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 August 28, 202127, 2022

OR

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

For the transition period from ______ to______ 

Commission File Number: 0-32113

 

RESOURCES CONNECTION, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

33-0832424

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

17101 Armstrong Avenue, Irvine, California 92614

(Address of principal executive offices) (Zip Code)

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

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

Title of Each Class

Trading Symbol(s)

Name of Exchange on Which Registered

Common stock, par value $0.01 per share

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  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of September 29, 2021, there were approximately 33,186,7402022, 33,750,861 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.

  

1

RESOURCES CONNECTION, INC.

INDEX

Page

No.

PART I—FINANCIAL INFORMATION

ITEM 1.

Consolidated Financial Statements (Unaudited)

3

Consolidated Balance Sheets as of August 28, 202127, 2022 and May 29, 202128, 2022

3

Consolidated Statements of Operations for the Three Months Ended August 28, 202127, 2022 and August 29, 202028, 2021

4

Consolidated Statements of Comprehensive Income for the Three Months Ended August 28, 202127, 2022 and August 29, 202028, 2021

5

Consolidated Statements of Stockholders’ Equity for the Three Months Ended August 28, 202127, 2022 and August 29, 202028, 2021

6

Consolidated Statements of Cash Flows for the Three Months Ended August 28, 202127, 2022 and August 29, 202028, 2021

7

Notes to Consolidated Financial Statements

8

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

1720

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

2733

ITEM 4.

Controls and Procedures

2733

PART II—OTHER INFORMATION

ITEM 1A.

Risk Factors

2734

ITEM 6.

Exhibits

2834

Signatures.

30Signatures

35


‎

2

PART I—FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.

RESOURCES CONNECTION, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts inIn thousands, except par value per share)

August 28,

May 29,

August 27,

May 28,

2021

2021

2022

2022

(Unaudited)

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

61,899

$

74,391

$

72,575

$

104,224

Trade accounts receivable, net of allowance for doubtful accounts of $2,031

and $2,032 as of August 28, 2021 and May 29, 2021, respectively

129,069

116,455

Trade accounts receivable, net of allowance for doubtful accounts of $2,180

and $2,121 as of August 27, 2022 and May 28, 2022, respectively

157,210

153,154

Prepaid expenses and other current assets

6,725

7,235

5,710

6,123

Assets held for sale

-

9,889

Income taxes receivable

35,559

37,184

26,662

35,151

Total current assets

233,252

235,265

262,157

308,541

Goodwill

215,929

216,758

208,458

209,785

Intangible assets, net

19,703

20,240

14,622

15,760

Property and equipment, net

20,001

20,543

17,324

17,657

Operating right-of-use assets

22,742

24,655

Operating lease right-of-use assets

19,154

17,541

Deferred income taxes

1,552

1,691

7,531

8,266

Other assets

1,456

1,492

4,775

3,923

Total assets

$

514,635

$

520,644

$

534,021

$

581,473

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued expenses

$

18,136

$

15,987

Accounts payable and other accrued expenses

$

12,921

$

13,630

Accrued salaries and related obligations

49,349

55,513

59,768

83,549

Operating lease liabilities, current

9,830

10,206

8,023

8,193

Contingent consideration liabilities

7,028

7,129

Other liabilities

11,037

12,071

Liabilities held for sale

-

4,419

Other current liabilities

11,099

14,531

Total current liabilities

95,380

100,906

91,811

124,322

Long-term debt

33,000

43,000

20,000

54,000

Operating lease liabilities, noncurrent

18,859

20,740

Operating lease liabilities, non-current

14,740

13,352

Deferred income taxes

18,228

18,382

12,329

14,428

Other long-term liabilities

8,323

8,070

Other non-current liabilities

3,186

2,922

Total liabilities

173,790

191,098

142,066

209,024

Commitments and contingencies

 

 

Commitments and contingencies (see Note 13)

 

 

Stockholders’ equity:

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; 64,926 and

64,626 shares issued, and 33,187 and 32,885 shares outstanding as of

August 28, 2021 and May 29, 2021, respectively

649

646

Preferred stock, $0.01 par value, 5,000 shares authorized; zero shares

issued and outstanding

-

-

Common stock, $0.01 par value, 70,000 shares authorized; 34,906 and

34,352 shares issued, and 33,751 and 33,197 shares outstanding as of

August 27, 2022 and May 28, 2022, respectively

349

344

Additional paid-in capital

494,742

489,864

366,648

355,502

Accumulated other comprehensive loss

(9,228)

(7,393)

(21,473)

(16,484)

Retained earnings

375,426

367,229

66,082

52,738

Treasury stock at cost, 31,739 and 31,741 shares as of August 28, 2021 and

May 29, 2021, respectively

(520,744)

(520,800)

Treasury stock at cost, 1,155 shares as of both August 27, 2022

and May 28, 2022

(19,651)

(19,651)

Total stockholders’ equity

340,845

329,546

391,955

372,449

Total liabilities and stockholders’ equity

$

514,635

$

520,644

$

534,021

$

581,473

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

statements.

3

RESOURCES CONNECTION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts inIn thousands, except per share amounts)

(Unaudited)

Three Months Ended

Three Months Ended

August 28,

August 29,

August 27,

August 28,

2021

2020

2022

2021

Revenue

$

183,140

$

147,346

$

204,062

$

183,140

Direct cost of services

111,708

89,449

120,595

111,708

Gross profit

71,432

57,897

83,467

71,432

Selling, general and administrative expenses

51,392

51,154

56,187

51,392

Amortization of intangible assets

1,103

1,530

Amortization expense

1,252

1,103

Depreciation expense

919

1,007

887

919

Income from operations

18,018

4,206

25,141

18,018

Interest expense, net

215

495

316

215

Other income

(306)

(530)

(307)

(306)

Income before provision for income taxes

18,109

4,241

Provision for income taxes

5,186

1,957

Income before income tax expense

25,132

18,109

Income tax expense

6,992

5,186

Net income

$

12,923

$

2,284

$

18,140

$

12,923

Net income per common share:

Basic

$

0.39

$

0.07

$

0.55

$

0.39

Diluted

$

0.39

$

0.07

$

0.53

$

0.39

Weighted average common shares outstanding:

Weighted-average number of common and common equivalent
‎shares outstanding:

Basic

32,894

32,183

33,277

32,894

Diluted

33,313

32,232

34,234

33,313

Cash dividends declared per common share

$

0.14

$

0.14

$

0.14

$

0.14

The accompanying notes are an integral part of these consolidated financial statementsstatements.


‎

4

RESOURCES CONNECTION, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Amounts inIn thousands)

(Unaudited)

Three Months Ended

Three Months Ended

August 28,

August 29,

August 27,

August 28,

2021

2020

2022

2021

COMPREHENSIVE INCOME:

Net income

$

12,923

$

2,284

$

18,140

$

12,923

Foreign currency translation adjustment, net of tax

(1,835)

4,316

(4,989)

(1,835)

Total comprehensive income

$

11,088

$

6,600

$

13,151

$

11,088

The accompanying notes are an integral part of these consolidated financial statementsstatements.


‎

5

RESOURCES CONNECTION, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)(In thousands, except per share amounts)

(Amounts in thousands)

(Unaudited)

For the Three Months Ended August 28, 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 29, 2021

64,626 

$

646 

$

489,864 

31,741 

$

(520,800)

$

(7,393)

$

367,229 

$

329,546 

Exercise of stock options

80 

1 

1,114 

1,115 

Stock-based compensation expense

1,365 

1,365 

Issuance of common stock under Employee

Stock Purchase Plan

220 

2 

2,349 

2,351 

Issuance of restricted stock

(2)

-

-

Amortization of restricted stock issued out of

treasury stock to board of director members

(11)

56 

(25)

20 

Cash dividends declared ($0.14 per share)

(4,640)

(4,640)

Dividend equivalents on restricted stock

61 

(61)

-

Currency translation adjustment

(1,835)

(1,835)

Net income for the three months ended August 28, 2021

12,923 

12,923 

Balances as of August 28, 2021

64,926 

$

649 

$

494,742 

31,739 

$

(520,744)

$

(9,228)

$

375,426 

$

340,845 

For the Three Months Ended August 29, 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 30, 2020

63,910 

$

639 

$

477,438 

31,766 

$

(521,088)

$

(13,862)

$

360,534 

$

303,661 

Exercise of stock options

44 

1 

503 

504 

Stock-based compensation expense

1,212 

1,212 

Issuance of common stock under Employee

Stock Purchase Plan

245 

2 

2,458 

2,460 

Issuance of restricted stock out of treasury

stock to board of director members

(40)

55 

(15)

-

Cash dividends declared ($0.14 per share)

(4,509)

(4,509)

Currency translation adjustment

4,316 

4,316 

Net income for the three months ended August 29, 2020

2,284 

2,284 

Balances as of August 29, 2020

64,199 

$

642 

$

481,571 

31,766 

$

(521,033)

$

(9,546)

$

358,294 

$

309,928 

For the Three Months Ended August 27, 2022

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Treasury Stock

Comprehensive

Retained

Stockholders'

Shares

Amount

Capital

Shares

Amount

Loss

Earnings

Equity

Balances at May 28, 2022

34,352 

$

344 

$

355,502 

1,155 

$

(19,651)

$

(16,484)

$

52,738 

$

372,449 

Exercise of stock options

371 

3 

6,058 

-

-

-

-

6,061 

Stock-based compensation expense

-

-

2,171 

-

-

-

-

2,171 

Issuance of common stock purchased under

Employee Stock Purchase Plan

183 

2 

2,841 

-

-

-

-

2,843 

Cash dividends declared ($0.14 per share)

-

-

-

-

-

-

(4,720)

(4,720)

Dividend equivalents on restricted stock units

-

-

76 

-

-

-

(76)

-

Currency translation adjustment

-

-

-

-

-

(4,989)

-

(4,989)

Net income for the three months ended

August 27, 2022

-

-

-

-

-

-

18,140 

18,140 

Balances at August 27, 2022

34,906 

$

349 

$

366,648 

1,155 

$

(19,651)

$

(21,473)

$

66,082 

$

391,955 

For the Three Months Ended August 28, 2021

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Treasury Stock

Comprehensive

Retained

Stockholders'

Shares

Amount

Capital

Shares

Amount

Loss

Earnings

Equity

Balances at May 29, 2021

64,626 

$

646 

$

489,864 

31,741 

$

(520,800)

$

(7,393)

$

367,229 

$

329,546 

Exercise of stock options

80 

1 

1,114 

-

-

-

-

1,115 

Stock-based compensation expense

-

-

1,365 

-

-

-

-

1,365 

Issuance of common stock purchased under

Employee Stock Purchase Plan

220 

2 

2,349 

-

-

-

-

2,351 

Issuance of restricted stock

-

-

-

(2)

-

-

-

-

Amortization of restricted stock issued out of

treasury stock to board of director members

-

-

(11)

-

56 

-

(25)

20 

Cash dividends declared ($0.14 per share)

-

-

-

-

-

-

(4,640)

(4,640)

Dividend equivalents on restricted stock units

-

-

61 

-

-

-

(61)

-

Currency translation adjustment

-

-

-

-

-

(1,835)

-

(1,835)

Net income for the three months ended

August 28, 2021

-

-

-

-

-

-

12,923 

12,923 

Balances at August 28, 2021

64,926 

$

649 

$

494,742 

31,739 

$

(520,744)

$

(9,228)

$

375,426 

$

340,845 

The accompanying notes are an integral part of these consolidated financial statementsstatements.


‎

6

RESOURCES CONNECTION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts inIn thousands)

(Unaudited)

Three Months Ended

Three Months Ended

August 28,

August 29,

August 27,

August 28,

2021

2020

2022

2021

Cash flows from operating activities:

Net income

$

12,923 

$

2,284 

$

18,140

$

12,923

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

Depreciation and amortization

2,022 

2,537 

Depreciation and amortization expense

2,139

2,022

Stock-based compensation expense

1,629 

1,397 

2,529

1,629

Contingent consideration adjustment

221 

530 

(Gain) loss on disposal of assets

(3)

28 

Loss on dissolution of subsidiaries

89 

-

Impairment of operating right-of-use assets

316 

-

(Gain) loss on dispositions of subsidiaries

(238)

89

Adjustment to allowance for doubtful accounts

264 

(50)

81

264

Deferred income taxes

(52)

(117)

(1,957)

(52)

Changes in operating assets and liabilities:

Other, net

(385)

534

Changes in operating assets and liabilities, net of dispositions:

Trade accounts receivable

(13,767)

16,781 

(6,131)

(13,767)

Prepaid expenses and other current assets

469 

202 

367

469

Income taxes

537 

1,143 

7,693

537

Other assets

33 

(554)

1,792

33

Accounts payable and accrued expenses

2,420 

(521)

Accounts payable and other accrued expenses

(794)

2,420

Accrued salaries and related obligations

(5,970)

(6,102)

(24,757)

(5,970)

Other liabilities

(667)

1,028 

(3,775)

(667)

Net cash provided by operating activities

464 

18,586 

Net cash (used in) provided by operating activities

(5,296)

464

Cash flows from investing activities:

Proceeds from sale of taskforce

2,984

-

Proceeds from sale of assets

15 

20 

-

15

Acquisition of property and equipment and internal-use software

(1,021)

(267)

Net cash used in investing activities

(1,006)

(247)

Investments in property and equipment and internal-use software

(709)

(1,021)

Net cash provided by (used in) investing activities

2,275

(1,006)

Cash flows from financing activities:

Proceeds from exercise of stock options

1,170 

522 

6,686

1,170

Proceeds from issuance of common stock under Employee Stock Purchase Plan

2,351 

2,460 

2,843

2,351

Payment of contingent consideration

(305)

-

Payment of contingent consideration liabilities

-

(305)

Proceeds from Revolving Credit Facility

15,000

-

Repayments on Revolving Credit Facility

(10,000)

-

(49,000)

(10,000)

Cash dividends paid

(4,603)

(4,512)

Payment of cash dividends

(4,647)

(4,603)

Net cash used in financing activities

(11,387)

(1,530)

(29,118)

(11,387)

Effect of exchange rate changes on cash

(563)

2,118 

Net (decrease) increase in cash

(12,492)

18,927 

Effect of exchange rate changes on cash and cash equivalents

490

(563)

Net decrease in cash and cash equivalents

(31,649)

(12,492)

Cash and cash equivalents at beginning of period

74,391 

95,624 

104,224

74,391

Cash and cash equivalents at end of period

$

61,899 

$

114,551 

$

72,575

$

61,899

The accompanying notes are an integral part of these consolidated financial statementsstatements.


‎

7

RESOURCES CONNECTION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of the Company and its Business

Resources Connection, Inc. (the “Company”), a Delaware corporation, was incorporated on November 16, 1998. The Company’s operating entities provide services primarily under the name Resources Global Professionals. Resources Global Professionals (“RGP”). RGP is a global consulting firm helping businesses tackle transformation,focused on project execution services that power clients’ operational needs and change initiatives utilizing on-demand, experienced and compliance challenges by supplying the right professional talent and solutions.diverse talent. As a next-generation human capital partner for its clients, the Company specializes in solving today’s most pressingco-delivery of enterprise initiatives typically precipitated by business problems across the enterprise in the areas oftransformation, strategic transactions regulations, and transformations.or regulatory change. The Company’s principal markets of operations are the United States (“U.S.”),North America, Europe and Asia Pacific, Mexico and Canada.Pacific.

The Company’s fiscal year consists of 52 or 53 weeks, ending on the Saturday in May closest to May 31. The first quarters of fiscal 20222023 and 20212022 each consisted of 13 weeks. The Company’s fiscal 2022year 2023 will consist of 52 weeks.

2. Summary of Significant Accounting Policies

Interim Financial InformationBasis of Presentation

The accompanying unaudited financial statements of the Company as of and for the three months ended August 28, 202127, 2022 and August 29, 202028, 2021 have been prepared in accordanceconformity with accounting principles generally accepted accounting principles in the U.S.United States (“GAAP”) for interim financial information and 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 CompanyCompany’s management considers necessary for a fair presentation of its financial position at such dates and the operating results and cash flows for those periods. The financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

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.

The fiscal 20212022 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 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 29, 2021,28, 2022, which are included in the Company’s Annual Report on Form 10-K (“Fiscal Year 20212022 Form 10-K”) filed with the SEC on July 23, 202128, 2022 (File No. 0-32113).

TheA complete listing of the Company’s significant accounting policies are describedis discussed in Note 2 – Summary of Significant Accounting Policies in the Notes to the audited consolidated financial statementsConsolidated Financial Statements included in the Fiscal Year 20212022 Form 10-K.

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.

Reporting Segments

Effective inOn May 31, 2022, the Company divested taskforce – Management on Demand GmbH, and its wholly owned subsidiary skillforce – Executive Search GmbH, a German professional services firm operating under the taskforce brand (“taskforce”); see Note 4 – Dispositions for further information. Since the second quarter of fiscal 2021, the business operated by taskforce, along with its parent company, Resources Global Professionals (Germany) GmbH (“RGP Germany”), an affiliate of the Company, revised its historical onerepresented an operating segment positionof the Company and identifiedwas reported as a part of Other Segments.

8

Effective May 31, 2022, the following newCompany’s operating segments to align with changes made in its internal management structure and its reporting structureconsist of financial information used to assess performance and allocate resources:the following:

RGP – a global business consulting practice which operates primarily under the RGP brand and focusesfirm focused on project consultingexecution services that power clients’ operational needs and professional staffing services in areas such as financechange initiatives utilizing on-demand, experienced and accounting, business strategydiverse talent; 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.

Each of these 3 segments reports through a separate management team to the Company’s Chief Executive Officer, who is designated as the Chief Operating Decision Maker (“CODM”) for segment reporting purposes. RGP is the Company’s only operating segment that meets the quantitative threshold of a reportable segment. taskforce and Sitrick dodoes not individually meet the quantitative thresholdsthreshold to qualify as a reportable segments.segment. Therefore, they are combined

8

andSitrick is disclosed asin Other Segments. Each of these segments represents a reporting unit for the purposes of assessing goodwill for impairment. All prior-period

Prior-period comparative segment information was recast to reflectnot restated as a result of the current reportable segments in accordance with Accounting Standards Codification 280, Segment Reporting. Thedivestiture of taskforce as the Company did not have a change in segment reporting did not impactinternal organization or the Company’s consolidated financial statements.information that the CODM uses to assess performance and allocate resources. See Note 14 – Segment Information and Enterprise Reporting for further information.

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 share (“EPS”). Basic EPS is calculated by dividing net income by the weighted averageweighted-average number of common shares outstanding during the period. Diluted EPS is based upon the weighted averageweighted-average number of common shares and common equivalent shares outstanding during the period, calculated using the treasury stock method. Under the treasury stock method, exercise proceeds include the amount the employee must pay for exercising stock options, the amount of compensation cost related to stock awards for future services that the Company has not yet recognized and the amount of tax benefits that would be recorded when the award becomes deductible. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect. Stock options for which the exercise price exceeds the average market price over the period are anti-dilutive and are excluded from the calculation.

The following table summarizes the calculation of net income per common share for the periods indicatedthree months ended August 27, 2022 and August 28, 2021 (in thousands, except per share amounts):

Three Months Ended

Three Months Ended

August 28,

August 29,

August 27,

August 28,

2021

2020

2022

2021

Net income

$

12,923

$

2,284

$

18,140

$

12,923

Basic:

Weighted average shares

32,894

32,183

Weighted-average shares

33,277

32,894

Diluted:

Weighted average shares

32,894

32,183

Weighted-average shares

33,277

32,894

Potentially dilutive shares

419

49

957

419

Total dilutive shares

33,313

32,232

Net income per common share

Total diluted shares

34,234

33,313

Net income per common share:

Basic

$

0.39

$

0.07

$

0.55

$

0.39

Dilutive

$

0.39

$

0.07

Diluted

$

0.53

$

0.39

Anti-dilutive shares not included above

3,004

5,324

-

3,004

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 $7.0 million and $7.1 million as of August 28, 2021 and May 29, 2021,

9

respectively. The fair value measurement of the liability is based on significant inputs not observed in the market and thus represents a Level 3 measurement. The significant unobservable inputs used in the fair value measurement of the contingent consideration liability are the Company’s measures of the estimated payouts based on internally generated financial projections and discount rates. The fair value of contingent consideration liability is remeasured on a quarterly basis by the Company using additional information as it becomes available, and any change in the fair value estimates are recorded in selling, general and administrative expenses in the Company’s Consolidated Statements of Operations.

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

9

Assets and Liabilities Held for Sale

Assets and liabilities held for sale represent primarily cash, accounts receivable, goodwill and other assets and liabilities that met the criteria of “held for sale” accounting, as specified by Accounting Standards Codification 360, Property, Plant, and Equipment. The effect of suspending amortization on noncurrent assets held for sale was immaterial to the Company’s results of operations.

The Company records assets and liabilities held for sale at the lower of carrying value or fair value less cost to sell. Fair value was based on the estimated proceeds from the sale of the business utilizing the purchase price as defined in the agreement. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset or disposal group until the date of sale.

As of May 28, 2022, the Company classified certain assets and liabilities as held for sale in connection with the sale of taskforce, which closed on May 31, 2022. See Note 4 – Dispositions for further information.

Recent Accounting Pronouncements

No recent accounting pronouncements or changes in accounting pronouncements have been issued or adopted that are of material significance, or have potential material significance, to the Company’s financial statements since those discussed in the Company’s Fiscal Year 20212022 Form 10-K, that are of material significance, or have potential material significance, to the Company.  10-K.

3. Revenue Recognition

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

Contract assets represent the Company’s rights to consideration for completed performance under the contract (i.e., unbilled receivables), in which the Company has transferred control of the product or services before there is an unconditional right to payment. Contract assets were $41.3$44.0 million and $36.2$42.6 million as of August 28, 202127, 2022 and May 29, 2021, respectively.28, 2022, respectively, which were included in trade accounts receivable in the Consolidated Balance Sheets.

Contract liabilities represent deferred revenue when cash is received in advance of performance of services and are presented in Other Liabilitiesother current liabilities in the Consolidated Balance Sheets. Contract liabilities were $4.5$4.1 million and $4.6$4.2 million as of August 28, 202127, 2022 and May 29, 2021,28, 2022, respectively. RevenuesRevenue recognized during the three months ended August 28, 202127, 2022 that werewas included in deferred revenuesrevenue as of May 29, 2021 were $1.128, 2022 was $0.7 million.

4. Dispositions

DuringSale of taskforce

On April 21, 2022, RGP Germany entered into a Sale and Purchase Agreement (the “SPA”) to sell its business in taskforce to MoveVision – Management-, Beteiligungs- und Servicegesellschaft mbH and Blue Elephant – Management-, Beteiligungs- und Servicegesellschaft mbH (collectively, the “Purchasers”), owned by the original founder and a member of the senior leadership team of taskforce, respectively. The SPA provided for the sale of all of the shares of taskforce from RGP Germany to the Purchasers for a purchase price of approximately EUR 5.5 million, subject to final working capital adjustments, with 50% of the consideration to be paid in cash in connection with the closing and the remaining 50% payable on July 1, 2024 and bearing interest based on the Company’s average borrowing interest rate plus 285 basis points, compounded annually.

On May 31, 2022, the Company completed the sale of taskforce. Upon conclusion of the Final Completion Accounts and Calculation (as defined in the Sale and Purchase Agreement), the final purchase price was determined to be EUR 5.5 million (approximately $6.0 million), of which EUR 2.8 million (approximately $3.0 million) was received in cash and EUR 2.8 million (approximately $3.0 million) shall become due in July 2024 in accordance with the SPA. Such receivable is presented in other assets in the Consolidated Balance Sheets.

The Company recognized a $0.2 million gain on the sale in the three months ended August 27, 2022, which was recorded in other income in the Company’s Consolidated Statements of Operations.

10

As of May 28, 2022, assets and liabilities of taskforce were classified as held for sale in the Company’s Consolidated Balance Sheets. Such assets and liabilities were presented at the lower of carrying value or fair value less any costs to sell. The Company concluded that the agreed-upon transaction price of the business approximated fair value, which exceeded the carrying value of the related assets and liabilities as of May 28, 2022. As such, the assets and liabilities related to the sale were recorded and presented at their carrying value.

The following table presents information related to the major classes of assets and liabilities that were classified as held for sale in the Consolidated Balance Sheets as of May 28, 2022 (in thousands):

Assets & Liabilities Held for Sale

As of

taskforce - Management on Demand GmbH

May 28, 2022

Cash and cash equivalents

$

245

Trade accounts receivable, net of allowance for doubtful accounts

4,044

Prepaid expenses and other current assets

262

Income taxes receivable

6

Goodwill

3,886

Intangible assets, net

1,060

Property and equipment, net

204

Operating right-of-use assets

177

Other assets

5

Total assets held for sale

$

9,889

Accounts payable and accrued expenses

2,316

Accrued salaries and related obligations

325

Operating lease liabilities, current

91

Other liabilities

158

Intercompany balances with other entities

1,441

Operating lease liabilities, noncurrent

88

Total liabilities held for sale

$

4,419

The Company accrued approximately $0.1 million in disposal costs related to the sale of taskforce in the Consolidated Balance Sheets as of May 28, 2022 and recorded an immaterial amount of disposal costs during the three months ended August 27, 2022. The disposition of taskforce did not qualify as a discontinued operation because it did not represent a strategic shift that has or will have a major effect on the Company’s operations or financial results.

Other Dispositions

As part of its restructuring effort in Europe which began in fiscal 2021, the Company initiated the wind-down and dissolution of certain entities. During the first quarter of fiscal 2022, the Company completed the dissolution of the following 2two foreign subsidiaries: RGP Denmark A/SResources Global Professionals (Denmark) AS and RGP ItalyResources Global Professionals (Italy) SRL, as it continued to complete its exit from certain non-core markets in Europe. The Company recognized a total loss on dissolution of $0.1 million during the three months ended August 28, 2021,2021. The net loss on dissolutions of these subsidiaries was primarily related to the recognition of the accumulated cumulative translation adjustment associated with these foreign subsidiaries, which was included in selling, general and administrative expenses in the Company’s Consolidated StatementStatements of Operations. None of the markets sold or exited in the first quarter of fiscal 2022 represented a strategic shift of the Company’s operations.

5. Goodwill and Intangible Assets and Goodwill

The following table sets forth the Company’s intangible assets, including acquired intangible assets and internal-use software (in thousands):

As of August 28, 2021

As of May 29, 2021

Accumulated

Accumulated

Gross

Amortization

Net

Gross

Amortization

Net

Customer contracts and relationships

(3-8 years)

$

23,888

$

(10,593)

$

13,295

$

23,941

$

(9,918)

$

14,023

Tradenames (3-10 years)

5,076

(3,703)

1,373

5,164

(3,651)

1,513

Backlog (17 months)

1,210

(1,210)

-

1,210

(1,210)

-

Consultant list (3 years)

826

(826)

-

849

(849)

-

Non-compete agreements (3 years)

944

(944)

-

970

(970)

-

Computer software (2-3.5 years)

6,049

(1,014)

5,035

5,446

(742)

4,704

Total

$

37,993

$

(18,290)

$

19,703

$

37,580

$

(17,340)

$

20,240

The Company recorded amortization expense of $1.1 million and $1.5 million for the three months ended August 28, 2021 and August 29, 2020, respectively. The following table summarizes future estimated amortization expense related to intangible assets (in

10

thousands):

2022 (remaining 9 months)

$

3,281

2023

4,183

2024

3,979

2025

3,117

2026

2,323

2027

422

Total

$

17,305

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.

The following table summarizes the activity in the Company’s goodwill balance (in thousands):

RGP

Other Segments

Total

Balance as of May 28, 2022

$

206,830

$

2,955

$

209,785

Impact of foreign currency exchange rate changes

(1,327)

-

(1,327)

Balance as of August 27, 2022

$

205,503

$

2,955

$

208,458

11

The following table presents details of the Company’s intangible assets, estimated lives and related accumulated amortization (in thousands):

RGP

Other Segments

Total Company

Balance as of May 29, 2021

$

209,388

$

7,370

$

216,758

Impact of foreign currency exchange rate changes

(686)

(143)

(829)

Balance as of August 28, 2021

$

208,702

$

7,227

$

215,929

As of August 27, 2022

As of May 28, 2022

Estimated

Gross

Net

Gross

Net

Useful

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying

Life

Amount

Amortization

Amount

Amount

Amortization

Amount

Customer contracts and relationships

3 - 8 years

$

22,000

$

(11,617)

$

10,383

$

22,000

$

(10,889)

$

11,111

Tradenames

3 - 10 years

3,070

(3,070)

-

3,070

(3,034)

36

Backlog

17 months

1,210

(1,210)

-

1,210

(1,210)

-

Computer software

2 - 3.5 years

6,875

(2,636)

4,239

6,762

(2,149)

4,613

Total

$

33,155

$

(18,533)

$

14,622

$

33,042

$

(17,282)

$

15,760

The Company recorded amortization expense of $1.3 million and $1.1 million for the three months ended August 27, 2022 and August 28, 2021, respectively.

The following table presents future estimated amortization expense based on existing intangible assets (in thousands):

Fiscal Years:

2023 (remaining nine months)

$

3,713

2024

4,866

2025

3,659

2026

2,164

2027

220

Total

$

14,622

Actual future estimated amortization expense could differ from these estimated amounts as a result of future acquisitions, dispositions, impairments, and other factors or changes.

6. Leases

The Company currently leases office space, vehicles and certain equipment under operating leases. The following table summarizes components ofleases through 2030. In addition, the total lease cost, which are included within selling, general and administrative expenses in the Consolidated Statements of Operations (in thousands):

Three Months Ended

August 28, 2021

August 29, 2020

Operating lease cost

$

2,257

$

2,873

Short-term lease cost

76

63

Variable lease cost

544

567

Sublease income

(245)

(222)

Total lease cost

$

2,632

$

3,281

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

Three Months Ended

August 28, 2021

August 29, 2020

Cash paid for amounts included in the measurement of operating lease liabilities

$

2,912

$

3,274

Right-of-use assets obtained in exchange for new operating lease obligations

$

468

$

1,020

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

As of

As of

August 28, 2021

May 29, 2021

Weighted average remaining lease term

3.52 years

3.7 years

Weighted average discount rate

3.86%

3.92%


‎

11

The maturities of operating lease liabilities were as follows as of August 28, 2021 (in thousands):


‎

Years Ending:

Operating Lease Maturity

May 28, 2022

$

8,300

May 27, 2023

8,987

May 25, 2024

7,063

May 31, 2025

3,201

May 30, 2026

1,667

Thereafter

1,041

Total minimum payments

$

30,259

Less: interest

(1,570)

Present value of operating lease liabilities

$

28,689

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 of the building to independent third parties underpursuant to operating lease agreements expiringwith terms through fiscal 2025. Rental income recognized totaled $48,000 and $55,000 for the three months ended August 28, 2021 and August 29, 2020, respectively. Under the terms of these operating lease agreements, rental income is expected to be $151,000, $219,000, $219,000 and $77,000 in the remaining nine months of fiscal 2022 and fiscal years 2023 through 2025, respectively. Rental income is

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

Three Months Ended

August 27, 2022

August 28, 2021

Operating lease cost (1)

$

1,529

$

2,257

Short-term lease cost

25

76

Variable lease cost

246

544

Sublease income (2)

(148)

(245)

Total lease cost

$

1,652

$

2,632

(1) Operating lease cost for the three months ended August 27, 2022 includes a $0.4 million reduction resulting from a one-time settlement of a lease liability involving an office space.

(2) Sublease income does not include rental income received from owned property, which is not material.

The weighted-average lease term and weighted-average discount rate for operating leases as of August 27, 2022 and May 28, 2022 are presented in the following table:

As of

As of

August 27, 2022

May 28, 2022

Weighted-average remaining lease term

3.8 years

3.3 years

Weighted-average discount rate

3.92%

3.81%

12

Cash flow and other noncash information related to operating leases is included in the following table (in thousands):

Three Months Ended

August 27, 2022

August 28, 2021

Cash paid for amounts included in the measurement of operating lease liabilities

$

2,473

$

2,912

Right-of-use assets obtained in exchange for new operating lease obligations

$

3,601

$

468

Future maturities of operating lease liabilities as of August 27, 2022 are presented in the following table (in thousands):

Fiscal Years:

Operating Lease Maturity

2023 (remaining nine months)

$

6,656

2024

7,441

2025

3,911

2026

2,470

2027

1,662

Thereafter

2,376

Total future lease payments

$

24,516

Less: interest

(1,753)

Present value of operating lease liabilities

$

22,763

7. Long-Term Debt

Prior to November 12, 2021, the Company had a $120.0 million secured revolving credit facility (the “Previous Credit Facility”) with Bank of America, pursuant to the terms of the Credit Agreement dated October 17, 2016 between the Company and Resources Connection LLC, as borrowers, and Bank of America, N.A. as lender (as amended, the “Previous Credit Agreement”). The Previous Credit Agreement was set to mature on October 17, 2022.

On November 12, 2021, the Company and Resources Connection LLC, as borrowers, and all of the Company’s domestic subsidiaries, as guarantors, entered into a new credit agreement with the lenders’ party thereto and Bank of America, N.A. as administrative agent for the lenders (the “New Credit Agreement”), and concurrently terminated the Previous Credit Facility. The New Credit Agreement provides for a $175.0 million senior secured revolving loan (the “New Credit Facility”), which includes a $10.0 million sublimit for the issuance of standby letters of credit and a swingline sublimit of $20.0 million. The New Credit Facility also includes an option to increase the amount of the revolving loan up to an additional $75.0 million, subject to the terms of the New Credit Agreement. The New Credit Facility matures on November 12, 2026. The obligations under the New Credit Facility are secured by substantially all assets of the Company, Resources Connection LLC and all of the Company’s domestic subsidiaries.

Borrowings under the New Credit Facility bear interest at a rate per annum of either, at the Company’s election, (i) Term SOFR (as defined in the New Credit Agreement) plus a margin ranging from 1.25% to 2.00% or (ii) the Base Rate (as defined in the New Credit Agreement), plus a margin of 0.25% to 1.00% with the applicable margin depending on the Company’s consolidated leverage ratio, which resulted in an interest rate of 3.68% and 2.15% as of August 27, 2022 and May 28, 2022, respectively. The Company pays an unused commitment fee on the average daily unused portion of the New Credit Facility, which ranges from 0.20% to 0.30% depending upon on the Company’s consolidated leverage ratio.

The New Credit Agreement 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 New Credit Agreement requires the Company to comply with financial covenants including limitation on the Company’s total funded debt, minimum interest coverage ratio and maximum leverage ratio. The Company was compliant with all financial covenants under the New Credit Agreement as of August 27, 2022.

As of August 27, 2022 and May 28, 2022, the Company has borrowed $20.0 million and $54.0 million, respectively, under the New Credit Facility. In addition, the Company had $1.2 million of outstanding letters of credit issued under the New Credit Facility as of both August 27, 2022 and May 28, 2022. As of August 27, 2022, there was $153.8 million remaining capacity under the New Credit Facility.

13

8. Income Taxes

For the three months ended August 27, 2022 and August 28, 2021, and August 29, 2020, the Company’s provision for income taxestax expense was $7.0 million, an effective tax rate of 27.8%, and $5.2 million, an effective tax rate of 28.6%, and $2.0 million, an effective tax rate of 46.1%, respectively. The decreasechange in effective tax rate resulted primarily from higher pre-tax income in the improvement in operating results in international entities, enablingfirst quarter of fiscal 2023 while maintaining similar levels of permanent book to tax differences compared to the Company to utilize the benefits from historical net operating losses in certain foreign jurisdictions.prior year quarter.

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 reflectyear over year, are due to the changes in the mix of operating income and losses amongst the various jurisdictions in which the Company operates. Given the current earnings (losses)and anticipated future earnings of some of the Company’s foreign locations, the Company believes there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow it to reach a conclusion that the valuation allowance on the deferred tax assets of certain foreign entities will no longer be needed. Releasing the valuation allowance would result in these jurisdictions.the recognition of previously unrecognized deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that the Company is able to actually achieve.

The Company recognized a net tax benefit of approximately $0.6 million and $0.3 million and $0.2 million from compensation expense related toassociated with the exercise of nonqualified stock options, vesting of restricted stock awards, restricted stock units and disqualifying dispositions by employees of shares acquired under the Company’s Employee Stock Purchase Plan (“ESPP”) during the first quarter of fiscalthree months ended August 27, 2022 and fiscalAugust 28, 2021, respectively.

The Company’s total liability for unrecognized gross tax benefits, including accrued interest and penalties, was $0.9 million as of both August 28, 202127, 2022 and May 29, 2021,28, 2022, which, if ultimately recognized, would impact the effective tax rate in future periods. The unrecognized tax benefits are included in other long-term liabilities in the Consolidated Balance Sheets based on the closingSheets. None of the statute of limitations.unrecognized tax benefits are short-term liabilities as the Company does not anticipate any cash payments within 12 months to settle the liability.

8. Long-Term Debt

Pursuant toOn August 16, 2022, the termsInflation Reduction Act of the Credit Agreement dated October 17, 2016 between the Company2022 (“IRA”) was signed into U.S. law. The IRA includes implementation of a new alternative minimum tax, an excise tax on stock buybacks, and Resources Connection LLC, as borrowers,significant tax incentives for energy and Bank of America, N.A. as lender (as amended, the “Credit Agreement”), the Company has a $120.0 million secured revolving credit facility (“Facility”) with Bank of America, which, until September 3, 2020, consisted of (i) a $90.0 million revolving loan facility (“Revolving Commitment”), which included a $5.0 million sublimit for the issuance of standby letters of credit, and (ii) a $30.0 million reducing revolving loan facility (“Reducing Revolving Commitment”), any amounts of which could not be reborrowed after being repaid.climate initiatives, among other provisions. The Company and Resources Connection LLC, as borrowers, entered intois evaluating the Fifth Amendment to the Credit Agreement (the “Fifth Amendment”) with Bank of America, N.A. as lender on September 3, 2020, and the Sixth Amendment to the Credit Agreement (the “Sixth Amendment”) with Bank of America, N.A. as lender on May 25, 2021, both of which amended the terms of the Facility. The Fifth Amendment, among other things, (1) eliminated the $30.0 million Reducing Revolving Commitment, (2) increased the Revolving Commitment by $30.0 million to $120.0 million, (3) increased the applicable margin by 0.25%, and (4) increased the London Interbank Offered Rate (“LIBOR”) interest rate floor from 0% to 0.25%.The Sixth Amendment, among other things, (1) further revised the definition of Consolidated EBITDA in the Credit Agreement to include addbacks for certain restructuring costs, (2)provisions included customary provisions relating to the transition from LIBOR as the benchmark interest rate under the Credit Agreement, including providing forIRA and does not expect the provisions to have a Benchmark Replacement option (as defined in the Credit Agreement)material impact to replace LIBOR, and (3) reverted the LIBOR interest rate floor to 0%. The Facility expires on October 17, 2022.

12

The Company had $1.3 million of outstanding letters of credit issued and $85.7 million remaining capacity under the Facility as of August 28, 2021. Borrowings under the Facility bear interest at LIBOR or a Base Rate, as defined in the Credit Agreement, plus an applicable margin based on the Company’s consolidated leverage ratio, which resulted in interest rates ranging from 1.62% to 1.68% as of August 28, 2021. The Company was compliant with all financial covenants under the Facility as of August 28, 2021.

statements.

9. Stockholders’ Equity

Stock Repurchase Program

In July 2015, theThe Company’s board of directors has previously 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 a designated aggregate dollar limit. The current program was authorized in July 2015 (the “July 2015 Program”) and set an aggregate dollar limit not to exceed $150 million. 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. During the three months ended August 28, 202127, 2022 and the three months ended August 28, 2020,2021, the Company made 0 repurchaseno repurchases of its common stock. As of August 28, 2021,27, 2022, approximately $85.1$65.4 million remained available for future repurchases of the Company’s common stock under the July 2015 program.Program.

Quarterly Dividend

Subject to approval each quarter by its board of directors, the Company pays a regular quarterly cash dividend. On July 29, 2021,27, 2022, the Company’s board of directors declared a regular quarterly cash dividend of $0.14 per share of the Company’s common share.stock. The dividend of approximately $4.6 million was paid on September 23, 202121, 2022 to the holdersstockholders of record at the close of business on August 26, 2021,24, 2022. As of August 27, 2022 and isMay 28, 2022, $4.7 million and $4.6 million were accrued forand recorded in other current liabilities in the Company’s Consolidated Balance Sheet as of August 28, 2021.

Sheets for dividends declared but not yet paid. 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 New Credit AgreementFacility and other agreements, and other factors deemed relevant by the board of directors.

14

10. Restructuring Activities

TheDuring calendar year 2020, the Company initiated itsa 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” and, together with the North America and APAC Plan, the “Restructuring Plans”) in September 2020.. The Restructuring Plans consistconsisted 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 growthhigh-growth clients; and (ii) a strategic rationalization of the Company’s physical geographic footprint and real estate spend to focus investment dollars in high growthhigh-growth core markets for greater impact. All of theThe Company incurred employee termination and facility exit costs associated with the Restructuring Plans areCompany’s restructuring initiatives within the Company’sits RGP segment, and arewere recorded in selling, general and administrative expenses in its Consolidated StatementStatements of Operations. See further discussion aboutThe Restructuring Plans were substantially completed in fiscal 2021. Restructuring costs, including real estate exit costs and adjustments to employee termination costs, associated with the Company’s segment position in Note 13 – Segment Information.

Restructuring costsrestructuring activities were ($0.4) million and $0.2 million for the three months ended August 28, 202127, 2022 and August 29, 2020 were as follows (in thousands):


‎

Three Months Ended

August 28, 2021

August 29, 2020

North America and APAC Plan

European Plan

Total

North America and APAC Plan

European Plan

Total

Employee termination costs (adjustments)

$

34

$

(202)

$

(168)

$

938

$

-

$

938

Real estate exit costs (adjustments)

332

(16)

316

22

-

22

Other costs

-

8

8

56

-

56

Total restructuring costs (adjustments)

$

366

$

(210)

$

156

$

1,016

$

-

$

1,016

The $0.3 million real estate exit costs during the three months ended August 28, 2021, consisted primarily of $0.3respectively. Restructuring liability was zero and $0.4 million of impairment of right-of-use assets under the North Americaon August 27, 2022 and APAC Plan.


‎

13

As of AugustMay 28, 2021, cumulative restructuring costs since the announcement of the Restructuring Plans were as follows (in thousands):

North America

European

and APAC Plan

Plan

Total

Employee termination costs

$

4,986

$

4,636

$

9,622

Real estate exit costs

2,438

649

3,087

Other costs

-

688

688

Total restructuring costs

$

7,424

$

5,973

$

13,397

The following table summarizes the employee termination activity under the Restructuring Plans for the three months ended August 28, 2021 and August 29, 2020 (in thousands):

Three Months Ended

August 28, 2021

August 29, 2020

Liability balance, beginning of period

$

1,263

$

1,874

Increase in liability (restructuring costs)

-

938

Reduction in liability (payments and others)

(534)

(1,409)

Liability balance, end of period

$

729

$

1,403

As of August 28, 2021, the Company has substantially completed the planned employee headcount reduction under the Restructuring Plans and recognized substantially all of the expected employee termination costs in connection with the reduction in force. The Company had $0.7 million in employee termination liability as of August 28, 2021, which is expected to be paid out prior to the end of calendar 2022.2022, respectively.

11. Supplemental Disclosure of Cash Flow Information

The following table presentsAdditional information regarding income taxes paid, interest paid and non-cash investing and financing activities (amounts incash flows is as follows (in thousands):

Three Months Ended

August 28,

August 29,

Three Months Ended

2021

2020

August 27, 2022

August 28, 2021

Income taxes paid

$

4,707

$

873

$

1,041

$

4,707

Interest paid

$

224

$

460

$

309

$

224

Non-cash investing and financing activities:

Increase in long-term receivable in connection with the sale of taskforce

$

2,984

$

-

Dividends declared, not paid

$

4,640

$

4,509

$

4,720

$

4,640

:

12. Stock-Based Compensation Plans

General

TheThe Company’s stockholders approved the Resources Connection, Inc. 2020 Performance Incentive Plan (the “2020 Plan”) on October 22, 2020, which replaced and succeeded in its entirety the Resources Connection, Inc. 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 are eligible to participate in the 2020 Plan. The maximum number of shares of the Company’s common stock that may be issued or transferred pursuant to awards under the 2020 Plan equals: (1) 1,797,440 (which represents the number of shares that were available for additional award grant purposes under the 2014 Plan immediately prior to the termination of the authority to grant new awards under the 2014 Plan as of October 22, 2020), plus (2) the number of any shares subject to stock options granted under the 2014 Plan or the Resources Connection, Inc. 2004 Performance Incentive Plan (together 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 restricted stock and restricted stock unit awards granted under the Prior Plans that are outstanding and unvested as of October 22, 2020 which are forfeited, terminated, cancelled, or otherwise reacquired after that date without having become vested.

Awards under the 2020 Plan may include, but are not limited to, stock options, stock appreciation rights, restricted stock, performance stock, stock units, stock bonuses and other forms of awards granted or denominated in shares of common stock or units of common stock, as well as certain cash bonus awards. Historically, the Company has granted restricted stock, restricted stock units and stock option awards under the 2020 Plan that typically vest in equal annual installments, and restrictedperformance stock unit awards under the 2020 Plan that

14

vest based on an individual grant basis as described inupon the award agreement.achievement of certain Company-wide performance targets at the end of the defined performance period. Stock option grants typically terminate ten years from the date of grant. Vesting periods for restricted stock, restricted stock units and stock option awards range from three to four years. The performance period for the performance stock unit awards is three years. As of August 28, 2021,27, 2022, there were 2,068,9151,753,538 shares available for further award grants under the 2020 Plan.

15

Stock-Based Compensation Expense

Stock-based compensation expense included in selling, general and administrative expenses was $1.62.5 million and $1.41.6 million for the three months ended August 28, 202127, 2022 and August 29, 2020,28, 2021, respectively. These amounts consisted of stock-based compensation expense related to employee stock options, restricted stock awards, restricted stock unit awards and performance stock unit awards under the 2020 Plan and Prior Plans, employee stock purchases made via the ESPP, restricted stock awards, restricted stock units and stock units credited under the Directors Deferred Compensation Plan. The Company recognized a tax benefit of approximately $0.7 million and $0.3 million associated with such stock-based compensation expense during the three months ended August 27, 2022 and August 28, 2021, respectively. The Company recognizes stock-based compensation expense on time-vesting equity awards ratably over the applicable vesting period based on the grant date fair value, net of estimated forfeitures. Expense related to the liability-classified awards reflects the change in fair value during the reporting period. The number of performance stock units earned at the end of the performance period may equal, exceed or be less than the targeted number of shares depending on whether the performance criteria are met, surpassed or not met. During each reporting period, the Company uses the latest forecasted results to estimate the number of shares to be issued at the end of the performance period. Any resulting changes to stock compensation expense are adjusted in the period in which the change in estimates occur.

Stock Options

The following table summarizes the stock option activity for the three months ended August 28, 2021 (amounts in27, 2022 (in thousands, except weighted averageweighted-average exercise price):

Shares

Weighted Average Exercise Price

Outstanding at May 29, 2021

4,556

$

15.78

Exercised

(80)

13.92

Forfeited

(33)

17.65

Expired

(139)

15.21

Outstanding at August 28, 2021

4,304

$

15.82

Exercisable at August 28, 2021

3,018

$

15.02

Vested and expected to vest at August 28, 2021

4,268

$

15.80

Number of Options

Weighted-Average Exercise Price

Outstanding at May 28, 2022

3,350

$

16.08

Exercised

(371)

16.35

Forfeited

(24)

17.38

Expired

(10)

16.70

Outstanding at August 27, 2022

2,945

$

16.04

Exercisable at August 27, 2022

2,323

$

15.56

Vested and expected to vest at August 27, 2022 (1)

2,918

$

16.03

(1) The options expected to vest are the result of applying the pre-vesting forfeiture rate assumptions to options not yet vested of 621,824 as of August 27, 2022.

As of August 28, 2021,27, 2022, there was $3.20.9 million of total unrecognized compensation cost related to unvested and outstanding employee stock options granted. Thatoptions. The cost is expected to be recognized over a weighted-average period of 1.300.92 years.

Employee Stock Purchase Plan

On October 15, 2019, the Company’s stockholders approved the ESPP which superseded the Company’s previous Employee Stock Purchase Plan.current ESPP. The maximum number of shares of the Company’s common stock that are authorized for issuance under the ESPP is 1,825,000.

The Company’s ESPP allows qualified employees (as defined in the ESPP) to purchase designated shares of the Company’s common stock at a price equal to 85% of the lesser of the fair market value of common stock at the beginning or end of each semi-annual stock purchase period. The ESPP’s term expires July 16, 2029. The Company issued 220,000183,000 and 245,000220,000 shares of common stock pursuant to the ESPP during the three months ended August 28, 202127, 2022 and August 29, 2020,28, 2021, respectively. There were 915,212489,417 shares of common stock available for issuance under the ESPP as of August 28, 2021.27, 2022.

Restricted Stock Awards (“RSAs”)

The following table summarizes the activities for the unvested restricted stock awardsRSAs for the three months ended August 28, 2021 (amounts in27, 2022 (in thousands, except weighted averageweighted-average grant-date fair value):

Shares

Weighted-Average Grant-Date Fair Value

Outstanding at May 28, 2022

183

$

15.88

Granted

-

-

Vested

(1)

15.49

Forfeited

-

-

Unvested as of August 27, 2022

182

$

15.88

Expected to vest as of August 27, 2022

165

$

15.83

16

Shares

Weighted Average Grant-Date Fair Value

Outstanding at May 29, 2021

127

$

13.12

Granted

3

15.49

Unvested as of August 28, 2021

130

$

13.17

Expected to vest as of August 28, 2021

120

$

13.20

As of August 28, 2021,27, 2022, there was $1.3$1.8 million of total unrecognized compensation cost related to unvested restricted stock awards.RSAs. The cost is expected to be recognized over a weighted-average period of 1.641.51 years.


‎

15

Restricted Stock Units (“RSUs”)

The Company may issue either equity-classified RSUs, which are awards granted to employees under the 2020 Plan that settle in shares of the Company’s common stock, or liability-classified RSUs, which are awards credited to board of director members under the Directors Deferred Compensation Plan that settle in cash. The following table summarizes the activities for the unvested RSUs, including both equity- and liability-classified RSUs, for the three months ended August 27, 2022 (in thousands, except weighted-average grant-date fair value):

Equity-Classified RSUs

Liability-Classified RSUs

Total RSUs

Shares

Weighted-Average Grant-Date Fair Value

Shares

Weighted-Average Grant-Date Fair Value

Shares

Weighted-Average Grant-Date Fair Value

Outstanding at May 28, 2022

579

$

14.03

66

$

14.89

645

$

14.12

Granted

-

-

1

19.27

1

19.27

Vested

-

-

(2)

18.59

(2)

18.59

Forfeited

(6)

12.84

-

-

(6)

12.84

Unvested as of August 27, 2022

573

$

14.05

65

$

15.21

638

$

14.17

Expected to vest as of August 27, 2022

523

$

14.00

65

$

15.21

588

$

14.13

As of August 27, 2022, there was $5.2 million of total unrecognized compensation cost related to unvested equity-classified RSUs. The cost is expected to be recognized over a weighted-average period of 1.77 years.

As of August 27, 2022, there was $0.7 million of total unrecognized compensation cost related to unvested liability-classified RSUs. The cost is expected to be recognized over a weighted-average period of 1.69 years.

Performance Stock Units (“PSUs”)

During the second quarter of fiscal 2022, the Company issued PSUs to certain members of management and other select employees. The total number of shares that would vest under the PSUs will be determined at the end of the three-year performance period based on the Company’s achievement of certain revenue and Adjusted EBITDA (as defined below in Note 14 – Segment Information and Enterprise Reporting) percentage targets over the performance period.

The following table summarizes the activities for the unvested restricted stock unitsPSUs for the three months ended August 28, 2021 (amounts in27, 2022 (in thousands, except weighted averageweighted-average grant-date fair value):

Shares (1)

Weighted-Average Grant-Date Fair Value

Outstanding at May 28, 2022

196

$

18.41

Granted

-

-

Vested

-

-

Forfeited

(2)

18.44

Unvested as of August 27, 2022

194

$

18.41

Expected to vest as of August 27, 2022

172

$

18.41

(1) Shares are presented in this table at the stated target, which represents the base number of shares that would vest over the performance period. Actual shares that vest may be zero to 150% of the target based on the achievement of the specific company-wide performance targets.

Equity-Classified Restricted Stock Units

Liability-Classified Stock Units

Total Restricted Stock Units

Shares

Weighted Average Grant-Date Fair Value

Shares

Weighted Average Grant-Date Fair Value

Shares

Weighted Average Grant-Date Fair Value

Outstanding at May 29, 2021

513

$

11.40

89

$

14.58

602

$

11.87

Granted

4

15.05

1

14.58

5

14.95

Vested

-

-

(2)

15.05

(2)

15.05

Forfeited

(1)

11.64

-

-

(1)

11.64

Unvested as of August 28, 2021

516

$

11.44

88

$

15.90

604

$

12.09

Expected to vest as of August 28, 2021

476

$

11.47

88

$

15.90

564

$

12.16

As of August 28, 2021,27, 2022, there was $5.8$3.0 million of total unrecognized compensation cost related to unvested restricted stock units. ThatPSUs. The cost is expected to be recognized over a weighted-average period of 1.991.74 years.

13. Segment Information

As discussed in Note 2 — Summary of Significant Accounting Policies, the Company revised its historical 1 segment position and identified the following new operating segments effective in the second quarter of fiscal 2021 to align with changes made in its internal management structure and its reporting structure of financial information used to assess performance and allocate resources: RGP, taskforce, and Sitrick. RGP is the Company’s 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 tables below reflect the operating results of the Company’s 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 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

August 28,

August 29,

(Amounts in thousands)

2021

2020

Revenues:

RGP

$

172,933

$

137,109

Other Segments

10,207

10,237

Total revenues

$

183,140

$

147,346

Adjusted EBITDA:

RGP

$

29,002

$

16,458

Other Segments

1,006

1,165

Reconciling items (1)

(7,656)

(7,407)

Total Adjusted EBITDA

$

22,352

$

10,216

(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.


‎

1617

The below is a reconciliation of the Company's net income to Adjusted EBITDA for all periods presented (amounts are in thousands):13. Commitments and Contingencies

Three Months Ended

August 28,

August 29,

2021

2020

Net income

$

12,923

$

2,284

Adjustments:

Amortization of intangible assets

1,103

1,530

Depreciation expense

919

1,007

Interest expense, net

215

495

Provision for income taxes

5,186

1,957

EBITDA

20,346

7,273

Stock-based compensation expense

1,629

1,397

Restructuring costs

156

1,016

Contingent consideration adjustment

221

530

Adjusted EBITDA

$

22,352

$

10,216

14. Legal Proceedings

The Company is involved in certain legal matters arising in the ordinary course of business. In the opinion of management, none of such matters, if disposed of unfavorably, would have a material adverse effect on the Company’s financial position, cash flows or results of operations.

14. Segment Information and Enterprise Reporting

The tables below reflect the operating results of the Company’s segments consistent with the management and performance measurement system utilized by the Company. Upon completing the sale of the taskforce operating segment, effective May 31, 2022, the Company’s operating segments consist of RGP and Sitrick. Prior-period comparative segment information was not restated. See Note 2 – Summary of Significant Accounting Policies for further discussion about the Company’s operating and reportable segments.

Performance measurement is based on segment Adjusted EBITDA. Adjusted EBITDA is defined as net income before amortization expense, depreciation expense, interest and income taxes plus or minus stock-based compensation expense, technology transformation costs, restructuring costs, and contingent consideration adjustments. Adjusted EBITDA at the segment level excludes certain shared corporate administrative costs that are not practical to allocate. The Company’s CODM does not evaluate segments using asset information.

The following table discloses the Company’s revenue and Adjusted EBITDA by segment for both periods presented (in thousands):

Three Months Ended

August 27,

August 28,

2022

2021

Revenue:

RGP

$

200,995

$

172,933

Other Segments (1)

3,067

10,207

Total revenue

$

204,062

$

183,140

Adjusted EBITDA:

RGP

$

38,347

$

29,002

Other Segments (1)

316

1,006

Reconciling items (2)

(7,953)

(7,656)

Total Adjusted EBITDA (3)

$

30,710

$

22,352

(1) Amounts reported in Other Segments for the three months ended August 27, 2022 include Sitrick and an immaterial amount from taskforce from May 29, 2022 through May 31, 2022, the completion date of the sale. Amounts previously reported for the three months ended August 28, 2021 included the Sitrick and taskforce operating segments.

(2) Reconciling items are generally comprised of unallocated corporate administrative costs, including management and board compensation, corporate support function costs and other general corporate costs that are not allocated to segments.

(3) A reconciliation of the Company’s net income to Adjusted EBITDA on a consolidated basis is presented below.

18

The table below represents a reconciliation of the Company’s net income to Adjusted EBITDA for both periods presented (in thousands):

Three Months Ended

August 27,

August 28,

2022

2021

Net income

$

18,140

$

12,923

Adjustments:

Amortization expense

1,252

1,103

Depreciation expense

887

919

Interest expense, net

316

215

Income tax expense

6,992

5,186

EBITDA

27,587

20,346

Stock-based compensation expense

2,529

1,629

Technology transformation costs (1)

991

-

Restructuring costs

(397)

156

Contingent consideration adjustment

-

221

Adjusted EBITDA

$

30,710

$

22,352

(1) Commencing with the three months ended November 27, 2021, Adjusted EBITDA also excludes the impact of technology transformation costs. Technology transformation costs represent costs included in net income related to the Company’s initiative to upgrade its technology platform globally, including a cloud-based enterprise resource planning system and talent acquisition and management system. Such costs primarily include software licensing costs, third-party consulting fees and costs associated with dedicated internal resources that are not capitalized.

19

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, and liquidity and capital resources for the three months ended August 27, 2022 should be read in conjunction with ourthe accompanying unaudited consolidated financial statements and accompanying notes.related notes and with our Annual Report on Form 10-K for the year ended May 28, 2022 filed with the Securities and Exchange Commission (“SEC”). This discussion and analysis contains “forward-looking statements,”statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to expectations concerning matters that are not historical facts. For example, statements discussing, among other things, expected costs and liabilities, business strategies, growth strategies and initiatives, acquisition strategies, future revenues and future performance, are forward-looking statements. Such forward-looking statements may be identified by words such as “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “remain,” “should,”“should” or “will” or the negative of these terms or other comparable terminology. In this Quarterly Report on Form 10-Q, such statements include statements regarding our growth, operational and strategic plans.

These statements and all phases of our operations are subject to known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievements and those of our industry to differ materially from those expressed or implied by these forward-looking statements. The disclosures we make concerning risks, uncertainties and other factors that may affect our business or operating results included in Part I, Item 1A of our Fiscal Year 2021 Form 10-K and our other public filings made with the SEC should be reviewed carefully. These risksRisks and uncertainties include, but are not limited to, the following: risks related to an economic downturn or deterioration of general macroeconomic conditions (including recessionary pressures, decreases in consumer spending power or confidence and significant uncertainty in the global economy and capital markets resulting from rising inflation, volatility in energy and commodity prices, the impact of the Russia-Ukraine war and related supply chain issues), risks arising from epidemic diseases such as the COVID-19 pandemic (the “Pandemic”), the possible adverse effects from economic conditions or pandemics, changes in the use of outsourced professional services consultants, the highly competitive nature of the market for professional services, risks related to the loss of a significant number of our consultants, or an inability to attract and retain new consultants, the possible impact on our business from the loss of the services of one or more key members of our senior management, risks related to potential significant increases in wages or payroll-related costs, our ability to secure new projects from clients, our ability to achieve or maintain a suitable pay/bill ratio, our ability to compete effectively in the competitive bidding process, risks related to unfavorable provisions in our contracts which may permit our clients to, among other things, terminate the contracts partially or completely at any time prior to completion, our ability to realize the level of benefit that we expect from our restructuring initiatives, risks that our recent digital expansion and technology transformation efforts manymay not be successful, our ability to build an efficient support structure as our business continues to grow and transform, our ability to grow our business, manage our growth or sustain our current business, our ability to serve clients internationally, additional operational challenges from our international activities including due to social, political, regulatory, legal and economic risks in the countries and regions in which we operate, possible disruption of our business from our past and future acquisitions, the possibility that our recent rebranding efforts aremay not be successful, our potential inability to adequately protect our intellectual property rights, risks that our computer hardware and software and telecommunications systems are damaged, breached or interrupted, risks related to the failure to comply with data privacy laws and regulations and the adverse effect it may have on our reputation, results of operations or financial condition, our ability to comply with governmental, regulatory and legal requirements and company policies, the possible legal liability for damages resulting from the performance of projects by our consultants or for our clients’ mistreatment of our personnel, risks arising from changes in applicable tax laws or adverse results in tax audits or interpretations, the possible adverse effect on our business model from the reclassification of our independent contractors by foreign tax and regulatory authorities, the possible difficulty for a third party to acquire us and resulting depression of our stock price, the operating and financial restrictions from our credit facility, risks related to the variable rate of interest in our credit facility, which may be based on the London Interbank Offered Rate, and the

17

possibility that we are unable to or elect not to pay our quarterly dividend payment.payment, and other factors and uncertainties as are identified in our most recent Annual Report on Form 10-K for the year ended May 28, 2022 and our other public filings made with the SEC (File No. 0-32113). Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business or operating results. Readers are cautioned not to place undue reliance on the forward-looking statements included herein, which speak only as of the date of this filing. We do not intend, and undertake no obligation, to update the forward-looking statements in this filing to reflect events or circumstances after the date of this filing or to reflect the occurrence of unanticipated events, unless required by law to do so. References in this filing to “Resources Global Professionals,” the “Company,” “we,” “us,” and “our” refer to Resources Connection, Inc. and its subsidiaries.

Overview

Resources Global Professionals (“RGP”) is a global consulting firm helping businesses tackle transformation,focused on project execution services that power clients’ operational needs and change initiatives utilizing on-demand, experienced and compliance challenges by supplying the right professional talent and solutions.diverse talent. As a next-generation human capital partner for our clients, we specialize in solving today’s most pressingco-delivery of enterprise initiatives typically precipitated by business problems across the enterprise in the areas oftransformation, strategic transactions regulations,or regulatory change. Our engagements are designed to leverage human connection and transformations.collaboration to deliver practical solutions and more impactful results that power our clients’, consultants’ and partners’ success.

Disrupting20

A disruptor within the professional services industry since our founding in 1996, today the Company enjoys a highly favorable macro environment that embraces its differentiated agile delivery model. The trends in today’s marketplace favor the flexibility and agility that RGP provides as businesses confront transformation pressures and speed-to-market challenges. While these forces were already at play in 2019, the COVID-19 pandemic (the “Pandemic”) has served to significantly transform the modern workplace in ways that offer us a clear competitive advantage. As talent preferences have shifted dramatically in the direction of flexibility, choice and control, employers struggling to compete in today’s environment must rethink the way work gets done and consider implementing new, more agile workforce strategies.

We expect to continue to evolve our client engagement and talent delivery model to take advantage of these dramatic and important shifts in the direction of flexibility, control and choice. Our unique approach to workforce strategy strongly positions us to help our clients transform their businesses and workplaces, especially at a time when high-quality talent is increasingly scarce and the usage of a flexible workforce to execute transformational projects has become the dominant operating model. We believe that we are an emerging leader incontinuing to lay a solid foundation for the “now of work” – attracting and retaining the best talent in an increasingly fluid gig-oriented environment. future.

Based in Irvine, California, with offices worldwide, our agile human capital model attracts top-caliber professionals with in-demand skillsets who seek a workplace environment that embraces flexibility, collaboration and human connection. Our agile professional services model allows us to quickly alignsalign the right resources and solutions for the work at hand with speed and efficiency.efficiency in ways that bring value to both our clients and talent. See Part 1, Item 1 “Business” of our Fiscal Year 20212022 Form 10-K for further discussions about our business and operations.

Despite the impacts of the Pandemic, we successfully evolved our operating model so that we can operate from a position of strength. The Pandemic accelerated certain macro trends that we believe favor our model. These include the increased use of contingent talent and virtual or remote work becoming mainstream. We expect to continue to evolve our client engagement and talent delivery model to take advantage of these important shifts. Our agile talent platform in many ways has helped our clients pivot their workforce and operating models. Fiscal 2021 was a year of validation, innovation and strengthening for growth, which has continued into fiscal 2022. We achieved strong operating results during the three months ended August 28, 2021 that continue to lay a solid foundation for stronger growth ahead.

Fiscal 20222023 Strategic Focus Areas

Our enterprise growth drivers and strategic focus areas in fiscal 2022 are:2023 include:

Drive meaningful revenue growth and deliver enhanced EBITDA marginTransform digitally;

Commercialize our digital strategiesAmplify brand voice and optimize solution offerings;

Modernize our global technology infrastructureDeepen client centricity;

Strengthen the RGP brandEnhance pricing; and

Pursue targeted mergers and acquisitions.

Driving meaningful growth in our top-line revenue and expanding our EBITDA margin will remain our highest priority in fiscal 2022.Transform digitally – Our strategyfirst objective is to continue to focus on theimprove operational efficiency, scale business growth, of our strategic clienttransform stakeholder experience and key industry vertical programs, particularly in healthcare, leveraging broader market talent for virtual deliverycreate long-term sustainability and the increasing focus on account penetration. Since inception, our strategic account program has been one of the key drivers of revenue and business growth. In fiscal 2022, we are further broadening our strategic account program by moving additional accounts into the program and adopting the client centric and borderless approach to serve these clients. We believe our efforts will allow us to continue to develop in-depth knowledge of these clients’ needs and increase the scope and size of our projects with them. In our healthcare industry vertical, we see strong growth momentum 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. To align with the market demand, we are expanding our capabilities in such areas as revenue integrity, clinical trials support and supply chain optimization and are leveraging our depth of industry expertise to help clients operate with enhanced agility and efficiency in the rapidly evolving healthcare industry. In addition, the continued evolution of our operating and 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. As our clients continue to accelerate theirstockholder value through digital and workforce paradigm transformations in this still uncertain economic environment, we are ready and positioned to deliver greater workforce agility and flexibility to our clients.means.

We are committedbelieve the use of technology platforms to improve EBITDA performance to deliver enhanced stockholder value through disciplined management of headcount, business expenses and real estate costs and heightened focus on operational efficiency and refinement of our borderless delivery model. We are building on significant cost savings and margin expansion achieved in fiscal 2021 and will continue to strategically manage both direct costs and selling, general and administrative expenses in an increasingly digital, virtual market. We are focused on improving our pay/bill ratio and utilization as well as pricing of our salaried consultants. In a world with intensified competition for talent, we are striving to attract high-caliber talent with the right skillsets and qualifications, and appropriately reflect the value delivered in our pricing.

18

Our second focus area for this fiscal year is to commercialize our digital strategies, and we continue to make solid strides. We have substantially completed the development of the core functionalities of HUGO, a digital staffing platform designed to offermatch clients and talent unprecedented transparency, speedis the future of professional staffing. HUGO by RGPTM (“HUGO”), our digital engagement platform, allows such an experience for clients and control. Our vision istalent in the professional staffing space to create a curated digital hub within our employment model where talentconnect, engage and business can connect and engageeven transact directly. We expect to launch HUGOpiloted the platform in certain pilotlimited markets starting in fall of calendarOctober 2021 and continuecontinued to enhance its functionality with further artificial intelligence and machine learning. Additionally, our effortsWe also have been developing sales and marketing strategies to commercialize our digital strategies this year also includeincrease client and talent adoption of the acceleration of digital transformation revenueplatform. We plan to expand the geographic reach to other key markets within the United States (“U.S.”) such as California and Texas in fiscal 2023. Over time, we expect to be able to drive volume through continued expansion of go-to-market penetrationthe HUGO platform by attracting more small- and medium-sized businesses looking for Veracity Consulting Group, LLC (“Veracity”) in North Americainterim support and further developmentby serving a larger percentage of our Digital Technology Practice in the Asia Pacific region. We expect tocurrent interim business, which we believe will not only drive continued enhancement in our abilities to provide digital transformation and technology consulting services from strategy and roadmap to technical implementation. Our focus on introducing Veracity more broadly to our client base has generated positive returns since inception, with Veracity revenue growing 44.9% year-over-year in the first quarter of fiscal 2022 and our Technology and Digital solution offerings continuing to lead the overall revenue acceleration. We believe the increase in virtual or remote delivery arrangements resulting from the Pandemic has and will continue to accelerate digital transformation agendas in our existing client base and create opportunities for us to engage with new clients, contributing to topline revenue growth.top-line growth but also enhance profitability.

The third area of focus forIn fiscal 2022, is to modernize our technology infrastructure. We recentlywe launched a multi-year project to modernize and elevate our technology infrastructure globally, including a cloud-based enterprise resource planning system and talent acquisition and management system. We believe our investment in thisthese technology initiativetransformation initiatives will accelerate our efficiency and data-led decision-making capabilities, optimize process flow and automation, improve consultant recruitment and retention, drive business growth with operational agility, scale our operations and further support our future growth, goals and vision.

Fourth, we will focus even more on our human-first brand to improve the consultant experience and continue our tradition of delivering high-quality, value-added services to our clients. Our brand is built on the power of human. Through enhanced transparency, flexibility and digital connection, fulfilling assignments, competitive compensation and benefits and continued education, training and professional development, we are strengthening our professional community and delivering care and wellbeing to our consultants. We are positioning ourselves as the preferred human capital partner in the “now of work,” providing the best talent to meet our clients’ needs in an increasingly fluid gig-oriented environment.

vision

COVID-19 Impact and Outlook

During the Pandemic, we experienced adverse impact to our business including, among other things, reduced demand for or delayed client decisions to procure our services, especially in certain of our markets. In response to the Pandemic, we evolved our operating model to be more virtual and borderless, which resulted in improved operational execution and leverage. At the same time, the ongoing shifts accelerated by the Pandemic, including the increased use of contingent talent and virtual or remote delivery, have increased the importance and relevance of our solutions and allowed us to operate from a position of strength, as evidenced by the sustained improvement in our financial results..

As our clients continue to accelerate their digital and workforce paradigm transformations, the need for automation and self-service has been an increasing trend, especially in light of the Pandemic continues to evolve, we are following local government mandates, where applicable, andPandemic. We will continue to revisefocus on expanding our digital consulting capabilities and refinetheir geographic reach to drive growth in the business by capturing the market demand and opportunities.

Amplify brand voice and optimize solution offerings– Our second focus area for this fiscal year is to bring clarity and attention to our brand positioning to own the opportunity around project execution. RGP has always focused our business on project execution, which is a distinct space on the continuum between strategy consulting and interim deployment. Our business model of utilizing experienced talent to flatten the traditional consulting delivery pyramid is highly sought after in today’s market. Most clients are capable of formulating business strategy organically or with the help of a strategy firm; where they need help is in the ownership of executing the strategy.

21

In fiscal 2022, we introduced our new tagline ― Dare to Work Differently.TM ― to clarify our brand voice to align with hybrid workforce strategy and where our clients need us most: execution with subject matter expertise. We expect to further clarify and activate our new brand positioning in fiscal 2023. Our co-delivery ethos is focused around partnering with clients on project execution. Our brand marketing will continue to emphasize and accentuate our unique qualifications in this arena. We believe clear articulation and successful marketing of our distinctive market position is key to attracting and retaining both clients and talent, enabling us to drive continued growth.

Key focus areas supporting this initiative include: refining and finalizing our proposed solution architecture that clearly defines RGP’s core service offerings and streamlines the sales process; validating the proposed messaging and architecture via roundtables with internal and external stakeholders; and launching the new brand positioning and messaging through dynamic assets such as advertising campaigns, videos and events.

Deepen client centricity– The third area of focus for fiscal 2023 is to continue to deepen and broaden our trusted client relationships through expanded marquee account and key industry vertical programs to increase our focus on account penetration. We maintain our Strategic Client Account program to serve a number of our largest clients with dedicated global account teams. We have and intend to continue to expand the Strategic Client Account and industry programs by adding clients and taking a more client-centric and borderless approach to serving these clients. We believe this focus enhances our opportunities to develop in-depth knowledge of these clients’ needs and the ability to increase the scope and size of projects with those clients.

In addition, we formed a new Emerging Accounts program, which consists of smaller clients where demand tends to be more episodic. Our newly formed dedicated account team will be able to serve this segment of clients with more focus and attention while nurturing and growing the depth of our relationship. Our services continue to emphasize a relationship-oriented approach to business rather than a transaction-oriented or assignment-oriented approach. Client relationships and needs are addressed from a client-centric, not geographic, perspective so that our experienced management team and consultants understand our clients’ business issues and help them define their project needs to deliver an integrated, relationship-based approach to meeting the clients’ objectives. We believe that by continuing to deliver high-quality services and by furthering our relationships with our clients, we can capture a significantly larger share of our clients’ professional services budgets.

Enhance pricing– Fourth, we plan to evolve and enhance our pricing strategy to ensure we adopt a value-based approach for our project execution services, which has become increasingly more relevant and in demand in the current macro environment. We believe there is ample opportunity to drive further growth in both our topline revenue and profitability through pricing.

As we deepen our client delivery solutionsrelationships and plans to return to on-site work to ensure exceptional client service, business continuity and the safety and wellbeingraise our clients’ perception of our employees. The full extentability to whichadd value through our services, we anticipate further increasing bill rates for our services to appropriately capture the Pandemic impacts our business will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severityvalue of the virustalent and solutions delivered. Key focus areas include: creating more centralized pricing governance, strategy and approach; conducting a deep pricing analysis to identify and confront areas that need improvement; and instituting new pricing training for all sales, talent and go-to-market team members.

Pursue targeted mergers and acquisitions– Lastly, we will seek to accelerate growth through strategic mergers and acquisitions that drive additional scale or expand and complement our existing core capabilities. Following the actionssuccessful acquisition and integration of Veracity Consulting Group, LLC (“Veracity”), which accelerated our digital capabilities and our ability to contain itsoffer comprehensive digital innovation services, we will continue to pursue highly targeted acquisition opportunities to add scale to Veracity or augment and expand the breadth and depth of our digital transformation capabilities. In addition to digital, we are keenly interested in other consulting capabilities that would drive and foster growth opportunity for our core business.

Market Trends and Uncertainties

On a macro level, uncertain macroeconomic conditions (including rising inflation, volatility in energy and commodity prices, the impact the impacts of new variants of the virus,Russia-Ukraine war, supply chain issues and labor shortages) as well as increases in interest rates and fluctuations in currency exchange rates have created significant uncertainty in the timing, distribution, efficacyglobal economy, volatility in the capital markets and public acceptancerecessionary pressures. We expect these conditions will continue in fiscal 2023 and beyond.  While we are not able to fully predict the potential impact, we are seeing more caution in spending within some pockets of vaccinesour client base. If these conditions persist and other treatments for COVID-19.a prolonged economic downturn or recession develops, it could result in a decline in billable hours and a negative impact on our bill rates that would adversely affect our financial results and operating cash flows.

22

Critical Accounting Policies and Estimates

The following discussion and analysis of our financial condition and results of operations areis based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements in accordance with GAAP requires us to make estimates and judgments. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are discussed in Note 2 – Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements included in our Fiscal Year 2022 Form 10-K, and in Note 2 – Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

There have been no material changes in our critical accounting policies, or in the estimates and assumptions underlying those policies, from those described under the heading “Critical Accounting Policies and Estimates” in Item 7 of Part II of our Fiscal Year 20212022 Form 10-K.


‎

19

Results of Operations

The following table sets forth, for the periods indicated, our Consolidated Statements of Operations data. These historical results are not necessarily indicative of future results.

Three Months Ended

August 28,

August 29,

2021

2020

(Amounts in thousands, except percentages)

Revenue

$

183,140

100.0

%

$

147,346

100.0

%

Direct cost of services

111,708

61.0

89,449

60.7

Gross profit

71,432

39.0

57,897

39.3

Selling, general and administrative expenses

51,392

28.1

51,154

34.7

Amortization of intangible assets

1,103

0.6

1,530

1.0

Depreciation expense

919

0.5

1,007

0.7

Income from operations

18,018

9.8

4,206

2.9

Interest expense, net

215

0.1

495

0.3

Other income

(306)

(0.2)

(530)

(0.3)

Income before provision for income taxes

18,109

9.9

4,241

2.9

Provision for income taxes

5,186

2.8

1,957

1.3

Net income

$

12,923

7.1

%

$

2,284

1.6

%

Non-GAAP Financial Measures

We useThe Company uses certain non-GAAP financial measures to assess our financial and operating performance that are not defined by or calculated in accordance with GAAP. A non-GAAP financial measure is defined as a numerical measure of a company’s financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP in the Consolidated Statements of Operations; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable GAAP measure so calculated and presented.

Our primary non-GAAP financial measures are listed below and reflect how we evaluate our operating results.

Same daySame-day constant currency revenue is adjusted for the following items:

oCurrency impact. In order to remove the impact of fluctuations in foreign currency exchange rates, we calculate same-day constant currency revenue, which represents the outcome that would have resulted had exchange rates in the current period been the same as those in effect in the comparable prior period.

oBusiness days impact. In order to remove the fluctuations caused by comparable periods having a different number of business days, we calculate same daysame-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,expense, depreciation expense, interest and income taxestaxes.

Adjusted EBITDA is calculated as EBITDA plus or minus stock-based compensation expense, technology transformation costs, 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 marginMargin is calculated by dividing Adjusted EBITDA by revenue.

Same day constant currency revenue23

Same-Day Constant Currency Revenue

Same daySame-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 daysame-day constant currency revenue, a non-GAAP financial measure, to revenue as reported in the Consolidated Statements of Operations, the most directly comparable GAAP financial measure, by geography.


‎

20

geography (in thousands, except number of business days).

Three Months Ended

Three Months Ended

August 27,

August 28,

Revenue by Geography

August 28,

August 29,

2022 (1)

2021 (1)

2021

2020

(Unaudited)

(Unaudited)

(Amounts in thousands, except number of business days)

(Unaudited)

North America

As reported (GAAP)

$

151,879

$

120,614

$

179,549

$

151,879

Currency impact

(275)

48

Business days impact

2,407

-

Same day constant currency revenue

$

154,011

Same-day constant currency revenue

$

179,597

Europe

As reported (GAAP)

$

18,865

$

16,292

$

11,175

$

18,865

Currency impact

(970)

1,573

Business days impact

-

63

Same day constant currency revenue

$

17,895

Same-day constant currency revenue

$

12,811

Asia Pacific

As reported (GAAP)

$

12,396

$

10,440

$

13,338

$

12,396

Currency impact

(191)

1,434

Business days impact

-

110

Same day constant currency revenue

$

12,205

Same-day constant currency revenue

$

14,882

Total Consolidated

As reported (GAAP)

$

183,140

$

147,346

$

204,062

$

183,140

Currency impact

(1,436)

3,055

Business days impact

2,407

173

Same day constant currency revenue

$

184,111

Same-day constant currency revenue

$

207,290

Number of Business Days

North America (1)

63

64

Europe (2)

65

65

Asia Pacific (2)

63

63

(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.

North America (2)

63

63

Europe (3)

64

65

Asia Pacific (3)

62

63

(1) Consolidated revenue and Europe revenue as reported under GAAP include taskforce revenue of $0.2 million and $6.2 million for the three months ended August 27, 2022 and August 28, 2021, respectively.

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

(3) The business days in international regions represented the weighted average number of business days.


‎

2124

EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin

EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin assist management in assessing our core operating performance. We also believe these measures provide investors with a useful perspective on underlying business results and trends and facilitate a comparison of our performance from period to period. The following table presents EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin for the periods indicated and includes a reconciliation of such measures to net income and net income margin, the most directly comparable GAAP financial measures (amounts in(in thousands, except percentages):

Three Months Ended

Three Months Ended

August 28,

Percentage

August 29,

Percentage

August 27,

Percentage

August 28,

Percentage

2021

of Revenue

2020

of Revenue

2022

of Revenue

2021

of Revenue

(Unaudited)

(Unaudited)

(Unaudited)

Net income

$

12,923

7.1

%

$

2,284

1.6

%

$

18,140

8.9

%

$

12,923

7.1

%

Adjustments:

Amortization of intangible assets

1,103

0.6

1,530

1.0

Amortization expense

1,252

0.6

1,103

0.6

Depreciation expense

919

0.5

1,007

0.7

887

0.4

919

0.5

Interest expense, net

215

0.1

495

0.3

316

0.2

215

0.1

Provision for income taxes

5,186

2.8

1,957

1.3

Income tax expense

6,992

3.4

5,186

2.8

EBITDA

20,346

11.1

7,273

4.9

27,587

13.5

20,346

11.1

Stock-based compensation expense

1,629

0.9

1,397

0.9

2,529

1.2

1,629

0.9

Technology transformation costs (1)

991

0.5

-

Restructuring costs

156

0.1

1,016

0.7

(397)

(0.2)

156

0.1

Contingent consideration adjustment

221

0.1

530

0.4

-

-

221

0.1

Adjusted EBITDA

$

22,352

12.2

%

$

10,216

6.9

%

$

30,710

15.0

%

$

22,352

12.2

%

(1) Commencing with the three months ended November 27, 2021, Adjusted EBITDA also excludes the impact of technology transformation costs. Technology transformation costs represent costs included in net income related to the Company’s initiative to upgrade its technology platform globally, including a cloud-based enterprise resource planning system and talent acquisition and management system. Such costs primarily include software licensing costs, third-party consulting fees and costs associated with dedicated internal resources that are not capitalized.

Our non-GAAP financial measures are not measurements of financial performance or liquidity under GAAP and should not be considered in isolation or construed as substitutes for revenue, net income earnings per share, cash flows or other measures of financial performance or financial condition prepared in accordance with GAAP for purposes of analyzing our revenue, profitability or liquidity.

Further, a limitation of our non-GAAP financial measures is that they exclude items detailed above that have an impact on our GAAP reported results. Other companies in our industry may calculate these non-GAAP financial measures differently than we do, limiting their usefulness as a comparative measure. Because of these limitations, these non-GAAP financial measures should not be considered a substitute forbut rather considered in addition to performance measures calculated in accordance with GAAP.

25

Results of Operations

The following table sets forth our Consolidated Statements of Operations data for the three months ended August 27, 2022 and August 28, 2021, respectively. These historical results are not necessarily indicative of future results. Our operating results for the periods indicated are expressed as a percentage of revenue (in thousands, except percentages).

Three Months Ended

August 27,

August 28,

2022

2021

(Unaudited)

(Unaudited)

Revenue

$

204,062

100.0

%

$

183,140

100.0

%

Direct cost of services

120,595

59.1

111,708

61.0

Gross profit

83,467

40.9

71,432

39.0

Selling, general and administrative expenses

56,187

27.6

51,392

28.1

Amortization expense

1,252

0.6

1,103

0.6

Depreciation expense

887

0.4

919

0.5

Income from operations

25,141

12.3

18,018

9.8

Interest expense, net

316

0.2

215

0.1

Other income

(307)

(0.2)

(306)

(0.2)

Income before income tax expense

25,132

12.3

18,109

9.9

Income tax expense

6,992

3.4

5,186

2.8

Net income

$

18,140

8.9

%

$

12,923

7.1

%

Consolidated Operating Results – Three Months Ended August 28, 202127, 2022 Compared to Three Months Ended August 29, 2020

Percentage change computations are based upon amounts in thousands.28, 2021

Revenue. Revenue increased $35.8$20.9 million, or 24.3%11.4%, to $204.1 million in the first quarter of fiscal 2023 from $183.1 million in the first quarter of fiscal 2022. On a same-day constant currency basis, revenue increased $24.2 million, or 13.2%. In addition to higher volume of billable hours, we improved billable rates. Billable hours increased 10.5% and the average bill rate improved 1.6% from the prior year quarter. We completed the sale of taskforce on May 31, 2022. Refer to Note 4 – Dispositions in the Notes to Consolidated Financial Statements for further information. Excluding revenue from taskforce ($0.2 million and $6.2 million of revenue contributed by taskforce during the first quarter of fiscal 2023 and 2022, from $147.3 millionrespectively), revenue in the first quarter of fiscal 2021.2023 increased by 15.2% over the prior year quarter, or 17.0% on a same-day constant currency basis. Billable hours increased 22.7% and the average bill rate improved 1.9% fromin the prior year quarter. On a same day constant currency basis, revenuefirst quarter of 2023, excluding taskforce, increased 25.0% from the prior year quarter.by 12.6% and 3.2%, respectively.

The following table represents our consolidated revenues by geography:

geography for the three months ended August 27, 2022 and August 28, 2021, respectively (in thousands, except percentages):

Three Months Ended

August 28,

August 29,

2021

2020

Three Months Ended

(Amounts in thousands, except percentages)

August 27, 2022

August 28, 2021

North America

$

151,879

82.9

%

$

120,614

81.9

%

$

179,549

88.0

%

$

151,879

82.9

%

Europe

18,865

10.3

16,292

11.1

11,175

5.5

18,865

10.3

Asia Pacific

$

12,396

6.8

10,440

7.0

13,338

6.5

12,396

6.8

Total

183,140

100

%

$

147,346

100.0

%

$

204,062

100

%

$

183,140

100.0

%

Revenue acceleration across all geographiescontinued to grow in both North America and Asia Pacific during the first quarter of fiscal 20222023 compared to the prior year quarter. Revenue in the European region was impacted by the divestiture of taskforce at the beginning of the first quarter was propelled by strong clientof fiscal 2023 as well as reduced business levels due to significant summer vacations in the European region during the quarter. While there has been increasing uncertainty in the macro environment, overall demand in the first quarter continued to be healthy globally due to a shift in businesses adopting more workforce agility and better operational execution and delivery. The increased client demanda persistently tight labor market. Our ability to execute against market opportunities enabled us to attain broad-based topline revenue growth across most client segments, including strategic global accounts and regional accounts, in the majority of our markets and solution offerings reflected macro trends accelerated by the Pandemic, such as workforce agility and digital transformation, and the increased relevance of our solutions to our clients. The revenue growth was led by solution areas in Finance and Accounting, Business Transformation and Technology and Digital, as well as industry verticals including financial services and healthcare.areas. Our strategic client accountStrategic Client Account program continued to be one of the key drivers of revenue acceleration, achieving 25.5%14.7% revenue growth in the first quarter of

22

fiscal 20222023 compared to the prior year quarter. Additionally, revenue conversion benefited from our sustained improvement in operational execution and delivery, as we continued to refine our client centric and borderless approach. Our focus on value-based pricing also drove year-over-year improvement in average bill rate, contributing to overall revenue growth.

26

North America experienced the most robust revenue growth of 25.9%18.2%, or 27.7%18.3% on a same daysame-day constant currency basis, from the first quarter of fiscal 2021.2022. While we see some pockets of apprehension, most clients continue to demand our services in areas such as Finance and Accounting and Digital, as they advance critical change initiatives, albeit at a more deliberate pace. The broad-based strengtheningpersistently tight labor market and low unemployment rate continued to drive growth in client demand resulted from continued recovery of the macro economyour on-demand staffing revenue, particularly in the U.S., withas our clients resuminglooked to us to supply quality talent to fill their discretionary spendingtemporary workforce gaps. The continued shift towards workforce agility and accelerating their digitalthe increased acceptance of co-delivery and workforce paradigm transformation. In Europe,remote delivery not only enhanced our adoptionvalue proposition to our clients, but also allowed for better and more efficient matching of a more integrated global go-to-market approachsupply and demand, enabling us to focus on servingachieve sustained improvement in our tier one multi-national clients in this region is driving strong business growth. operational efficiency.

Europe revenue increased 15.8%decreased 40.8%, or 9.8%32.1% on a same daysame-day constant currency basis, from the first quarter of fiscal 2021, despite2022. Excluding the impact of the taskforce divestiture, revenue in Europe decreased 13.7%, or 1.1% on a same-day constant currency basis. The moderate decline in Europe’s revenue, after excluding the impact of $1.2 million from the exittaskforce divestiture, was primarily the result of certain marketssignificant summer vacations in connection with our restructuring initiatives. the European region during the quarter, reducing business levels.

Asia Pacific revenue improved 18.7%7.6%, or 16.9%20.1% on a same daysame-day constant currency basis, compared to the first quarter of fiscal 2022. Similar to North America, revenue growth in Asia Pacific was across most markets, notably in India, Singapore and Philippines, driven primarily by strong demand from our global clients as business continues to acceleratethey execute on large corporate change initiatives. In addition, China experienced a healthy growth rate of 5.4% (10.7% in major marketsconstant currency) despite sporadicthe continuation of COVID-19 outbreakslockdowns in certain parts of the region.regions.

Direct Cost of Services. Direct cost of services increased $22.3$8.9 million, or 24.9%8.0%, to $120.6 million for the first quarter of fiscal 2023 from $111.7 million for the first quarter of fiscal 2022 from $89.4 million for2022. The increase in direct cost of services was primarily attributable to a 10.5% increase in billable hours, partially offset by a 3.2% decrease (1.6% in constant currency) in average pay rate in the first quarter of fiscal 2021. The increase in2023 compared to the amount of direct cost of services year-over-year was primarily attributable to a 22.7% increase in billable hours and a 1.9% increase in average pay rate.prior year quarter.

Direct cost of services as a percentage of revenue was 59.1% for the first quarter of fiscal 2023 compared to 61.0% for the first quarter of fiscal 2022 compared to 60.7% for the first quarter of fiscal 2021.2022. The increaseddecreased percentage compared to the prior year quarter was primarily attributable to more significant holiday and vacation impact and lower conversion fees. The first quarteran improvement of fiscal 2022 included one more holiday230 basis points in the U.S., due to the timing of Memorial Day, compared to the first quarter of fiscal 2021. These negative impacts wereoverall pay/bill ratio. This favorable impact was partially offset by lower self-insurance costs as a percentage of revenue. Ourthe increase in employee-related benefits, primarily vacation and self-insured medical costs. We will seek to continue to drive improvement in the overall pay/bill ratio remained consistent year-over-year. Our target directand indirect cost of services percentage is 60%.leverage through strategic pricing, while offering competitive compensation and benefits to our consultants to attract and retain the best talent in the marketplace.

The number of consultants on assignment at the end of the first quarter of fiscal 20222023 was 3,1653,386 compared to 2,4443,165 at the end of the first quarter of fiscal 2021.2022.

Selling, General and Administrative Expenses. Selling, general and administrative expenses (“SG&A”) was $51.4$56.2 million, or 28.1% as a percentage27.6% of revenue, for the first quarter of fiscal 20222023 compared to $51.2$51.4 million, or 34.7% as a percentage28.1% of revenue, for the first quarter of fiscal 2021. The favorable2022. Compared to the first quarter of fiscal year 2022, SG&A performance wasas a percentage of revenue declined 50 basis points largely the result of our restructuring initiatives, which were substantially completed in fiscal 2021, yielding an improved fixed cost structure. In addition, operating leverage has also increased as a result of the Company’s continued focus onimproved operating efficiency. Compared to the prior year quarter,leverage. The $4.8 million increase in SG&A savings included a decline inyear-over-year reflected (1) higher management compensation and benefits of $2.3$2.4 million a decreasedue to growth in restructuring costs of $0.9 million, and continued reductionthe business as well as employee compensation adjustments to remain competitive in occupancy costs of $0.8 million from savings from real estate footprint reduction. On a year-over-year comparison, these savings were offset bythe current labor market, (2) an increase of $2.1$1.0 million in bonuses and commissions as a result of higher revenue achieved and a $1.0 million benefit in recovery of legaltechnology transformation costs incurred in the first quarter of fiscal 2021.2023, (3) a $0.9 million increase in stock-based compensation expense as we continue to evolve our long term incentive program to drive better business performance, (4) a $0.7 million increase in other business and travel expenses as business travel increased in a post-Pandemic environment to promote more effective go-to-market and business development activities, (5) a $0.5 million increase in computer software and consulting costs, and (6) a $1.1 million increase in all other general and administration expenses to support the growth in the business. These incremental costs were partially offset by (1) a reduction in occupancy costs of $1.0 million from real estate footprint reduction, (2) a decrease of $0.6 million in restructuring costs as we finalized the adjustment to the previous estimate of restructuring liability, and (3) a $0.2 million adjustment related to the Veracity contingent consideration recorded in the prior year.

Management and administrative headcount was 887 at the end of the first quarter of fiscal 2023 and 875 at the end of the first quarter of fiscal 2022 and 929 at the end of the first quarter of fiscal 2021.2022. Management and administrative headcount includes full time equivalent headcount for our seller-doer group, which is determined by utilization levels achieved by the seller-doers. Any unutilized time is converted to full time equivalent headcount.

Restructuring charges.Costs. We substantially completed our North Americaglobal restructuring and APAC Plan and the European Planbusiness transformation plan (the “Restructuring Plans”) in fiscal 2021. All employee termination and facility exit costs incurred under the restructuring plansRestructuring Plans were associated with the RGP segment, and are recorded in selling, general and administrative expenses in the Consolidated Statements of Operations. Restructuring costs, including real estate exit costs and adjustments to employee termination costs, associated with the restructuring activities were ($0.4) million and $0.2 million for the three months ended August 27, 2022 and August 28, 2021, respectively. Restructuring liability was zero and $0.4 million on August 29, 2020 were as follows (in thousands):27, 2022 and May 28, 2022, respectively.

27

Three Months Ended

August 28, 2021

August 29, 2020

North America and APAC Plan

European Plan

Total

North America and APAC Plan

European Plan

Total

Employee termination costs (adjustments)

$

34

$

(202)

$

(168)

$

938

$

-

$

938

Real estate exit costs (adjustments)

332

(16)

316

22

-

22

Other costs

-

8

8

56

-

56

Total restructuring costs (adjustments)

$

366

$

(210)

$

156

$

1,016

$

-

$

1,016

For further information on our restructuring initiatives, please refer to Note 10 – Restructuring Activities in Part I, Item 1 above.

Amortization and Depreciation Expense. Amortization expense was $1.3 million in the first quarter of intangible assets wasfiscal 2023 and $1.1 million in the first quarter of fiscal 2022

23

and $1.5 million in the first quarter of fiscal 2021. The decreaseincrease 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 certainour internally developed softwaredigital engagement platform (HUGO) put in service in the second quarter of fiscal 2021.2022. Depreciation expense was $0.9 million in both of the first quarters of fiscal 2023 and fiscal 2022.

Income Taxes.The provisionIncome tax expense was $7.0 million (effective tax rate of 27.8%) for income taxes wasthe first quarter of fiscal 2023 compared to $5.2 million (effective tax rate of 28.6%) for the first quarter of fiscal 2022 compared to $2.0 million (effective tax rate of 46.1%) for the first quarter of fiscal 2021.2022. We record tax expense based upon actual results versus a forecasted tax rate because of the volatility in our international operations that span numerous tax jurisdictions. The decreasechange in effective tax rate resulted primarily from higher pre-tax income in the first quarter of fiscal 2023 while maintaining similar levels of permanent book to tax differences compared to the prior year quarterthe improvement in operating results in international entities, enabling us to utilize the benefits from historical net operating losses in foreign jurisdictions..

WeThe Company recognized a net tax benefit of approximately $0.6 million and $0.3 million and $0.2 million from compensation expense related toassociated with the exercise of nonqualified stock options, vesting of restricted stock awards, restricted stock units and disqualifying dispositions by employees of shares acquired under our ESPPthe Employee Stock Purchase Plan (“ESPP”) during the first quarter of fiscalthree months ended August 27, 2022 and fiscalAugust 28, 2021, respectively.

Periodically, we review the components of both book and taxable income to analyze the adequacy ofprepare 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 incentivedispositions of certain stock options exercise.options.

Given the current earnings and anticipated future earnings of some of the Company’s foreign locations, we believe there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that the valuation allowance on the deferred tax assets of certain foreign entities will no longer be needed. Releasing the valuation allowance would result in the recognition of previously unrecognized deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.

Comparability of Quarterly Results. Our quarterly results have fluctuated in the past and we believe they will continue to do so in the future. Certain factors that could affect our quarterly operating results are described in Part II,I, Item 1A.—Risk Factors1A of our Fiscal Year 20212022 Form 10-K.10-K and our other public filings made with the SEC. 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 of Segment

EffectiveOn May 31, 2022, the Company divested taskforce; refer to Note 2 – Summary of Significant Accounting Policies and Note 4 – Dispositions in the Notes to Consolidated Financial Statements for further information. Since the second quarter of fiscal 2021, we revised our historical onethe business operated by taskforce,along with its parent company, Resources Global Professionals (Germany) GmbH, an affiliate of the Company, represented an operating segment positionof the Company and identifiedwas reported as a part of Other Segments.

Effective May 31, 2022, the following newCompany’s operating segments to alignconsist of RGP and Sitrick beginning with changes made in our internal management structure and ourthe reporting structure of financial information used to assess performance and allocate resources:period for the three months ended August 27, 2022.

RGP – a global business consulting practice which operates primarily under the RGP brandfirm focused on project execution services that power clients’ operational needs and focuses on professional project consultingchange initiatives utilizing on-demand, experienced and staffing services in areas such as financediverse talent; 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 is ourthe Company’s only operating segment that meets the quantitative threshold of a reportable segment. segmenttaskforce and. Sitrick dodoes not individually meet the quantitative thresholds to qualify as a reportable segments.segment. Therefore, they are combined andSitrick is disclosed asin Other Segments. Prior-period comparative segment information was not restated as a result of the divestiture of taskforce as we did not have a change in internal organization or the financial information our Chief Operating Decision Maker uses to assess performance and allocate resources.

28

The following table presents our current operating results by segment. All prior year periods presented below were recast to reflectsegment for the impact of the preceding segment changes.three months ended August 27, 2022 and August 28, 2021, respectively (in thousands, except percentages).

Three Months Ended

August 28,

August 29,

2021

2020

(Amounts in thousands, except percentages)

Revenues:

RGP

$

172,933

94.4

%

$

137,109

93.1

%

Other Segments

10,207

5.6

10,237

6.9

Total revenues

$

183,140

100.0

%

$

147,346

100.0

%

Adjusted EBITDA:

RGP

$

29,002

129.8

%

$

16,458

161.1

%

Other Segments

1,006

4.5

1,165

11.4

Reconciling items (1)

(7,656)

(34.3)

(7,407)

(72.5)

Total Adjusted EBITDA (2)

$

22,352

100.0

%

$

10,216

100.0

%

Three Months Ended

August 27,

August 28,

2022

2021

Revenue:

(Unaudited)

(Unaudited)

RGP

$

200,995

98.5

%

$

172,933

94.4

%

Other Segments (1)

3,067

1.5

10,207

5.6

Total revenue

$

204,062

100.0

%

$

183,140

100.0

%

Adjusted EBITDA:

RGP

$

38,347

124.9

%

$

29,002

129.8

%

Other Segments (1)

316

1.0

1,006

4.5

Reconciling items (2)

(7,953)

(25.9)

(7,656)

(34.3)

Total Adjusted EBITDA (3)

$

30,710

100.0

%

$

22,352

100.0

%

24

(1) Amounts reported in Other Segments for the three months ended August 27, 2022 include Sitrick and an immaterial amount from taskforce from May 29, 2022 through May 31, 2022, the completion date of the sale. Amounts previously reported for the three months ended August 28, 2021 included the Sitrick and taskforce operating segments.

(2) Reconciling items are generally comprised of unallocated corporate administrative costs, including management and board compensation, corporate support function costs and other general corporate costs that are not allocated to segments.

(2) (3) A reconciliation of the Company’s net income to Adjusted EBITDA on a consolidated basis is presented above under “Non-GAAP Financial Measures—Reconciliation of GAAP to Non-GAAP Financial Measures.”

Revenue by Segment

RGP – RGP revenue increased $35.8$28.1 million, or 26.1%16.2%, in the first quarter of fiscal 20222023 compared to the first quarter of fiscal 2021,2022, primarily as a result of a 23.0%12.8% increase in billable hours and a 1.9%3.3% increase in average bill rate year-over-year,from the prior year quarter, as discussed in the consolidated operating results discussion above. Revenue from RGP represents more than 94%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 August 28, 202127, 2022 was 3,0643,369 compared to 2,3563,064 as of August 29, 2020.28, 2021.

Other Segments – Other Segments’ revenue for the first fiscal quarter of 2022 remained consistent at $10.22023 declined by $7.1 million to $3.1 million, compared to the first quarter of fiscal 2021. Sitrick2022. The revenue declined $0.4 million year-over-yeardecline is primarily due to slower business development during the Pandemic, which was offset by$5.9 million decline in revenue as a $0.4 million increase inresult of the divestiture of taskforce on May 31, 2022 and a $1.2 million decline in Sitrick’s revenue asfor the local economyfirst quarter of 2023 compared to the first quarter of fiscal 2022. Sitrick continued to re-open.be affected by the lingering impact of the Pandemic on the court system resulting in more settlements, hindering leads for revenue generation in the business.

The number of consultants on assignment under Other Segments as of August 28, 202127, 2022 was 10117 compared to 88101 as of August 29, 2020.28, 2021. The decrease was related to the divestiture of taskforce.

Adjusted EBITDA by Segment

RGP – RGPRGP’s Adjusted EBITDA increased $12.5$9.3 million, or 76.2%32.2%, in the first quarter of fiscal 2022,2023, compared to the first quarter of fiscal 2021.2022. Compared to the prior year quarter, revenue increased $35.8$28.1 million, which was partially offset by the increase in the related cost of services of $22.3 million, while$13.6 million. Additionally, SG&A costs attributed to RGP only increased $0.7$5.2 million in the first quarter of fiscal 2023 as compared to the first quarter fiscal 2022 primarily due to the increase in management compensation expense of $3.2 million as a result of significant improvementgrowth in cost leverage.the business as well as employee compensation adjustments to remain competitive in the current labor market; an increase of $0.6 million in other business and travel expenses as business travel increased in a post-Pandemic environment to promote more effective go-to-market activities; a $0.5 million increase in recruiting expenses; a $0.5 million increase in computer software and consulting costs; and a $0.9 million increase in all other general and administration expenses to support the growth in the business; and partially offset by reductions in occupancy costs of $0.5 million from real estate footprint reduction. For fiscal 2022, the material costs and expenses attributable to the RGP segment that are not included in computing the segment measure of Adjusted EBITDA included depreciation and amortization expenses of $2.1 million and stock-based compensation expense of $2.3 million.

29

The trend in revenue, cost of services and other costs and expenses at RGP year-over-yearcompared to the prior year period is generally consistent with those at the consolidated level, as discussed above, with the exception that the SG&A used to derive segment Adjusted EBITDA does not include certain unallocated corporate administrative costs.

Other Segments – Other Segments’ Adjusted EBITDA declined $0.2$0.7 million, or 13.6%68.6%, in the first quarter of fiscal 20222023 compared to the first quarter of fiscal 2021. While SG&A improved year-over-year,2022. The decline was primarily driven by the benefit was more than offset by a one-time benefitdivestiture of $1.0 milliontaskforce at the beginning of the quarter and slow business recovery in recovery of legal costs inSitrick from the Pandemic. For the first quarter of fiscal 2021.2022, the material costs and expenses attributable to the Other Segments that are not included in computing the segment measure of Adjusted EBITDA included depreciation and amortization expenses of less than $0.1 million and stock-based compensation expense of $0.2 million.

Liquidity and Capital Resources

Our primary sources of liquidity are cash provided by operating activities, our operations, our $120.0$175.0 million senior secured revolving credit facility (“Facility”) with Bank of America(as discussed further below) and historically, to a lesser extent, stock option exercises and ESPP purchases. On an annual basis, we have generated positive cash flows from operations since inception.Our ability to generate positive cash flowflows from operations in the future will be,depend, at least in part, dependent on global economic conditions and our ability to remain resilient during periods of deteriorating macroeconomic conditions and any economic downturns. As of August 28, 2021,27, 2022, we had $61.9$72.6 million of cash and cash equivalents, including $27.7$32.8 million held in international operations.

OurPrior to November 12, 2021, the Company had a $120.0 million secured revolving credit facility (the “Previous Credit Facility”) with Bank of America, pursuant to the terms of the Credit Agreement dated October 17, 2016 between the Company and Resources Connection LLC, as borrowers, and Bank of America, N.A. as lender (as amended, the “Previous Credit Agreement”). The Previous Credit Agreement was scheduled to mature on October 17, 2022.

On November 12, 2021, the Company and Resources Connection LLC, as borrowers, and all of the Company’s domestic subsidiaries, as guarantors, entered into a new credit agreement with the lenders’ party thereto and Bank of America, N.A. as administrative agent for the lenders (the “New Credit Agreement”), and concurrently terminated the Previous Credit Facility. The New Credit Agreement provides for a $175.0 million senior secured revolving loan (the “New Credit Facility”), which includes a $10.0 million sublimit for the issuance of standby letters of credit and a swingline sublimit of $20.0 million. The New Credit Facility also includes an option to increase the amount of the revolving loan up to an additional $75.0 million, subject to the terms of the New Credit Agreement. The New Credit Facility matures on November 12, 2026. The obligations under the New Credit Facility are secured by substantially all assets of the Company, Resources Connection LLC and all of the Company’s domestic subsidiaries.

As of August 27, 2022, we had $20.0 million outstanding under the New Credit Facility. Borrowings under the New Credit Facility bear interest at a rate per annum of either, at the Company’s election, (i) Term SOFR (as defined in the New Credit Agreement) plus a margin ranging from 1.25% to 2.00% or (ii) the Base Rate (as defined in the New Credit Agreement), plus a margin of 0.25% to 1.00% with the applicable margin depending on the Company’s consolidated leverage ratio. In addition, the Company pays an unused commitment fee on the average daily unused portion of the New Credit Facility, which ranges from 0.20% to 0.30% depending upon on the Company’s consolidated leverage ratio.

The New Credit Facility is available for working capital and general corporate purposes, including potential acquisitions, dividend distribution and stock repurchases. Our Facility consists of a $120.0 million revolving loan facility, which includes a $5.0 million sublimit for the issuance of standby letters of credit. On August 28, 2021, we had borrowings of $33.0 million outstanding under the Facility, bearing an interest rate per annum ranging from 1.62% to 1.68%. Additional information regarding the New Credit Facility is included in Note 8 7 – Long-Term Debtin the Notes to consolidated financial statementsConsolidated Financial Statements included in Part I, Item 1I of this Quarterly Report on Form 10-Q. Other than the repayment on the Facility of $10.0 million during the three months ended August 28, 2021, there have been no material changes to the contractual obligations reported in our Fiscal Year 2021 Form 10-K.10-Q.

In addition to cash needs for ongoing business operations, from time to time, we have strategic initiatives that could generate significant additional cash requirements. Our initiative to modernizeupgrade our technology infrastructure,platform, as described in “Fiscal 20222023 Strategic Focus Areas” above, requires significant investments over multiple years. WhileDuring the first quarter of fiscal 2023, we are still incontinued to refine the process of assessingdeployment roadmap and the totalestimated amount of the investments required for this multi-year initiative, which was originally estimated to be in the range of $20.0 million to $25.0 million, through the completion of the system implementation. Depending on the final deployment roadmap, which impacts the length of implementation timeline and therefore the cost of implementation, the amount of investments could increase. Such costs primarily include software licensing fees, third-party implementation and consulting fees, incremental costs associated with additional internal resources needed on the project and other costs in areas including change management and training. The exact amount and timing will depend on a number of variables, including progress made on the implementation. We expect the majority of the investment will take place in fiscal 2023 and fiscal 2024. In addition to our technology transformation initiative, we currentlyexpect to continue to invest in digital pathways to enhance the experience and touchpoints with our end users, including current and prospective employees (consultants and management employees) and clients. Such effort will require additional cash outlay and could further elevate our capital expenditures in the near term. We believe our current cash, ongoing cash flows from our operations and funding available under our New Credit Facility will provide sufficient funds for these initiatives. As of August 27, 2022, we have non-cancellable purchase obligations totaling $11.6 million, which are payable as follows pursuant to the licensing arrangements that we have entered into in connection with this initiative.initiative: $2.2 million due during fiscal 2023; $2.1 million due during fiscal 2024; $2.0 million due during fiscal 2025; $2.1 million due during fiscal 2026; and $3.2 million due thereafter.

Additionally, as described in Note 3 – Acquisitions and Dispositions in the Notes to consolidated financial statements included in Part II, Item 8 of our Fiscal Year 2021 Form 10-K, the purchase agreements for Veracity Consulting Group, LLC (“Veracity”) and Expertforce Interim Projects GmbH, LLC (“Expertence”) require cash earn-out payments to be made when certain performance conditions are met. We estimate the fair value of contingent liabilities under the Monte Carlo simulation model based on unobservable input variables related to meeting the applicable contingency conditions as per the terms of the applicable agreements. During the three

2530

months ended August 28, 2021, we made a cash earn-out payment of $0.3 million related to the Expertence acquisition. The estimated fair value of the contingent consideration liability as of August 28, 2021 was $7.0 million, which is expected to be paid out before the end of calendar 2021.

In March 2020,We have completed our restructuring initiatives globally and do not expect any future cash requirements for these restructuring initiatives. Other trends impacting our near-term liquidity include the deferral of payroll taxes under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES“CARES Act”) was enacted into law.and certain tax planning strategies implemented in the fourth quarter of fiscal 2021. The CARES Act includes provisions, among others, allowing deferral of the employer portion of the social security payroll taxes and addressing the carryback of net operating losses (“NOLs”) for specific periods, and provides for deferral of the employer-paid portion of the social security payroll taxes.periods. We previously elected to defer the employer-paidemployer portion of social security payroll taxes through December 31, 2020 until May of 2021 whentotaling $12.6 million. Subsequent to the deferral, we choseelected to make a partial paymentrepayments of previously deferred payroll taxes$8.6 million in calendar year 2021. We expect to pay the amount of $6.3 million. As of August 28, 2021, an additional $6.3remaining $4.0 million of deferred payroll taxes remain and are expected to be paid in late calendar 2022. In addition, as part of our tax planning strategies, we made certain changes related to the capitalization of fixed assets effective for fiscal 2021. This strategy allowed us to carry back the NOLs of fiscal 2021 to fiscal years 2016 to 2018. We recognized a discrete tax benefit of $12.8 million in fiscal 2021 and expect to filefiled for a federal tax refund in the amount of $34.0$34.8 million beforein April 2022. We expect to receive such refund prior to the end of fiscal 2022.calendar year 2022; however, there may be unanticipated processing delays that postpone the timeline of the receipt.

The Pandemic hasAs described under Market Trends and Uncertainties, uncertain macroeconomic conditions and increases in interest rates have created significant uncertainty in the global economy, andvolatility in the capital markets for a large part of fiscal 2021. While there appears to be more certainty and clarity in the macro environment and capital markets in recent months, there could be lingering adverse effects into the remainder of fiscal 2022 and beyond,recessionary pressures, which couldmay adversely impact our financial results, operating cash flows and liquidity.liquidity needs. If we are required to raise additional capital or incur additional indebtedness for our operations or to invest in our business, we can provide no assurances that we would be able to do so on acceptable terms or at all. Our ongoing operations and growth strategy may require us to continue to make investments in critical markets and infurther expand our internal technology infrastructure.and digital capabilities. In addition, we may consider making strategic acquisitions or initiating additional restructuring initiatives, which could require significant liquidity. and adversely impact our financial results due to higher cost of borrowings. We currently believe that our current cash, ongoing cash flows from our operations and funding available under our New Credit Facility will be adequate to meet our working capital and capital expenditure needs provide funding for our systems and technology transformations and upgrades, and cover future contingent consideration payments associated with the Veracity acquisition for at least the next 12 months.

Beyond the next 12 months, if we require additional capital resources to grow our business, either organically or through acquisitions, we may seek to sell additional equity securities, increase use of our New Credit Facility, expand the size of our New Credit Facility or raise additional debt. In addition, if we decide to make additional share repurchases, we may fund these through existing cash balances or use of our New Credit Facility. The sale of additional equity securities or certain forms of debt financing could result in additional dilution to our stockholders. Our ability to secure additional financing in the future, if needed, will depend on several factors. These include our future profitability and the overall condition of the credit markets. Notwithstanding these considerations, we expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements.

However, we could be required, or could electOther than as described herein, there have been no material changes to seek, additional funding prior to that time. Our futureour material cash requirements, including commitments for capital requirements will depend on many factors, includingexpenditures, described under the heading “Liquidity and Capital Resources” in Item 7 of Part II of our ability to continue to adapt and efficiently serve our clients, our clients’ project needs in the future, and our clients’ financial health and ability to make timely payments on our receivables. A material adverse impact from the Pandemic could result in a need for us to raise additional capital or incur additional indebtedness to fund strategic initiatives or operating activities.Fiscal Year 2022 Form 10-K.

Operating Activities

Operating activities for the first quarter of fiscal 2022 provided2023 used cash of $0.5$5.3 million compared to $18.6$0.5 million cash provided for the first quarter of fiscal 2021. 2022. In the first quarter of fiscal 2023, cash provided by operations resulted from net income of $18.1 million and non-cash adjustments of $2.2 million. Additionally, net unfavorable changes in operating assets and liabilities totaled $25.6 million, primarily consisting of a $24.8 million decrease in accrued salaries and related obligations, primarily due to the timing of our pay cycle and the payout of the annual incentive during the first quarter of fiscal 2023; a $6.1 million increase in trade accounts receivable; and $3.8 million decrease in other liabilities (which included a $2.7 million settlement of the previously recorded deposit liability at the completion of the sale of taskforce on May 31, 2022), partially offset by a $7.7 million decrease in prepaid income taxes due to the timing of estimated quarterly tax payments.

In the first quarter of fiscal 2022, cash provided by operations resulted from net income of $12.9 million and non-cash adjustments of $4.5 million. Additionally, net unfavorable changes in operating assets and liabilities totaled $16.9 million, primarily consisting of a $13.8 million increase in trade accounts receivable, partially attributable to strong sequential revenue growth, and a $6.0 million decrease in accrued salaries and related obligations, primarily due to the timing of our pay cycle and the payout of the annual incentive during the first quarter of fiscal 2022. 2022In the first quarter of fiscal 2021, cash provided by operations resulted from net income of $2.3 million and non-cash adjustments of $4.3 million. Additionally, net favorable changes in operating assets and liabilities totaled $12.0 million, primarily consisting of a $16.8 million decrease in trade accounts receivable, partially offset by a $6.1 million reduction in accrued salaries and related obligations. The overall decline of cash flow from operating activities in the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021 was primarily attributable to the payroll tax payment deferral of $4.5 million under the CARES Act in the first quarter of fiscal 2021, an increase in income taxes payment of $3.8 million and the difference in the timing of the collection of accounts receivable..

31

Investing Activities

Net cash usedprovided in investing activities was $1.0$2.3 million for the first quarter of fiscal 20222023 compared to $0.2the net cash used of $1.0 million for the first quarter in fiscal 2021.2022. Net cash provided in investing activities in the first quarter of fiscal 2023 was primarily related to the cash proceeds from the divestiture of taskforce partially offset by the cost incurred for the development of internal-use software and acquisition of property and equipment. Net cash used in investing activities in both periodsthe first quarter of fiscal 2022 was primarily for the development of internal-use software and acquisition of property and equipment.

26

Financing Activities

Net cash used in financing activities totaled $29.1 million in the first quarter of fiscal 2023 compared to $11.4 million in the first quarter of fiscal 2022 compared to $1.5 million in the first quarter of fiscal 2021.2022. Net cash used in financing activities during the first quarter of fiscal 20222023 consisted of net repayments on the New Credit Facility of $10.0$34.0 million (consisting of $49.0 million of repayments and $15.0 million of proceeds), cash dividend payments of $4.6 million, the Expertence contingent consideration payment of $0.3 million,and was partially offset by $3.5$9.5 million in proceeds received from ESPP share purchases and employee stock option exercises. Net cash used in financing activities of $1.5$11.4 million for the first quarter of fiscal 20212022 consisted of $4.5repayments on the Previous Credit Facility of $10.0 million, $4.6 million in cash dividends paid, the Expertence contingent consideration payment of $0.3 million, and was partially offset by $3.0$3.5 million in proceeds received from ESPP share purchases and employee stock option exercises.

32

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 ourthe New Credit Facility that bear interest at a variable market rate.

As of August 28, 2021,27, 2022, we had approximately $61.9$72.6 million of cash and cash equivalents and $33.0 million of borrowings under our Facility.equivalents. The earnings on investmentscash and cash equivalents are subject to changes in interest rates; however, assuming a constant balance available for investment, a 10% decline in interest rates would reduce our interest income but would not have a material impact on our consolidated financial position or results of operations.

Additional information regarding the interest on ourAs of August 27, 2022, we had $20.0 million of borrowings under our New Credit Facility. We are exposed to interest rate risk related to fluctuations in the Facility is included in term SOFR rate. See “Sources and Uses of Liquidity” above and Note 87 – Long-Term Debt in the Notes to consolidated financial statementsConsolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.10-Q for further discussion about the interest rate on our New Credit Facility. We are exposed to interest rate risk related to fluctuations in the LIBOR rate; atAt the current level of borrowing of $20.0 million as of August 28, 2021 of $33.0 million,27, 2022, a 10% change in interest rates would have resulted in approximatelyless than a $0.1 million change in annual interest expense. To the extent that there is a significant increase in the level of borrowings, a sharp rise in interest rate could have a material impact on our consolidated financial position or results of operations.

Foreign Currency Exchange Rate Risk. For the three months ended August 28, 2021,27, 2022, approximately 18.6%14.0% of the Company’sour 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. basednon-U.S.-based operations, our reported results may vary.

Assets and liabilities of our non-U.S. basednon-U.S.-based operations are translated into U.S. dollars at the exchange rate effective at the end of each monthly reporting period. Approximately 55.2%54.8% of our balances of cash and cash equivalents as of August 28, 202127, 2022 were denominated in U.S. dollars. The remaining amount of approximately 44.8%45.2% was comprised primarily of cash balances translated from Euros, British Pound Sterling, Japanese Yen, Canadian Dollar, Chinese Yuan, Indian Rupee, and Mexican Pesos and Canadian Dollar.Pesos. The difference resulting from the translation in each period of assets and liabilities of our non-U.S. basednon-U.S.-based operations is recorded as a component of stockholders’ equity in accumulated other comprehensive income or loss.

Although we intend to monitor our exposure to foreign currency fluctuations, we do not currently use financial hedging techniqueshedges to mitigate risks associated with foreign currency fluctuations including in a limited number of circumstances when we may be asked to transact with aour client in one currency but are obligated to pay our consultantconsultants in another currency. Our foreign entities typically transact with clients and consultants in their local currencies and generate enough operating cash flows to fund their own operations. We believe our economic exposure to exchange rate fluctuations has not been material. However, 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 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 August 28, 2021.27, 2022. Based on thatthis evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of August 28, 2021.27, 2022. There washas been 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’sfiscal quarter ended August 28, 202127, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1A. RISK FACTORSFACTORS.

There have been no material changes in our risk factors from those disclosed in Part 1, Item 1A of our Fiscal Year 20212022 Form 10-K, which was filed with the Securities and Exchange CommissionSEC on July 23, 2021.28, 2022. See “Risk Factors” in Item 1A of Part I of such Fiscal Year 20212022 Form 10-K for a complete description of the material risks we face.

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ITEM 6. EXHIBITS.EXHIBITS.

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


‎

28

EXHIBIT INDEX

Quarterly Report on Form 10-Q.

Exhibit

Exhibit

Number

Description of Document

31.1*

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101*

The following unaudited interim consolidated financial statements from the Company’s Quarterly Report on Form 10-Q10-Q for the fiscal quarter ended August 28, 2021,27, 2022, 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.

104*

Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

_________

*        Filed herewith.

**      Furnished herewith.


‎

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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: October 7, 20216, 2022

/s/ KATE W. DUCHENE

 

 

Kate W. Duchene

 

President, Chief Executive Officer

(Principal Executive Officer)

Date: October 7, 20216, 2022

/s/ JENNIFER RYU

 

 

Jennifer Ryu

 

Executive Vice President and Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

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