The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes. This discussion and analysis contains "forward-looking statements," within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to expectations concerning matters that are not historical facts. For example, statements discussing, among other things, expected costs and liabilities, business strategies, growth strategies and initiatives, acquisition strategies, future revenues and future performance, are forward-looking statements. Such forward-looking statements may be identified by words such as "anticipates," "believes," "can," "continue," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "remain," "should," or "will" or the negative of these terms or other comparable terminology. These statements, and all phases of our operations, are subject to known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievements and those of our industry to differ materially from those expressed or implied by these forward-looking statements. 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 Annual Report on Form 10-K for the year endedMay 30, 2020 (File No. 0-32113) and our other public filings made with theSecurities and Exchange Commission ("SEC") should be reviewed carefully. These risks and uncertainties include, but are not limited to, the following: risks arising from epidemic diseases, such as the COVID-19 pandemic, the possible adverse effects from economic conditions or changes in the use of outsourced professional services consultants, the highly competitive nature of the market for professional services, our ability to secure new projects from clients, the possible legal liability for damages resulting from the performance of projects by our consultants or for our clients' mistreatment of our personnel, our ability to grow our business, manage our growth or sustain our current business, our ability to serve clients internationally, additional operational challenges from our international activities, possible disruption of our business from our past and future acquisitions, risks related to the loss of a significant number of our consultants, or an inability to attract and retain new consultants, our ability to realize the level of benefit that we expect from our restructuring initiatives, risks that our computer hardware and software and telecommunications systems are damaged, breached or interrupted, risks related to the failure to comply with data privacy laws and regulations and the adverse effect it may have on our reputation, results of operations or financial condition, the possible impact on our business from the loss of the services of one or more key members of our senior management, the possible difficulty for a third party to acquire us and resulting depression of our stock price, the operating and financial restrictions from our credit facility, the possibility that we are unable to or elect not to pay our quarterly dividend payment, the possibility that our recent rebranding efforts are not successful, risks arising from not being to adequately protect our intellectual property rights, including our brand name, and the possible adverse effect on our business model from the reclassification of our independent contractors by foreign tax and regulatory authorities. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business or operating results. Readers are cautioned not to place undue reliance on the forward-looking statements included herein, which speak only as of the date of this filing. We do not intend, and undertake no obligation, to update the forward-looking statements in this filing to reflect events or circumstances after the date of this filing or to reflect the occurrence of unanticipated events, unless required by law to do so. References in this filing to "Resources Connection ," "Resources Global Professionals," the "Company," "we," "us," and "our" refer toResources Connection, Inc. and its subsidiaries.
Overview
Resources Connection is a global consulting firm that enables rapid business outcomes by bringing together the right people to create transformative change. As a human capital partner to our global client base, we support our clients' needs through both professional staffing and project execution in the areas of transactions, regulations, and transformations. Our approach to workforce strategy and our agile human capital model quickly align the right resources for the work at hand with speed and efficiency. Our engagements are designed to leverage human connection and collaboration to deliver practical solutions and more impactful results that power our clients', consultants' and partners' success. Our mission as an employer is to connect our employee consultants to meaningful opportunities that further their career ambitions within the context of a supportive talent community of dedicated professionals. Headquartered inIrvine, California , we are proud to have served over 85% of the Fortune 100. With more than 5,000 professionals, we annually engage with over 2,400 clients around the world. We aim to be the premier provider of agile human capital solutions for companies facing transformation and workforce gaps while being the preferred employer to highly qualified and experienced consultants through our distinctive culture. 20
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Fiscal 2021 Strategic Focus Areas
Our strategic focus areas in fiscal 2021 are:
?Furthering our digital expansion through the launch of our human cloud platform and expanded go-to-market penetration for the business we acquired fromVeracity Consulting Group, LLC ("Veracity")
?Growing our core business through our strategic client and industry vertical programs
?Right sizing and controlling our cost structure globally, and optimizing our operations to achieve higher operating leverage
Our primary area of focus for fiscal 2021 is digital expansion and we have made solid strides in this area. We are on track to bring our human cloud platform to market by the end of this fiscal year, which would introduce a new way for clients and talent alike to engage with us. Our efforts also include expanding the go-to-market penetration for Veracity and launching a new Digital Technology Practice in theAsia Pacific region, which is expected to enhance 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 and integrating Veracity with the rest of the RGP business operations has generated positive returns through the first nine months of the fiscal year, with Veracity revenue growing 20.1% year-over-year in the third quarter of fiscal 2021 and the Technology and Digital solution offerings leading the overall RGP revenue acceleration during fiscal 2021. We believe COVID-19 and the increase in virtual or remote delivery arrangements resulting from the COVID-19 pandemic has and will continue to accelerate digital transformation agendas in our existing client base and will continue to create opportunities for us to engage with new clients. The second focus area for this fiscal year is building our core business, including through the growth of our strategic client and key industry vertical programs, particularly in healthcare. The continued evolution of our delivery model to be more flexible, virtual and borderless has allowed us to expand opportunities within existing core clients and markets as well as to uncover opportunities to effectively serve new clients in new markets. We are working to further penetrate our existing core accounts at a time when many are looking to reduce fixed costs by moving toward more flexible workforce strategies and building relationships with higher value partners for project execution needs. We are also actively extending our offerings to new buyers within these organizations - likeChief Digital ,Chief People and Chief Marketing Officers. We see strong growth momentum in our biggest clients and robust opportunity in the healthcare industry from pharmaceutical to medical device to payor and provider, including in practice areas such as revenue cycle optimization, clinical trials process redesign and supply chain transformation. We believe these client needs align well with the capabilities of our dedicated industry group. Revenue from the healthcare industry vertical grew 6.2% year over year in the third quarter of fiscal 2021, notwithstanding the COVID-19 pandemic. Finally, we have substantially completed our restructuring plan inNorth America andAsia Pacific (the "North America and APAC Plan"), which we initiated in the fourth quarter of fiscal 2020, and inEurope (the "European Plan", collectively, the "Plans"), which we initiated in the second quarter of fiscal 2021, with the goal to strengthen the business and right size our cost structure globally. The Plans consisted of two key components: (i) an effort to streamline the management and organizational structure and eliminate certain positions as well as exit certain markets to focus on core solution offerings and core high growth clients; and (ii) a strategic rationalization of our physical geographic footprint and real estate spend to focus investment dollars in high growth core markets for greater impact. Through the first nine months of fiscal 2021, we have substantially completed ourNorth America and APAC Plan with respect to headcount reduction. As ofFebruary 27, 2021 , we have also substantially completed the planned employee headcount reduction under the European Plan, and have recognized substantially all of the expected employee termination costs in connection with the reduction in force inEurope . Additionally, we made solid progress in executing our real estate exit strategy under the Plans. We successfully executed 75% and 63% of the planned lease terminations as ofMarch 2021 inEurope andNorth America , generating substantial savings in occupancy costs. We expect to continue to push for a more virtual footprint beyond the Plans, although the exact amount and timing of the expenses and resulting payments associated with our real estate exit plans are subject to a number of variables which may not be within our control, such as the condition of the real estate/leasing market. We believe the successful execution of the Plans has allowed us to operate with agility, resilience and efficiency heading into fiscal 2022. See Note 10 - Restructuring Activities in Part I, Item 1 above and "Results of Operations" below for additional disclosures regarding the impact of theNorth America and APAC Plan and the European Plan on our results of operations and cash flows during the three and nine months endedFebruary 27, 2021 .
COVID-19 Impact and Outlook
Since the start of calendar 2020, the COVID-19 pandemic (the "Pandemic") has caused profound disruption in theU.S. and global economy. As a result of the disruptions caused by the Pandemic, we have experienced reduced demand for or delayed client decisions to procure our services and, in certain cases, cancellation of existing projects. We have taken precautions and steps to prevent or reduce infection among our employees, including the implementation of safety precautions and policies, limiting business 21 -------------------------------------------------------------------------------- travel and mandating or encouraging working from home in many of the countries in which we operate. During the first nine months of fiscal 2021, our revenue declined 12.9% compared to the first nine months of fiscal 2020, although the year-over-year gap continued to narrow as revenue steadily recovered sequentially in each quarter in fiscal 2021. The full likely effects of the Pandemic remain uncertain and, among other things, we may continue to experience reduced demand for or delays in client decisions to procure our services or cancellation of existing projects. While the detrimental financial impact of the Pandemic is undeniable, it has also accelerated certain macro trends that we believe allow us to operate from a position of strength. These include the increased use of contingent talent, virtual or remote delivery becoming mainstream and new client attitudes toward borderless talent models. As CEO and other C-suite decision-makers increasingly value workforce flexibility and agility, additional opportunity is created for our business model. The move to virtual and borderless talent helps us manage supply and demand more efficiently, which should result in faster revenue generation and reduced turnover. In strengthening our core business, we expect to continue to evolve our client engagement and talent delivery model to take advantage of these important shifts. Additionally, we are encouraged by the revenue acceleration and improvements in sales and pipeline metrics in the third quarter of fiscal 2021, including win percentage, close won amount and deal size. Weekly revenue continued to strengthen in the third quarter of fiscal 2021, with average weekly revenue for non-holiday weeks increasing 7.6% sequentially. With sustained strength in our pipeline, we believe we are well-positioned to capitalize on the positive dynamic of clients resuming engagements and committing to larger spend on initiatives, including initiatives that have been driven by changes to the workforce paradigm as a result of the Pandemic. Until we have further visibility into the full impact of the Pandemic on the global economy, we will remain focused on the health of our balance sheet and liquidity, cost containment and strategic allocation of resources to drive key growth initiatives in core markets and the expansion of our digital capabilities.
Critical Accounting Policies
The following discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in theU.S. ("GAAP"). The preparation of these financial statements in accordance with GAAP requires us to make estimates and judgments. As further discussed in Note 13 - Segment Information in Part I, Item 1 above and in the "Information about Segments" section below, effective in the second quarter of fiscal 2021, we changed our segment reporting and reallocated goodwill to the new reporting units on the relative fair value basis. Concurrent with the segment change, we completed a goodwill impairment assessment, and concluded that no goodwill impairment existed immediately before and after the change in segment reporting. With the exception of the change in segment and reporting units, there have been no material changes in our critical accounting policies, or in the estimates and assumptions underlying those policies, from those described under the heading "Critical Accounting Policies" in Item 7 of Part II of our Annual Report on Form 10-K for the year endedMay 30, 2020 . ? 22
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Results of Operations
The following tables set forth, for the periods indicated, our Consolidated Statements of Operations data. These historical results are not necessarily indicative of future results.
Three Months Ended
Nine Months Ended
February 27, February 22, February 27, February 22, 2021 2020 2021 2020 (Amounts in thousands, except percentages) Revenue$ 156,631 100.0 %$ 168,052 100.0 %$ 457,199 100.0 %$ 524,784 100.0 % Direct cost of services 99,584 63.6 106,632 63.5 284,078 62.1 321,484 61.3 Gross profit 57,047 36.4 61,420 36.5 173,121 37.9 203,300 38.7 Selling, general and 52,838 33.7 55,299 32.9 158,544 34.7 166,032 31.6 administrative expenses Amortization of intangible 1,202 0.8 1,549 0.9 4,125 0.9 4,153 0.8 assets Depreciation expense 963 0.6 1,120 0.6 2,954 0.7 3,913 0.7 Income from operations 2,044 1.3 3,452 2.1 7,498 1.6 29,202 5.6 Interest expense, net 361 0.2 493 0.3 1,316 0.3 1,526 0.3 Other income (64) - - - (1,069) (0.3) (537) (0.1) Income before income tax 1,747 1.1 2,959 1.8 7,251 1.6 28,213 5.4 expense (benefit) Income tax expense (benefit) 1,057 0.7 (3,983) (2.3) 5,270 1.2 3,995 0.8 Net income$ 690 0.4 %$ 6,942 4.1 %$ 1,981 0.4 %$ 24,218 4.6 %
Non-GAAP Financial Measures
We use 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 day constant currency revenue is adjusted for the following items:
oCurrency impact. In order to remove the impact of fluctuations in foreign currency exchange rates, we calculate constant currency revenue, which represents the outcome that would have resulted had exchange rates in the current period been the same as those in effect in the comparable prior period.
oBusiness days impact. In order to remove the fluctuations caused by comparable periods having a different number of business days, we calculate same day revenue as current period revenue (adjusted for currency impact) divided by the number of business days in the current period, multiplied by the number of business days in the comparable prior period. The number of business days in each respective period is provided in the "Number of Business Days" section in the table below. ?Adjusted EBITDA is calculated as net income before amortization of intangible assets, depreciation expense, interest and income taxes plus stock-based compensation expense, restructuring costs, and plus or minus contingent consideration adjustments. Adjusted EBITDA at the segment level excludes certain shared corporate administrative costs that are not practical to allocate.
?Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenue.
Same day constant currency revenue
Same day constant currency revenue assists management in evaluating revenue trends on a more comparable and consistent basis. We believe this measure also provides more clarity to our investors in evaluating our core operating performance and facilitates a comparison of such performance from period to period. The following table presents a reconciliation of same day constant currency revenue to revenue, the most directly comparable GAAP financial measure, by geography.
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RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES Three Months Ended Three Months Ended Nine Months Ended Revenue by Geography February 27, November 28, February 27, February 22, February 27, February 22, 2021 2020 2021 2020 2021 2020 (Amounts in (Unaudited) (Unaudited) (Unaudited) thousands, except number of business days) North America As reported (GAAP)$ 127,913 $ 122,732 $ 127,913 $ 138,819 $ 371,259 $ 431,617 Currency impact (119) 84 392 Business days impact 2,096 (4,196) (1,988) Same day constant currency revenue$ 129,890 $ 123,801 $ 369,663 Europe As reported (GAAP)$ 17,751 $ 19,082 $ 17,751 $ 18,031 $ 53,125 $ 56,163 Currency impact (578) (1,379) (2,862) Business days impact 550 (131) (525) Same day constant currency revenue$ 17,723 $ 16,241 $ 49,738 Asia Pacific As reported (GAAP)$ 10,967 $ 11,408 $ 10,967 $ 11,202 $ 32,815 $ 37,004 Currency impact (203) (513) (836) Business days impact - 86 173 Same day constant currency revenue$ 10,764 $ 10,540 $ 32,152 Total Consolidated As reported (GAAP)$ 156,631 $ 153,222 $ 156,631 $ 168,052 $ 457,199 $ 524,784 Currency impact (900) (1,808) (3,306) Business days impact 2,646 (4,241) (2,340) Same day constant currency revenue$ 158,377 $ 150,582 $ 451,553 Number of Business Days North America (1) 61 62 61 59 187 186 Europe (2) 63 65 63 62 192 190 Asia Pacific (2) 61 61 61 62 185 186
(1) This represents the number of business days in the
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Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA and Adjusted EBITDA Margin assist management in assessing our core operating performance. We also believe these measures provide investors with useful perspective on underlying business results and trends and facilitate a comparison of our performance from period to period. The following table presents Adjusted EBITDA and Adjusted EBITDA Margin for the periods indicated and includes a reconciliation of such measures to net income, the most directly comparable GAAP financial measure: Three Months Ended Nine Months Ended February 27, February 22, February 27, February 22, 2021 2020 2021 2020 (Amounts in thousands, except percentages) Net income $ 690$ 6,942 $ 1,981 $ 24,218 Adjustments: Amortization of intangible assets 1,202 1,549 4,125 4,153 Depreciation expense 963 1,120 2,954 3,913 Interest expense, net 361 493 1,316 1,526 Income tax expense (benefit) 1,057 (3,983) 5,270 3,995 Stock-based compensation expense 1,834 1,491 4,939 4,649 Restructuring costs 652 - 8,445 - Contingent consideration adjustment 2,710 (858) 3,052 (1,120) Adjusted EBITDA$ 9,469 $ 6,754 $ 32,082 $ 41,334 Revenue$ 156,631 $ 168,052 $ 457,199 $ 524,784 Adjusted EBITDA Margin 6.0% 4.0% 7.0% 7.9% Our non-GAAP financial measures are not measurements of financial performance or liquidity under GAAP and should not be considered in isolation or construed as substitutes for revenue, net income or other cash flow data prepared in accordance with GAAP for purposes of analyzing our revenue, profitability or liquidity. These measures should be considered in addition to, and not as a substitute for, revenue, net income, earnings per share, cash flows or other measures of financial performance prepared in conformity with GAAP. Further, a limitation of our non-GAAP financial measures is 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 for performance measures calculated in accordance with GAAP.
Operating Results - Three Months Ended
Percentage change computations are based upon amounts in thousands. All prior year periods referenced below were recast to reflect the impact of the segment changes as discussed in "Information about Segments" above. Revenue. Revenue declined$11.4 million , or 6.8%, to$156.6 million in the third quarter of fiscal 2021 from$168.1 million in the third quarter of fiscal 2020. Billable hours decreased 6.6%, partially offset by an average bill rate increase of 1.3% in the third quarter of fiscal 2021 compared to the prior year quarter. On a sequential basis, consolidated revenue in the third quarter of fiscal 2021 increased$3.4 million , or 2.2%, compared to the second quarter of fiscal 2021, led by strong demand in Technology and Digital solution offerings as well as other key solution offerings within the healthcare industry vertical program.
The following table represents our consolidated revenues by geography:
Three Months Ended February 27, November 28, February 22, 2021 2020 2020 (Amounts in thousands, except percentages) North America$ 127,913 81.7 %$ 122,732 80.1 %$ 138,819 82.6 % Europe 17,751 11.3 19,082 12.5 18,031 10.7 Asia Pacific 10,967 7.0 11,408 7.4 11,202 6.7 Total$ 156,631 100 %$ 153,222 100 %$ 168,052 100.0 % 25
-------------------------------------------------------------------------------- Revenues declined across all geographies during the third quarter of fiscal 2021 compared to the prior year quarter due to the continued adverse impact of the Pandemic, including overall slower conversion, which hindered revenue velocity recovery despite notable improvements in sales and pipeline metrics in the third quarter of fiscal 2021. We experienced increased complexity in projects in pursuit, more new projects in the pipeline instead of extensions and lengthier consultant onboarding leading to a lag between project close/won to project start due to various reasons including client IT equipment supply shortages and certain healthcare protocols, which all contributed to slower revenue conversion in the third quarter of fiscal 2021. However, on a sequential basis, despite slower revenue conversion,North America revenue increased$5.2 million , or 4.2%, reflecting an uptick in demand for our services as uncertainty in the macro environment curtails with the advancement in vaccine development and distribution in theU.S. Europe revenue declined$1.3 million , or 7.0%, sequentially, as COVID-19 lockdowns were re-implemented in certain key markets such asGermany , impacting our ability to deliver, and the expected shrinkage in revenue from exiting certain markets in connection with our restructuring efforts inEurope .Asia Pacific revenue declined$0.4 million , or 3.9%, sequentially, primarily due to the more pronounced adjacent holiday impact fromChinese New Year in the current fiscal quarter. Same Day Constant Currency Revenue. On a same day constant currency basis, revenue for the third quarter of fiscal 2021 decreased$17.5 million , or 10.4%, compared to the prior year quarter, primarily reflecting the lingering adverse impact of the Pandemic on client demand and consumption, although the year-over-year decline continued to narrow throughout fiscal 2021. On a sequential basis, consolidated revenue in the third quarter of fiscal 2021 improved$5.2 million , or 3.4%, compared to the second quarter of fiscal 2021, primarily driven by a 5.8% increase inNorth America . Direct Cost of Services. Direct cost of services decreased$7.0 million , or 6.6%, to$99.6 million for the third quarter of fiscal 2021 from$106.6 million for the third quarter of fiscal 2020. The decrease in the amount of direct cost of services year-over-year was primarily attributable to a 6.6% decrease in billable hours. Direct cost of services as a percentage of revenue was 63.6% for the third quarter of fiscal 2021 compared to 63.5% for the third quarter of fiscal 2020. The increased percentage compared to the prior year quarter was primarily attributable to an increase in pay/bill ratio, primarily caused by more opportunistic pricing and lower consultant utilization in our crisis management business, which operates on a bench model. The 1.3% improvement in consolidated average bill rate was outpaced by the 2.2% increase in the average pay rate in the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020, resulting in a 43-basis-point increase in pay/bill ratio year-over-year. Additionally, the decrease in conversion and professional search revenue in the third quarter of fiscal 2021 further contributed to the increase of direct cost of services as a percentage of revenue. These negative impacts were largely offset by lower passthrough revenue from client reimbursement and lower holiday pay, due toThanksgiving being included in the third quarter of fiscal 2020 but not in the third quarter of fiscal 2021. Our target direct cost of services percentage is 60%. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SG&A") was$52.8 million , or 33.7% as a percentage of revenue, for the third quarter of fiscal 2021 compared to$55.3 million , or 32.9% as a percentage of revenue, for the third quarter of fiscal 2020. The$2.5 million savings in SG&A year-over-year were primarily attributable to (1) a$3.8 million decrease in management compensation and bonuses primarily resulting from the reduction in force as part of the global restructuring plan, as further discussed below, and a lower revenue base for incentive compensation; (2)$1.6 million of savings in business expenses attributable to cost containment measures and reduced business travel during the Pandemic; and (3)$0.9 million of savings in occupancy expense primarily as a result of the real estate exit initiatives taken. These savings were partially offset by (1) restructuring costs of$0.7 million incurred in the third quarter of fiscal 2021 under the restructuring plans further discussed below; (2) a$0.3 million increase in stock-based compensation expense as the vesting of certain stock awards was accelerated during the third quarter of fiscal 2021; and (3) a$3.6 million change in the fair value adjustments related to the Veracity contingent consideration, which was an expense of$2.7 million in the third quarter of fiscal 2021 as compared to a benefit of$0.9 million in third quarter of fiscal 2020. Management and administrative headcount was 852 at the end of the third quarter of fiscal 2021 and 992 at the end of the third quarter of fiscal 2020. 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-higher levels of utilization would reduce the full-time equivalent management and administrative headcount, and lower levels would increase it. 26 -------------------------------------------------------------------------------- Restructuring charges. We initiated ourNorth America and APAC Plan inMarch 2020 and the European Plan inSeptember 2020 . All employee termination and facility exit costs incurred under the restructuring plans were associated with the RGP segment, as further discussed in Note 13 - Segment Information, and are recorded in selling, general and administrative expenses in the Consolidated Statement of Operations. Restructuring costs for the three months endedFebruary 27, 2021 andFebruary 22, 2020 were as follows (in thousands): Three Months Ended February 27, February 22, 2021 2020 Employee termination costs $ (161) $ - Real estate exit costs 524 - Other costs 289 - Total restructuring costs $ 652 $ - For further information on our restructuring initiatives, please refer to Note 10 - Restructuring Activities in Part I, Item 1 above and "Fiscal 2021 Strategic Focus Areas" above. Amortization and Depreciation Expense. Amortization of intangible assets was$1.2 million and$1.5 million in the third quarter of fiscal 2021 and fiscal 2020, respectively. The decrease in amortization expense is primarily due to certain acquired intangible assets being fully amortized at the end of the first quarter in fiscal 2021, partially offset by an increase related to the amortization of certain internally-developed software put in service during the second quarter of fiscal 2021. Depreciation expense was$1.0 million and$1.1 million in the third quarter of fiscal 2021 and fiscal 2020, respectively. The decrease in depreciation expense was primarily due to fully-depreciated computer equipment in periods prior to the third quarter of fiscal 2021 and the write-off of leasehold improvements as part of the real estate exit initiatives executed under the Plans. Other Income. Other income was$0.1 million in the third quarter of fiscal 2021 and nil in the third quarter of fiscal 2020. Other income in the third quarter of fiscal 2021 was primarily related to government COVID-19 relief funds received globally. Income Taxes. The income tax expense was$1.1 million (effective tax rate of approximately 60.5%) for the third quarter of fiscal 2021 compared to an income tax benefit of($4.0) million (effective tax rate of approximately (134.6%)) for the third quarter of fiscal 2020. We record tax expense based upon actual results versus a forecasted tax rate because of the volatility in our international operations that span numerous tax jurisdictions. Income tax expense for the third quarter of fiscal 2021 included the establishment of$0.2 million of valuation allowance on certain deferred tax assets during the quarter. No tax benefits were recognized in connection with pre-tax losses incurred in foreign entities where required valuation allowances have been established previously. The tax benefit of$4.0 million for the third quarter of fiscal 2020 included a discrete tax benefit of$6.6 million as a result of the deduction of the investment basis in four European entities upon their dissolutions.
We recognized a net tax benefit of approximately
Periodically, we review the components of both book and taxable income to analyze the adequacy of the tax provision. There can be no assurance that our effective tax rate will remain constant in the future because of the lower benefit from theU.S. statutory rate for losses in certain foreign jurisdictions, the limitation on the benefit for losses in jurisdictions in which a valuation allowance for operating loss carryforwards has previously been established, and the unpredictability of timing and the amount of eligible disqualifying incentive stock options exercise. Adjusted EBITDA. Adjusted EBITDA improved$2.7 million , or 40.2%, to$9.5 million in the third quarter of fiscal 2021, compared to$6.8 million in the third quarter of fiscal 2020. Adjusted EBITDA margin increased by 200 basis points to 6.0% in the third quarter of fiscal 2021. The improvement was attributable to significant cost savings of$7.0 million in the third quarter of fiscal 2021, despite the decline in revenue. Comparability of Quarterly Results. Our quarterly results have fluctuated in the past and we believe they will continue to do so in the future. Certain factors that could affect our quarterly operating results are described in Part II, Item 1A.-Risk Factors of our Annual Report on Form 10-K for the year endedMay 30, 2020 . Due to these and other factors, we believe quarter-to-quarter comparisons of our results of operations may not be meaningful indicators of future performance.
Operating Results - Nine Months Ended
Percentage change computations are based upon amounts in thousands. All prior year periods referenced below were recast to reflect the impact of the segment changes as discussed in "Information about Segments" above. 27 -------------------------------------------------------------------------------- Revenue. Revenue declined$67.6 million , or 12.9%, to$457.2 million in the first nine months of fiscal 2021 from$524.8 million in the first nine months of fiscal 2020. Billable hours decreased 13.0% while average bill rate increased 1.4% in the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020.
The following table represents our consolidated revenues by geography:
Nine Months Ended February 27, February 22, 2021 2020 (Amounts in thousands, except percentages) North America$ 371,259 81.2 %$ 431,617 82.3 % Europe 53,125 11.6 56,163 10.7 Asia Pacific 32,815 7.2 37,004 7.0 Total$ 457,199 100.0 %$ 524,784 100.0 % Revenue declined across all geographies during the first nine months of fiscal 2021 as compared to the same period of fiscal 2020, reflecting the adverse impact of the Pandemic. However, revenue has accelerated over the fiscal year and we continued to see positive momentum in both pipeline and sales productivity. As a result,North America ,Europe andAsia Pacific , year-over-year third quarter decline in revenue narrowed to 14.0%, 5.4% and 11.3%, respectively, compared to the year-over-year second quarter decline of 16.9%, 7.2% and 15.3%, respectively.
Same Day Constant Currency Revenue. On a same day constant currency basis,
revenue for the first nine months of fiscal 2021 decreased by
Direct Cost of Services. Direct cost of services decreased$37.4 million , or 11.6%, to$284.1 million for the nine months endedFebruary 27, 2021 from$321.5 million for the nine months endedFebruary 22, 2020 . The decrease in the amount of direct cost of services between periods was primarily attributable to a decrease of 13.0% in billable hours, partially offset by a 2.4% increase in average pay rate. Direct cost of services as a percentage of revenue was 62.1% for the nine months endedFebruary 27, 2021 compared to 61.3% for the nine months endedFebruary 22, 2020 . The increased percentage compared to the prior year was partially attributable to an increase in the pay/bill ratio, primarily caused by more opportunistic pricing and lower consultant utilization in our crisis management business, which operates on a bench model. The 1.4% increase in consolidated average bill rate was outpaced by the 2.4% increase in average pay rate during the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020, resulting in a 52-basis-point increase in pay/bill ratio year-over-year. Additionally, the decrease in professional search revenue, which represents 100% gross margin, during the first nine months of fiscal 2021 as compared to the same period of the prior fiscal year and the increase in total indirect costs as a percentage of revenue during the first nine months of fiscal 2021 to 11.6% as compared to 10.5% as of the same period in the prior fiscal year, further contributed to the increase of direct cost of services as a percentage of revenue. Indirect costs have increased as a percentage of revenue during the Pandemic due to the increased transitional periods of unbillable hours taken by consultants between client engagements, during which fixed benefits for consultants are absorbed by the Company. These negative impacts were partially offset by lower passthrough revenue from client reimbursement. Our target direct cost of services percentage is 60%. Selling, General and Administrative Expenses. SG&A expenses were$158.5 million , or 34.7% as a percentage of revenue, for the nine months endedFebruary 27, 2021 compared to$166.0 million , or 31.6% as a percentage of revenue, for the nine months endedFebruary 22, 2020 . Excluding the$8.4 million of restructuring costs incurred during the first nine months of fiscal 2021, as further discussed below, year-over-year SG&A costs decreased$15.9 million , which was primarily attributable to: (1) an$8.6 million decrease in management compensation and bonuses primarily resulting from the reduction in force as part of the global restructuring plan and a lower revenue base for incentive compensation; (2)$5.1 million of savings in business expenses attributable to cost containment measures and reduced business travel during the Pandemic; (3) a$1.7 million net reduction in legal expenses primarily due to the recovery of$1.0 million of legal costs during the first quarter of fiscal 2021 related to a receivable collection case; (4) a$1.1 million decrease in personnel severance costs, which were$1.5 million in the first nine months of fiscal 2020, related primarily to exiting the Nordic markets and the departure of several former executives, as compared to$0.3 million in the first nine months of fiscal 2021; (5) costs of$0.8 million incurred in the first nine months of fiscal 2020 associated with the acquisition of Veracity; (6) a$1.4 million of reduction in bad debt expense as we continued to improve on collections of our accounts receivable; and (7)$2.2 million of savings in occupancy expense primarily as a result of the real estate exit initiatives taken. These decreases were partially offset by a change in contingent consideration related expense/benefit, which was an expense of$3.1 million in the first nine months of fiscal 2021 as compared to a benefit of$1.1 million in the first nine months of fiscal 2020, and a$2.1 million increase in IT and consulting expenses in the first nine months of fiscal 2021 as compared to the first nine months of fiscal 2020, relating to investments in our technology infrastructure to further drive efficiency and support the virtual operating model. 28 -------------------------------------------------------------------------------- Restructuring charges. We initiated ourNorth America and APAC Plan inMarch 2020 and the European Plan inSeptember 2020 . All employee termination and the facility exit costs incurred under the restructuring plans were associated with the RGP segment, as further discussed in Note 13 - Segment Information. Restructuring costs for the nine months endedFebruary 27, 2021 andFebruary 22, 2020 were as follows (in thousands): Nine Months Ended February 27, February 22, 2021 2020 Employee termination costs $ 6,231 $ - Real estate exit costs 1,628 - Other costs 586 - Total restructuring costs $ 8,445 $ - For further information on our restructuring initiatives, please refer to Note 10 - Restructuring Activities in Part I, Item 1 above and "Fiscal 2021 Strategic Focus Areas" above. Amortization and Depreciation Expense. Amortization of intangible assets was$4.1 million and$4.2 million in the first nine months of fiscal 2021 and fiscal 2020, respectively. The decrease in amortization expense is primarily due to certain acquired intangible assets being fully amortized at the end of the first quarter in fiscal 2021, partially offset by the amortization of identifiable intangible assets acquired through Veracity and certain internally developed software put in service in the second quarter of fiscal 2021. Depreciation expense was$3.0 million and$3.9 million in the first nine months of fiscal 2021 and fiscal 2020, respectively. The decrease in depreciation expense was primarily due to computer equipment becoming fully depreciated and the write-off of leasehold improvement as part of the real estate exit initiatives executed under the Plans. Other Income. Other income was$1.1 million in the first nine months of fiscal 2021 compared to$0.5 million in the first nine months of fiscal 2020. Other income in the current fiscal year was primarily related to government COVID-19 relief funds received globally. Other income in the first nine months of fiscal 2020 was primarily related to the gain on the settlement of a pre-acquisition claim with the seller of Accretive, an acquisition completed in fiscal 2018. Income Taxes. Income tax expense was$5.3 million expense (effective tax rate of approximately 72.7%) for the nine months endedFebruary 27, 2021 compared to$4.0 million (effective tax rate of approximately 14.2%) for the nine months endedFebruary 22, 2020 . We record tax expense based upon actual results versus a forecasted tax rate because of the volatility in our international operations that span numerous tax jurisdictions. Income tax expense for the first nine months of fiscal 2021 was primarily associated with pre-tax income fromNorth America andAsia Pacific . A significant portion of the restructuring costs were incurred in the Company's European entities, and no tax benefits were recognized due to the required valuation allowances, resulting in an effective tax rate of 72.7%. The prior year effective tax rate of 14.2% was primarily a result of the$6.6 million discrete tax benefit from the deduction of the investment basis in four European entities upon their dissolutions. We recognized a net tax benefit of$0.7 million and breakeven from compensation expense related to stock options, restricted stock awards, restricted stock units and disqualifying dispositions under our ESPP during the first nine months of fiscal 2021 and fiscal 2020, respectively. Adjusted EBITDA. Adjusted EBITDA decreased$9.3 million , or 22.4%, to$32.1 million in the first nine months of fiscal 2021, compared to$41.3 million in the first nine months of fiscal 2020. Adjusted EBITDA margin decreased by 90 basis points to 7.0% in the first nine months of fiscal 2021. The decrease in adjusted EBITDA margin was primarily attributable to the$30.2 million decline in gross profit, as further discussed above, partially mitigated by significant cost savings of$20.4 million in the first nine months of fiscal 2021 compared to the prior year period.
Operating Results of Segment
Effective in the second quarter of fiscal 2021, we revised our historical one segment position and identified the following new operating segments to align with changes made in our internal management structure and our reporting structure of financial information used to assess performance and allocate resources: ?RGP - a global business consulting practice which operates primarily under the RGP brand and focuses on professional project consulting and staffing services in areas such as finance and accounting, business strategy and transformation, risk and compliance, and technology and digital; ?taskforce - a German professional services firm that operates under the taskforce brand. It utilizes a distinct independent contractor/partner business model and infrastructure and focuses on providing senior interim management and project management services to middle market clients in the German market;
?Sitrick - a crisis communications and public relations firm which operates under the Sitrick brand, providing corporate,
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financial, transactional and crisis communication and management services.
RGP includes the operations of Veracity, which is being integrated with the rest of the RGP business operations. RGP is our only reportable segment. taskforce and Sitrick do not individually meet the quantitative thresholds to qualify as reportable segments. Therefore, they are combined and disclosed as Other Segments. The following table presents our operating results by segment. All prior year periods presented were recast to reflect the impact of the preceding segment changes. Three Months Ended Nine Months Ended February 27, February 22, February 27, February 22, 2021 2020 2021 2020 (Amounts in thousands, except percentages) Revenues: RGP$ 146,487 93.5 %$ 158,228 94.2 %$ 425,598 93.1 %$ 494,225 94.2 % Other Segments 10,144 6.5 9,824 5.8 31,601 6.9 30,559 5.8 Total revenues$ 156,631 100.0 %$ 168,052 100.0 %$ 457,199 100.0 %$ 524,784 100.0 % Gross profit: RGP$ 53,980 94.6 %$ 57,757 94.0 %$ 162,006 93.6 %$ 191,223 94.1 % Other Segments 3,067 5.4 3,663 6.0 11,115 6.4 12,077 5.9 Total gross profit$ 57,047 100.0 %$ 61,420 100.0 %$ 173,121 100.0 %$ 203,300 100.0 % Adjusted EBITDA: RGP$ 15,886 167.8 %$ 13,894 205.7 %$ 50,671 157.9 %$ 61,962 149.9 % Other Segments 449 4.7 320 4.7 2,866 8.9 2,419 5.9 Reconciling Items (1) (6,866) (72.5) (7,460) (110.4) (21,455) (66.8) (23,047) (55.8) Total Adjusted EBITDA$ 9,469 100.0 %$ 6,754 100.0 %$ 32,082 100.0 %$ 41,334 100.0 % (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.
All prior year periods referenced below were recast to reflect the impact of the segment changes as discussed in "Information about Segments" above.
Revenue by Segment
RGP - RGP revenue decreased$11.7 million , or 7.4%, in the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020, primarily as a result of a 7.3% decline in billable hours year-over-year. On a sequential basis, RGP revenue improved$4.5 million , or 3.2%, in the third quarter of fiscal 2021, reflecting the impact of a 2.1% increase in billable hours and a 1.0% improvement in average bill rate compared to the second quarter of fiscal 2021. RGP revenue decreased$68.6 million , or 13.9%, during the first nine months of fiscal 2021 as compared to the first nine months of fiscal 2020, primarily as a result of a 13.6% decline in billable hours year-over-year. Revenue from RGP represents more than 90% of total consolidated revenue and generally reflects the overall consolidated revenue trend.
The number of consultants on assignment under the RGP segment as of
Other Segments - Other Segments' revenue for the third fiscal quarter of 2021 increased$0.3 million , or 3.3%, compared to the third quarter of fiscal 2020. Other Segments' revenue increased$1.0 million , or 3.4%, during the first nine months of fiscal 2021 compared to the same period in the prior fiscal year. The improvement in revenue was primarily due to the continued revenue synergy generated from combining RGP Germany to operate under taskforce.
The number of consultants on assignment under Other Segments as of
Gross Profit by Segment
RGP - RGP gross profit decreased$3.8 million , or 6.5%, in the third quarter of 2021 compared to the third quarter of fiscal 2020 primarily as a result of decline in revenue. Gross margin improved 30 basis points from 36.5% in the third quarter of fiscal 2020 to 36.8% in the third quarter of fiscal 2021. RGP average bill rate improved by 1.1%, outpacing the 1.0% increase in pay rate in the 30
-------------------------------------------------------------------------------- third quarter of fiscal 2021 compared to the third quarter of fiscal 2020, resulting in a 6-basis-point decrease in pay/bill ratio. Gross margin further benefited from lower passthrough revenue from client reimbursement and lower holiday pay, due toThanksgiving being included in the third quarter of fiscal 2020 but not in the third quarter of fiscal 2021. These positive impacts were partially offset by decreased conversion and professional search revenue. RGP segment gross profit decreased$29.2 million , or 15.3%, in the first nine months endedFebruary 27, 2021 compared to the same period in the prior fiscal year primarily as a result of decline in revenue. Gross margin declined 60 basis points from 38.7% in the first nine months of fiscal 2020 to 38.1% in the first nine months of fiscal 2021. Pay/bill ratio remained consistent over the same period. The decline in RGP gross margin year-over-year was due to a decrease in professional search revenue, which represents 100% gross margin, partially offset by lower passthrough revenue from client reimbursement, similar to those at the consolidated level. Other Segments - Gross profit in Other Segments decreased$0.6 million , or 16.3%, in the third quarter of 2021 compared to the third quarter of fiscal 2020. Gross margin declined from 37.3% in the third quarter of fiscal 2020 to 30.2% in the third quarter of fiscal 2021. Gross profit in Other Segments decreased$1.0 million , or 8.0%, in the first nine months of 2021 compared to the same period in the prior fiscal year. Gross margin declined from 39.5% to 35.2% over the same period. The year-over-year declines in gross margin in both the three and nine months endedFebruary 27, 2021 were primarily a result of lower utilization of fixed salary modeled consultants.
Adjusted EBITDA by Segment
RGP - RGP adjusted EBITDA increased$2.0 million , or 14.3%, in the third quarter of fiscal 2021, compared to the third quarter of fiscal 2020. Adjusted EBITDA margin increased by 200 basis points to 10.8% in the third quarter of fiscal 2021. The improvement was attributable to significant cost savings of$5.7 million in the third quarter of 2021, despite the decline in revenue. RGP adjusted EBITDA decreased$11.3 million or 18.2% in the first nine months of fiscal 2021, compared to the same period in the prior fiscal year. Adjusted EBITDA margin decreased by 60 basis points to 11.9% in the first nine months of fiscal 2021. The decrease in adjusted EBITDA margin was primarily attributable to the$29.2 million decline in gross profit, as discussed above, partially offset by significant cost savings of$17.4 million in the first nine months of fiscal 2021 compared to the prior year period. The SG&A trend at RGP year-over-year is generally consistent with that at the consolidated level, as discussed above, with the exception that the SG&A used to derive segment Adjusted EBITDA does not include certain unallocated corporate administrative costs. Other Segments - Other Segments' adjusted EBITDA improved$0.1 million , or 40.3%, in the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020. Adjusted EBITDA margin increased by 110 basis points to 4.4% in the third quarter of fiscal 2021. Other Segments' adjusted EBITDA improved$0.4 million , or 18.5%, in the nine months endedFebruary 27, 2021 compared to the same period in fiscal 2020. Adjusted EBITDA margin increased by 120 basis points to 9.1% in the first nine months of fiscal 2021. The improvement in adjusted EBITDA margin was attributable to improved SG&A year-over-year.
Liquidity and Capital Resources
Our primary sources of liquidity are cash provided by our operations, our$120.0 million secured revolving credit facility ("Facility") withBank of America 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 flow from operations in the future will be, at least in part, dependent on global economic conditions and our ability to remain resilient during economic downturns, such as the one we are currently in caused by the Pandemic. As ofFebruary 27, 2021 , we had$84.0 million of cash and cash equivalents including$30.7 million held in international operations. Our Facility is available for working capital and general corporate purposes, including potential acquisitions 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. OnFebruary 27, 2021 , we had borrowings of$53.0 million outstanding under the Facility, bearing an interest rate per annum ranging from 2.00% to 2.02%. Additional information regarding the Facility is included in Note 8 - Long-Term Debt in the Notes to consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. We undertook a number of restructuring actions across our geographies beginning in the fourth quarter of fiscal 2020. We expect the execution of the restructuring actions to continue through the remainder of fiscal 2021, which requires additional liquidity. Through the first nine months of fiscal 2021, we paid approximately$5.7 million related to employee termination costs, including$2.4 million under theNorth America and APAC Plan and$3.3 million under the European Plan. We currently estimate the cash requirement for completing the remaining restructuring actions to be in the range of$3.5 million to$6.5 million . The exact amount and timing of the expenses and resulting payments are subject to a number of variables which may not be within our control, such as the condition of the real estate/leasing market. As described in Note 4 - Acquisition in the Notes to consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and Note 3 - Acquisitions and Dispositions in the Notes to consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year endedMay 30, 2020 , the purchase agreements for Veracity and 31
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Expertence require cash earn-out payments to be made when certain performance
conditions are met. We estimated the fair value of the obligation to pay
contingent consideration based on a number of different projections of the
estimated EBITDA and estimated revenue. The estimated fair value of the
contingent consideration liability as of
Our ongoing operations and growth strategy may require us to continue to make investments in critical markets and in systems and technology. In addition, we may consider making strategic acquisitions or initiating additional restructuring initiatives, which could require significant liquidity. We currently believe that our current cash, ongoing cash flows from our operations and funding available under our Facility will be adequate to meet our working capital, capital expenditure needs and funding for our restructuring initiatives and potential future contingent consideration payments associated with our acquisitions for at least the next 12 months. If we require additional capital resources to grow our business, either internally or through acquisition, we may seek to sell additional equity securities, increase use of our Facility or raise additional debt. In addition, if we decide to make additional share repurchases, we may fund these through existing cash balances or use of our Facility. The sale of additional equity securities or certain forms of debt financing could result in additional dilution to our stockholders. We may not be able to obtain financing arrangements in amounts or on terms acceptable to us in the future. In the event we are unable to obtain additional financing when needed, we may be compelled to delay or curtail our plans to develop our business or to pay dividends on our capital stock, which could have a material adverse effect on our operations, market position and competitiveness.
Operating Activities
Operating activities for the nine months endedFebruary 27, 2021 provided cash of$35.4 million compared to$21.6 million for the nine months endedFebruary 22, 2020 . In the first nine months of fiscal 2021, cash provided by operations resulted from net income of$2.0 million and non-cash adjustments of$16.0 million . Additionally, net favorable changes in operating assets and liabilities totaled$17.4 million , primarily consisting of a$19.1 million decrease in trade accounts receivable, partially attributable to improved collection on our accounts receivable, and a$8.2 million increase in other liabilities, primarily due to a$9.2 million payroll tax payment deferral under the Coronavirus Aid, Relief, and Economic Security Act in fiscal 2021, partially offset by a$7.2 million increase in prepaid income taxes. In the first nine months of fiscal 2020, cash provided by operations resulted from net income of$24.2 million and non-cash adjustments of$13.5 million . These amounts were partially offset by a net unfavorable change in operating assets and liabilities of$16.1 million primarily due to a decrease in accrued salaries and related obligations.
Investing Activities
Net cash used in investing activities was$2.8 million for the first nine months of fiscal 2021 compared to$26.5 million in the same period in fiscal 2020. We used$2.8 million of cash in the first nine months of fiscal 2021 to develop internal-use software and acquire property and equipment. In the first nine months of fiscal 2020, net cash used consisted of$30.3 million for the acquisition of Veracity,$6.0 million for redemption of short-term investments, and$2.0 million for property and equipment purchases and the development of internal-use software. Financing Activities Net cash used in financing activities totaled$46.0 million for the nine months endedFebruary 27, 2021 compared to cash used in financing activities of$1.8 million for the nine months endedFebruary 22, 2020 . Net cash used in financing activities during the nine months endedFebruary 27, 2021 consisted of repayments on the Facility of$35.0 million , cash dividend payments of$13.6 million , and the first Veracity contingent consideration payment, of which$3.0 million was categorized as financing (the remaining$2.3 million of the total$5.3 million Veracity year one contingent consideration payment was categorized as operating). These were partially offset by$5.6 million in proceeds received from ESPP share purchases and employee stock option exercises. Net cash used in financing activities of$1.8 million for the nine months endedFebruary 22, 2020 included$10.3 million of proceeds from employee stock option exercises and purchases of shares under the ESPP,$35.0 million of borrowings to finance the acquisition of Veracity, partially offset by principal repayments of$29.0 million under the Facility,$5.0 million to purchase approximately 318,000 shares of common stock on the open market and$13.1 million of cash dividend payments.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is contained 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. Contractual Obligations
Other than a
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Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
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