5.0 million.~~stock. As of February ~~22, 2020,~~27, 2021, approximately $85.1 million remained available for future repurchases of the Company’s common stock under the July 2015 program.

Quarterly Dividend

Subject to approval each quarter by its board of directors, the Company pays a regular quarterly cash dividend. On January ~~23, 2020~~21, 2021, the Company’s board of directors declared a quarterly cash dividend of $0.14 per common share. The dividend of approximately ~~$4.5~~$4.6 million was paid on March ~~19, 2020~~18, 2021 to the holders onof record on February ~~20, 2020~~18, 2021, and is accrued in the Company’s Consolidated Balance Sheet as of February ~~22, 2020.~~27, 2021.

Continuation of the quarterly dividend is at the discretion of the board of directors and depends upon the Company’s financial condition, results of operations, capital requirements, general business condition, contractual restrictions contained in the ~~Company’s current credit agreements~~Credit Agreement and other agreements, and other factors deemed relevant by the board of directors.

10. Restructuring Activities

The Company initiated its global restructuring and business transformation plan in North America and Asia Pacific (the “North America and APAC Plan”) in March 2020 and in Europe (the “European Plan”) in September 2020. Both the North America and APAC Plan and the European Plan consist of two key components: (i) an effort to streamline the management and organizational structure and eliminate certain positions as well as exit certain markets to focus on core solution offerings and high growth clients; and (ii) a strategic rationalization of the Company’s physical geographic footprint and real estate spend to focus investment dollars in high growth core markets for greater impact. In connection with the execution of the European Plan, the Company changed its internal management structure and its reporting structure of financial information used to assess performance and allocate resources during the second quarter of fiscal 2021. The Company revised its operating segments accordingly effective in the second quarter of fiscal 2021, resulting in a change to the Company’s reportable segments into RGP and Other Segments. All of the employee termination and facility exit costs associated with the Company’s restructuring initiatives are within its RGP segment, and are recorded in selling, general and administrative expenses in the Company’s Consolidated Statement of Operations. See further discussion about the Company’s segment position in Note 13 – Segment Information.

Restructuring costs for the three and nine months ended February 27, 2021 and February 22, 2020 were as follows (in thousands):


	Three Months Ended				Nine Months Ended
	February 27,		February 22,		February 27,		February 22,
	2021		2020		2021		2020
Employee termination costs (adjustments)	$	(161)	$	-	$	6,231	$	-
Real estate exit costs		524		-		1,628		-
Other costs		289		-		586		-
Total restructuring costs	$	652	$	-	$	8,445	$	-

The $0.5 million real estate exit costs during the three months ended February 27, 2021 consisted of $0.3 million of property and equipment write-off, including $0.1 million under the European Plan and $0.2 million under the North America and APAC Plan, and $0.2 million of impairment of right-of-use assets, including $0.1 million under both the European Plan and the North America and APAC Plan. The $1.6 million real estate exit costs during the nine months ended February 27, 2021 consisted of $0.4 million lease early termination costs paid under the European Plan, $0.4 million of property and equipment write-off, including $0.2 million under the European Plan and $0.2 million under the North America and APAC Plan, and $0.8 million of impairment of right-of-use assets, including $0.1 million under the European Plan and $0.7 million under the North America and APAC Plan.

The following table summarizes the employee termination activity under both the North America and APAC Plan and the European Plan for the year ended May 30, 2020 and the nine months ended February 27, 2021 (in thousands):


Liability balance at May 25, 2019	$	-
Increase in liability (restructuring costs)		3,927
Reduction in liability (payments and others)		(2,053)
Liability balance at May 30, 2020		1,874
Increase in liability (restructuring costs)		6,231
Reduction in liability (payments and others)		(5,582)
Liability balance at February 27, 2021	$	2,523

Under the North America and APAC Plan, cumulative restructuring costs incurred as of February 27, 2021 totaled $7.0

million. This consisted of $5.0 million in employee termination costs and $2.0 million in costs related to exiting the facilities, including $1.3 million in non-cash impairment of operating right-of-use assets and $0.7 million in loss on disposal of fixed assets and other real estate exit costs. The Company has substantially completed the planned employee headcount reduction under the North America and APAC Plan, and expects the remaining liability of $0.6 million as of February 27, 2021 to be paid out prior to the end of calendar 2021.

Under the European Plan, cumulative restructuring costs incurred as of February 27, 2021 totaled $6.4 million. This consisted of $5.1 million in employee termination costs, $0.7 million in costs related to exiting the facilities, including $0.1 million in non-cash impairment of operating right-of-use assets and $0.6 million in loss on disposal of fixed assets and other real estate exit costs, and $0.6 million of other costs primarily related to legal and professional fees incurred to exit certain non-core markets in Europe. As of February 27, 2021, the Company has substantially completed the planned employee headcount reduction under the European Plan and has recognized substantially all of the expected employee termination costs in connection with the reduction in force in Europe. The Company had $1.9 million in employee termination liability as of February 27, 2021, which is expected to be paid out prior to the end of calendar 2021.

11. Supplemental Disclosure of Cash Flow Information

The following table presents information regarding income taxes paid, interest paid and non-cash investing and financing activities (amounts in thousands):


	Nine Months Ended
	February 27,		February 22,
	2021		2020
Income taxes paid	$	12,771	$	8,163
Interest paid	$	1,299	$	1,669
Non-cash investing and financing activities:
Capitalized leasehold improvements paid directly by landlord	$	-	$	59
Acquisition of Veracity:
Liability for contingent consideration	$	-	$	5,580
Acquisition of taskforce:
Liability for contingent consideration	$	-	$	1,840
Acquisition of Expertence:
Liability for contingent consideration	$	-	$	302
Acquisition of Accretive:
Issuance of common stock	$	-	$	1,141
Dividends declared, not paid	$	4,591	$	4,501

Nine Months Ended

February 22,

February 23,

2020

2019

Income taxes paid
$
8,163

$
11,640

Interest paid
$
1,669

$
1,878

Non-cash investing and financing activities:

Capitalized leasehold improvements paid directly by landlord
$
59

$
1,211

Acquisition of Veracity:

Liability for contingent consideration
$
5,580

$
-

Acquisition of taskforce:

Liability for contingent consideration
$
1,840

$
4,202

Acquisition of Expertence:

Liability for contingent consideration
$
302

$
-

Acquisition of Accretive:

Issuance of common stock
$
1,141

$
-

Dividends declared, not paid
$
4,501

$
4,147

~~10.~~12. Stock-Based Compensation Plans

General

The Company’s stockholders approved the 2020 Performance Incentive Plan (the “2020 Plan”) on October 22, 2020, which replaced and succeeded in its entirety the 2014 Performance Incentive Plan (the “2014 Plan”). Executive officers and certain employees, as well as non-employee directors of the Company and certain consultants and advisors ~~to the Company,~~ are eligible to participate in the 2020 Plan. The maximum number of shares of the Company’s ~~2014 Performance Incentive~~common stock that may be issued or transferred pursuant to awards under the 2020 Plan ~~("2014 Plan"). The~~equals: (1) 1,797,440 (which represents the number of shares that were available for additional award grant purposes under the 2014 Plan ~~was approved by stockholders on~~immediately prior to the termination of the authority to grant new awards under the 2014 Plan as of October ~~23,~~22, 2020), plus (2) the number of any shares subject to stock options granted under the 2014 ~~and replaced and succeeded in its entirety~~Plan or theResources Connection, Inc. 2004 Performance Incentive Plan ~~and the 1999 Long Term Incentive Plan. As of February 22, 2020,~~ ~~1,197,000~~ ~~shares were available for award grant purposes under~~(collectively with the 2014 Plan, the “Prior Plans”) and outstanding as of October 22, 2020 which expire, or for any reason are cancelled or terminated, after that date without being exercised, plus (3) the number of any shares subject to ~~future increases~~restricted stock and restricted stock unit awards granted under the Prior Plans that are outstanding and unvested as ~~described in the 2014 Plan.~~

of October 22, 2020 which are forfeited, terminated, cancelled, or otherwise reacquired after that date without having become vested. Awards under the ~~2014~~2020 Plan may include, but are not limited to, stock options, restricted stock units, performance stock units and restricted stock grants, including restricted stock units under the Company’s Directors Deferred Compensation Plan. ~~Stock option grants generally~~These stock awards typically vest in equal annual installments over four years, and stock option grants typically terminate ten years from the date of grant. ~~Restricted~~As of February 27, 2021, there were 1,323,307 shares available for further award grants under the 2020 Plan.

Stock-Based Compensation Expense

Stock-based compensation expense included in selling, general and administrative expenses was $1.8 million and $1.5 million for the three months ended February 27, 2021 and February 22, 2020, respectively, and $4.9 million and $4.6 million for the nine months ended February 27, 2021 and February 22, 2020, respectively. These amounts consisted of stock-based compensation expense related to employee stock ~~award vesting is determined on an individual grant basis. Awards of~~options, employee stock purchases made via the Employee Stock Purchase Plan (“ESPP”), restricted stock awards, restricted stock units and stock units credited under the 2014 Plan will be counted against the available share limit as two and a half shares for every one share actually issued in connection with the award. The Company’s policy is to issue shares from its authorized shares upon the exercise of stock options.Directors Deferred Compensation Plan.

Stock Options ~~and Restricted Stock~~

The following table summarizes the stock option activity for the nine months ended February ~~22, 2020 (number of shares under option and aggregate intrinsic value~~27, 2021 (amounts in ~~thousands)~~thousands, except weighted average exercise price):


	Shares	Weighted Average Exercise Price
Outstanding at May 30, 2020	5,755	$	16.07
Granted	-		-
Exercised	(49)		11.41
Forfeited	(231)		17.51
Expired	(304)		15.98
Outstanding at February 27, 2021	5,171	$	16.05
Exercisable at February 27, 2021	3,812	$	15.47
Vested and expected to vest at February 27, 2021	5,091	$	16.03

Number of Shares Under Option

Weighted Average Exercise Price

Weighted Average Remaining Contractual Life
(in years)

Aggregate Intrinsic Value
Outstanding at May 25, 2019
6,029

$
15.95

6.06

$
5,482
Granted, at fair market value
1,318

17.37

Exercised
(376)

13.63

Forfeited
(409)

17.38

Expired
(551)

17.11

Outstanding at February 22, 2020
6,011

$
16.12

6.52

$
1,982
Exercisable at February 22, 2020
3,452

$
15.13

4.71

$
1,982
Vested and expected to vest at February 22, 2020
5,744

$
16.04

6.33

$
1,982

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, which is the difference between the Company’s closing stock price on the last trading day of the third quarter of fiscal 2020 and the exercise price multiplied by the number of shares that would have been received by the option holders if they had exercised their “in the money” options on February 22, 2020. This amount will change based on changes in the fair market value of the Company’s common stock. The total pre-tax intrinsic value related to stock options exercised during the three months ended February 22, 2020 and February 23, 2019 was ~~$0.4~~ ~~million and $1.9 million, respectively, and during the nine months ended February 22, 2020 and February 23, 2019 was~~ ~~$1.2~~ ~~million and $5.0 million, respectively.~~ As of February ~~22, 2020,~~27, 2021, there was $~~11.7~~ 4.6 million of total unrecognized compensation cost related to unvested employee stock options granted. That cost is expected to be recognized over a weighted-average period of ~~1.9~~1.47 years.

~~The Company granted 28,372 and 21,537~~ ~~shares of~~ ~~restricted stock during the nine months ended February 22, 2020 and February 23, 2019, respectively. As of February 22, 2020, there were 177,002unvested restricted shares, including restricted stock units under the Directors Deferred Compensation Plan, with approximately $2.5million of remaining unrecognized compensation cost.~~

~~Stock-Based Compensation Expense~~

~~Stock-based compensation expense included in selling, general and administrative expenses was~~ ~~$1.5~~ ~~million and~~ ~~$1.9~~ ~~million for the three months ended February 22, 2020 and February 23, 2019, respectively, and~~ ~~$4.6~~ ~~million and~~ ~~$5.0~~ million for the nine months ended February 22, 2020 and February 23, 2019, respectively. These amounts consisted of stock-based compensation expense related to employee stock options, employee stock purchases made via the ESPP, restricted stock awards and stock units credited under the Directors Deferred Compensation Plan. The Company recognizes compensation expense for only the portion of stock options and restricted stock that is expected to vest, rather than recording forfeitures when they occur. If the actual number of forfeitures differs from that estimated by management, additional adjustments to compensation expense may be required in future periods. There were ~~no capitalized~~ ~~share-based compensation costs during the nine months ended February 22, 2020 or February 23, 2019.~~

Employee Stock Purchase Plan

On October 15, 2019, the Company’s stockholders approved the ~~2019~~ ESPP which ~~supersedes~~superseded the ~~2014 ESPP.~~Company’s previous Employee Stock Purchase Plan. The maximum number of shares of the Company’s common stock that ~~were~~are authorized for issuance under the ~~2019~~ ESPP is 1,825,000. ~~All unissued shares under the 2014 ESPP are no longer available.~~

The ESPP allows qualified employees (as defined in the ESPP) to purchase designated shares of the Company’s common stock at a price equal to 85% of the lesser of the fair market value of common stock at the beginning or end of each semi-annual stock purchase period. The ESPP’s term expires July 16, 2029. The Company issued ~~399,000~~ 507,000 and ~~358,000~~399,000 shares of common stock pursuant to the ESPP during the nine months ended February 27, 2021 and February 22, 2020, ~~and the year ended May 25, 2019,~~ respectively. There were ~~1,641,000~~1,134,000 shares of common stock available for issuance under the ESPP as of February ~~22, 2020.~~ 27, 2021.

Restricted Stock Awards

~~11.~~

The following table summarizes the activities for the unvested restricted stock awards for the nine months ended February 27, 2021 (amounts in thousands, except weighted average grant-date fair value):


	Shares	Weighted Average Grant-Date Fair Value
Outstanding at May 30, 2020	90	$	15.90
Granted	99		12.47
Vested	(62)		16.12
Forfeited	-		-
Unvested as of February 27, 2021	127	$	13.12
Expected to vest as of February 27, 2021	112	$	13.20

As of February 27, 2021, there was $1.6 million of total unrecognized compensation cost related to unvested restricted stock awards. The cost is expected to be recognized over a weighted-average period of 1.85 years.

‎

Restricted Stock Units

The following table summarizes the activities for the unvested restricted stock units for the nine months ended February 27, 2021 (amounts in thousands, except weighted average grant-date fair value):


	Shares	Weighted Average Grant-Date Fair Value
Outstanding at May 30, 2020	87	$	10.99
Granted	566		11.61
Vested	(50)		12.20
Forfeited	-		-
Unvested as of February 27, 2021	603	$	11.70
Expected to vest as of February 27, 2021	540	$	11.72

As of February 27, 2021, there was $6.6 million of total unrecognized compensation cost related to unvested restricted stock units. That cost is expected to be recognized over a weighted-average period of 2.25 years.

13. Segment Information

Effective in the second quarter of fiscal 2021, the Company revised its historical 1 segment position and ~~Enterprise Reporting~~identified the following new operating segments to align with changes made in its internal management structure and its reporting structure of financial information used to assess performance and allocate resources:

~~The Company discloses information regarding~~RGP – a global business consulting practice which operates primarily under the RGP brand andfocuses on professional project consulting and staffing services in areas such as finance and accounting, business strategy and transformation, risk and compliance, and technology and digital;

taskforce – a German professional services firm that operates under the taskforce brand. It utilizes a distinct independent contractor/partner business model and infrastructure and focuses on providing senior interim management and project management services to middle market clients in the German market;

Sitrick – a crisis communications and public relations firm which operates under the Sitrick brand, providing corporate, financial, transactional and crisis communication and management services.

RGP includes the operations ~~outside~~of Veracity, which is being integrated with the rest of the ~~U.S. The Company operates as one segment. The accounting policies for the domestic and international operations are the same as those described in Note 2 —~~ ~~Summary of Significant Accounting Policies~~ ~~in the Notes to Consolidated Financial Statements included in~~RGP business operations. RGP is the Company’s ~~Fiscal Year 2019 Form 10-K. Summarized information regarding~~only reportable segment. taskforce and Sitrick do not individually meet the ~~Company’s domestic~~quantitative thresholds to qualify as reportable segments. Therefore, they are combined and ~~international operations is shown in~~disclosed as Other Segments.

The tables below reflect the ~~following table (amounts in thousands):~~

Revenue for the

Revenue for the

Three Months Ended

Nine Months Ended

Long-Lived Assets (1) as of

February 22,

February 23,

February 22,

February 23,

February 22,

May 25,

2020

2019

2020

2019

2020

2019
United States
$
136,149

$
142,409

$
422,197

$
432,539

$
260,099

$
200,385
International

31,903

37,089

102,587

114,316

38,024

31,651
Total
$
168,052

$
179,498

$
524,784

$
546,855

$
298,123

$
232,036

~~(1)Long-lived assets are comprised of goodwill, intangible assets and property and equipment. Long-lived assets as of February 22, 2020 included the Company’s~~ operating ~~right-of-use assets which were added as a result~~results of the Company’s ~~adoption~~segments consistent with the management and performance measurement system utilized by the Company. All prior year periods presented were recast to reflect the impact of ~~ASC 842 Leases. See Note 5 —~~ ~~Leases.~~the preceding segment changes. Performance measurement is based on segment Adjusted EBITDA. Adjusted EBITDA is defined as net income before amortization of intangible assets, depreciation expense, interest and income taxes plus stock-based compensation expense, restructuring costs, and plus or minus contingent consideration adjustments. Adjusted EBITDA at the segment level excludes certain shared corporate administrative costs that are not practical to allocate. The Company’s Chief Operating Decision Maker does not evaluate segments using asset information.


	Three Months Ended				Nine Months Ended
	February 27,		February 22,		February 27,		February 22,
	2021		2020		2021		2020
	(Amounts in thousands)
Revenues:
RGP	$	146,487	$	158,228	$	425,598	$	494,225
Other Segments		10,144		9,824		31,601		30,559
Total revenues	$	156,631	$	168,052	$	457,199	$	524,784

Gross profit:
RGP	$	53,980	$	57,757	$	162,006	$	191,223
Other Segments		3,067		3,663		11,115		12,077
Total gross profit	$	57,047	$	61,420	$	173,121	$	203,300

Adjusted EBITDA:
RGP	$	15,886	$	13,894	$	50,671	$	61,962
Other Segments		449		320		2,866		2,419
Reconciling items (1)		(6,866)		(7,460)		(21,455)		(23,047)
Total Adjusted EBITDA	$	9,469	$	6,754	$	32,082	$	41,334

~~12.~~

(1) 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.

The below is a reconciliation of the Company's net income to Adjusted EBITDA for all periods presented.


	Three Months Ended				Nine Months Ended
	February 27,		February 22,		February 27,		February 22,
	2021		2020		2021		2020
Consolidated	(Amounts in thousands)
Net income	$	690	$	6,942	$	1,981	$	24,218
Adjustments:
Amortization of intangible assets		1,202		1,549		4,125		4,153
Depreciation expense		963		1,120		2,954		3,913
Interest expense, net		361		493		1,316		1,526
Income tax expense (benefit)		1,057		(3,983)		5,270		3,995
EBITDA		4,273		6,121		15,646		37,805
Stock-based compensation expense		1,834		1,491		4,939		4,649
Restructuring costs		652		-		8,445		-
Contingent consideration adjustment		2,710		(858)		3,052		(1,120)
Total Adjusted EBITDA	$	9,469	$	6,754	$	32,082	$	41,334

14. Legal Proceedings

The Company is involved in certain legal matters arising in the ordinary course of business. In the opinion of management, ~~all~~none of such matters, if disposed of unfavorably, would ~~not~~ have a material adverse effect on the Company’s financial position, cash flows or results of operations.

~~13.~~15. Subsequent Events

Repayment on Revolving Credit Facility

On February 27, 2020, the Company’s management and board of directors committed to a restructuring plan to reduce approximately 7.5% of our management and administrative workforce and consolidate its geographic presence to certain key markets. The restructuring plan was designed to streamline the Company’s organizational structure, reduce operating costs and more effectively align resources to business priorities. The majority of employees impacted by the reduction in force are expected to exit before the end of fiscal 2020, with the remainder exiting in the first quarter of fiscal 2021. Based on management’s rationalization of its real estate footprint, a plan was put in place to terminate or sublet 26% of its real estate leases by the end of the 2020 calendar year. The Company expect to incur $4 million to $5 million of restructuring charges relating to employee termination costs, of which approximately $3 million will be incurred in the fourth quarter of fiscal 2020. In connection with real estate restructuring,March 24, 2021, the Company ~~expects to incur $1~~repaid $10.0 million of lease termination costs, costs associated with existing real estate facilities and non-cash asset write-offs. Further charges are expected in fiscal 2021 as the Company completes the restructuring plan.

~~In March 2020, as events relating to COVID-19 continued to develop globally and impact the capital markets, in an abundance of caution the Company borrowed $39.0 million~~on its Facility, reducing its outstanding borrowing under the Facility to provide substantial liquidity in the event that COVID-19 persists. As of March 24, 2020, the Company has $0.5 million remaining to borrow under the Revolving Loan and $30.0 million remaining under the Reducing Revolving Loan.$43.0 million.

‎

On March 27, 2020, the President of the United States signed the Coronavirus Aid Relief, and Economic Security (CARES) Act into law. The Act includes several significant provisions for corporations, including the usage of net operating losses, interest deductions

~~and payroll benefits. The Company is evaluating the impact, if any, this Act will have on the Company’s financials and required disclosures.~~

~~ITEM~~ITEM 2.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 ~~Consolidated Financial Statements~~consolidated financial statements and accompanying notes. This discussion and analysis contains “forward-looking statements,” within the meaning of Section 27A of the ~~“Securities~~Securities Act of 1933, as ~~amended”~~amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to expectations concerning matters that are not historical facts.For example, statements discussing, among other things, expected 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.

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~~The disclosures we make concerning risks, uncertainties and other factors that may affect our business or operating results included in Part ~~II, Item 1A of this Quarterly Report on Form 10-Q and in Part~~ I, Item 1A of our Annual Report on Form 10-K for the year ended May ~~25, 2019~~30, 2020 (File No. ~~000-32113)~~0-32113) and our other public filings made with the Securities and Exchange Commission (“SEC”). should be reviewed carefully. These risks and uncertainties include, but are not limited to, the following: risks arising from epidemic diseases, such as the COVID-19 pandemic, the possible adverse effects from economic conditions or changes in the use of outsourced professional services consultants, the highly competitive nature of the market for professional services, our ability to secure new projects from clients, the possible legal liability for damages resulting from the performance of projects by our consultants or for our clients’ mistreatment of our personnel, 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, possible disruption of our business from our past and future acquisitions, risks related to the loss of a significant number of our consultants, or an inability to attract and retain new consultants, our ability to realize the level of benefit that we expect from our restructuring initiatives, 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, the possible impact on our business from the loss of the services of one or more key members of our senior management, 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, the possibility that we are unable to or elect not to pay our quarterly dividend payment, the possibility that our recent rebranding efforts are not successful, risks arising from not being to adequately protect our intellectual property rights, including our brand name, and the possible adverse effect on our business model from the reclassification of our independent contractors by foreign tax and regulatory authorities. 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 Connection,” ~~“RGP,”~~ “Resources Global Professionals,” the “Company,” “we,” “us,” and “our” refer to Resources Connection, Inc. and its subsidiaries.

Overview

~~RGP~~Resources Connection 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~~to our ~~clients,~~global client base, we ~~specialize in solving today’s most pressing business problems across the enterprise~~support our clients’ needs through both professional staffing and project execution in the areas of ~~Business Strategy & Transformation, Finance & Accounting, Risk & Compliance~~transactions, regulations, and ~~Technology & Digital Innovation.~~transformations. Our approach to workforce strategy and our agile human capital model quickly align the right resources for the work at hand with speed and efficiency. Our engagements are designed to leverage human connection and collaboration to deliver practical solutions and more impactful results that power our ~~clients, consultants~~clients’, consultants’ and partners’ success. Our mission as an employer is to connect our employee consultants to meaningful opportunities that further their career ambitions within the context of a supportive talent community of dedicated professionals.

~~RGP was founded~~Headquartered in ~~1996~~Irvine, California, we are proud to ~~help finance executives with operational and special project needs. Our first-to-market, agile human capital model quickly aligns~~have served over 85% of the ~~right resources for the work at hand with speed and efficiency. Our pioneering approach to workforce strategy uniquely positions us to support our clients on their transformation journeys.~~Fortune 100. With more than ~~4,000~~5,000 professionals, we annually engage with over 2,400 clients around the ~~world from more than 70 practice offices.~~

~~To achieve our objective of being~~world. We aim to be the premier provider of agile ~~consulting services~~human capital solutions for companies facing transformation ~~change~~ and ~~compliance challenges, we have developed~~workforce gaps while being the ~~following business strategies:~~

~~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.

~~Maintain our distinctive culture.~~ Our corporate culture is the foundation of our business strategy and we believe it has been a significant driver of our success. We believe our shared values, embodied in “LIFE AT RGP”, representing Loyalty, Integrity, Focus, Enthusiasm, Accountability and Talent, has created a circle of quality; our 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 brought by our management team and consultants alike 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-based, not office-based, perspective. We regularly meet with our existing and prospective clients to understand their business issues and help them define their project needs.

preferred employer to highly qualified and experienced consultants through our distinctive culture.

~~Build the RGP brand.~~ We want to be the preferred provider of agile professional services 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. In addition, we have launched global, regional and local marketing efforts that reinforce the RGP brand.

~~Key Transformation Initiatives~~Fiscal 2021 Strategic Focus Areas

~~Through~~Our strategic focus areas in fiscal 2019, we completed various initiatives including cultivating a more robust sales culture, adopting a new operating model for sales, talent and delivery in North America, refreshing the RGP brand and establishing a digital innovation functions focused on building and commercializing2021 are:

Furthering our digital ~~engagement platform, enhancing our consulting capabilities in~~expansion through the ~~digital transformation space, and building and commercializing digital product offerings.~~

To optimize our sales organization, we aligned our sales process using tools such as Salesforce.com, established an enterprise-wide business development function, and implemented a new incentive compensation program for individuals focused on profitable revenue generation and gross margin. In addition, we expanded our Strategic Client Program, which assigns dedicated account teams to certain high-profile clients with global operations.

Under the new operating model in North America, we realigned reporting relationships, largely defined by functional area rather than on an office location basis. We reorganized our Advisory and Project Services function, a team of seller-doer professionals whose primary responsibility is to shepherd sales pursuits and engagement delivery on our more complex projects. We believe this team deepens the scoping conversation, achieves value-oriented pricing and improves delivery management through greater accountability and a more seamless customer experience.

In fiscal 2019, through an extensive brand refresh project led by an outside firm, we adopted a new brand identity focused on our human-centered approach to serving clients and engaging with our consultants. We believe the developmentlaunch of our ~~new brand will support future revenue growth.~~

~~We view our digital innovation initiatives to be important drivers of growth as well. In July 2019,~~human cloud platform and expanded go-to-market penetration for the business we acquired from VeracityConsulting Group, LLC (“Veracity”),

Growing our core business through our strategic client and industry vertical programs

Right sizing and controlling our cost structure globally, and optimizing our operations to achieve higher operating leverage

Our primary area of focus for fiscal 2021 is digital expansion and we have made solid strides in this area. We are on track to bring our human cloud platform to market by the end of this fiscal year, which would introduce a ~~full-service~~new way for clients and talent alike to engage with us. Our efforts also include expanding the go-to-market penetration for Veracity and launching a new Digital Technology Practice in the Asia Pacific region, which is expected to enhance our abilities to provide digital transformation ~~firm based in Richmond, Virginia.~~and technology consulting services from strategy and roadmap to technical implementation. Our focus on introducing Veracity ~~delivers innovative solutions~~more broadly to our client base and integrating Veracity with the ~~Fortune 500 and leading healthcare organizations. The addition~~rest of ~~Veracity to~~ the RGP platform allows us to offer comprehensive end-to-end digital transformation solutions to clients by combining Veracity’s customer-facing offerings with our depth of experience in back-office solutions (see Note 3 — ~~Acquisitions and Dispositions~~).

~~Fiscal 2020 Strategic Focus Areas~~

~~Through~~business operations has generated positive returns through the first nine months of the fiscal ~~2020, we have continued to strengthen our core by further investing~~year, with Veracity revenue growing 20.1% year-over-year in ~~digital innovation as we prepare to launch our digital engagement platform in fiscal 2021, as well as further refining our operating model and optimizing our systems and structure.~~

During the first quarter of fiscal 2020, we evaluated certain European markets and their client base. Through this review, we made the decision to divest our business in Resources Global Professionals Sweden AB (“RGP Sweden”) and initiated an exit from the Belgium market, including its wholly own subsidiary in Luxemburg, as well as Norway. We continued to wind down business in these markets during the third quarter of fiscal ~~2020. In connection~~2021 and the Technology and Digital solution offerings leading the overall RGP revenue acceleration during fiscal 2021. We believe COVID-19 and the increase in virtual or remote delivery arrangements resulting from the COVID-19 pandemic has and will continue to accelerate digital transformation agendas in our existing client base and will continue to create opportunities for us to engage with new clients.

The second focus area for this fiscal year is building our core business, including through the growth of our strategic client and key industry vertical programs, particularly in healthcare. The continued evolution of our delivery model to be more flexible, virtual and borderless has allowed us to expand opportunities within existing core clients and markets as well as to uncover opportunities to effectively serve new clients in new markets. We are working to further penetrate our existing core accounts at a time when many are looking to reduce fixed costs by moving toward more flexible workforce strategies and building relationships with higher value partners for project execution needs. We are also actively extending our offerings to new buyers within these organizations – like Chief Digital, Chief People and Chief Marketing Officers. We see strong growth momentum in our biggest clients and robust opportunity in the healthcare industry from pharmaceutical to medical device to payor and provider, including in practice areas such as revenue cycle optimization, clinical trials process redesign and supply chain transformation. We believe these client needs align well with the ~~sale and exit activities, we filed a U.S. tax election to disregard these entities, enabling us to claim a tax benefit on our U.S tax returns for the tax basis~~capabilities of our ~~investment~~dedicated industry group. Revenue from the healthcare industry vertical grew 6.2% year over year in ~~such entities (see Note 6 –~~ ~~Income Taxes~~).

~~During~~ the third quarter of fiscal ~~2020,~~2021, notwithstanding the COVID-19 pandemic.

Finally, we ~~embarked on the latest phase of~~have substantially completed our ~~transformation journey, performing a deep and strategic review of our global business, focused initially on~~restructuring plan in North America and Asia ~~Pacific. On February 27, 2020, management~~Pacific (the “North America and the board of directors committed to a restructuring plan to reduce approximately 7.5% of our management and administrative workforce and consolidate our geographic presence to certain key markets, while shifting to a virtual operating model in most other markets. With this shift in our real estate strategy,APAC Plan”), which we ~~expect to terminate or sublet 26% of our existing real estate leases by the end of fiscal 2021 through both termination and subleasing.~~

We expect to take a restructuring charge of $4 million to $5 million relating to employee termination costs over the fourth quarter of fiscal 2020 and first quarter of fiscal 2021. Upon completion of the reduction in force, we expect annual pre-tax savings of $13 million to $15 million with respect to personnel costs. In fiscal 2021, after the impact of COVID-19 is clearer, we may reinvest a limited amount of those personnel savings in the business to drive forward certain growth initiatives in core markets and digital capabilities.

expected through fiscal 2021 as we continue to execute the plan to exit the real estate leases. Exact amount and timing of the restructuring charge will depend on a number of variables including market conditions.

We believe these actions we are taking to strengthen the business will enable us to operate with greater agility as we seek to ensure our organizational health and resilience in any macro-economic climate.

In January 2020, an outbreak of a novel coronavirus (COVID-19) surfaced in Wuhan, China. In an effort to contain the spread, the Chinese government mandated business closures and restricted certain travel within the country. As a result of the restrictions, many businesses in China extended their Chinese New Year holiday shut down by one to two weeks. Our practices based in China and other parts of Asia adopted virtual methods of working in order to ensure business continuity for both our clients and the Company. Nevertheless, the events relating to COVID-19 had an adverse impact on our business in Asia Pacific during the quarter ended February 22, 2020. As the COVID-19 pandemic continues to take shape globally, there is significant uncertainty as to the likely consequences of this pandemic which may, among other things, reduce demand for or delay client decisions to procure our services. While not yet quantifiable, management expects this development to have an adverse impact on our operating resultsinitiated in the fourth quarter of fiscal 2020, and ~~continues~~in Europe (the “European Plan”, collectively, the “Plans”), which we initiated in the second quarter of fiscal 2021, with the goal to ~~assess~~strengthen the business and right size our cost structure globally. The Plans consisted of two key components: (i) an effort to streamline the management and organizational structure and eliminate certain positions as well as exit certain markets to focus on core solution offerings and core high growth clients; and (ii) a strategic rationalization of our physical geographic footprint and real estate spend to focus investment dollars in high growth core markets for greater impact.

Through the first nine months of fiscal 2021, we have substantially completed our North America and APAC Plan with respect to headcount reduction. As of February 27, 2021, we have also substantially completed the planned employee headcount reduction under the European Plan, and have recognized substantially all of the expected employee termination costs in connection with the reduction in force in Europe. Additionally, we made solid progress in executing our real estate exit strategy under the Plans. We successfully executed 75% and 63% of the planned lease terminations as of March 2021 in Europe and North America, generating substantial savings in occupancy costs. We expect to continue to push for a more virtual footprint beyond the Plans, although the exact amount and timing of the expenses and resulting payments associated with our real estate exit plans are subject to a number of variables which may not be within our control, such as the condition of the real estate/leasing market. We believe the successful execution of the Plans has allowed us to operate with agility, resilience and efficiency heading into fiscal 2022.

See Note 10 – Restructuring Activities in Part I, Item 1 above and “Results of Operations” below for additional disclosures regarding the impact of the North America and APAC Plan and the European Plan on our results of operations and cash flows during the three and nine months ended February 27, 2021.

COVID-19 Impact and Outlook

Since the start of calendar 2020, the COVID-19 pandemic (the “Pandemic”) has caused profound disruption in the U.S. and global economy. As a result of the disruptions caused by the Pandemic, we have experienced reduced demand for or delayed client decisions to procure our services and, in certain cases, cancellation of existing projects. We have taken precautions and steps to prevent or reduce infection among our employees, including the implementation of safety precautions and policies, limiting business

travel and mandating or encouraging working from home in many of the countries in which we operate. During the first nine months of fiscal 2021, our revenue declined 12.9% compared to the first nine months of fiscal 2020, although the year-over-year gap continued to narrow as revenue steadily recovered sequentially in each quarter in fiscal 2021. The full likely effects of the Pandemic remain uncertain and, among other things, we may continue to experience reduced demand for or delays in client decisions to procure our services or cancellation of existing projects.

While the detrimental financial impact of the Pandemic is undeniable, it has also accelerated certain macro trends that we believe allow us to operate from a position of strength. These include the increased use of contingent talent, virtual or remote delivery becoming mainstream and new client attitudes toward borderless talent models. As CEO and other C-suite decision-makers increasingly value workforce flexibility and agility, additional opportunity is created for our business model. The move to virtual and borderless talent helps us manage supply and demand more efficiently, which should result in faster revenue generation and reduced turnover. In strengthening our core business, we expect to continue to evolve our client engagement and talent delivery model to take advantage of these important shifts.

Additionally, we are encouraged by the ~~upcoming~~revenue acceleration and improvements in sales and pipeline metrics in the third quarter of fiscal ~~year.~~2021, including win percentage, close won amount and deal size. Weekly revenue continued to strengthen in the third quarter of fiscal 2021, with average weekly revenue for non-holiday weeks increasing 7.6% sequentially. With sustained strength in our pipeline, we believe we are well-positioned to capitalize on the positive dynamic of clients resuming engagements and committing to larger spend on initiatives, including initiatives that have been driven by changes to the workforce paradigm as a result of the Pandemic. Until we have further visibility into the full impact of the Pandemic on the global economy, we will remain focused on the health of our balance sheet and liquidity, cost containment and strategic allocation of resources to drive key growth initiatives in core markets and the expansion of our digital capabilities.

Critical Accounting Policies

The following discussion and analysis of our financial condition and results of operations are based upon our ~~Consolidated Financial Statements,~~consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”). The preparation of these financial statements in accordance with GAAP 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. judgments.

~~We test for impairment, at a minimum, on an annual basis or earlier where certain events or changes~~As further discussed in circumstances indicate that goodwill may more likely than not be impaired. As of February 22, 2020, our market capitalization based on its stock price was above our book value. We do not believe it is more likely than not that goodwill was impaired as of February 22, 2020. However, we have experienced declines in the market price of our stock subsequent to the end of the third quarter as a result of the impact from the COVID-19 pandemic on the global economy. Our market capitalization based upon our stock price has fluctuated above and below book value subsequent to the end of the quarter. If there are further decreases in our stock price for a sustained period or other unfavorable factors, we may be required to perform a goodwill impairment assessment, which may result in a recognition of goodwill impairment that could be material to the Consolidated Financial Statements.

~~Except for the adoption of Accounting Standards Codification (“ASC”) 842 as described in Item 1,~~ Note ~~2 —~~ ~~Summary of Significant Accounting Policies~~ ~~in the Notes to Consolidated Financial Statements included~~13 – Segment Information in Part I, Item 1 above and in the “Information about Segments” section below, effective in the second quarter of ~~this Quarterly Report~~fiscal 2021, we changed our segment reporting and reallocated goodwill to the new reporting units on ~~Form 10-Q,~~the relative fair value basis. Concurrent with the segment change, we completed a goodwill impairment assessment, and concluded that no goodwill impairment existed immediately before and after the change in segment reporting.

With the exception of the change in segment and reporting units, 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” in Item 7 of Part II of our Annual Report on Form 10-K for the year ended May ~~25, 2019.~~30, 2020.

‎

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.


	Three Months Ended								Nine Months Ended
	February 27,				February 22,				February 27,				February 22,
	2021				2020				2021				2020
	(Amounts in thousands, except percentages)
Revenue	$	156,631	100.0	%	$	168,052	100.0	%	$	457,199	100.0	%	$	524,784	100.0	%
Direct cost of services		99,584	63.6			106,632	63.5			284,078	62.1			321,484	61.3
Gross profit		57,047	36.4			61,420	36.5			173,121	37.9			203,300	38.7
Selling, general and administrative expenses		52,838	33.7			55,299	32.9			158,544	34.7			166,032	31.6
Amortization of intangible assets		1,202	0.8			1,549	0.9			4,125	0.9			4,153	0.8
Depreciation expense		963	0.6			1,120	0.6			2,954	0.7			3,913	0.7
Income from operations		2,044	1.3			3,452	2.1			7,498	1.6			29,202	5.6
Interest expense, net		361	0.2			493	0.3			1,316	0.3			1,526	0.3
Other income		(64)	-			-	-			(1,069)	(0.3)			(537)	(0.1)
Income before income tax expense (benefit)		1,747	1.1			2,959	1.8			7,251	1.6			28,213	5.4
Income tax expense (benefit)		1,057	0.7			(3,983)	(2.3)			5,270	1.2			3,995	0.8
Net income	$	690	0.4	%	$	6,942	4.1	%	$	1,981	0.4	%	$	24,218	4.6	%

Three Months Ended

Nine Months Ended

February 22,

February 23,

February 22,

February 23,

2020

2019

2020

2019

(Amounts in thousands)
Revenue
$
168,052

$
179,498

$
524,784

$
546,855
Direct cost of services

106,632

111,587

321,484

337,372
Gross margin

61,420

67,911

203,300

209,483
Selling, general and administrative expenses

55,299

55,587

166,032

166,912
Amortization of intangible assets

1,549

948

4,153

2,855
Depreciation expense

1,120

1,163

3,913

3,429
Income from operations

3,452

10,213

29,202

36,287
Interest expense

493

595

1,526

1,729
Other (income)/expense

-

-

(537)

-
Income before income tax (benefit) expense

2,959

9,618

28,213

34,558
Income tax (benefit) expense

(3,983)

3,822

3,995

12,457
Net income
$
6,942

$
5,796

$
24,218

$
22,101

Non-GAAP Financial Measures

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:

Three Months Ended

Nine Months Ended

February 22,

February 23,

February 22,

February 23,

2020

2019

2020

2019

(Amounts in thousands, except percentages)
Net income
$
6,942

$
5,796

$
24,218

$
22,101

Adjustments:

Amortization of intangible assets

1,549

948

4,153

2,855

Depreciation expense

1,120

1,163

3,913

3,429

Interest expense

493

595

1,526

1,729

Income tax (benefit) expense

(3,983)

3,822

3,995

12,457

Stock-based compensation expense

1,491

1,948

4,649

4,961

Contingent consideration adjustment

(858)

(343)

(1,120)

(376)

Adjusted EBITDA
$
6,754

$
13,929

$
41,334

$
47,156

Revenue
$
168,052

$
179,498

$
524,784

$
546,855

Adjusted EBITDA Margin

4.0
%

7.8
%

7.9
%

8.6
%

~~The~~use certain non-GAAP financial measures ~~and key performance indicators we use~~ to assess our financial and operating performance ~~above~~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 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.

Adjusted EBITDA is calculated as net income before amortization of intangible assets, depreciation expense, interest and income taxes plus stock-based compensation expense, restructuring costs, and plus or minus contingent consideration adjustments. 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.

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 to revenue, the most directly comparable GAAP financial measure, by geography.

‎


RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
	Three Months Ended				Three Months Ended				Nine Months Ended
Revenue by Geography		February 27,		November 28,		February 27,		February 22,		February 27,		February 22,
		2021		2020		2021		2020		2021		2020
(Amounts in thousands, except number of business days)	(Unaudited)				(Unaudited)					(Unaudited)
North America
As reported (GAAP)	$	127,913	$	122,732	$	127,913	$	138,819	$	371,259	$	431,617
Currency impact		(119)				84				392
Business days impact		2,096				(4,196)				(1,988)
Same day constant currency revenue	$	129,890			$	123,801			$	369,663

Europe
As reported (GAAP)	$	17,751	$	19,082	$	17,751	$	18,031	$	53,125	$	56,163
Currency impact		(578)				(1,379)				(2,862)
Business days impact		550				(131)				(525)
Same day constant currency revenue	$	17,723			$	16,241			$	49,738

Asia Pacific
As reported (GAAP)	$	10,967	$	11,408	$	10,967	$	11,202	$	32,815	$	37,004
Currency impact		(203)				(513)				(836)
Business days impact		-				86				173
Same day constant currency revenue	$	10,764			$	10,540			$	32,152

Total Consolidated
As reported (GAAP)	$	156,631	$	153,222	$	156,631	$	168,052	$	457,199	$	524,784
Currency impact		(900)				(1,808)				(3,306)
Business days impact		2,646				(4,241)				(2,340)
Same day constant currency revenue	$	158,377			$	150,582			$	451,553

Number of Business Days
North America (1)		61		62		61		59		187		186
Europe (2)		63		65		63		62		192		190
Asia Pacific (2)		61		61		61		62		185		186

(1) This represents the number of business days in the U.S.

(2) This represents the number of business days in the country or countries in which the revenues are most concentrated within the geography.

‎

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA and Adjusted EBITDA Margin ~~are non-GAAP financial measures.~~assist management in assessing our core operating performance. We also believe these measures provide investors with useful perspective on underlying business results and trends and facilitate a comparison of our performance from period to period. The following table presents Adjusted EBITDA and Adjusted EBITDA Margin ~~provide useful information~~for the periods indicated and includes a reconciliation of such measures to ~~our investors because they are~~net income, the most directly comparable GAAP financial measure:


	Three Months Ended					Nine Months Ended
	February 27,		February 22,		February 27,		February 22,
	2021		2020		2021		2020
	(Amounts in thousands, except percentages)
Net income	$	690	$	6,942	$	1,981	$	24,218
Adjustments:
Amortization of intangible assets		1,202		1,549		4,125		4,153
Depreciation expense		963		1,120		2,954		3,913
Interest expense, net		361		493		1,316		1,526
Income tax expense (benefit)		1,057		(3,983)		5,270		3,995
Stock-based compensation expense		1,834		1,491		4,939		4,649
Restructuring costs		652		-		8,445		-
Contingent consideration adjustment		2,710		(858)		3,052		(1,120)
Adjusted EBITDA	$	9,469	$	6,754	$	32,082	$	41,334
Revenue	$	156,631	$	168,052	$	457,199	$	524,784
Adjusted EBITDA Margin		6.0%		4.0%		7.0%		7.9%

Our non-GAAP 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 revenue, net income or other cash flow data prepared in accordance with GAAP for purposes of analyzing our revenue, profitability or liquidity. These measures should be considered in addition to, and not as a substitute for, revenue, net income, earnings per share, cash flows or other measures of financial performance prepared in conformity with GAAP.

Further, ~~Adjusted EBITDA and Adjusted EBITDA Margin~~a limitation of our non-GAAP financial measures is they exclude items detailed above that 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 does 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 business acquisitions 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.~~

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, ~~Adjusted EBITDA and Adjusted EBITDA Margin~~these non-GAAP financial measures should not be considered a substitute for performance measures calculated in accordance with GAAP.

Operating Results – Three Months Ended February ~~22, 2020~~27, 2021 Compared to Three Months Ended February ~~23, 2019~~ 22, 2020

Percentage change computations are based upon amounts in thousands.All prior year periods referenced below were recast to reflect the impact of the segment changes as discussed in “Information about Segments” above.

~~Revenue~~.Revenue. Revenue ~~decreased~~declined $11.4 million, or ~~6.4%~~6.8%, to ~~$168.1~~$156.6 million for the three months ended February 22, 2020 from $179.5 million for the three months ended February 23, 2019. On a constant currency basis, revenue decreased 6.2%. The decrease in revenue reflects the impact of less hours worked and a slight decrease in average bill rate. Total hours worked during the three months ended February 22, 2020 decreased 6.4% compared to prior year quarter, while average bill rates for the three months ended February 22, 2020 decreased by 0.8% compared to prior year period. See discussion below for revenue trends in each geographic region.

As presented in the table below, revenue decreased in the first three months of fiscal 2020 compared to the same period of fiscal 2019 in North America, Europe and Asia Pacific (dollars in thousands):

Revenue for the

Three Months Ended

February 22,

February 23,

2020

2019

North America
$
138,819 82.6
%

$
146,817 81.8
%

Europe

18,031 10.7

20,911 11.6

Asia Pacific

11,202 6.7

11,770 6.6

Total
$
168,052 100
%

$
179,498 100.0
%

~~North America revenue decreased $8.0 million, or 5.4%~~ in the third quarter of fiscal 2020 compared to prior year quarter. The decrease primarily reflected the impact of additional holidays in the U.S. (third quarter of fiscal 2020 included Thanksgiving holidays and reflected the mid-week timing of Christmas and New Year’s Day), offset by $5.4 million of revenue attributable to Veracity. Europe revenue decreased $2.9 million, or 13.8% in the third quarter of fiscal 2020 compared to prior year quarter as a result of lost revenue of $2.4 million2021 from the exit from the Nordics and Belgium markets. Asia Pacific revenue declined by $0.6 million or 4.8% in the third quarter compared to prior year, reflecting the impact of an extended Lunar New Year’s holiday coupled with the adverse impact from the COVID 19 outbreak in China at the beginning of 2020.

Our financial results are subject to fluctuations in the exchange rates of foreign currencies in relation to the U.S. 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 U.S. dollar strengthens relative to the currencies of our non-U.S. 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-U.S. based operations, our translated revenue (and expenses) will be higher. Using the comparable fiscal 2019 third quarter conversion rates, international revenues would have been lower than reported under GAAP by approximately $5.0$168.1 million in the third quarter of fiscal 2020. ~~Using these constant currency rates, which we believe provides~~Billable hours decreased 6.6%, partially offset by an average bill rate increase of 1.3% in the third quarter of fiscal 2021 compared to the prior year quarter. On a ~~more comprehensive view~~sequential basis, consolidated revenue in the third quarter of ~~trends~~fiscal 2021 increased $3.4 million, or 2.2%, compared to the second quarter of fiscal 2021, led by strong demand in Technology and Digital solution offerings as well as other key solution offerings within the healthcare industry vertical program.

The following table represents our ~~business, our revenue decreased in North America, Europe and Asia Pacific~~consolidated revenues by ~~5.5%, 12.4% and 4.6% respectively,~~geography:


	Three Months Ended
	February 27,				November 28,				February 22,
	2021				2020				2020
		(Amounts in thousands, except percentages)
North America	$	127,913	81.7	%	$	122,732	80.1	%	$	138,819	82.6	%
Europe		17,751	11.3			19,082	12.5			18,031	10.7
Asia Pacific		10,967	7.0			11,408	7.4			11,202	6.7
Total	$	156,631	100	%	$	153,222	100	%	$	168,052	100.0	%

Revenues declined across all geographies during the third quarter of fiscal ~~2020.~~

~~The number of consultants on assignment as of February 22, 2020 was 2,894~~2021 compared to ~~3,059 consultants engaged~~the prior year quarter due to the continued adverse impact of the Pandemic, including overall slower conversion, which hindered revenue velocity recovery despite notable improvements in sales and pipeline metrics in the third quarter of fiscal 2021. We experienced increased complexity in projects in pursuit, more new projects in the pipeline instead of extensions and lengthier consultant onboarding leading to a lag between project close/won to project start due to various reasons including client IT equipment supply shortages and certain healthcare protocols, which all contributed to slower revenue conversion in the third quarter of fiscal 2021. However, on a sequential basis, despite slower revenue conversion, North America revenue increased $5.2 million, or 4.2%, reflecting an uptick in demand for our services as ~~of February 23, 2019. We operated 72 (23 abroad) offices~~uncertainty in the macro environment curtails with the advancement in vaccine development and distribution in the U.S. Europe revenue declined $1.3 million, or 7.0%, sequentially, as ~~of February 22, 2020~~COVID-19 lockdowns were re-implemented in certain key markets such as Germany, impacting our ability to deliver, and ~~73 (26 abroad) as of February 23, 2019.~~ the expected shrinkage in revenue from exiting certain markets in connection with our restructuring efforts in Europe. Asia Pacific revenue declined $0.4 million, or 3.9%, sequentially, primarily due to the more pronounced adjacent holiday impact from Chinese New Year in the current fiscal quarter.

~~Our clients do not sign long-term contracts with us. As such, there can be no assurance as to future demand levels~~Same Day Constant Currency Revenue. On a same day constant currency basis, revenue for the ~~services we provide~~third quarter of fiscal 2021 decreased $17.5 million, or ~~that future results can be reliably predicted~~10.4%, compared to the prior year quarter, primarily reflecting the lingering adverse impact of the Pandemic on client demand and consumption, although the year-over-year decline continued to narrow throughout fiscal 2021. On a sequential basis, consolidated revenue in the third quarter of fiscal 2021 improved $5.2 million, or 3.4%, compared to the second quarter of fiscal 2021, primarily driven by ~~considering past trends.~~a 5.8% increase in North America.

Direct Cost of Services. Direct cost of services decreased ~~$5.0~~$7.0 million, or ~~4.4%~~6.6%, to $99.6 million for the third quarter of fiscal 2021 from $106.6 million for the ~~three months ended February 22, 2020 from $111.6 million for the three months ended February 23, 2019.~~third quarter of fiscal 2020. The decrease in the amount of direct cost of services ~~between periods~~year-over-year was primarily attributable to a 6.6% decrease ~~of 6.4%~~ in ~~the number of hours worked, partially offset by an increase of 1.6% in the average pay rate per hour between the two quarters.~~ billable hours.

Direct cost of services as a percentage of revenue was ~~63.5% and 62.2%~~63.6% for the ~~three months ended February 22,~~third quarter of fiscal 2021 compared to 63.5% for the third quarter of fiscal 2020. The increased percentage compared to the prior year quarter was primarily attributable to an increase in pay/bill ratio, primarily caused by more opportunistic pricing and lower consultant utilization in our crisis management business, which operates on a bench model. The 1.3% improvement in consolidated average bill rate was outpaced by the 2.2% increase in the average pay rate in the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020, resulting in a 43-basis-point increase in pay/bill ratio year-over-year. Additionally, the decrease in conversion and ~~February 23, 2019, respectively. The~~professional search revenue in the third quarter of fiscal 2021 further contributed to the increase of direct cost of services as a percentage of revenue. These negative impacts were largely offset by lower passthrough revenue ~~increased~~from client reimbursement and lower holiday pay, due to Thanksgiving being included in the third quarter of fiscal 2020 compared to prior year quarter primarily due to an increase in holiday pay for consultants in the U.S. (third quarter of fiscal 2020 included Thanksgiving holidays as well as more holidays taken as a result of the mid-week timing of Christmas and New Year’s Day holidays). The Company’s bill/pay ratio was slightly lowerbut not in the third quarter of fiscal ~~2020 compared to prior year quarter.~~

2021. Our target direct cost of services percentage is 60% ~~in all markets.~~.

Selling, General and Administrative Expenses. Selling, general and administrative expenses (“SG&A”) was $52.8 million, or 33.7% as a percentage of revenue, ~~was 32.9% and 31.0% for the three months ended February 22, 2020 and February 23, 2019, respectively. SG&A was $55.3 million~~ for the third quarter of fiscal ~~2020 and $55.6~~2021 compared to $55.3 million, or 32.9% as a percentage of revenue, for the ~~comparable prior year period.~~ third quarter of fiscal 2020. The $2.5 million savings in SG&A year-over-year ~~decrease is~~were primarily attributable ~~to:~~to (1) a ~~$0.8~~$3.8 million decrease in management compensation and bonuses primarily resulting from the reduction in force as part of the global restructuring plan, as further discussed below, and a lower revenue base for incentive ~~compensation~~compensation; (2) $1.6 million of savings in business expenses attributable to cost containment measures and reduced business travel during the Pandemic; and (3) $0.9 million of savings in occupancy expense primarily as a result of the ~~lower revenue~~real estate exit initiatives taken. These savings were partially offset by (1) restructuring costs of $0.7 million incurred in the third quarter of fiscal 2021 under the restructuring plans further discussed below; (2) a $0.3 million increase in stock-based compensation expense as the vesting of certain stock awards was accelerated during the third quarter of fiscal 2021; and (3) a $3.6 million change in the fair value adjustments related to the Veracity contingent consideration, which was an expense of $2.7 million in the third quarter of fiscal 2021 as compared to a benefit of $0.9 million in third quarter of fiscal 2020, (2) a $0.5 million decrease in stock compensation, (3) a $0.5 decrease in expenses relating contingent consideration, and (4) a decrease of $0.8 million related to occupancy and office related expenses, partially offset by $2.2 million in additional payroll and benefit costs due to additional headcount related to project delivery and digital transformation efforts, including Veracity.2020.

Management and administrative headcount was 852 at the end of the third quarter of fiscal 2021 and 992 at the end of the third quarter of fiscal ~~2020~~2020. Management and ~~915 at~~administrative headcount includes full time equivalent headcount for our seller-doer group, which is determined by utilization levels achieved by the ~~end~~seller-doers—higher levels of utilization would reduce the ~~third quarter of fiscal 2019.~~ full-time equivalent management and administrative headcount, and lower levels would increase it.

~~Sequential Operations~~. On a sequential quarter basis, fiscal 2020 third quarter revenues decreased approximately 8.9% (9.1% constant currency), from $184.5 million to $168.1 million. The decrease in third quarter revenue primarily reflects the impact of additional holidays in the U.S. (third quarter of fiscal 2020 included Thanksgiving, Christmas and New Year’s Day while the second quarter of fiscal 2020 included only Labor Day) and Europe (Christmas and New Year’s Day in third quarter of fiscal 2020), and the impact of an extended Lunar New Year’s holiday and COVID 19 in Asia Pacific, resulting in a 9.3% decrease in hours worked. The Company’s sequential revenue decreased inRestructuring charges.We initiated our North America ~~Europe~~ and ~~Asia Pacific by 8.9%, 6.9% and 11.9%, respectively. On a constant currency basis, using the comparable second quarter fiscal 2020 conversion rates, sequential revenue decreased~~APAC Plan in ~~North America (9.0%), Europe (7.9%) and Asia Pacific (12.0%).~~

~~Direct cost of services as a percentage of revenue was 63.5% and 59.7% in the third quarter of fiscal~~March 2020 and the ~~second quarter of fiscal 2020, respectively. The increase~~European Plan in September 2020. All employee termination and facility exit costs incurred under the restructuring plans were associated with the RGP segment, as further discussed in Note 13 – Segment Information, and are recorded in selling, general and administrative expenses in the ~~direct cost~~Consolidated Statement of services percentage in the third quarter of 2020 is primarily due to an increase in holiday pay for consultants in the U.S. (third quarter of fiscal 2020 included Thanksgiving, Christmas and New Year’s Day while the second quarter included only Labor Day) as well as higher payroll taxes during the early months of a new calendar year.

~~SG&A as a percentage of revenue was 32.9%~~Operations. Restructuring costs for the ~~third quarter of fiscal~~three months ended February 27, 2021 and February 22, 2020 ~~compared~~were as follows (in thousands):


	Three Months Ended
	February 27,		February 22,
	2021		2020
Employee termination costs	$	(161)	$	-
Real estate exit costs		524		-
Other costs		289		-
Total restructuring costs	$	652	$	-

For further information on our restructuring initiatives, please refer to ~~29.1% for the second quarter of fiscal 2020. SG&A~~Note 10 – Restructuring Activities in the third quarter increased $1.5 million to $55.3 million from $53.8 million in the previous quarter. The primary reasons for the increase were: (1) a $1.1 million increase in payroll taxes as we transition into a new calendar year in the third quarter (2) a $0.4 million increase in bad debt expense, (3) a $0.3 million increase in self medical insurance,Part I, Item 1 above and ~~(4) a $0.4 million increase in software expense, partially offset by $0.7 million increase in a benefit relating to contingent consideration to Veracity.~~“Fiscal 2021 Strategic Focus Areas” above.

Amortization and Depreciation Expense. Amortization of intangible assets was ~~$1.5~~$1.2 million and ~~$0.9~~$1.5 million in the third quarter of fiscal ~~2020~~2021 and fiscal ~~2019,~~2020, respectively. The ~~increase~~decrease in amortization expense is primarily due to certain acquired intangible assets being fully amortized at the end of the first quarter in fiscal 2021, partially offset by an increase related to the amortization of ~~identifiable intangible assets acquired from Veracity~~certain internally-developed software put in service during the ~~first~~second quarter of fiscal ~~2020.~~

2021. Depreciation expense was ~~$1.1~~$1.0 million and ~~$1.2~~$1.1 million in the third quarter of fiscal ~~2020~~2021 and fiscal ~~2019,~~2020, respectively.

~~Interest Expense~~. ~~Interest~~The decrease in depreciation expense was ~~approximately $0.5 million~~primarily due to fully-depreciated computer equipment in periods prior to the third quarter of fiscal 2021 and ~~$0.6~~the write-off of leasehold improvements as part of the real estate exit initiatives executed under the Plans.

Other Income. Other income was $0.1 million in the third quarter of fiscal ~~2020~~2021 and nil in the third quarter of fiscal ~~2019, respectively.~~ 2020. Other income in the third quarter of fiscal 2021 was primarily related to government COVID-19 relief funds received globally.

Income Taxes. The ~~Company’s provision for~~ income ~~taxes~~tax expense was ~~a ($4.0)~~$1.1 million ~~benefit~~ (effective tax rate of approximately ~~(135%~~60.5%)~~) for the three months ended February 22, 2020 compared to an income tax expense of $3.8 million (effective tax rate of~~

approximately 40%) for the three months ended February 23, 2019. The Company records tax expense based upon actual results versus a forecasted tax rate because of the volatility in its international operations that span numerous tax jurisdictions.

The (benefit) provision for income taxes in the three months ended February 22, 2020 and February 23, 2019 results from taxes on income in the U.S. and certain other foreign jurisdictions, no benefit for losses in jurisdictions in which a full valuation allowance on operating loss carryforwards had previously been established and a lower benefit for losses in certain foreign jurisdictions with tax rates lower than the U.S. statutory rates. The income tax benefit for the third quarter of fiscal ~~2020~~2021 compared to ~~the~~an income ~~tax expense for the prior year quarter was~~ primarily due to a worthless stock deduction related to our investment in wholly owned subsidiaries as well as lower operating results compared to the prior year period. During the third quarter of fiscal 2020, after analyzing the facts and circumstances, we determined to no longer invest in the Belgium, Luxembourg and the Nordics markets (which includes Sweden and Norway). Based on this analysis, we recorded a tax benefit for the worthless stock loss of our investment in and worthless loans to these wholly owned entities. We have maintained a permanent investment position and, therefore, have not previously recorded a deferred tax asset for the basis differences of these entities. The financial results of these entities have created an excess of tax basis over the book basis in which the worthless stock that will be deducted for income tax purposes is approximately $25.8 million, resulting in an estimated net tax benefit of $6.6 million. We analyzed these transactions and determined that these worthless stock deductions qualify as ordinary losses. In addition, we took a deduction relating to worthless loans of approximately $4.5 million which is also treated as an ordinary loss, resulting in a net tax benefit of $0.7 million after the offset of the estimated global intangible low-taxed income (“GILTI”) tax. While we believe this is a proper income tax deduction, the deduction may be subject to examination by tax authorities and thus, we determined that an uncertain tax position existed. Accordingly, we fully reserved for the net tax benefit associated with the worthless loan deduction. The reserve includes the effect of offsetting the federal and state benefit, netted with the estimated GILTI tax increase.

The Company recognized a net tax expense of approximately of $0.7 million and $0.2 million related to stock-based compensation for nonqualified stock options expensed and for disqualifying dispositions under the Company’s Employee Stock Purchase Plan (“ESPP”) during the three months ended February 22, 2020 and February 23, 2019, respectively. The net tax expense results from expiring stock options during these periods.

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 U.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 eligible disqualifying incentive stock options exercise.

~~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 II, Item 1A.—Risk Factors of our Annual Report on Form 10-K for the year ended May 25, 2019. 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.

~~Nine Months Ended February 22, 2020 Compared to Nine Months Ended February 23, 2019~~

~~Percentage change computations are based upon amounts in thousands.~~

~~Revenue~~. Revenue decreased $22.1 million, or 4.0%, to $524.8 million for the nine months ended February 22, 2020 from $546.9 million for the nine months ended February 23, 2019. On a constant currency basis, revenue decreased 3.7%. See discussion below for revenue trends in each geographic region.

As presented in the table below, revenue decreased in the first nine months of fiscal 2020 compared to the same period of fiscal 2019 in North America and Europe while revenue increased in Asia Pacific (dollars in thousands):

Revenue for the

Nine Months Ended

February 22,

February 23,

2020

2019

North America
$
431,617 82.3
%

$
446,811 81.7
%
Europe

56,163 10.7

64,758 11.8

Asia Pacific

37,004 7.0

35,286 6.5

Total
$
524,784 100.0
%

$
546,855 100.0
%

North America revenue decreased $15.2 million, or 3.4% in the nine months ended February 22, 2020 compared to prior year. The decrease primarily reflected the wind-down of technical accounting implementation projects, partially offset by $12.6 million of revenue attributable to Veracity. Europe revenue decreased $8.6 million, or 13.3% in the nine months ended February 22, 2020 compared to prior year as a result of lost revenue of $7.3 million from the exit from the Nordics and Belgium markets. Asia Pacific revenue increased by $1.7 million, or 4.9% in the nine months ended February 22, 2020 compared to prior year, reflecting growth in markets such as Japan and India due to the large multi-national client base, partially offset by the adverse impact from the COVID 19 outbreak in China at the beginning of 2020 as well as the political protests in Hong Kong.

Our financial results are subject to fluctuations in the exchange rates of foreign currencies in relation to the U.S. 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 U.S. dollar strengthens relative to the currencies of our non-U.S. 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-U.S. based operations, our translated revenue (and expenses) will be higher. Using the comparable fiscal 2019 conversion rates, international revenues would have been lower than reported under GAAP by approximately $9.9million in the first nine months of fiscal 2020. Using these constant currency rates, which we believe provides a more comprehensive view of trends in our business, our revenue decreased in North America and Europe by 3.4% and 10.5%, respectively, and increased in Asia Pacific by 5.2% during the first nine months of fiscal 2020.

~~Direct Cost of Services~~. Direct cost of services decreased $15.9 million, or 4.7%, to $321.5 million for the nine months ended February 22, 2020 from $337.4 million for the nine months ended February 23, 2019. The decrease in the amount of direct cost of services between periods was primarily attributable to a decrease of 3.5% in the number of hours worked as well as a decrease of 1.1% in the average pay rate per hour between the two periods.

~~Direct cost of services as a percentage of revenue was 61.3% and 61.7% for the nine months ended February 22, 2020 and February 23, 2019, respectively.~~

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

~~Selling, General and Administrative Expenses~~. SG&A as a percentage of revenue was 31.6% and 30.5% for the nine months ended February 22, 2020 and February 23, 2019, respectively. SG&A was $166.0 million for the first nine months of fiscal 2020 and $166.9 million for the comparable prior year period. The year-over-year decrease is primarily attributable to: (1) a decrease of $4.1 million in incentive compensation expense as a result of the decrease in revenue during the first nine months of fiscal 2020, (2) a decrease of $1.6 million in transformation and system implementation costs, (3) a decrease of $1.4 million in business expenses as management continues to closely manage discretionary spend, and (4) a decrease of $1.1 million in rent expense, partially offset by an increase of $6.5 million in payroll and benefits due to additional headcount related to project delivery and digital transformation efforts, including Veracity and $0.6 million of acquisition costs in the first half of fiscal 2020.

~~Amortization and Depreciation Expense.~~ Amortization of intangible assets was $4.2 million and $2.9 million in the first nine months of fiscal 2020 and fiscal 2019, respectively. The increase in amortization expense is primarily due to the amortization of identifiable intangible assets acquired during the first quarter of fiscal 2020 from Veracity.

~~Depreciation expense was $3.9 million and $3.4 million in the first nine months of fiscal 2020 and fiscal 2019, respectively.~~

~~Interest Expense~~. ~~Interest expense for the first nine months of fiscal 2020 was approximately $1.5 million compared to $1.7 million in the same period of fiscal 2019.~~

~~Income Taxes.~~ ~~Our provision for income taxes was $4.0~~($4.0) million (effective tax rate of approximately ~~14%~~(134.6%) ~~and $12.5 million (effective tax rate of approximately 36%~~) for the ~~nine months ended February 22, 2020 and February 23, 2019, respectively.~~third quarter of fiscal 2020. We record tax expense based upon actual results versus a forecasted tax rate because of the volatility in ~~its~~our international operations that span numerous tax jurisdictions.

~~The provision~~ Income tax expense for ~~income taxes in~~ the ~~nine months ended February 22, 2020 and February 23, 2019 results from taxes on income in~~third quarter of fiscal 2021 included the ~~U.S. and certain other foreign jurisdictions, no benefit for losses in jurisdictions in which a full~~establishment of $0.2 million of valuation allowance on ~~operating loss carryforwards had previously~~certain deferred tax assets during the quarter. No tax benefits were recognized in connection with pre-tax losses incurred in foreign entities where required valuation allowances have been established previously. The tax benefit of $4.0 million for the third quarter of fiscal 2020 included a discrete tax benefit of $6.6 million as a result of the deduction of the investment basis in four European entities upon their dissolutions.

We recognized a net tax benefit of approximately $0.4 million and a lower benefit for losses in certain foreign jurisdictions with tax rates lower than the U.S. statutory rates. The provision for income taxes decreased for the nine months ended February 22, 2020 compared to the prior year quarter primarily because of the worthless stock deduction and lower operating results. See discussion on worthless stock deduction under the “Three Months Ended February 22, 2020 Compared to Three Months Ended February 23, 2019”~~section~~.

~~The Company recognized a~~net tax expense of ~~approximately breakeven and $0.2~~$0.7 million from compensation expense related to ~~stock-based compensation for nonqualified~~ stock options, ~~expensed~~restricted stock awards, restricted stock units and ~~for~~ disqualifying dispositions under ~~the ESPP~~our Employee Stock Purchase Plan (“ESPP”) during the ~~first nine months~~third quarter of fiscal ~~2020~~2021 and fiscal ~~2019,~~2020, respectively. ~~The net tax expense results from expiring stock option during these periods.~~

Periodically, we review the components of both book and taxable income to analyze the adequacy of the tax provision. There can be no assurance that our effective tax rate will remain constant in the future because of the lower benefit from the U.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 eligible disqualifying incentive stock options ~~exercises.~~exercise.

Adjusted EBITDA. Adjusted EBITDA improved $2.7 million, or 40.2%, to $9.5 million in the third quarter of fiscal 2021, compared to $6.8 million in the third quarter of fiscal 2020. Adjusted EBITDA margin increased by 200 basis points to 6.0% in the third quarter of fiscal 2021. The improvement was attributable to significant cost savings of $7.0 million in the third quarter of fiscal 2021, despite the decline in revenue.

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 II, Item 1A.—Risk Factors of our Annual Report on Form 10-K for the year ended May 30, 2020. 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.

Operating Results – Nine Months Ended February 27, 2021 Compared to Nine Months Ended February 22, 2020

Percentage change computations are based upon amounts in thousands. All prior year periods referenced below were recast to reflect the impact of the segment changes as discussed in “Information about Segments” above.

Revenue.Revenue declined $67.6 million, or 12.9%, to $457.2 million in the first nine months of fiscal 2021 from $524.8 million in the first nine months of fiscal 2020. Billable hours decreased 13.0% while average bill rate increased 1.4% in the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020.

The following table represents our consolidated revenues by geography:



	Nine Months Ended
	February 27,				February 22,
	2021				2020
	(Amounts in thousands, except percentages)
North America	$	371,259	81.2	%	$	431,617	82.3	%
Europe		53,125	11.6			56,163	10.7
Asia Pacific		32,815	7.2			37,004	7.0
Total	$	457,199	100.0	%	$	524,784	100.0	%

Revenue declined across all geographies during the first nine months of fiscal 2021 as compared to the same period of fiscal 2020, reflecting the adverse impact of the Pandemic. However, revenue has accelerated over the fiscal year and we continued to see positive momentum in both pipeline and sales productivity. As a result, North America, Europe and Asia Pacific, year-over-year third quarter decline in revenue narrowed to 14.0%, 5.4% and 11.3%, respectively, compared to the year-over-year second quarter decline of 16.9%, 7.2% and 15.3%, respectively.

Same Day Constant Currency Revenue. On a same day constant currency basis, revenue for the first nine months of fiscal 2021 decreased by $73.2 million, or 14.0%, compared to the first nine months of fiscal 2020.

Direct Cost of Services. Direct cost of services decreased $37.4 million, or 11.6%, to $284.1 million for the nine months ended February 27, 2021 from $321.5 million for the nine months ended February 22, 2020. The decrease in the amount of direct cost of services between periods was primarily attributable to a decrease of 13.0% in billable hours, partially offset by a 2.4% increase in average pay rate.

Direct cost of services as a percentage of revenue was 62.1% for the nine months ended February 27, 2021 compared to 61.3% for the nine months ended February 22, 2020. The increased percentage compared to the prior year was partially attributable to an increase in the pay/bill ratio, primarily caused by more opportunistic pricing and lower consultant utilization in our crisis management business, which operates on a bench model. The 1.4% increase in consolidated average bill rate was outpaced by the 2.4% increase in average pay rate during the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020, resulting in a 52-basis-point increase in pay/bill ratio year-over-year. Additionally, the decrease in professional search revenue, which represents 100% gross margin, during the first nine months of fiscal 2021 as compared to the same period of the prior fiscal year and the increase in total indirect costs as a percentage of revenue during the first nine months of fiscal 2021 to 11.6% as compared to 10.5% as of the same period in the prior fiscal year, further contributed to the increase of direct cost of services as a percentage of revenue. Indirect costs have increased as a percentage of revenue during the Pandemic due to the increased transitional periods of unbillable hours taken by consultants between client engagements, during which fixed benefits for consultants are absorbed by the Company. These negative impacts were partially offset by lower passthrough revenue from client reimbursement. Our target direct cost of services percentage is 60%.

Selling, General and Administrative Expenses. SG&A expenses were $158.5 million, or 34.7% as a percentage of revenue, for the nine months ended February 27, 2021 compared to $166.0 million, or 31.6% as a percentage of revenue, for the nine months ended February 22, 2020. Excluding the $8.4 million of restructuring costs incurred during the first nine months of fiscal 2021, as further discussed below, year-over-year SG&A costs decreased $15.9 million, which was primarily attributable to: (1) an $8.6 million decrease in management compensation and bonuses primarily resulting from the reduction in force as part of the global restructuring plan and a lower revenue base for incentive compensation; (2) $5.1 million of savings in business expenses attributable to cost containment measures and reduced business travel during the Pandemic; (3) a $1.7 million net reduction in legal expenses primarily due to the recovery of $1.0 million of legal costs during the first quarter of fiscal 2021 related to a receivable collection case; (4) a $1.1 million decrease in personnel severance costs, which were $1.5 million in the first nine months of fiscal 2020, related primarily to exiting the Nordic markets and the departure of several former executives, as compared to $0.3 million in the first nine months of fiscal 2021; (5) costs of $0.8 million incurred in the first nine months of fiscal 2020 associated with the acquisition of Veracity; (6) a $1.4 million of reduction in bad debt expense as we continued to improve on collections of our accounts receivable; and (7) $2.2 million of savings in occupancy expense primarily as a result of the real estate exit initiatives taken. These decreases were partially offset by a change in contingent consideration related expense/benefit, which was an expense of $3.1 million in the first nine months of fiscal 2021 as compared to a benefit of $1.1 million in the first nine months of fiscal 2020, and a $2.1 million increase in IT and consulting expenses in the first nine months of fiscal 2021 as compared to the first nine months of fiscal 2020, relating to investments in our technology infrastructure to further drive efficiency and support the virtual operating model.

Restructuring charges. We initiated our North America and APAC Plan in March 2020 and the European Plan in September 2020. All employee termination and the facility exit costs incurred under the restructuring plans were associated with the RGP segment, as further discussed in Note 13 – Segment Information. Restructuring costs for the nine months ended February 27, 2021 and February 22, 2020 were as follows (in thousands):


	Nine Months Ended
	February 27,		February 22,
	2021		2020
Employee termination costs	$	6,231	$	-
Real estate exit costs		1,628		-
Other costs		586		-
Total restructuring costs	$	8,445	$	-

For further information on our restructuring initiatives, please refer to Note 10 – Restructuring Activities in Part I, Item 1 above and “Fiscal 2021 Strategic Focus Areas” above.

Amortization and Depreciation Expense. Amortization of intangible assets was $4.1 million and $4.2 million in the first nine months of fiscal 2021 and fiscal 2020, respectively. The decrease in amortization expense is primarily due to certain acquired intangible assets being fully amortized at the end of the first quarter in fiscal 2021, partially offset by the amortization of identifiable intangible assets acquired through Veracity and certain internally developed software put in service in the second quarter of fiscal 2021. Depreciation expense was $3.0 million and $3.9 million in the first nine months of fiscal 2021 and fiscal 2020, respectively. The decrease in depreciation expense was primarily due to computer equipment becoming fully depreciated and the write-off of leasehold improvement as part of the real estate exit initiatives executed under the Plans.

Other Income. Other income was $1.1 million in the first nine months of fiscal 2021 compared to $0.5 million in the first nine months of fiscal 2020. Other income in the current fiscal year was primarily related to government COVID-19 relief funds received globally. Other income in the first nine months of fiscal 2020 was primarily related to the gain on the settlement of a pre-acquisition claim with the seller of Accretive, an acquisition completed in fiscal 2018.

Income Taxes. Income tax expense was $5.3 million expense (effective tax rate of approximately 72.7%) for the nine months ended February 27, 2021 compared to $4.0 million (effective tax rate of approximately 14.2%) for the nine months ended February 22, 2020. 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. Income tax expense for the first nine months of fiscal 2021 was primarily associated with pre-tax income from North America and Asia Pacific. A significant portion of the restructuring costs were incurred in the Company’s European entities, and no tax benefits were recognized due to the required valuation allowances, resulting in an effective tax rate of 72.7%. The prior year effective tax rate of 14.2% was primarily a result of the $6.6 million discrete tax benefit from the deduction of the investment basis in four European entities upon their dissolutions.

We recognized a net tax benefit of $0.7 million and breakeven from compensation expense related to stock options, restricted stock awards, restricted stock units and disqualifying dispositions under our ESPP during the first nine months of fiscal 2021 and fiscal 2020, respectively.

Adjusted EBITDA. Adjusted EBITDA decreased $9.3 million, or 22.4%, to $32.1 million in the first nine months of fiscal 2021, compared to $41.3 million in the first nine months of fiscal 2020. Adjusted EBITDA margin decreased by 90 basis points to 7.0% in the first nine months of fiscal 2021. The decrease in adjusted EBITDA margin was primarily attributable to the $30.2 million decline in gross profit, as further discussed above, partially mitigated by significant cost savings of $20.4 million in the first nine months of fiscal 2021 compared to the prior year period.

Operating Results of Segment

Effective in the second quarter of fiscal 2021, we revised our historical one segment position and identified the following new operating segments to align with changes made in our internal management structure and our reporting structure of financial information used to assess performance and allocate resources:

RGP – a global business consulting practice which operates primarily under the RGP brand and focuses on professional project consulting and staffing services in areas such as finance and accounting, business strategy and transformation, risk and compliance, and technology and digital;

Sitrick – a crisis communications and public relations firm which operates under the Sitrick brand, providing corporate,

financial, transactional and crisis communication and management services.

RGP includes the operations of Veracity, which is being integrated with the rest of the RGP business operations. RGP is our only reportable segment. taskforce and Sitrick do not individually meet the quantitative thresholds to qualify as reportable segments. Therefore, they are combined and disclosed as Other Segments.

The following table presents our operating results by segment. All prior year periods presented were recast to reflect the impact of the preceding segment changes.



	Three Months Ended								Nine Months Ended
	February 27,				February 22,				February 27,				February 22,
	2021				2020				2021				2020
	(Amounts in thousands, except percentages)
Revenues:
RGP	$	146,487	93.5	%	$	158,228	94.2	%	$	425,598	93.1	%	$	494,225	94.2	%
Other Segments		10,144	6.5			9,824	5.8			31,601	6.9			30,559	5.8
Total revenues	$	156,631	100.0	%	$	168,052	100.0	%	$	457,199	100.0	%	$	524,784	100.0	%

Gross profit:
RGP	$	53,980	94.6	%	$	57,757	94.0	%	$	162,006	93.6	%	$	191,223	94.1	%
Other Segments		3,067	5.4			3,663	6.0			11,115	6.4			12,077	5.9
Total gross profit	$	57,047	100.0	%	$	61,420	100.0	%	$	173,121	100.0	%	$	203,300	100.0	%

Adjusted EBITDA:
RGP	$	15,886	167.8	%	$	13,894	205.7	%	$	50,671	157.9	%	$	61,962	149.9	%
Other Segments		449	4.7			320	4.7			2,866	8.9			2,419	5.9
Reconciling Items (1)		(6,866)	(72.5)			(7,460)	(110.4)			(21,455)	(66.8)			(23,047)	(55.8)
Total Adjusted EBITDA	$	9,469	100.0	%	$	6,754	100.0	%	$	32,082	100.0	%	$	41,334	100.0	%

All prior year periods referenced below were recast to reflect the impact of the segment changes as discussed in “Information about Segments” above.

Revenue by Segment

RGP – RGP revenue decreased $11.7 million, or 7.4%, in the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020, primarily as a result of a 7.3% decline in billable hours year-over-year. On a sequential basis, RGP revenue improved $4.5 million, or 3.2%, in the third quarter of fiscal 2021, reflecting the impact of a 2.1% increase in billable hours and a 1.0% improvement in average bill rate compared to the second quarter of fiscal 2021. RGP revenue decreased $68.6 million, or 13.9%, during the first nine months of fiscal 2021 as compared to the first nine months of fiscal 2020, primarily as a result of a 13.6% decline in billable hours 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 February 27, 2021 was 2,545 compared to 2,805 as of February 22, 2020.

Other Segments – Other Segments’ revenue for the third fiscal quarter of 2021 increased $0.3 million, or 3.3%, compared to the third quarter of fiscal 2020. Other Segments’ revenue increased $1.0 million, or 3.4%, during the first nine months of fiscal 2021 compared to the same period in the prior fiscal year. The improvement in revenue was primarily due to the continued revenue synergy generated from combining RGP Germany to operate under taskforce.

The number of consultants on assignment under Other Segments as of February 27, 2021 was 108 compared to 89 as of February 22, 2020.

Gross Profit by Segment

RGP – RGP gross profit decreased $3.8 million, or 6.5%, in the third quarter of 2021 compared to the third quarter of fiscal 2020 primarily as a result of decline in revenue. Gross margin improved 30 basis points from 36.5% in the third quarter of fiscal 2020 to 36.8% in the third quarter of fiscal 2021. RGP average bill rate improved by 1.1%, outpacing the 1.0% increase in pay rate in the

third quarter of fiscal 2021 compared to the third quarter of fiscal 2020, resulting in a 6-basis-point decrease in pay/bill ratio. Gross margin further benefited from lower passthrough revenue from client reimbursement and lower holiday pay, due to Thanksgiving being included in the third quarter of fiscal 2020 but not in the third quarter of fiscal 2021. These positive impacts were partially offset by decreased conversion and professional search revenue.

RGP segment gross profit decreased $29.2 million, or 15.3%, in the first nine months ended February 27, 2021 compared to the same period in the prior fiscal year primarily as a result of decline in revenue. Gross margin declined 60 basis points from 38.7% in the first nine months of fiscal 2020 to 38.1% in the first nine months of fiscal 2021. Pay/bill ratio remained consistent over the same period. The decline in RGP gross margin year-over-year was due to a decrease in professional search revenue, which represents 100% gross margin, partially offset by lower passthrough revenue from client reimbursement, similar to those at the consolidated level.

Other Segments – Gross profit in Other Segments decreased $0.6 million, or 16.3%, in the third quarter of 2021 compared to the third quarter of fiscal 2020. Gross margin declined from 37.3% in the third quarter of fiscal 2020 to 30.2% in the third quarter of fiscal 2021. Gross profit in Other Segments decreased $1.0 million, or 8.0%, in the first nine months of 2021 compared to the same period in the prior fiscal year. Gross margin declined from 39.5% to 35.2% over the same period. The year-over-year declines in gross margin in both the three and nine months ended February 27, 2021 were primarily a result of lower utilization of fixed salary modeled consultants.

Adjusted EBITDA by Segment

RGP– RGP adjusted EBITDA increased $2.0 million, or 14.3%, in the third quarter of fiscal 2021, compared to the third quarter of fiscal 2020. Adjusted EBITDA margin increased by 200 basis points to 10.8% in the third quarter of fiscal 2021. The improvement was attributable to significant cost savings of $5.7 million in the third quarter of 2021, despite the decline in revenue. RGP adjusted EBITDA decreased $11.3 million or 18.2% in the first nine months of fiscal 2021, compared to the same period in the prior fiscal year. Adjusted EBITDA margin decreased by 60 basis points to 11.9% in the first nine months of fiscal 2021. The decrease in adjusted EBITDA margin was primarily attributable to the $29.2 million decline in gross profit, as discussed above, partially offset by significant cost savings of $17.4 million in the first nine months of fiscal 2021 compared to the prior year period. The SG&A trend at RGP year-over-year is generally consistent with that 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 improved $0.1 million, or 40.3%, in the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020. Adjusted EBITDA margin increased by 110 basis points to 4.4% in the third quarter of fiscal 2021. Other Segments’ adjusted EBITDA improved $0.4 million, or 18.5%, in the nine months ended February 27, 2021 compared to the same period in fiscal 2020. Adjusted EBITDA margin increased by 120 basis points to 9.1% in the first nine months of fiscal 2021. The improvement in adjusted EBITDA margin was attributable to improved SG&A year-over-year.

Liquidity and Capital Resources

Our primary sources of liquidity are cash provided by our operations, our ~~$120~~$120.0 million secured revolving credit facility (“Facility”) with Bank of America and, historically, to a lesser extent, stock option exercises and ESPP purchases. We On an annual basis, we have generated ~~annual~~ positive cash flows from operations since inception.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. In March 2020, the World Health Organization characterized the novel COVID-19 virus as a global pandemic. There is significant uncertainty as to the likely effects of this pandemic on the global economy which in turn may, among other things, impact our ability to generate positive cash flows from operationsconditions and our ability to ~~successfully execute and fund key initiatives~~remain resilient during economic downturns, such as the ~~restructuring plan (see Note 13 –~~ ~~Subsequent Events~~ one we are currently in caused by the ~~Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q).~~ Pandemic. As of February ~~22, 2020, the Company~~27, 2021, we had ~~$35.9~~$84.0 million of cash and cash equivalents including ~~$28.3~~$30.7 million held in international operations.

~~In October 2016, we entered into the~~Our Facility ~~which~~ is available for working capital and general corporate purposes, including potential acquisitions and stock repurchases. ~~The~~Our Facility ~~allows us to choose~~consists of a $120.0 million revolving loan facility, which includes a $5.0 million sublimit for the ~~interest rate applicable to advances. Borrowings~~issuance of standby letters of credit. On February 27, 2021, we had borrowings of $53.0 million outstanding under the Facility, ~~bear~~bearing an 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 our consolidated leverage ratio. The alternate base rate is the highest of (i) Bank of America’s prime rate, (ii) the federal funds rate plus 0.50% and (iii) the Eurodollar rate plus 1.0%. The Company pays an unused commitment fee on the average daily unused portion of the Facility at a rate of 0.15%ranging from 2.00% to ~~0.25% depending upon on the Company’s consolidated leverage ratio. The Facility expires October 17, 2021.~~2.02%. Additional information regarding the Facility is included in Note ~~7 —~~ ~~Long Term~~8 –Long-Term Debtin the Notes to ~~Consolidated Financial Statements~~consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

AsWe undertook a number of ~~February 22, 2020,~~restructuring actions across our geographies beginning in the fourth quarter of fiscal 2020. We expect the execution of the restructuring actions to continue through the remainder of fiscal 2021, which requires additional liquidity. Through the first nine months of fiscal 2021, we ~~had borrowings of $49.0~~paid approximately $5.7 million related to employee termination costs, including $2.4 million under the ~~Facility~~North America and ~~directed Bank~~APAC Plan and $3.3 million under the European Plan. We currently estimate the cash requirement for completing the remaining restructuring actions to be in the range of ~~America~~$3.5 million to ~~issue approximately $1.5 million~~$6.5 million. The exact amount and timing of ~~outstanding letters~~the expenses and resulting payments are subject to a number of ~~credit~~variables which may not be within our control, such as the condition of the real estate/leasing market.

As described in Note 4 – Acquisition in the Notes to consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and Note 3 – Acquisitions and Dispositions in the Notes to consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the ~~benefit~~year ended May 30, 2020, the purchase agreements for Veracity and

Expertence require cash earn-out payments to be made when certain performance conditions are met. We estimated the fair value of ~~third parties related~~the obligation to ~~operating leases~~pay contingent consideration based on a number of different projections of the estimated EBITDA and ~~guarantees. We had $39.5 million remaining to borrow under~~estimated revenue. The estimated fair value of the ~~Revolving Loan and $30.0 million remaining under the Reducing Revolving Loan~~contingent consideration liability as of February ~~22, 2020. As of February 22, 2020, the Company~~27, 2021 was ~~compliant with the financial covenants in the Facility.~~ $5.7 million.

Subsequent to the third quarter of fiscal 2020, as events relating to COVID-19 continued to develop globally and impact the capital markets, our liquidity could be adversely impacted due to possible deterioration in our clients’ financial condition and their ability to timely pay outstanding receivables owed to us. In March 2020, in an abundance of caution, we borrowed $39.0 million on the Facility to provide substantial additional liquidity to manage our business in light of the impact of COVID-19 on the global economy and our business.

Our ongoing operations and growth strategy may require us to continue to make investments in critical markets and in systems and technology. In addition, we may consider making strategic ~~acquisitions.~~acquisitions or initiating additional restructuring initiatives, which could require significant liquidity. We currently believe that our current cash, ongoing cash flows from our operations and funding available under our Facility will be adequate to meet our working capital, ~~and~~ capital expenditure needs and funding for our restructuring initiatives and potential future contingent consideration payments associated with our acquisitions 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, increase use of our 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 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

Operating activities for the nine months ended February ~~22, 2020~~27, 2021 provided cash of ~~$21.6~~$35.4 million compared to ~~$13.5~~$21.6 million for the nine months ended February ~~23, 2019. Cash provided by operations in~~22, 2020. In the first nine months of fiscal 2021, cash provided by operations resulted from net income of $2.0 million and non-cash adjustments of $16.0 million. Additionally, net favorable changes in operating assets and liabilities totaled $17.4 million, primarily consisting of a $19.1 million decrease in trade accounts receivable, partially attributable to improved collection on our accounts receivable, and a $8.2 million increase in other liabilities, primarily due to a $9.2 million payroll tax payment deferral under the Coronavirus Aid, Relief, and Economic Security Act in fiscal 2021, partially offset by a $7.2 million increase in prepaid income taxes. In the first nine months of fiscal 2020, cash provided by operations resulted from net income of $24.2 million and non-cash ~~items~~adjustments of $13.5 million. These amounts were partially offset by a net ~~decrease~~unfavorable change in operating assets and liabilities of $16.1 million primarily due to a decrease in accrued salaries and related ~~obligations. In the first nine months of fiscal 2019, cash provided by operations~~ resulted from net income of $22.1 million and non-cash items of $17.4 million, partially offset by an net unfavorable changes in operating assets and liabilities of $26.0 million primarily related to an increase in accountsobligations.

~~receivable and accrued salaries and related obligations.~~

Investing Activities

Net cash used in investing activities was ~~$26.5~~$2.8 million for the first nine months of fiscal ~~2020,~~2021 compared to ~~$5.9~~$26.5 million in the ~~comparable prior year period. The Company~~same period in fiscal 2020. We used ~~$30.3~~$2.8 million of cash ~~(net of cash acquired) to acquire Veracity. There were no acquisitions~~ in the first nine months of fiscal ~~2019.~~2021 to develop internal-use software and acquire property and equipment. In the first nine months of fiscal 2020, ~~we redeemed~~net cash used consisted of $30.3 million for the acquisition of Veracity, $6.0 million for redemption of short-term investments, ~~of $6.0~~and $2.0 million ~~and purchased $3.9 million less~~for property and equipment ~~compared to~~purchases and the ~~first nine months~~development of ~~fiscal 2019.~~internal-use software.

Financing Activities

The primary sources of cash in financing activities are borrowings under the Company’s revolving credit facility, cash proceeds from the exercise of employee stock options and proceeds from issuance of the ESPP. The primary uses of cash in financing activities are repayments under the Facility, repurchases of the Company’s common stocks and cash dividend payments to the shareholders.

Net cash used in financing activities totaled $46.0 million for the nine months ended February 27, 2021 compared to cash used in financing activities of $1.8 million for the nine months ended February 22, ~~2020 compared to a use of cash of $15.6 million during the nine months ended February 23, 2019.~~2020. Net cash used in financing activities during the nine months ended February 27, 2021 consisted of repayments on the Facility of $35.0 million, cash dividend payments of $13.6 million, and the first Veracity contingent consideration payment, of which $3.0 million was categorized as financing (the remaining $2.3 million of the total $5.3 million Veracity year one contingent consideration payment was categorized as operating). These were partially offset by $5.6 million in proceeds received from ESPP share purchases and employee stock option exercises. Net cash used in financing activities of $1.8 million for the nine months ended February 22, 2020 ~~consisted of~~included $10.3 million of proceeds from employee stock option exercises and purchases of shares under the ESPP, $35.0 million of borrowings to finance the acquisition of Veracity, partially offset by principal repayments of $29.0 million under the ~~revolving credit facility,~~Facility, $5.0 million to purchase approximately 318,000 shares of common stock on the open market and $13.1 million of cash dividend payments.

Net cash used in financing activities during the nine months ended February 23, 2019 consisted of $22.3 million of cash paid to repurchase the Company’s own common stock, principal repayment of $5.0 million under the revolving credit facility and $12.0 million of cash dividend payments, partially offset by $23.6 million of proceeds from employee stock option exercises and purchases of shares under ESPP.

Recent Accounting Pronouncements

~~The increase in dividends paid was due to an increase in dividends declared per share from $0.13 per share to $0.14 per share beginning in fiscal 2020.~~

~~As described~~Information regarding recent accounting pronouncements is contained in Note ~~3 —~~ ~~Acquisitions and Dispositions,~~ 2 – Summary of Significant Accounting Policiesin the Notes to ~~Consolidated Financial Statements~~consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form ~~10-Q, the purchase agreements for Veracity and Expertence require earn-out payments to be made. The Company estimated the fair value~~10-Q.

Contractual Obligations

Other than a $35.0 million repayment of the ~~obligation to pay contingent consideration based on a number of different projections~~Facility during the nine months ended February 27, 2021 and an additional $10.0 million repayment of the ~~estimated EBITDA and estimated revenue. The estimated fair value of~~Facility on March 24, 2021, there have been no material changes to the ~~contingent consideration as of February 22, 2020 was $5.9 million.~~

~~Recent Accounting Pronouncements~~

~~Information regarding recent accounting pronouncements is contained~~contractual obligations reported in ~~Note 2 —~~ ~~Summary of Significant Accounting Policies~~ ~~in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly~~our Annual Report on Form ~~10-Q.~~10-K for the year ended May 30, 2020.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Risk. We are primarily exposed to market risks from fluctuations in interest rates and the effects of those fluctuations on the market values of our cash and cash equivalents and our borrowings under our Facility that bear interest at a variable market rate.

As of February ~~22, 2020,~~27, 2021, we had approximately ~~$35.9~~$84.0 million of cash and cash equivalents and ~~$49.0~~$53.0 million of borrowings under our Facility. The earnings on investments are subject to changes in interest rates; however, assuming a constant balance available for investment, a 10% decline in interest rates would reduce our interest income but would not have a material impact on our consolidated financial position or results of operations.

~~Borrowings~~Additional information regarding the interest on our borrowings under the Facility ~~bear interest at a rate per annum~~is included in Note 8 – Long-Term Debtin the Notes to consolidated financial statements included in Part I, Item 1 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~~this Quarterly Report 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%.Form 10-Q.We are exposed to interest rate risk related to fluctuations in the LIBOR ~~rate primarily;~~

rate; at the current level of borrowing as of February ~~22, 2020~~27, 2021 of ~~$49.0~~$53.0 million, a 10% change in interest rates would have resulted in approximately a ~~$0.2~~$0.1 million change in annual interest expense.

Foreign Currency Exchange Rate Risk. For the ~~three~~nine months ended February ~~22, 2020,~~27, 2021, approximately ~~19.0%~~20.3% of the Company’s revenues were generated outside of the U.S. As a result, our operating results are subject to fluctuations in the exchange rates of foreign currencies in relation to the U.S. dollar. Revenues and expenses denominated in foreign currencies are translated into U.S. dollars at the monthly average exchange rates prevailing during the period. Thus, as the value of the U.S. dollar fluctuates relative to the currencies in our non-U.S. based operations, our reported results may vary.

Assets and liabilities of our non-U.S. based operations are translated into U.S. dollars at the exchange rate effective at the end of each monthly reporting period. Approximately ~~21%~~63.4% of our balances of cash and cash equivalents as of February ~~22, 2020~~27, 2021 were denominated in U.S. dollars. The remaining amount of approximately ~~79%~~36.6% was comprised primarily of cash balances translated from Euros, Japanese Yen, Chinese Yuan, Mexican Pesos, Canadian Dollar, British Pound Sterling ~~Japanese Yen, Canadian Dollar~~ and ~~Chinese Yuan.~~the Hong Kong Dollar. The difference resulting from the translation each period of assets and liabilities of our non-U.S. based operations is recorded as a component of stockholders’ equity in ~~other~~ accumulated other comprehensive income or loss.

Although we intend to monitor our exposure to foreign currency fluctuations, we do not currently use financial hedging techniques to mitigate risks associated with foreign currency fluctuations including in a limited number of circumstances when we may be asked to transact with our client in one currency but are obligated to pay our consultant in another currency. We cannot provide assurance that exchange rate fluctuations will not adversely affect our financial results in the future.

ITEM 4. CONTROLS AND PROCEDURES.

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) as of February ~~22, 2020.~~27, 2021. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of February ~~22, 2020.~~27, 2021. There was no change in the Company’s internal control over financial reporting, as such term is defined in Rule 13a-15(f) promulgated under the Exchange Act, during the Company’s quarter ended February ~~22, 2020~~27, 2021 that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

~~ITEM 1.~~ ~~LEGAL PROCEEDINGS.~~

~~We are not a party to any material legal proceedings, although we are from time to time party to legal proceedings that arise in the ordinary course of our business.~~

ITEM 1A. RISK FACTORS.

~~Our business is subject to risks arising from epidemic diseases, such as the recent outbreak of the COVID-19 illness.~~

The recent outbreak of COVID-19, which has been declared by the World Health Organization to be a pandemic, has spread across the globe and is impacting worldwide economic activity. A pandemic, including COVID-19, or other public health epidemic poses the risk that we or our employees and other partners may be prevented from conducting business activities at full capacity for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that are requested or mandated by governmental authorities. While it is not possible at this time to estimate the impact that COVID-19 could have on our business, the continued spread of COVID-19 and the measures taken by the governments of countries affected and in which we operate may, among other things, reduce demand for or delay client decisions to procure our services and, as a result, could adversely affect our operating results and financial condition. For example, after the January 2020 outbreak of the virus in China, many businesses in China extended their Chinese New Year holiday shut down by approximately one to two weeks due to government restrictions to close and to restrict certain travel within the country. Our practices based in China and other parts of Asia adopted virtual methods of working in order to ensure business continuity for both our clients and the Company. Nevertheless, the events relating to COVID-19 had an adverse impact on our business in Asia Pacific during the quarter ended February 22, 2020. Subsequent to the third quarter of fiscal 2020, as events relating to COVID-19 continue to develop globally, including in the U.S., and impact the capital markets, the Company’s results of operations, cash flows and financial condition could be adversely impacted due to a reduction in demand, delay of client decisions to procure our services or possible deterioration in our clients’ financial condition and their ability to timely pay outstanding receivables owed to us. Furthermore, we have experienced declines in the market price of our stock subsequent to the end of the third quarter. If there are further decreases in our stock price for a sustained period or other

unfavorable factors, we may be required to perform a goodwill impairment assessment, which may result in a recognition of goodwill impairment that could be material to the Consolidated Financial Statements.

In addition, we have taken temporary precautionary measures intended to help minimize the risk of the virus to our employees, including temporarily requiring all employees to work remotely, suspending all non-essential travel worldwide for our employees, and ~~discouraging~~ employee attendance at in-person work-related meetings, which could negatively affect our business. The extent to which the COVID-19 outbreak impacts our results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact. While not yet quantifiable, management expects this situation will have an adverse impact to our operating results in the fourth quarter of fiscal 2020 and continues to assess the financial impact for the upcoming fiscal year.

~~Other than the above risk factor relating to COVID-19, there~~There have been no material changes in our risk factors from those disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended May ~~25, 2019,~~30, 2020, which was filed with the Securities and Exchange Commission on July ~~19, 2019.~~27, 2020. See “Risk Factors” in Item 1A of Part I of such Annual Report on Form 10-K for a complete description of the material risks we ~~face.~~face.

~~ITEM 2.~~ ~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.~~

~~The following table provides information about purchases by the Company of its common stock for the three months ended February 22, 2020. All shares were repurchased pursuant to the July 2015 program.~~

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
November 24, 2019— December 21, 2019
-

$
-

-

$
90,096,548
December 22, 2019 — January 18, 2020
-

$
-

-

$
90,096,548
January 19, 2020 — February 22, 2020
318,430

$
15.70

318,430

$
90,096,548
Total November 24, 2019 — February 22, 2020
318,430

$
15.70

318,430

$
85,096,561

~~(1)~~

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 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

~~ITEM 5.~~ ~~OTHER INFORMATION~~.

~~Restructuring Initiative~~

On February 27, 2020, management and our board of directors committed to a restructuring plan to reduce approximately 7.5% of our management and administrative workforce and consolidate our geographic presence to certain key markets. The restructuring plan was designed to streamline the Company’s organizational structure, reduce operating costs and more effectively align resources to business priorities. The majority of employees impacted by the reduction in force are expected to exit before the end of fiscal 2020, with the remainder exiting in the first quarter of fiscal 2021. Based on management’s rationalization of its real estate footprint, a plan was put in place to terminate or sublet 26% of its real estate leases by the end of fiscal 2021.

We carried out a reduction in force in early March, whereby we eliminated 73 positions in North America and Asia Pacific. We expect to take a restructuring charge of $4 million to $5 million relating to employee termination costs over the fourth quarter of fiscal 2020 and first quarter of fiscal 2021. Upon completion of the reduction in force, we expect annual pre-tax savings of $13 million to $15 million with respect to personnel costs. In fiscal 2021, after the impact of COVID-19 is clearer, we may reinvest a limited amount of those personnel savings in the business to drive forward certain growth initiatives in core markets and digital capabilities

With respect to our plan to restructure real estate leases, we expect to incur approximately $1 million of lease termination costs and other costs associated with exiting the facilities in the fourth quarter of fiscal 2020. Additional restructuring charges are expected through fiscal 2021 as we continue to execute the plan to exit the real estate leases. Exact amount and timing of the restructuring charge will depend on a number of variables including market conditions.

~~Borrowings under Credit Facility~~

From time to time, we will use available credit lines to meet our financial obligations and to satisfy working capital requirements for our business. Due to the uncertainty caused by the COVID-19 pandemic, in March 2020, in an abundance of caution, we borrowed $39.0 million under the Credit Facility to provide substantial additional liquidity to manage our business in light of the impact of COVID-19 on the global economy and our business.

ITEM 6. EXHIBITS.

The exhibits listed in the Exhibit Index are filed with, or incorporated by reference in, this Report.

‎

3233

EXHIBIT INDEX



~~Exhibit~~ ~~Number~~	~~Description of Document~~
Exhibit Number	Description of Document
~~10.1~~10.1*	Letter Agreement to amend Employment Agreement, dated as of January 20, 2021, to the Employment Agreement, dated as of February 3, 2020, by and between ~~Jennifer Ryu and~~ the Company ~~(incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by Resources Connection, Inc. on February 4, 2020).~~and Kate W. Duchene.
~~10.2~~31.1*	Employment Agreement dated February 3, 2020 between Kate W. Duchene and the Company (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed by Resources Connection, Inc. on February 4, 2020).
~~10.3~~	~~Employment Agreement dated February 21, 2020 between Tim Brackney and the Company.~~
~~10.4~~	~~Retention Bonus Recovery Agreement dated February 21, 2020 between Tim Brackney and the Company.~~
31.1*	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32**	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS101*	~~XBRL Instance.~~The following unaudited interim consolidated financial statements from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 27, 2021, formatted in Inline XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.
101.SCH104	Cover Page Interactive Data File (formatted in Inline XBRL ~~Taxonomy Extension Schema.~~
101.CAL*	~~XBRL Taxonomy Extension Calculation.~~
101.DEF*	~~XBRL Taxonomy Extension Definition.~~
101.LAB*	~~XBRL Taxonomy Extension Labels.~~
101.PRE*	~~XBRL Taxonomy Extension Presentation.~~
	and contained in Exhibit 101).

~~_________~~

_________

* Filed herewith.

** Furnished herewith.

‎

3334

SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	RESOURCES CONNECTION, INC.

Date: April ~~2, 2020~~8, 2021	/s/ KATE W. DUCHENE
	Kate W. Duchene
	~~Kate W. Duchene~~President, Chief Executive Officer (Principal Executive Officer)

Date: April 8, 2021	/s/ JENNIFER RYU
	Jennifer Ryu
	Executive Vice President and Chief ~~Executive Officer~~ ~~(Principal Executive Officer)~~

~~Date: April 2, 2020~~	~~/s/ Jennifer Ryu~~
	~~Jennifer Ryu~~
	~~Chief~~ Financial Officer (Principal Financial Officer and Principal Accounting Officer)

3435



	Fiscal Years Ending
		2020		2021		2022		2023		2024
Expected amortization expense	$	5,741	$	4,589	$	3,331	$	3,133	$	3,097


Principal Balance		Base Rate	Libor Rate		Interest Rate
$	25,000	1.25%	6-month	1.93%	3.18%
	24,000	1.25%	2-month	1.81%	3.06%
$	49,000



	Number of Shares Under Option	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding at May 25, 2019	6,029	$	15.95	6.06	$	5,482
Granted, at fair market value	1,318		17.37
Exercised	(376)		13.63
Forfeited	(409)		17.38
Expired	(551)		17.11
Outstanding at February 22, 2020	6,011	$	16.12	6.52	$	1,982
Exercisable at February 22, 2020	3,452	$	15.13	4.71	$	1,982
Vested and expected to vest at February 22, 2020	5,744	$	16.04	6.33	$	1,982



	Revenue for the				Revenue for the
	Three Months Ended				Nine Months Ended				Long-Lived Assets (1) as of
	February 22,		February 23,		February 22,		February 23,		February 22,		May 25,
	2020		2019		2020		2019		2020		2019
United States	$	136,149	$	142,409	$	422,197	$	432,539	$	260,099	$	200,385
International		31,903		37,089		102,587		114,316		38,024		31,651
Total	$	168,052	$	179,498	$	524,784	$	546,855	$	298,123	$	232,036



				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
November 24, 2019— December 21, 2019	-	$	-	-	$	90,096,548
December 22, 2019 — January 18, 2020	-	$	-	-	$	90,096,548
January 19, 2020 — February 22, 2020	318,430	$	15.70	318,430	$	90,096,548
Total November 24, 2019 — February 22, 2020	318,430	$	15.70	318,430	$	85,096,561

February 27, 2021

May 30, 2020

Weighted average remaining lease term

Weighted average discount rate