| Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited financial statements of the Company as of and for the three months ended August 24, 2024 and August 26, 2023 have been prepared in conformity with accounting principles generally accepted in the 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) the Company’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 2024 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 25, 2024, which are included in the Company’s Annual Report on Form 10-K (“Fiscal Year 2024 Form 10-K”) filed with the SEC on July 22, 2024 (File No. 0-32113). A complete listing of the Company’s significant accounting policies is discussed in Note 2 – Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements included in the Fiscal Year 2024 Form 10-K. Reporting Segments During the first quarter of fiscal 2025, the Chief Executive Officer, the Company’s Chief Operating Decision Maker (“CODM”), announced a decision to reorganize the Company’s business by forming multiple discrete operational business units. To align the new operating model and financial reporting, the Company made management organizational changes and implemented new reporting modules and processes to provide discrete information to manage the business. During the first quarter of fiscal 2025, the Company completed its assessment of the Company's operating segments and has identified the following newly defined operating segments: • On-Demand Talent – operating under the On-Demand by RGP TM brand, this segment provides businesses with a go-to source for bringing in experts when they need them. • Consulting – operating under the Veracity by RGP TM brand, this segment drives transformation across people, processes and technology across domain areas including finance, technology and digital, risk and compliance and supply chain transformation. • Europe & Asia Pacific – is a geographically defined segment that offers both on-demand and consulting services (excluding the digital consulting business, which is included in our Consulting segment) to clients throughout Europe and Asia Pacific. • Outsourced Services – operating under the Countsy by RGP TM brand, this segment offers finance, accounting and HR services provided to startups, spinouts and scale-up enterprises, utilizing a technology platform and fractional team. • 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 segments reports through a separate segment manager to the Company’s Chief Executive Officer and Chief Operating Officer, who are collectively designated as the CODMs for segment reporting purposes. The Company's reportable segments are comprised of On-Demand Talent, Consulting, Europe & Asia Pacific, and Outsourced Services. Sitrick does not individually meet the quantitative thresholds to qualify as a reportable segment. Therefore, Sitrick is disclosed under the “All Other” segment. Each of these segments represents a reporting unit for the purposes of assessing goodwill for impairment. On July 1, 2024, the Company acquired Reference Point LLC (“Reference Point”). See Note 4 – Acquisition for further discussion about the Company’s acquisition of Reference Point. Reference Point is reported within the Consulting Services operating segment from the date of acquisition. All prior year periods presented were recast to reflect the impact of the preceding segment changes. See Note 14 – Segment Information and Enterprise Reporting for further information. Per Share Information The Company presents both basic and diluted earnings per share (“EPS”). Basic EPS is calculated by dividing net (loss) income by the weighted-average number of common shares outstanding during the period. Diluted EPS is based upon the weighted-average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive shares of common stock include the assumed exercise of outstanding in-the-money stock options, assumed issuance of common stock under the Company's 2019 Employee Stock Purchase Plan, as amended (“ESPP”), assumed release of outstanding restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and performance stock units (“PSUs”) using the treasury stock method. However, potentially dilutive shares of common stock are excluded from the computation in periods in which they have an anti-dilutive effect. During the three months ended August 24, 2024, the Company incurred a net loss, and as a result potentially dilutive common shares issuable from the assumed exercise of stock options and the assumed release of shares of common stock under the outstanding ESPP, RSAs, RSUs, and PSUs awards were not included in the diluted shares used to calculate net loss per share, as their inclusion would have been anti-dilutive. The following table summarizes the calculation of net (loss) income per common share for the three months ended August 24, 2024 and August 26, 2023 (in thousands, except per share amounts): Three Months Ended August 24, August 26, Net (loss) income $ (5,707) $ 3,117 Weighted-average shares outstanding: Basic weighted-average shares 33,407 33,412 Effect of dilutive shares: Potentially dilutive stock options — 162 Potentially dilutive employee stock purchase plan — 10 Potentially dilutive restricted stock awards — 52 Potentially dilutive restricted stock units — 181 Potentially dilutive performance stock units — 193 Diluted weighted-average shares outstanding 33,407 34,010 Net (loss) income per common share: Basic $ (0.17) $ 0.09 Diluted $ (0.17) $ 0.09 The following table sets forth the potentially dilutive shares excluded from the computation of the diluted net loss per share because their effect was anti-dilutive (in thousands): Three Months Ended August 24, August 26, Stock options 1,978 1,382 Employee stock purchase plan 10 — Restricted stock awards 97 — Restricted stock units 294 6 Performance stock units — — Total 2,379 1,388 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 Company’s financial instruments, including cash and cash equivalents, trade accounts receivable, and accounts payable and other accrued expenses are carried at cost, which approximates their fair value because of the short-term maturity of these instruments. Goodwill Impairment Goodwill is tested for impairment on an annual basis in the fourth quarter and more frequently if indicators of potential impairment exist. Impairment testing is conducted at the reporting unit level. Application of the goodwill impairment test requires judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the Company’s business, and determination of the Company’s weighted average cost of capital. Under Accounting Standards Codification (“ASC”) 350, Intangibles - Goodwill and Other , the qualitative assessment requires the consideration of factors such as recent market transactions, macroeconomic conditions, and changes in projected future cash flows or planned revenue or earnings of the reporting unit as potential indicators when determining the need for a quantitative assessment of impairment. As part of the segment change, the Company completed a quantitative assessment of impairment as of May 26, 2024. Under the quantitative analysis, the estimated fair value of goodwill is determined by using a combination of a market approach and an income approach. The market approach estimates fair value by applying revenue and EBITDA multiples to each reporting unit’s operating performance. The multiples are derived from guideline public companies with similar operating and investment characteristics to our reporting units, and are evaluated and adjusted, if needed, based on specific characteristics of the reporting units relative to the selected guideline companies. The market approach requires us to make a series of assumptions that involve significant judgment, such as the selection of comparable companies and the evaluation of the multiples. The income approach estimates fair value based on our estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital that reflects the relevant risks associated with each reporting unit and the time value of money. The income approach also requires us to make a series of assumptions that involve significant judgment, such as discount rates, revenue projections and Adjusted EBITDA margin projections. We estimate our discount rates on a blended rate of return considering both debt and equity for comparable guideline public companies. We forecast our revenue and Adjusted EBITDA margin based on historical experience and internal forecasts about future performance. The Company determined the fair value of its new operating segments and reporting units based on an income approach, using a series of assumptions that involve significant judgment, such as discount rates, revenue projections and Adjusted EBITDA margin projections. Significant estimates used to determine fair value included the weighted-average cost of capital and financial projections. While we believe that the assumptions underlying our quantitative assessment are reasonable, these assumptions could have a significant impact on whether a non-cash impairment charge is recognized and the magnitude of such charge. The results of an impairment analysis are as of a point in time. There is no assurance that the actual future earnings or cash flows of our RGP reporting unit will be consistent with our projections. As a result of the quantitative impairment test, the Company concluded that the carrying amount of the Europe and Asia Pacific segment exceeded its fair value, which resulted in an impairment charge of $3.9 million on the goodwill associated with the Europe and Asia Pacific segment on the Consolidated Statements of Operations for the three months ended August 24, 2024. See Note 6 – Goodwill and Intangible Assets for further information. Capitalized Hosting Arrangements The capitalized hosting arrangements costs are primarily related to the implementation of a cloud-based enterprise resource planning system and talent acquisition and management systems. Such costs include third party implementation costs and costs associated with internal resources directly involved in the implementation. Capitalized hosting arrangements are stated at historical cost and amortized on a straight-line basis over the estimated useful life of the expected term of the hosting arrangement, taking into consideration several other factors such as, but not limited to, options to extend the hosting arrangement or options to terminate the hosting arrangement. The amortization of capitalized implementation costs for hosting arrangements will commence when the systems are ready for their intended use and will be presented as operating expenses in the Consolidated Statements of Operations consistent with the presentation for expensing the fees for the associated hosting arrangement. As of August 24, 2024, the capitalized costs related to hosting arrangements incurred during the application development stage were $18.1 million. These capitalized hosting arrangements are included in other non-current assets in the Consolidated Balance Sheets, and the Company incurred $0.1 million of amortization expense during the three months ended August 24, 2024 related to these arrangements . There were $16.1 million of capitalized costs recorded as of May 25, 2024 and less than $0.1 million of costs were amortized during the three months ended August 26, 2023 related to hosting arrangements . Share Repurchases The Company’s stock repurchase program authorizes the Company to repurchase shares at the discretion of the Company’s senior executives based on numerous factors, including, without limitation, share price and other market conditions, the Company’s ongoing capital allocation planning, the levels of cash and debt balances, and other demands for cash. The Company records the shares repurchased as treasury stock based on the amount paid to repurchase its shares. Direct costs incurred to acquire treasury stock are treated like stock issue costs and added to the cost of the treasury stock. See Note 10 — Stockholders’ Equity for further information on the repurchase of shares of common stock under the stock repurchase program. Reclassifications Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications had no effect on previously reported totals for assets, liabilities, stockholders’ equity, cash flows or net income. Recent Accounting Pronouncements No recent accounting pronouncements or changes in accounting pronouncements issued by the Financial Accounting Standards Board, the America Institute of Certified Public Accountants and the SEC have a material significance , or have potential material significance, to the Company’s financial statements since those discussed in the Company’s Fiscal Year 2024 Form 10-K. |
