RESOURCES CONNECTION

RGP
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RESOURCES CONNECTION : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-Q)

04/08/2021 | 02:38pm


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 ended May 30, 2020 (File No. 0-32113) and our other public filings made
with the Securities and Exchange Commission ("SEC") should be reviewed
carefully. These risks and uncertainties include, but are not limited to, the
following: risks arising from epidemic diseases, such as the COVID-19 pandemic,
the possible adverse effects from economic conditions or changes in the use of
outsourced professional services consultants, the highly competitive nature of
the market for professional services, our ability to secure new projects from
clients, the possible legal liability for damages resulting from the performance
of projects by our consultants or for our clients' mistreatment of our
personnel, our ability to grow our business, manage our growth or sustain our
current business, our ability to serve clients internationally, additional
operational challenges from our international activities, possible disruption of
our business from our past and future acquisitions, risks related to the loss of
a significant number of our consultants, or an inability to attract and retain
new consultants, our ability to realize the level of benefit that we expect from
our restructuring initiatives, risks that our computer hardware and software and
telecommunications systems are damaged, breached or interrupted, risks related
to the failure to comply with data privacy laws and regulations and the adverse
effect it may have on our reputation, results of operations or financial
condition, the possible impact on our business from the loss of the services of
one or more key members of our senior management, the possible difficulty for a
third party to acquire us and resulting depression of our stock price, the
operating and financial restrictions from our credit facility, the possibility
that we are unable to or elect not to pay our quarterly dividend payment, the
possibility that our recent rebranding efforts are not successful, risks arising
from not being to adequately protect our intellectual property rights, including
our brand name, and the possible adverse effect on our business model from the
reclassification of our independent contractors by foreign tax and regulatory
authorities. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also affect our business or operating
results. Readers are cautioned not to place undue reliance on the
forward-looking statements included herein, which speak only as of the date of
this filing. We do not intend, and undertake no obligation, to update the
forward-looking statements in this filing to reflect events or circumstances
after the date of this filing or to reflect the occurrence of unanticipated
events, unless required by law to do so. References in this filing to "Resources
Connection
," "Resources Global Professionals," the "Company," "we," "us," and
"our" refer to Resources 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 in Irvine, 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.

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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 from Veracity
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 the Asia 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 - like Chief Digital, Chief People and Chief Marketing Officers.
We see strong growth momentum in our biggest clients and robust opportunity in
the healthcare industry from pharmaceutical to medical device to payor and
provider, including in practice areas such as revenue cycle optimization,
clinical trials process redesign and supply chain transformation. We believe
these client needs align well with the 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 in North America
and Asia Pacific (the "North America and APAC Plan"), which we initiated in the
fourth quarter of fiscal 2020, and in Europe (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
our North America and APAC Plan with respect to headcount reduction. As of
February 27, 2021, we have also substantially completed the planned employee
headcount reduction under the European Plan, and have recognized substantially
all of the expected employee termination costs in connection with the reduction
in force in Europe. Additionally, we made solid progress in executing our real
estate exit strategy under the Plans. We successfully executed 75% and 63% of
the planned lease terminations as of March 2021 in Europe and North America,
generating substantial savings in occupancy costs. We expect to continue to push
for a more virtual footprint beyond the Plans, although the exact amount and
timing of the expenses and resulting payments associated with our real estate
exit plans are subject to a number of variables which may not be within our
control, such as the condition of the real estate/leasing market. We believe the
successful execution of the Plans has allowed us to operate with agility,
resilience and efficiency heading into fiscal 2022.

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


COVID-19 Impact and Outlook




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

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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 the U.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 ended May 30, 2020.


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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 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.






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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 February 27, 2021 Compared to Three
Months Ended February 22, 2020




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

Revenue. Revenue declined $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 %


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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 the U.S. Europe revenue declined $1.3 million, or 7.0%,
sequentially, as COVID-19 lockdowns were re-implemented in certain key markets
such as Germany, impacting our ability to deliver, and the expected shrinkage in
revenue from exiting certain markets in connection with our restructuring
efforts in Europe. Asia Pacific revenue declined $0.4 million, or 3.9%,
sequentially, primarily due to the more pronounced adjacent holiday impact from
Chinese New Year in the current fiscal quarter.

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 in North 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 to Thanksgiving 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.

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Restructuring charges. We initiated our North America and APAC Plan in March
2020
and the European Plan in September 2020. All employee termination and
facility exit costs incurred under the restructuring plans were associated with
the RGP segment, as further discussed in Note 13 - Segment Information, and are
recorded in selling, general and administrative expenses in the Consolidated
Statement of Operations. Restructuring costs for the three months ended February
27, 2021
and February 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 $0.4 million and a net tax
expense of $0.7 million from compensation expense related to stock options,
restricted stock awards, restricted stock units and disqualifying dispositions
under our Employee Stock Purchase Plan ("ESPP") during the third quarter of
fiscal 2021 and fiscal 2020, respectively.




Periodically, we review the components of both book and taxable income to
analyze the adequacy of the tax provision. There can be no assurance that our
effective tax rate will remain constant in the future because of the lower
benefit from the U.S. statutory rate for losses in certain foreign
jurisdictions, the limitation on the benefit for losses in jurisdictions in
which a valuation allowance for operating loss carryforwards has previously been
established, and the unpredictability of timing and the amount of eligible
disqualifying incentive stock options exercise.

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

Comparability of Quarterly Results. Our quarterly results have fluctuated in the
past and we believe they will continue to do so in the future. Certain factors
that could affect our quarterly operating results are described in Part II,
Item 1A.-Risk Factors of our Annual Report on Form 10-K for the year ended May
30, 2020
. Due to these and other factors, we believe quarter-to-quarter
comparisons of our results of operations may not be meaningful indicators of
future performance.


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




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

27

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


The following table represents our consolidated revenues by geography:




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


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


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




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

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

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

28

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

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


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

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

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

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

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

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


Operating Results of Segment




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

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

?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,



29



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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 February 27,
2021
was 2,545 compared to 2,805 as of February 22, 2020.




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


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



Gross Profit by Segment




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

30



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

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

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


Adjusted EBITDA by Segment




RGP - RGP adjusted EBITDA increased $2.0 million, or 14.3%, in the third quarter
of fiscal 2021, compared to the third quarter of fiscal 2020. Adjusted EBITDA
margin increased by 200 basis points to 10.8% in the third quarter of fiscal
2021. The improvement was attributable to significant cost savings of $5.7
million
in the third quarter of 2021, despite the decline in revenue. RGP
adjusted EBITDA decreased $11.3 million or 18.2% in the first nine months of
fiscal 2021, compared to the same period in the prior fiscal year. Adjusted
EBITDA margin decreased by 60 basis points to 11.9% in the first nine months of
fiscal 2021. The decrease in adjusted EBITDA margin was primarily attributable
to the $29.2 million decline in gross profit, as discussed above, partially
offset by significant cost savings of $17.4 million in the first nine months of
fiscal 2021 compared to the prior year period. The SG&A trend at RGP
year-over-year is generally consistent with that at the consolidated level, as
discussed above, with the exception that the SG&A used to derive segment
Adjusted EBITDA does not include certain unallocated corporate administrative
costs.

Other Segments - Other Segments' adjusted EBITDA improved $0.1 million, or
40.3%, in the third quarter of fiscal 2021 compared to the third quarter of
fiscal 2020. Adjusted EBITDA margin increased by 110 basis points to 4.4% in the
third quarter of fiscal 2021. Other Segments' adjusted EBITDA improved $0.4
million
, or 18.5%, in the nine months ended February 27, 2021 compared to the
same period in fiscal 2020. Adjusted EBITDA margin increased by 120 basis points
to 9.1% in the first nine months of fiscal 2021. The improvement in adjusted
EBITDA margin was attributable to improved SG&A year-over-year.


Liquidity and Capital Resources




Our primary sources of liquidity are cash provided by our operations, our $120.0
million
secured revolving credit facility ("Facility") with Bank 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 of February 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. On February 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 the North 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 ended May 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 February 27, 2021 was $5.7 million.




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 ended February 27, 2021 provided cash
of $35.4 million compared to $21.6 million for the nine months ended February
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
ended February 27, 2021 compared to cash used in financing activities of $1.8
million
for the nine months ended February 22, 2020. Net cash used in financing
activities during the nine months ended February 27, 2021 consisted of
repayments on the Facility of $35.0 million, cash dividend payments of $13.6
million
, and the first Veracity contingent consideration payment, of which $3.0
million
was categorized as financing (the remaining $2.3 million of the total
$5.3 million Veracity year one contingent consideration payment was categorized
as operating). These were partially offset by $5.6 million in proceeds received
from ESPP share purchases and employee stock option exercises. Net cash used in
financing activities of $1.8 million for the nine months ended February 22, 2020
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 $35.0 million repayment of the Facility during the nine months
ended February 27, 2021 and an additional $10.0 million repayment of the
Facility on March 24, 2021, there have been no material changes to the
contractual obligations reported in our Annual Report on Form 10-K for the year
ended May 30, 2020.




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Off-Balance Sheet Arrangements



The Company has no off-balance sheet arrangements.

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