RESOURCES CONNECTION, INC.

Previous wording

The following discussion and analysis of our financial condition, results of operations, and liquidity and capital resources for the three months ended August 24, 2024 should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes and with our Annual Report on Form 10-K for the year ended May 25, 2024 filed with the Securities and Exchange Commission (“SEC”). This discussion and analysis contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to expectations concerning matters that are not historical facts. For example, statements discussing, among other things, expected costs and liabilities, business strategies, growth strategies and initiatives, acquisition strategies, future revenues and future performance, are forward-looking statements. Such forward-looking statements may be identified by words such as “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “remain,” “should” or “will” or the negative of these terms or other comparable terminology. In this Quarterly Report on Form 10-Q, such statements include statements regarding our growth, operational and strategic plans.

Current wording

This discussion and analysis contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to expectations concerning matters that are not historical facts. For example, statements discussing, among other things, expectations regarding our operating segments, expectations regarding the macroeconomic environment, 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. In this Quarterly Report on Form 10-Q, such statements include statements regarding our growth, operational and strategic plans.

Previous wording

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. Risks and uncertainties include, but are not limited to, the following: risks related to an economic downturn or deterioration of general and ongoing macroeconomic conditions, the highly competitive nature of the market for professional services, risks related to the loss of a significant number of our consultants, or an inability to attract and retain new consultants, the possible impact on our business from the loss of the services of one or more key members of our senior management, risks related to potential significant increases in wages or payroll-related costs, our ability to secure new projects from clients, our inability to adapt to a changing competitive landscape including for technological advancements, our ability to achieve or maintain a suitable pay/bill ratio, our ability to compete effectively in the competitive bidding process, risks related to unfavorable provisions in our contracts which may permit our clients to, among other things, terminate the contracts partially or completely at any time prior to completion, potential adverse effects to our and our clients’ liquidity and financial performances from bank failures or other events affecting financial institutions, risks arising from epidemic diseases or pandemics, our ability to realize the level of benefit that we expect from our restructuring and reorganizational initiatives, risks that our digital expansion and technology transformation efforts may not be successful, our ability to build an efficient support structure as our business continues to grow and transform, our ability to grow our business, manage our growth or sustain our current business, our ability to serve clients internationally, additional operational challenges from our international activities including due to social, political, regulatory, legal and economic risks in the countries and regions in which we operate, possible disruption of our business from our past and future acquisitions, the possibility that our recent rebranding efforts may not be successful, our potential inability to adequately protect our intellectual property rights, risks that our computer hardware and software and telecommunications systems are damaged, breached or interrupted, risks related to the failure to comply with data privacy laws and regulations and the adverse effect it may have on our reputation, results of operations or financial condition, our ability to comply with governmental, regulatory and legal requirements and company policies, the possible legal liability for damages resulting from the performance of projects by our consultants or for our clients’ mistreatment of our personnel, risks arising f…

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Current wording

Although we believe that we have a reasonable basis for each forward-looking statement contained in this report, 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. Risks and uncertainties include, but are not limited to, the following: risks related to an economic downturn or the continuation or deterioration of general and ongoing macroeconomic conditions, the highly competitive nature of the market for professional services, risks related to the loss of a significant number of our consultants, or an inability to attract and retain new consultants, the possible impact on our business from the loss of the services of one or more key members of our senior management, risks related to potential significant increases in wages or payroll-related costs, our ability to secure new projects from clients, our inability to adapt to a changing competitive landscape including for technological advancements, our ability to achieve or maintain a suitable pay/bill ratio, our ability to compete effectively in the competitive bidding process, risks related to unfavorable provisions in our contracts which may permit our clients to, among other things, terminate the contracts partially or completely at any time prior to completion, potential adverse effects to our and our clients’ liquidity and financial performances from bank failures or other events affecting financial institutions, risks arising from epidemic diseases or pandemics, our ability to realize the level of benefit that we expect from our restructuring and reorganizational initiatives, risks that our digital expansion and technology transformation efforts may not be successful, our ability to build an efficient support structure as our business continues to grow and transform, our ability to grow our business, manage our growth or sustain our current business, our ability to serve clients internationally, additional operational challenges from our international activities including due to social, political, regulatory, legal and economic risks in the countries and regions in which we operate, possible disruption of our business from our past and future acquisitions, the possibility that our recent rebranding efforts may not be successful, our potential inability to adequately protect our intellectual property rights, risks that our computer hardware and software and telecommunications systems are damaged, breached or interrupted, risks related to the failure to comply with data privacy laws and regulations and the adverse effect it may have on our reputation, results of operations or financial condition, our ability to comply with governmental, regulatory and legal requirements and company policies, the possible legal liability for dam…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Resources Global Professionals (“RGP,” “we" or “us”) is a global consulting firm based in Irvine, California (with offices worldwide) focused on delivering consulting execution services that power clients’ operational needs and change initiatives utilizing a combination of bench and on-demand, expert and diverse talent. As a next-generation human capital partner for our clients, we specialize in leadership and co-delivery of enterprise initiatives typically precipitated by business transformation, strategic transactions or regulatory change. Our engagements are designed to leverage human connection and collaboration to deliver practical solutions and more impactful results that power our clients’, employees’ and partners’ success.

Current wording

Resources Global Professionals (“RGP,” “we" or “us”) is a professional services firm based in Dallas, Texas (with offices worldwide) focused on delivering consulting execution services that power clients’ operational needs and change initiatives utilizing a combination of bench and on-demand, expert and diverse talent. As a next-generation human capital partner for our clients, we specialize in leadership and co-delivery of enterprise initiatives typically precipitated by business transformation, strategic transactions or regulatory change. Our engagements are designed to leverage human connection and collaboration to deliver practical solutions and more impactful results that power our clients’, employees’ and partners’ success.

Previous wording

Launch and activate new brand –Our second focus area for this fiscal year is to launch and activate a new brand identity and brand architecture in the marketplace. The central objective behind our brand refresh is to clarify to stakeholders what we do, who we serve, when to call us, and the impact we deliver. Under this new architecture, RGP will serve as an enterprise parent brand, representing a family of brands that are comprised of On-Demand by RGPTM, Veracity by RGPTM and Countsy by RGPTM. We have refreshed our digital properties to reflect our new brand identity and align them with our new brand architecture as part of this effort. We believe these changes will result in clarity around our full suite of capabilities and create greater understanding of the value we can bring to our clients across a broader spectrum.

Current wording

Launch and activate new brand –Our second focus area for this fiscal year is to launch and activate a new brand identity and brand architecture in the marketplace. The central objective behind our brand refresh is to clarify to stakeholders what we do, who we serve, when to call us, and the impact we deliver. Under this new architecture, RGP serves as an enterprise parent brand, representing a family of brands that are comprised of On-Demand by RGPTM, Veracity by RGPTM and Countsy by RGPTM. We have refreshed our digital properties to reflect our new brand identity and align them with our new brand architecture as part of this effort. We believe these changes will result in clarity around our full suite of capabilities and create greater understanding of the value we can bring to our clients across a broader spectrum.

Previous wording

Enhance digital and AI capabilities – Our third focus area for fiscal 2025 is continuing to expand and enhance our technology, digital and data capabilities across all business units. The increased adoption of digital tools, remote work styles, generative artificial intelligence, and globalization is driving new areas of need within our client base. We are actively adding skilled on-demand and consulting professionals in areas such as technology migration, cybersecurity, data modernization and data privacy, and user experience to proactively meet these evolving client needs. Under the Veracity by RGPTM consulting business we are bringing together our digital transformation business and the deep functional expertise within RGP’s legacy Project Consulting Services (PCS) group. We believe this combined offering will uniquely position us to offer our clients integrated end-to-end consulting solutions in the digital arena. With the addition of Reference Point, we are also now able to bring tailored technology and data modernization offerings to our many financial services industry clients.

Current wording

Enhance digital and AI capabilities – Our third focus area for fiscal 2025 is continuing to expand and enhance our technology, digital and data capabilities across all business units. The increased adoption of digital tools, remote work styles, generative artificial intelligence, and globalization is driving new areas of need within our client base. We are actively adding skilled on-demand and consulting professionals in areas such as technology migration, cybersecurity, data modernization and data privacy, and user experience to proactively meet these evolving client needs. Under the Veracity by RGPTM consulting business we are bringing together our digital transformation business and the deep functional expertise within RGP’s legacy Project Consulting Services (PCS) group. We believe this combined offering will uniquely position us to offer our clients integrated end-to-end consulting solutions in the digital arena.

Previous wording

On July 1, 2024, the Company acquired Reference Point LLC (“Reference Point”). See Note 4 –Acquisition for further discussion about the Company’s acquisition of Reference Point included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information. Reference Point is reported within the Consulting Services operating segment from the date of acquisition.

Current wording

On July 1, 2024, we acquired Reference Point LLC (“Reference Point”). See Note 4 –Acquisitions included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion about our acquisition of Reference Point. Reference Point is reported within the Consulting Services operating segment from the date of acquisition. With the addition of Reference Point, we are also now able to bring tailored technology and data modernization offerings to our many financial services industry clients.

Previous wording

On a macro level, uncertain macroeconomic conditions including ambiguity around interest rates, softening labor markets and fluctuations in currency exchange rates have created significant uncertainty in the global economy, volatility in the capital markets and recessionary pressures. We expect these conditions will continue in fiscal 2025. While we are not able to fully predict the potential impact, we continue to see more caution in professional services spending within our client base. If these conditions persist and a prolonged economic downturn or recession develops, it could result in further decline in billable hours and negatively impact our bill rates which would adversely affect our financial results and operating cash flows.

Current wording

On a macro level, uncertain macroeconomic conditions including ambiguity around interest rates, softening labor markets and fluctuations in currency exchange rates have created significant uncertainty in the global economy, volatility in the capital markets and recessionary pressures, which has adversely impacted our financial results. We expect these conditions will continue through the rest of fiscal 2025. While we are not able to fully predict the potential impact, we continue to see caution in professional services spending within our client base. If these conditions persist and a prolonged economic downturn or recession develops, it could result in further decline in billable hours and negatively impact our bill rates which would adversely affect our financial results and operating cash flows.

Previous wording

The following discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are discussed in Note 2 –Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements included in our Fiscal Year 2024 Form 10-K, and in Note 2 –Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Current wording

The following discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are discussed in Note 2 –Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements included in Item 7 of Part II of our Fiscal Year 2024 Form 10-K, and in Note 2 –Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Previous wording

•Adjusted EBITDA is calculated as EBITDA plus or minus stock-based compensation expense, technology transformation costs, acquisition costs, goodwill impairment, gain on sale of assets and restructuring adjustments. We also present herein Adjusted EBITDA at the segment level as a measure used to assess the performance of our segments. Segment Adjusted EBITDA excludes certain shared corporate administrative costs that are not practical to allocate. See Note 14 – Segment Information and Enterprise Reporting in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

Current wording

•Adjusted EBITDA is calculated as EBITDA excluding stock-based compensation expense, technology transformation costs, acquisition costs, goodwill impairment, gain on sale of assets and restructuring adjustments. We also present herein Adjusted EBITDA at the segment level as a measure used to assess the performance of our segments. Segment Adjusted EBITDA excludes certain shared corporate administrative costs that are not practical to allocate. See Note 14 – Segment Information and Enterprise Reporting in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

Previous wording

(2)Acquisition costs primarily represent costs included in net income related to our business acquisition. These costs include transaction bonuses, retention bonus accruals, and fees paid to the Company's broker, legal counsel, and other professional services firms. See Note 4 – Acquisition in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion about this acquisition.

Current wording

(2)Acquisition costs primarily represent costs included in net income related to our business acquisition. These costs include transaction bonuses, retention bonus accruals, and fees paid to the Company's broker, legal counsel, and other professional services firms. See Note 4 – Acquisitions in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion about this acquisition.

Previous wording

(3)Goodwill impairment charge recognized during the three months ended August 24, 2024 was related to the Europe and Asia Pacific segment.

Current wording

(3)Goodwill impairment charge recognized during the three and six months ended November 23, 2024 were related to the On-Demand Talent and Europe and Asia Pacific segments. See Note 6 – Goodwill and Intangible Assets in the Notes to Consolidated Financial Statements for further discussion.

Previous wording

(4) The Company completed the sale of its Irvine office building on August 15, 2024.

Current wording

(4) Gain on sale of assets was related to the Company’s sale of its Irvine office building, which was completed on August 15, 2024.

Previous wording

The following table sets forth our Consolidated Statements of Operations data for the three months ended August 24, 2024 and August 26, 2023, respectively. These historical results are not necessarily indicative of future results. Our operating results for the periods indicated are expressed as a percentage of revenue (in thousands, except percentages).

Current wording

The following table sets forth our Consolidated Statements of Operations data for thethree and six months ended November 23, 2024 and November 25, 2023, respectively. These historical results are not necessarily indicative of future results. Our operating results for the periods indicated are expressed as a percentage of revenue (in thousands, except percentages).

Previous wording

Direct Cost of Services. Direct cost of services decreased $16.2 million, or 15.7%, to $86.9 million for the first quarter of fiscal 2025 from $103.2 million for the first quarter of fiscal 2024. The decrease in direct cost of services was primarily attributable to a 15.3% decline in billable hours as a result of reduced client spending as noted above and a 5.0% (or 3.3% on a constant currency basis) decrease in average pay rate during the first quarter of fiscal 2025 compared to the prior year quarter.

Current wording

Direct Cost of Services. Direct cost of services decreased $10.1 million, or 10.2%, to $89.5 million for the second quarter of fiscal 2025 from $99.7 million in the second quarter of fiscal 2024. The decrease in direct cost of services was primarily attributable to a 11.2% decline in billable hours as a result of reduced client spending as noted above, partially offset by a 1.7% (also 1.7% on a constant currency basis) increase in average pay rate during the quarter ended November 23, 2024 compared to the prior year quarter.

Previous wording

Direct cost of services as a percentage of revenue was 63.5% for the first quarter of fiscal 2025 compared to 60.6% for the first quarter of fiscal 2024. The increased percentage compared to the prior year quarter was primarily due less favorable leverage on indirect cost of services as a result of lower revenue, lower salaried consultants and a 60 basis point increase in the pay/bill ratio. We continue to seek improvement in the overall pay/bill ratio and indirect cost leverage through strategic pricing, while offering competitive compensation and benefits to our consultants to attract and retain the best talent in the marketplace.

Current wording

Direct cost of services as a percentage of revenue was 61.5% for the second quarter of fiscal 2025 compared to 61.1% for the second quarter of fiscal 2024. The increased percentage compared to the prior year quarter was primarily due higher pay/bill ratio and lower utilization of salaried consultants, partially offset by a favorable impact from the timing of the Thanksgiving holidays (not in the second quarter of fiscal 2025). We continue to seek improvement in the overall pay/bill ratio and indirect cost leverage through strategic pricing, while offering competitive compensation and benefits to our consultants to attract and retain the best talent in the marketplace.

Previous wording

The number of consultants on assignment at the end of the first quarter of fiscal 2025 was 2,570 compared to 2,885 at the end of the first quarter of fiscal 2024.

Current wording

The number of consultants on assignment at the end of the second quarter of fiscal 2025 was 2,639 compared to 3,167 at the end of the second quarter of fiscal 2024.

Previous wording

Selling, General and Administrative Expenses. Selling, general and administrative expenses (“SG&A”) was $48.9 million, or 35.7% of revenue, for the first quarter of fiscal 2025 compared to $59.9 million, or 35.2% of revenue, for the first quarter of fiscal 2024. The $11.0 million improvement in SG&A year-over-year was primarily attributed to alower management compensation expense of $5.1 million largely attributable to the cost reduction plan (the "U.S. Restructuring Plan") initiated in October 2023, a $3.4 million gain on the sale of the Irvine office building, a $1.3 million decrease in bonuses and commissions as a result of lower revenue and profitability achievement compared to incentive compensation targets in the current fiscal year, and a $1.0 million decrease in stock compensation expense primarily as a result of remeasurement of achievement associated with performance based equity awards. These reductions were partially offset by $1.3 million of costs related to the acquisition of Reference Point, which closed on July 1, 2024.

Current wording

Selling, General and Administrative Expenses. Selling, general and administrative expenses (“SG&A”) was $51.3 million, or 35.2% of revenue, for the second quarter of fiscal 2025 compared to $53.0 million, or 32.5% of revenue, for the second quarter of fiscal 2024. The $1.7 million decrease in SG&A year-over-year was primarily due to $2.0 million decrease in employee termination benefits largely attributable to the cost reduction plan (the “2023 U.S. Restructuring Plan”) initiated in October 2023, $1.2 million lower employee compensation expense, a $0.7 million reduction in employee health benefit expenses, and a $0.6 million decrease in costs related to acquisitions. These reductions were partially offset by a $1.4 million increase in stock compensation expense as a result of forfeitures as well as the remeasurement of achievement associated with performance‑based equity awards, both of which were recorded in the second quarter of fiscal 2024. The second quarter of fiscal 2025 additional had a $0.7 million increase in bad debt expense.

Previous wording

Management and administrative headcount was 757 at the end of the first quarter of fiscal 2025 and 909 at the end of the first quarter of fiscal 2024. Management and administrative headcount includes full time equivalent headcount for our seller-doer group, a consulting term for a professional who balances business development activities with billable work for clients, which is determined by utilization levels achieved by the seller-doers. Any unutilized time is converted to full time equivalent headcount.

Current wording

Management and administrative headcount was 749 at the end of the second quarter of fiscal 2025 and 850 at the end of the second quarter of fiscal 2024. Management and administrative headcount includes full time equivalent headcount for our seller-doer group, a consulting term for a professional who balances business development activities with billable work for clients, which is determined by utilization levels achieved by the seller-doers. Any unutilized time is converted to full time equivalent headcount.

Previous wording

Income Taxes. Income tax expense was $1.1 million, reflecting an effective tax rate of (22.7%), for the first quarter of fiscal 2025 compared to $2.1 million, or an effective tax rate of 40.0%, for the first quarter of fiscal 2024. We record tax expense based upon actual results versus a forecasted tax rate because of the volatility in our international operations that span numerous tax jurisdictions. The income tax expense in the first quarter of fiscal 2025 measured against a pretax loss resulted in the negative effective tax rate. Despite the consolidated pretax loss in the first quarter of fiscal 2025, the Company recorded an income tax expense related to foreign income tax expense on international profits, along with rate impacting non-deductible items including tax adjustments associated with goodwill impairment, changes in valuation allowance and stock-based compensation.

Current wording

Income Taxes. Income tax benefit was $7.7 million, reflecting an effective tax rate of 10.1%, for the second quarter of fiscal 2025 compared to an income tax expense of $3.8 million, or an effective tax rate of 43.4%, for the second quarter of fiscal 2024. We record tax expense based upon actual results versus a forecasted tax rate because of the volatility in our international operations that span numerous tax jurisdictions. The income tax benefit in the quarter ended November 23, 2024 was primarily attributed to the Company’s pretax loss. The lower effective benefit rate was due to the non-deductible portion of the goodwill impairment. The higher effective tax rate in the second quarter of fiscal 2024 was attributed primarily to a nonrecurring increase in forfeiture of stock options, coupled with the capitalization of acquisition related costs for tax purposes.

Previous wording

We recognized a tax benefit of approximately $0.5 million and $0.2 million for the three months ended August 24, 2024 and August 26, 2023, respectively, associated with the exercise of nonqualified stock options, vesting of restricted stock awards, restricted stock units, and disqualifying dispositions by employees of shares acquired under the Employee Stock Purchase Plan (“ESPP”).

Current wording

We recognized a tax benefit of approximately $0.8 million and $1.0 million during the second quarters of fiscal 2025 and fiscal 2024, respectively, associated with the exercise of nonqualified stock options, vesting of restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance-based stock units (“PSUs”), and disqualifying dispositions by employees of shares acquired under the Company's Employee Stock Purchase Plan (“ESPP”).

Previous wording

Revenue. Revenue decreased $33.2 million, or 19.5%, to $136.9 million in the first quarter of fiscal 2025 from $170.2 million in the first quarter of fiscal 2024 primarily due to reduced client spending across a majority of our markets, client segments and solution offerings as a result of the persistently challenging global macroeconomic environment. Gross pipeline improved sequentially during the quarter across the globe, however, the time to close opportunities in the pipeline continued to be protracted, typical in a tougher macro environment when clients are more hesitant to spend on professional services. Billable hours decreased by 15.3% and the average bill rate declined by 5.0% (or 4.7% on a constant currency basis) from the prior year quarter. The change in average bill rate was due to a shift in revenue mix across the globe to regions with lower bill rates. The U.S. and Europe average bill rates increased by 2.3% and 4.6% (or 2.3% and 4.5% on a constant currency basis) respectively, compared to the prior year as a result of our initiative focused on value-based pricing, while average bill rates in the Asia Pacific region declined by 3.2% (although increased 0.2% on a constant currency basis). The decline in the average bill rates in the Asia Pacific region was due to a shift in the revenue mix to countries with a historically lower bill rate.

Current wording

Revenue. Revenue decreased $50.7 million, or 15.2%, to $282.6 million for the six months ended November 23, 2024 from $333.3 million for the six months ended November 25, 2023. On a same-day constant currency basis, revenue for the six months ended November 23, 2024 decreased by $53.9 million, or 16.2% compared to the six months ended November 25, 2023. The decrease is primarily due to reduced client spending across a majority of our markets, client segments and solution offerings as a result of the persistently challenging global macroeconomic environment. The time to close opportunities in the pipeline continued to be protracted, typical in a tougher macro environment when clients are more hesitant to spend on professional services. Billable hours decreased by 13.2% and the average bill rate declined by 1.6% (also 1.6% on a constant currency basis) from the six months ended November 25, 2023.

Previous wording

During the first quarter of fiscal 2025, the Company reorganized its business segments to better align with changes in its internal operating model and financial reporting, which is used for performance assessment and resource allocation by the Chief Operating Decision Makers. We identified the following newly defined operating segments:

Current wording

During the first quarter of fiscal 2025, the Company identified the following newly defined operating segments:

Previous wording

Our reportable segments are comprised of On-Demand Talent, Consulting, Outsourced Services, and Europe & Asia Pacific. Sitrick does not individually meet the quantitative thresholds to qualify as a reportable segment. Therefore, Sitrick is disclosed under the “All Other” Segment. All prior year periods presented were recast to reflect the impact of the preceding segment changes.

Current wording

Our reportable segments are comprised of On-Demand Talent, Consulting, Outsourced Services, and Europe & Asia Pacific. Sitrick does not individually meet the quantitative thresholds to qualify as a reportable segment. Therefore, Sitrick is disclosed under the “All Other” Segment. All prior year periods presented were recast to reflect the impact of the preceding segment changes. On July 1, 2024, we acquired Reference Point, which is reported within the Consulting operating segment from the date of acquisition.

Previous wording

The following table presents our current operating results by segment for the three months ended August 24, 2024 and August 26, 2023, respectively (in thousands, except percentages and average bill rates).

Current wording

The following table presents our current operating results by segment for the three and six months ended November 23, 2024 and November 25, 2023, respectively (in thousands, except percentages and average bill rates).

Previous wording

(3) Technology transformation costs represent costs included in net income related to the Company’s initiative to upgrade its technology platform globally, including a cloud-based enterprise resource planning system and talent acquisition and management systems. Such costs primarily include hosting and certain other software licensing costs, third-party consulting fees and costs associated with dedicated internal resources that are not capitalized.

Current wording

(3) Technology transformation costs represent costs included in net income related to our initiative to upgrade its technology platform globally, including a cloud-based enterprise resource planning system and talent acquisition and management systems. Such costs primarily include hosting and certain other software licensing costs, third-party consulting fees and costs associated with dedicated internal resources that are not capitalized.

Previous wording

(4) Acquisition costs primarily represent costs included in net income related to the Company’s business acquisition. These costs include transaction bonuses, retention bonus accruals, and fees paid to the Company's broker, legal counsel, and other professional services firms.

Current wording

(4) Acquisition costs primarily represent costs included in net income related to our business acquisition. These costs include transaction bonuses, retention bonus accruals, and fees paid to the Company's broker, legal counsel, and other professional services firms.

Previous wording

(6) The Company completed the sale of its Irvine office building on August 15, 2024.

Current wording

(6) Gain on sale of assets was related to the Company’s sale of its Irvine office building, which was completed on August 15, 2024.

Previous wording

Europe and Asia Pacific – Revenue in the Europe and Asia Pacific segment declined by $5.3 million or 22.7%, to $18.0 million in the quarter compared to $23.3 million in the prior year quarter. This segment saw a significant delay in decision making and project starts as clients sorted through their own organizational challenges amidst economic uncertainty most notably in Europe, which resulted in billable hours decreasing by 8.8% year over year. Asia Pacific is performing relatively more resiliently than Europe. Pricing competition remained fierce across the region, from the Big 4 firms as well as local boutique firms. Additionally, with a higher proportion of revenue in Asia Pacific in the first quarter of fiscal 2025, which carries significantly lower average bill rates, the weighted average bill rate for the Europe and Asia Pacific segment declined by 15.5% (or 12.5% on a constant currency basis) year over year.

Current wording

Europe and Asia Pacific – Revenue in the Europe and Asia Pacific segment declined by $2.1 million or 9.6%, to $19.7 million in the second quarter of fiscal 2025 compared to $21.8 million in the second quarter of fiscal 2024. The average bill rate for the Europe and Asia Pacific segment declined by 3.3% (or 6.6% on a constant currency basis) and the billable hours decreased by 5.3% year-over-year. This segment experienced delays in decision making and project starts as clients sorted through their own organizational challenges amidst economic uncertainty most notably in Europe. Asia Pacific performed relatively more resiliently than Europe, large global clients continued to drive demand in this region. Pricing competition remained fierce across the region, from the big 4 firms as well as local boutique firms. Additionally, with a higher proportion of revenue in Asia Pacific in the second quarter of fiscal 2025, which carries significantly lower average bill rates. For the six months ended November 23, 2024, Europe and Asia Pacific segment revenue decreased by $7.4 million or 16.4%, to $37.7 million compared to $45.1 million for the six months ended November 25, 2023, primarily as a result of a 6.5% decrease in billable hours and a 9.5% (also 9.5% on a constant currency basis) decrease in average bill rate.

Previous wording

Outsourced Services – Revenue in the Outsourced services segment of $9.5 million remained flat compared to the prior year quarter.

Current wording

Outsourced Services – Revenue in the Outsourced Services segment increased by $0.4 million or 4.0%, to $9.4 million in the second quarter of fiscal 2025 compared to $9.1 million in the second quarter of fiscal 2024. The growth was primarily due to a 2.2% (or 2.2% on a constant currency basis) increase in the average bill rate and a 1.7% increase in the billable hours. For the six months ended November 23, 2024, Outsourced Services segment revenue increased by $0.4 million or 2.3%, to $18.9 million compared to $18.5 million for the six months ended November 25, 2023, primarily as a result of a 1.5% increase in billable hours and a 0.7% (also 0.7% on a constant currency basis) increase in average bill rate year-over-year.

Previous wording

Europe & Asia Pacific– The Europe & Asia Pacific segment’s Adjusted EBITDA decreased by $1.5 million or 86.7%, to $0.2 million for the first quarter of fiscal 2025, compared to $1.7 million for the first quarter of fiscal 2024. Compared to the prior year quarter, revenue decreased $5.3 million, which was partially offset by the decrease in the related cost of services of $3.1 million. Additionally, SG&A costs decreased by $0.7 million for the first quarter of fiscal 2025 as compared to the first quarter of fiscal 2024 primarily due to the decreases in management compensation expense and bonus and commission expense.

Current wording

Europe & Asia Pacific– The Europe & Asia Pacific segment’s Adjusted EBITDA decreased by $0.2 million or 13.0%, to $1.5 million for the second quarter of fiscal 2025, compared to $1.7 million for the second quarter of fiscal 2024. Compared to the prior year quarter, revenue decreased $2.1 million, which was partially offset by the decrease in the related cost of services of $1.2 million. Additionally, SG&A costs decreased by $0.6 million for the second quarter of fiscal 2025 as compared to the second quarter of fiscal 2024 primarily due to decreases in employee compensation expense.

Previous wording

Outsourced Services – The Outsourced Services segment’s Adjusted EBITDA declined slightly by $0.2 million to $1.4 million in the first quarter of fiscal 2025. This decline was primarily driven by less favorable leverage on indirect cost of services relative to revenue.

Current wording

Outsourced Services – The Outsourced Services segment’s Adjusted EBITDA declined slightly by $0.2 million or 13.0% to $1.5 million in the second quarter of fiscal 2025, compared to $1.7 million for the second quarter of fiscal 2024. This decline was primarily driven by increase in cost of services.

Previous wording

All Other – The All Other segment's Adjusted EBITDA declined by $0.5 million or 757.7%, to $(0.5) million for the first quarter of fiscal 2025 compared to $0.1 million for the first quarter of fiscal 2024 due to lower revenue performance.

Current wording

For the six months ended November 23, 2024, the All Other segment declined by $0.5 million or 114.5%, to $(1.0) million compared to $(0.5) million for the six months ended November 25, 2023 due to lower revenue performance.

Previous wording

Our primary sources of liquidity are cash provided by operating activities, our $175.0 million senior secured revolving credit facility (as discussed further below) and historically, to a lesser extent, stock option exercises and ESPP purchases. During the three months ended August 24, 2024, we generated negative cash flow from operations. However, on an annual basis, we have generated positive cash flows from operations since inception. Our ability to generate positive cash flows from operations in the future will depend, at least in part, on global economic conditions and our ability to remain resilient during periods of deteriorating macroeconomic conditions and any economic downturns. As of August 24, 2024, we had $89.6 million of cash and cash equivalents, including $44.9 million held in international operations.

Current wording

Our primary sources of liquidity are cash provided by operating activities, our $175.0 million senior secured revolving credit facility (as discussed further below) and historically, to a lesser extent, stock option exercises and ESPP purchases. During the six months ended November 23, 2024, we generated positive cash flow from operations and have generated positive cash flows from operations on an annual basis since inception. Our ability to generate positive cash flows from operations in the future will depend, at least in part, on global economic conditions and our ability to remain resilient during periods of deteriorating macroeconomic conditions and any economic downturns. As of November 23, 2024, we had $78.2 million of cash and cash equivalents, including $42.1 million held in international operations.

Previous wording

In addition to cash needs for ongoing business operations, from time to time, we have strategic initiatives that could generate significant additional cash requirements. Our initiative to upgrade our technology platform, as described in “Fiscal 2025 Strategic Focus Areas” above, requires significant investments over multiple years. Such costs primarily include software licensing fees, third-party implementation and consulting fees, incremental costs associated with additional internal resources needed on the project and other costs in areas including change management and training. The actual amount of investment and the timing will depend on a number of variables, including progress made on the implementation. As of August 24, 2024, we capitalized$18.1 million related to the technology platform initiative; in addition, we recorded $1.9 million of expenses in the first quarter of fiscal 2025 relating to these investments. At the end of the first quarter of fiscal 2025, the remaining investments required for this multi-year initiative is estimated to be in the range of $11.0 million to $16.0 million. We expect the majority of the investment will take place in fiscal 2025. In addition to our technology transformation initiative, we expect to continue to invest in digital pathways to enhance the experience and touchpoints with our end users, including current and prospective employees (consultants and management employees) and clients. Such efforts will require additional cash outlay and could further elevate our capital expenditures in the near term. We believe our current cash, ongoing cash flows from our operations and funding available under our Credit Facility will provide sufficient funds for these initiatives. As of August 24, 2024, we have non-cancellable purchase obligations totaling $11.1 million, which primarily consists of payments pursuant to the licensing arrangements that we have entered into in connection with the technology platform initiative: $4.6 million due during fiscal 2025; $3.4 million due during fiscal 2026; $2.1 million due during fiscal 2027; $1.0 million due during fiscal 2028; and zero due thereafter.

Current wording

In addition to cash needs for ongoing business operations, from time to time, we have strategic initiatives that could generate significant additional cash requirements. Our initiative to upgrade our technology platform, as described in “Fiscal 2025 Strategic Focus Areas” above, required significant investments over multiple years. Such costs primarily include software licensing fees, third-party implementation and consulting fees, incremental costs associated with additional internal resources needed on the project and other costs in areas including change management and training. As of November 23, 2024, we capitalized$20.1 million related to the technology platform initiative. We went live on the new technology platform in most of North America in December and we are currently working on the implementation timing and roadmap to rollout to our Europe and Asia Pacific regions. We believe our current cash, ongoing cash flows from our operations and funding available under our Credit Facility will provide sufficient funds for these initiatives. As of November 23, 2024, we have non-cancellable purchase obligations totaling $8.0 million, which primarily consists of payments pursuant to the licensing arrangements that we have entered into in connection with the technology platform initiative: $1.5 million due during fiscal 2025; $3.4 million due during fiscal 2026; $2.1 million due during fiscal 2027; $1.0 million due during fiscal 2028; and zero due thereafter.

Previous wording

We entered into a Membership Interest Purchase Agreement, dated as of March 27, 2024, and as amended and restated as of June 30, 2024 (the “Reference Point MIPA”) with Reference Point LLC (“Reference Point”) and the sole member of Reference Point, pursuant to which we acquired 100% of the membership interests of Reference Point. We paid an initial cash consideration of $23.0 million (net of $0.2 million cash acquired). See Note 4 –Acquisition in the Notes to Consolidated Financial Statements for further information.

Current wording

We entered into a Membership Interest Purchase Agreement, dated as of March 27, 2024, and as amended and restated as of June 30, 2024 (the “Reference Point MIPA”) with Reference Point and the sole member of Reference Point, pursuant to which we acquired 100% of the membership interests of Reference Point. During the six months ended November 23, 2024, we paid an initial cash consideration of $23.0 million (net of $0.2 million cash acquired). See Note 4 –Acquisitions in the Notes to Consolidated Financial Statements for further information.

Previous wording

As described under “Market Trends and Uncertainties” above, uncertain macroeconomic conditions and ambiguity around interest rates have created significant uncertainty in the global economy, volatility in the capital markets and recessionary pressures, which have adversely impacted, and may continue to adversely impact, our financial results, operating cash flows, and liquidity needs. If we are required to raise additional capital or incur additional indebtedness for our operations or to invest in our business, we can provide no assurances that we would be able to do so on acceptable terms or at all. Our ongoing operations and growth strategy may require us to continue to make investments in critical markets and further expand our internal technology and digital capabilities. In addition, we may consider making additional strategic acquisitions or initiating additional restructuring initiatives, which could require significant liquidity and adversely impact our financial results due to higher cost of borrowings. We believe that our current cash, ongoing cash flows from our operations and funding available under our Credit Facility will be adequate to meet our working capital and capital expenditure needs for at least the next 12 months.

Current wording

As described under “Market Trends and Uncertainties” above, uncertain macroeconomic conditions including ambiguity around interest rates, softening labor markets and fluctuations in currency exchange rates have created significant uncertainty in the global economy, volatility in the capital markets and recessionary pressures, which have adversely impacted, and may continue to adversely impact, our financial results, operating cash flows, and liquidity needs. If we are required to raise additional capital or incur additional indebtedness for our operations or to invest in our business, we can provide no assurances that we would be able to do so on acceptable terms or at all. Our ongoing operations and growth strategy may require us to continue to make investments in critical markets and further expand our internal technology and digital capabilities. In addition, we may consider making additional strategic acquisitions or initiating additional restructuring initiatives, which could require significant liquidity and adversely impact our financial results due to higher cost of borrowings. We believe that our current cash, ongoing cash flows from our operations and funding available under our Credit Facility will be adequate to meet our working capital and capital expenditure needs for at least the next 12 months.

Previous wording

Operating activities for the first three months of fiscal 2025 used cash of $0.3 million compared to $2.2 million for the first three months of fiscal 2024. The cash used in operations for the first three months of fiscal 2025 was due to a net loss of $5.7 million, which was partially offset by non-cash adjustments of $4.5 million and net favorable changes in operating assets and liabilities of $0.9 million. These net favorable changes in operating assets and liabilities were driven by a $4.3 million decrease in trade accounts receivable, a $0.4 million increase in accrued salaries and related obligations, mainly due to the timing of our pay cycle, and a $0.5 million increase in other liabilities. Offsetting these favorable changes were a $1.9 million increase in other assets largely related to the investments in our technology implementation, a $1.3 million decrease in accounts payable and other accrued expenses, and a $1.0 million increase in prepaid income taxes.

Current wording

Operating activities for the first six months of fiscal 2025 provided cash of $1.5 million compared to $1.8 million of cash used in the first six months of fiscal 2024. The cash provided by operations for the first six months of fiscal 2025 was primarily driven by the non-cash adjustments of $80.3 million (primarily due to the non-cash goodwill impairment), which was offset by a net loss of $74.4 million and net unfavorable changes in operating assets and liabilities of $4.4 million. These net unfavorable changes in operating assets and liabilities were driven by a $3.7 million increase in other assets largely related to the investments in our technology implementation, a $1.7 million decrease in accounts payable and other accrued expenses, a $1.5 million increase in prepaid expenses and other current assets, and a $0.7 million increase in prepaid income taxes. Offsetting these unfavorable changes were a $1.8 million decrease in trade accounts receivable, a $0.8 million increase in other liabilities, and a $0.7 million increase in accrued salaries and related obligations, mainly due to the timing of our pay cycle.

Previous wording

In the first three months of fiscal 2024, cash used in operations resulted from net income of $3.1 million and non-cash adjustments of $4.5 million. Additionally, net unfavorable changes in operating assets and liabilities totaled $9.8 million, primarily consisting of a $13.9 million decrease in accrued salaries and related obligations, mainly due to the timing of our pay cycle and the payout of the annual incentive compensation during the first three months of fiscal 2024, a $3.0 million increase in other assets primarily due to the capitalized implementation costs for hosting arrangements, and a $0.6 million increase in prepaid expenses and other current assets, partially offset by a $5.7 million decrease in trade accounts receivable, a $1.2 million increase in accounts payable and other accrued expenses, and a $0.8 million increase in income taxes payable and other liabilities.

Current wording

In the first six months of fiscal 2024, cash used in operations resulted from net income of $8.0 million, non-cash adjustments of $8.6 million, and net unfavorable changes in operating assets and liabilities totaling $18.4 million, which primarily consisted of a $17.2 million decrease in accrued salaries and related obligations, mainly due to the timing of our pay cycle and the payout of the annual incentive compensation during the first six months of fiscal 2024, a $5.8 million increase in other assets primarily due to the capitalized implementation costs for hosting arrangements, and a $2.3 million increase in prepaid expenses and other current assets, partially offset by an $8.3 million decrease in trade accounts receivable, a $2.6 million increase in accounts payable and other accrued expenses, and a $4.0 million increase in income taxes payable and other liabilities.

Previous wording

Net cash used in investing activities was $10.9 million for the first three months of fiscal 2025 compared to $0.5 million for the first three months of fiscal 2024. Net cash used in investing activities for the first three months of fiscal 2025 was primarily related to $23.0 million of net cash used towards the acquisition of Reference Point, partially offset by the $12.3 million net proceed from the sale of the Irvine office building. Net cash used in investing activities in the first three months of fiscal 2024 was primarily related to the development of internal-use software and acquisition of property and equipment.

Current wording

Net cash used in investing activities was $12.7 million for the first six months of fiscal 2025 compared to $8.1 million for the first six months of fiscal 2024. Net cash used in investing activities for the first six months of fiscal 2025 was primarily related to $23.0 million of net cash used towards the acquisition of Reference Point and $2.0 million of cash used for the development of internal-use software and acquisition of property and equipment, partially offset by the $12.3 million in net proceeds from the sale of the Irvine office building. Net cash used in investing activities in the first six months of fiscal 2024 was primarily related to the $7.2 million acquisition of CloudGo the development of internal-use software and acquisition of property and equipment.

Previous wording

Net cash used in financing activities totaled $7.7 million in the first three months of fiscal 2025 compared to $1.6 million in the first three months of fiscal 2024. Net cash used in financing activities during the first three months of fiscal 2025 consisted of $5.0 million to purchase 430,284 shares of common stock on the open market, and cash dividend payments of $4.7 million; these uses were partially offset by $2.0 million in proceeds received from ESPP share purchases. Net cash used in financing activities during the first three months of fiscal 2024 consisted of cash dividend payments of $4.7 million and was partially offset by $3.1 million in proceeds received from ESPP share purchases and employee stock option exercises.

Current wording

2025 consisted of $10.0 million to purchase 1,028,315 shares of common stock on the open market and cash dividend payments of $9.4 million; these uses were partially offset by $2.0 million in proceeds received from ESPP share purchases. Net cash used in financing activities during the first six months of fiscal 2024 consisted of cash dividend payments of $9.4 million and $5.0 million to purchase 353,858 shares of common stock on the open market; these uses were partially offset by $3.2 million in proceeds received from ESPP share purchases and employee stock option exercises.