UPDATE: Resources Connection (RECN) Misses Q3 EPS by 1c, Revenues Miss; Appoints Tim Brackney as President & COO

Resources Connection (NASDAQ: RECN) reported Q3 EPS of $0.20, $0.01 worse than the analyst estimate of $0.21. Revenue for the quarter came in at $179.5 million versus the consensus estimate of $184.2 million.

• Q3 2019 revenue increases 4.1% year-over-year to $179.5 million
• Q3 2019 gross margin improves to 37.8% from 36.3% in prior year
• SG&A as a percent of revenue improves by 110 basis points YOY
• Q3 2019 diluted earnings per common share increases to $0.18 compared to $0.14 in prior year quarter
• Q3 2019 adjusted diluted earnings per common share increases to $0.20 compared to $0.09 in prior year quarter
• Q3 2019 pretax income more than doubles to $9.6 million from $4.6 million in prior year quarter
• Company announces appointment of Tim Brackney as President and Chief Operating Officer

“We continue to make good progress in improving our top and bottom line results,” said Kate W. Duchene, Chief Executive Officer. “While Europe has faced macro headwinds, our business in North America and Asia Pacific delivered growth in the quarter and have performed well cumulatively through the first three quarters of the fiscal year. We are also pleased that we have made progress with our critical initiatives to improve bill rates and expand our mix of business to drive more profitable results through our solutions offerings.”

“Today, I am delighted to announce the appointment of Tim Brackney as RGP’s President and Chief Operating Officer, effective immediately,” said Kate Duchene. “Having previously served as the President of North America, Tim moves into this role to drive and align our growth and Go-To-Market strategies across the globe. Tim is an accomplished operator with tremendous work ethic and business acumen. I am excited to embrace the opportunities ahead with Tim as a trusted and valued senior leader.”

Other Third Quarter 2019 Financial Highlights

• Gross margin of 37.8% improved from 36.3% in the prior year third quarter due to improvement in the pay rate to bill rate ratio and lower costs in the Company’s self-insured medical program.
• Selling, general and administrative (“SG&A”) expense of $55.6 million (31.0% of revenue) compared to $55.3 million (32.1% of revenue) in the third quarter of fiscal 2018 shows improvement as a percent of revenue of 110 basis points year-over-year. On a sequential basis, SG&A increased $0.6 million.
• Tax rate of 40% in the third quarter compared to 1% in the comparable period last year. The tax rate in the prior year was favorably impacted by the U.S. Tax Reform Act, with the Company able to reverse $2.2 million of tax expense in the prior year third quarter as a result of the reduction in the U.S. statutory rate applied to its year-to-date U.S. earnings and cumulative net deferred tax liability. The rate in the current year reflects the inability to benefit from losses in certain foreign jurisdictions in which a full valuation allowance on operating loss carryforwards had previously been established.
• Estimated annual cash tax rate*** of 32% compared to 39% in the prior year third quarter.
• Pre-tax income increased in the third quarter to $9.6 million compared to $4.6 million in the prior year third quarter; net income increased to $5.8 million compared to $4.6 million in the prior year third quarter.
• Diluted earnings per common share increased to $0.18 compared to $0.14 in the prior year third quarter.
• Adjusted diluted earnings per common share*** increased to $0.20 compared to $0.09 in the prior year third quarter.
• Adjusted EBITDA**** of $13.9 million (7.8% as a percent of revenue) compared to $8.7 million (5.0% as a percent of revenue) in the prior year third quarter.
• Net cash provided by operating activities for the three months ended February 23, 2019 was $11.8 million compared to cash used in operating activities of $3.9 million in the prior year comparable period.
• The Board of Directors approved a $0.13 per share dividend to shareholders in the third quarter for $4.1 million (paid in March), compared to a $0.12 per share dividend and $3.6 million in the prior year third quarter; Company share buybacks in the third quarter totaled approximately 559,000 shares for $9.2 million, with $97.7 million remaining for future common stock purchases as of February 23, 2019.
• Cash and cash equivalents were $48.0 million as of February 23, 2019.

For earnings history and earnings-related data on Resources Connection (RECN) click here.

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