# RESOURCES CONNECTION, INC. (RGP) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from RESOURCES CONNECTION, INC.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1084765/000108476522000009/rgp-20220528x10k.htm
Accession: 0001084765-22-000009
Filing date: 2022-07-28
Report date: 2022-05-28
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/RGP/
All MD&A years: /company/RGP/mda/
Next year: /company/RGP/mda/fy2023/ (FY 2023)

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those discussed in Part I, Item 1A “Risk Factors” and elsewhere in this Annual Report on Form 10 K. See “Forward Looking Statements” above for further explanation.

Overview

Resources Global Professionals is a global consulting firm focused on project execution services that power clients’ operational needs and change initiatives with on demand experienced and diverse talent. As a next-generation human capital partner for our clients, we specialize in solving today’s most pressing business problems across the enterprise in the areas of transactions, regulations, and transformations. 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.

A disruptor within the professional services industry since its founding in 1996, today the Company finds itself enjoying a highly favorable macro environment that embraces its differentiated agile delivery model. The trends in today’s marketplace favor the flexibility and agility RGP provides as businesses confront transformation pressures and speed-to-market challenges. Based in Irvine, California, with offices worldwide, RGP’s agile delivery model attracts top-caliber professionals with in-demand skillsets who seek a workplace environment that embraces flexibility, collaboration and human connection. Our unique approach to workforce strategy strongly positions us to help our clients transform their businesses and workplaces, especially in a time where high-quality talent is increasingly scarce and the usage of a flexible workforce to execute transformational projects has become the dominant operating model. See Part I, Item 1 “Business” for further discussions about our business and operations.

We are laser focused on driving long-term growth in our business by seizing the favorable macro shifts in workforce strategies and preferences, building an efficient and scalable operating model, and maintaining a distinctive culture and approach to professional services. Our enterprise initiatives in recent years include refining the operating model for sales, talent and delivery to be more client-centric, cultivating a more robust performance culture by aligning incentives to business performance, building and commercializing our digital engagement platform, enhancing our consulting capabilities in digital transformation to align with market demand and improving our fixed-cost structure through a global restructuring initiative.

Despite the impact of the Pandemic, we successfully evolved our operating model to enable us to capitalize on the prominent macro industry trends that favor our business model. These macro industry trends include the pivot to virtual and/or hybrid working models, the dramatic shift in talent preferences toward flexibility and career control and our clients responding to these trends by embracing new, more agile, workforce strategies. We launched the Borderless Talent initiative, changing our employment paradigm and client delivery model by finding and matching qualified talent with appropriate skill sets for specific project needs on a global basis. As remote work became more mainstream, our borderless talent management and deployment further enhanced our ability to serve multinational clients in a seamless manner, broadened our client reach in markets where we do not have a physical presence, and allowed for improved operational efficiency while offering clients and consultants more choice and agility. As the economy reopened and recovered in fiscal 2022, our ability to flex seamlessly between traditional on-premises and virtual models has offered greater optionality in how we deliver projects and our go-to-market motion. Removing the constraint of geo-fencing our consultants based on locality has opened new avenues of opportunity for both our clients and our talent. This enabled us to attract and retain talent on a broader geographic basis and allowed for additional opportunities in terms of prospect cultivation, client engagement and project delivery.

Our agile talent platform has helped clients pivot their workforce and operating models in an increasingly tightening labor market. The robust top-line growth and margin expansion we achieved in fiscal 2022 were fueled by the favorable macro shifts in both talent and client preferences driving higher supply and demand, and the operational and go-to-market improvements we have achieved through our enterprise initiatives discussed above. We believe we are continuing to lay the right foundation for further growth ahead.

Fiscal 2022 Strategic Focus Areas

Our strategic focus areas in fiscal 2022 were:

•Drive meaningful revenue growth and deliver enhanced EBITDA margin;

•Commercialize our digital strategy;

•Modernize our global technology infrastructure; and

•Strengthen the RGP brand.

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Drive Revenue and EBITDA Growth — Driving meaningful growth in our top-line revenue and expanding our EBITDA (earnings before interest, taxes, depreciation and amortization) margin were our highest priorities this fiscal year. In fiscal 2022, we continued to focus on the growth of our Strategic Client Account and key industry vertical programs, particularly in healthcare, leveraging broader market talent for virtual delivery and the increasing focus on account penetration. Since inception, our Strategic Client Account program has been one of the key drivers of revenue and business growth. In fiscal year 2022, we successfully expanded our Strategic Client Account program by moving additional accounts into the program and adopting a client-centric and borderless approach to serve these clients. Revenue within this client set experienced significant growth over the prior fiscal years and represented 32% of our consolidated revenue. We believe our efforts have and will continue to allow us to develop in-depth knowledge of these clients’ needs and increase the scope and size of our projects with them.

In our healthcare industry vertical, we experienced strong growth momentum 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. Revenue from the healthcare industry vertical grew 22% year over year. To align with market demand, we have been expanding our capabilities in such areas as revenue integrity, clinical trials support and supply chain optimization and leveraging our depth of industry expertise to help clients operate with enhanced agility and efficiency in the rapidly evolving healthcare industry.

In addition, the continued evolution of our operating and delivery model to be more flexible, virtual, and borderless has allowed us to further penetrate existing core clients and markets as well as to uncover opportunities to effectively serve new clients in new markets. Revenue from our regional accounts grew 30% over the prior fiscal year. As our clients continue to accelerate their digital and workforce paradigm transformations in this still uncertain economic environment, we are well positioned to deliver greater workforce agility and flexibility to our clients.

Building on significant cost savings achieved in fiscal 2021 and the fundamental improvement in our cost structure, coupled with heightened focus on pricing and operational efficiency, we delivered significant improvement in EBITDA performance in fiscal 2022 and enhanced shareholder value. We improved our pay/bill ratio through value-based pricing and strategic management of our direct delivery costs. In a world with intensified competition for talent, we strive to attract high-caliber professionals with the right skillsets and qualifications at competitive pay, and appropriately capture the value of the talent and solutions delivered in our bill rates. In addition, we maintained the structural improvement in cost leverage through disciplined management of headcount, business expenses, and real estate costs in an increasingly digital, virtual market.

Commercialize Our Digital Strategy — Over recent years, explosive technological innovation has fueled the rise of digital transformation as a corporate imperative. Our clients have been forced to rethink the way they do business to stay ahead of, and compete with, digitally native new entrants. In order to support our clients – including these digitally native businesses – we have evolved significantly to help clients address their digital needs including automation and digitization of business processes as well as offering digital pathways to serve their needs.

We have completed the development of the core functionalities of HUGO, our first-to-market employed-model digital staffing platform where talent and clients can connect, engage and even transact directly. HUGO is designed to offer clients and talent unprecedented transparency, speed, and control. We launched a limited pilot in the New York Tri-State area in October 2021 and continued to enhance its functionality with further artificial intelligence and machine learning. We also have been developing sales and marketing strategies to increase client and talent adoption of the platform. We plan to expand the geographic reach to other key markets within the U.S. such as California and Texas in fiscal 2023.

Additionally, our efforts to commercialize our digital strategy this year included the acceleration of digital transformation revenue through the continued expansion of go-to-market penetration for Veracity in North America. We continued to drive enhancement in 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 has generated positive returns since inception, with Veracity revenue growing 16% year over year in fiscal 2022. We believe the increase in virtual or remote delivery arrangements resulting from the Pandemic has and will continue to accelerate digital transformation agendas in our existing client base and create opportunities for us to engage with new clients, contributing to further top-line revenue growth.

Modernize Our Global Technology Infrastructure — In the third quarter of fiscal 2022, we launched a holistic digital transformation project to elevate our technology infrastructure globally, including a cloud-based enterprise resource planning system and talent acquisition and management system. We believe our investment in this technology initiative will accelerate our efficiency and data-led decision-making capabilities, optimize process flow and automation, scale our operations to support future growth, and create an enhanced digital experience for our consultants, clients and employees.

Strengthen the RGP Brand — We have continued to build upon the brand work conducted to date to further clarify and amplify our brand positioning in the marketplace. Our employer-facing brand will continue to focus on the power of human. Through enhanced transparency, flexibility and digital connection, fulfilling assignments, competitive compensation and benefits and continued education,

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training and professional development, we are strengthening our professional community and delivering care and wellbeing to our consultants and employees. We are positioning ourselves as the preferred professional environment for talent looking for greater flexibility, choice and career control than traditional employment models can offer. As we announced at our Investor Day, held on April 12, 2022 at Nasdaq Marketplace, our corporate brand will focus on helping both talent and clients work differently in the new world of work. We believe we are poised to own a dominant position as a leading project execution partner of choice and the brand work that we are doing is intended to support that effort.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations included in this Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

The following represents a summary of our critical accounting policies and estimates, defined as those policies and estimates we believe: (a) are the most important to the portrayal of our financial condition and results of operations and (b) involve inherently uncertain issues that require management’s most subjective or complex judgments.

Revenue recognition — Revenues are recognized when control of the promised service is transferred to our clients, in an amount that reflects the consideration expected in exchange for the services. Revenue is recorded net of sales or other transaction taxes collected from clients and remitted to taxing authorities. Revenues for the vast majority of our contracts are recognized over time, based on hours worked by our professionals. The performance of the agreed-upon service over time is the single performance obligation for revenues.

On a limited basis, the Company may have fixed-price contracts, for which revenues are recognized over time using the input method based on time incurred as a proportion of estimated total time. Time incurred represents work performed, which corresponds with, and therefore best depicts, the transfer of control to the client. Management uses significant judgments when estimating the total hours expected to complete the contract performance obligation. It is possible that updated estimates for consulting engagements may vary from initial estimates with such updates being recognized in the period of determination. Depending on the timing of billings and services rendered, the Company accrues or defers revenue as appropriate.

Certain clients may receive discounts (for example, volume discounts or rebates) to the amounts billed. These discounts or rebates are considered variable consideration. Management evaluates the facts and circumstances of each contract and client relationship to estimate the variable consideration, assessing the most likely amount to recognize and considering management’s expectation of the volume of services to be provided over the applicable period. Rebates are the largest component of variable consideration and are estimated using the most-likely-amount method prescribed by Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, contracts terms and estimates of revenue. Revenues are recognized net of variable consideration to the extent that it is probable that a significant reversal of revenues will not occur in subsequent periods. Changes in estimates would result in cumulative catch-up adjustments and could materially impact our financial results. Rebates recognized as contra-revenue for the years ended May 28, 2022, May 29, 2021 and May 30, 2020 were $3.1 million, $2.6 million and $1.4 million, respectively.

Allowance for doubtful accounts — We maintain an allowance for doubtful accounts for estimated losses resulting from our clients failing to make required payments for services rendered. We estimate this allowance based upon our knowledge of the financial condition of our clients (which may not include knowledge of all significant events), review of historical receivable and reserve trends and other pertinent information. While such losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates we have in the past. As of May 28, 2022 and May 29, 2021, we had an allowance for doubtful accounts of $2.1 million and $2.0 million, respectively. A significant change in the liquidity or financial position of our clients could cause unfavorable trends in receivable collections and additional allowances may be required. These additional allowances could materially affect our future financial results.

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Income taxes — In order to prepare our Consolidated Financial Statements, we are required to make estimates of income taxes, if applicable, in each jurisdiction in which we operate. The process incorporates an assessment of any income subject to taxation in each jurisdiction together with temporary differences resulting from different treatment of transactions for tax and financial statement purposes. These differences result in deferred tax assets and liabilities that are included in our Consolidated Balance Sheets. The recovery of deferred tax assets from future taxable income must be assessed and, to the extent recovery is not likely, we will establish a valuation allowance. An increase in the valuation allowance results in recording additional tax expense and any such adjustment may materially affect our future financial result. If the ultimate tax liability differs from the amount of tax expense we have reflected in the Consolidated Statements of Operations, an adjustment of tax expense may need to be recorded and this adjustment may materially affect our future financial results and financial condition.

We evaluate the realizability of our deferred tax assets based on all available evidence and establish a valuation allowance to reduce deferred tax assets when it is more likely than not that they will not be realized. When all available evidence indicates that the deferred tax assets are more likely than not to be realized, a valuation allowance is not required to be recorded or an existing valuation allowance is reversed. Management assesses all available positive and negative evidence, including (1) three-year cumulative pre-tax income or loss adjusted for permanent tax differences, (2) history of operating losses and of net operating loss carryforwards expiring unused, (3) evidence of future reversal of existing taxable temporary differences, (4) availability of sufficient taxable income in prior years, (5) tax planning strategies, and (6) projection of future taxable income, to determine the need to establish or release a valuation allowance on the deferred tax assets. An increase or decrease in valuation allowance will result in a corresponding increase or decrease in tax expense, and any such adjustment may materially affect our future financial results.

We also evaluate our uncertain tax positions and only recognize the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than 50 percentage likelihood of being realized upon settlement. We record a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. Any change in judgment related to the expected ultimate resolution of uncertain tax positions is recognized in earnings in the period in which such change occurs. As of May 28, 2022 and May 29, 2021, a valuation allowance of $8.2 million and $13.3 million was established on deferred tax assets totaling $34.3 million and $38.4 million, respectively. Our income tax for the years ended May 28, 2022, May 29, 2021 and May 30, 2020 was an expense of $15.8 million, a benefit of $2.5 million and an expense of $6.9 million, respectively. Our total liability for unrecognized tax benefits was $0.9 million as of both May 28, 2022 and May 29, 2021.

Stock-based compensation — Under our 2020 Performance Incentive Plan, officers, employees, and outside directors have received or may receive grants of restricted stock, restricted stock units, performance stock units, options to purchase common stock or other stock or stock-based awards. Under our ESPP, eligible officers and employees may purchase our common stock at a discount in accordance with the terms of the plan. During fiscal 2022, the Company started issuing performance stock unit awards under the 2020 Performance Incentive Plan that will vest upon the achievement of certain company-wide performance targets at the end of the defined three-year performance period. Vesting periods for restricted stock, restricted stock units and stock option awards range from three to four years.

We estimate the fair value of stock-based payment awards on the date of grant as described below. We determine the estimated value of restricted stock, restricted stock unit and performance stock unit awards using the closing price of our common stock on the date of grant. We have elected to use the Black-Scholes option-pricing model for our stock options and stock purchased under our ESPP which takes into account assumptions regarding a number of complex and subjective variables. These variables include the expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors. Additional variables to be considered are the expected term, expected dividends and the risk-free interest rate over the expected term of our employee stock options.

We use our historical volatility over the expected life of the stock option award and ESPP option award to estimate the expected volatility of the price of our common stock. The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of our employee stock options. The impact of expected dividends ($0.14 per share for each quarter during fiscal 2022, 2021 and 2020) is also incorporated in determining the estimated value per share of employee stock option grants and purchases under our ESPP. Such dividends are subject to quarterly board of directors’ approval. Our expected life of stock option grants is 5.6 years for non-officers and 8.1 years for officers, and the expected life of grants under our ESPP is 6 months.

In addition, because stock-based compensation expense recognized in the Consolidated Statements of Operations is based on awards ultimately expected to vest, it is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates, and in the case of performance stock units, based on the actual performance. The number of performance stock units earned at the end of the performance period may equal, exceed or be less than the targeted number of shares depending on whether the performance criteria are met, surpassed or not met. During each reporting period, the Company uses the latest forecasted results to estimate the number of shares to be issued at the end of the performance period. Any

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resulting changes to stock compensation expense are adjusted in the period in which the change in estimates occur. Forfeitures are estimated based on historical experience.

We review the underlying assumptions related to stock-based compensation at least annually or more frequently if we believe triggering events exist. If facts and circumstances change and we employ different assumptions in future periods, the compensation expense recorded may differ materially from the amount recorded in the current period. Stock-based compensation expense for the years ended May 28, 2022, May 29, 2021 and May 30, 2020 was $8.2 million, $6.6 million and $6.1 million, respectively.

Valuation of long-lived assets — For long-lived tangible and intangible assets, including property and equipment, right-of-use (“ROU”) assets, and definite-lived intangible assets, we assess the potential impairment periodically or whenever events or changes in circumstances indicate the carrying value may not be recoverable from the estimated undiscounted expected future cash flows expected to result from their use and eventual disposition. In cases where the estimated undiscounted expected future cash flows are less than net book value, an impairment loss is recognized equal to the amount by which the net book value exceeds the estimated fair value of assets. We performed our assessment of potential qualitative impairment indicators of long-lived assets, including property and equipment, ROU assets outside of exited markets, and definite-lived intangible assets as of May 28, 2022. We determined that for such long-lived assets, no impairment indicators were present as of May 28, 2022, and no impairment charge was recorded during fiscal 2022.

For ROU assets within exited markets under our restructuring plans, we assess the potential impairment whenever an impairment indicator was present. For further discussion regarding impairment of ROU assets in exited markets, see Note 14 – Restructuring Activities in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. Estimating future cash flows requires significant judgment, and our projections may vary from the cash flows eventually realized. Future events and unanticipated changes to assumptions could result in an impairment in the future. Although the impairment is a non-cash expense, it could materially affect our future financial results and financial condition.

Goodwill — Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. We evaluate goodwill for impairment annually on the last day of our fiscal year, and whenever events indicate that it is more likely than not that the fair value of a reporting unit could be less than its carrying amount. In assessing the recoverability of goodwill, we make a series of assumptions including forecasted revenue and costs, estimates of future cash flows, discount rates and other factors, which requires significant judgment. A potential impairment in the future, although a non-cash expense, could materially affect our financial results and financial condition.

In testing the goodwill of our reporting units for impairment, we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of each of our reporting units is less than their respective carrying amounts. If it is deemed more likely than not that the fair value of a reporting unit is greater than its carrying value, no further testing is needed and goodwill is not impaired. Otherwise, the next step is a quantitative comparison of the fair value of the reporting unit to its carrying amount. We have the option to bypass the qualitative assessment for any reporting unit and proceed directly to performing the quantitative goodwill impairment test. If a reporting unit’s estimated fair value is equal to or greater than that reporting unit’s carrying value, no impairment of goodwill exists and the testing is complete. If the reporting unit’s carrying amount is greater than the estimated fair value, then a non-cash impairment charge is recorded for the amount of the difference, not exceeding the total amount of goodwill allocated to the reporting unit.

Under the quantitative analysis, the estimated fair value of goodwill is determined by using a combination of a market approach and an income approach. The market approach estimates fair value by applying revenue and EBITDA multiples to each reporting unit’s operating performance. The multiples are derived from guideline public companies with similar operating and investment characteristics to our reporting units, and are evaluated and adjusted, if needed, based on specific characteristics of the reporting units relative to the selected guideline companies. The market approach requires us to make a series of assumptions that involve significant judgment, such as the selection of comparable companies and the evaluation of the multiples. The income approach estimates fair value based on our estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital that reflects the relevant risks associated with each reporting unit and the time value of money. The income approach also requires us to make a series of assumptions that involve significant judgment, such as discount rates, revenue projections and Adjusted EBITDA margin projections. We estimate our discount rates on a blended rate of return considering both debt and equity for comparable guideline public companies. We forecast our revenue and Adjusted EBITDA margin based on historical experience and internal forecasts about future performance.

The following is a discussion of our goodwill impairment tests performed during fiscal 2022.

2022 Annual Goodwill Impairment Analysis

We performed our annual goodwill impairment test as of May 28, 2022 on our three reporting units. We elected to perform a qualitative analysis and assessed the relevant events and circumstances to determine if it is more likely than not that the fair value of any of our reporting units is less than its respective carrying amount. We considered such events and circumstance including, macroeconomic factors, industry and market conditions, financial performance indicators and measurements, and other factors. Based

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on our assessment of these factors, we do not believe that it is more likely than not that the fair value of any of our reporting units is less than its respective carrying value, and no further testing is needed. We concluded that there was no goodwill impairment as of May 28, 2022.

While we believe that the assumptions underlying our qualitative assessment are reasonable, these assumptions could have a significant impact on whether a non-cash impairment charge is recognized and also the magnitude of such charge. The results of an impairment analysis are as of a point in time. There is no assurance that the actual future earnings or cash flows of our reporting units will be consistent with our projections. We will continue to monitor any changes to our assumptions and will evaluate goodwill as deemed warranted during future periods.

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.

Our operating results for the periods indicated are expressed as a percentage of revenue below. The fiscal years ended May 28, 2022, May 29, 2021 and May 30, 2020 consisted of 52, 52, and 53 weeks, respectively (amounts in thousands, except percentages).

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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 same-day 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 expense, depreciation expense, interest and income taxes plus stock-based compensation expense, restructuring costs, technology transformation 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.

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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.

[[GREPCENT_TABLE]]
[["RESOURCES CONNECTION, INC."],["RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES"],["","","Three Months Ended","","","Three Months Ended","","","","For the Years Ended"],["Revenue by Geography","","","May 28,","","","","February 26,","","","","","May 28,","","","","May 29,","","","","","May 28,","","","","May 29,"],["","","","2022","","","","2022","","","","","2022","","","","2021","","","","","2022","","","","2021"],["(Amounts in thousands, except number of business days)","","(Unaudited)","","","","(Unaudited)","","","","","(Unaudited, except for GAAP amounts)"],["North America"],["As reported (GAAP)","","$","183,817","","","$","173,569","","","","$","183,817","","","$","141,518","","","","$","676,419","","","$","512,777"],["Currency impact","","","(58)","","","","","","","","","16","","","","","","","","","(297)"],["Business days impact","","","(11,308)","","","","","","","","","-","","","","","","","","","2,694"],["Same-day constant currency revenue","","$","172,451","","","","","","","","$","183,833","","","","","","","","$","678,816"],["Europe"],["As reported (GAAP)","","$","19,433","","","$","17,856","","","","$","19,433","","","$","19,371","","","","$","76,075","","","$","72,496"],["Currency impact","","","890","","","","","","","","","1,869","","","","","","","","","1,650"],["Business days impact","","","164","","","","","","","","","(172)","","","","","","","","","(153)"],["Same-day constant currency revenue","","$","20,487","","","","","","","","$","21,130","","","","","","","","$","77,572"],["Asia Pacific"],["As reported (GAAP)","","$","13,781","","","$","13,184","","","","$","13,781","","","$","11,429","","","","$","52,524","","","$","44,243"],["Currency impact","","","487","","","","","","","","","857","","","","","","","","","1,477"],["Business days impact","","","-","","","","","","","","","119","","","","","","","","","-"],["Same-day constant currency revenue","","$","14,268","","","","","","","","$","14,757","","","","","","","","$","54,001"],["Total Consolidated"],["As reported (GAAP)","","$","217,031","","","$","204,609","","","","$","217,031","","","$","172,318","","","","$","805,018","","","$","629,516"],["Currency impact","","","1,319","","","","","","","","","2,742","","","","","","","","","2,830"],["Business days impact","","","(11,144)","","","","","","","","","(53)","","","","","","","","","2,541"],["Same-day constant currency revenue","","$","207,206","","","","","","","","$","219,720","","","","","","","","$","810,389"],["Number of Business Days"],["North America (1)","","","65","","","","61","","","","","65","","","","65","","","","","251","","","","252"],["Europe (2)","","","62","","","","63","","","","","62","","","","62","","","","","254","","","","253"],["Asia Pacific (2)","","","62","","","","62","","","","","62","","","","62","","","","","247","","","","247"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(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."]]
[[/GREPCENT_TABLE]]

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EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin

EBITDA, 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 EBITDA, 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 (amounts in thousands, except percentages).

[[GREPCENT_TABLE]]
[["","","For the Years Ended"],["","May 28,","% of","","","May 29,","% of","","","May 30,","% of"],["","2022","Revenue","","","2021","Revenue","","","2020","Revenue"],["Net income","$","67,175","8.3","%","","$","25,229","4.0","%","","$","28,285","4.0","%"],["Adjustments:"],["Amortization expense","","4,908","0.6","","","","5,228","0.8","","","","5,745","0.8"],["Depreciation expense","","3,575","0.4","","","","3,897","0.6","","","","5,019","0.7"],["Interest expense, net","","1,064","0.2","","","","1,600","0.3","","","","2,061","0.3"],["Income tax expense (benefit)","","15,793","2.0","","","","(2,545)","(0.4)","","","","6,943","1.0"],["EBITDA","","92,515","11.5","","","","33,409","5.3","","","","48,053","6.8"],["Stock-based compensation expense","","8,168","1.0","","","","6,613","1.1","","","","6,057","0.9"],["Restructuring costs","","833","0.1","","","","8,260","1.3","","","","4,982","0.7"],["Contingent consideration adjustment","","166","-","","","","4,512","0.7","","","","794","0.1"],["Technology transformation costs (1)","","1,449","0.2","","","","-","-","","","","-","-"],["Adjusted EBITDA","$","103,131","12.8","%","","$","52,794","8.4","%","","$","59,886","8.5","%"]]
[[/GREPCENT_TABLE]]

(1) 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 system. Costs for the fiscal year ended May 28, 2022 primarily include software licensing costs, third-party consulting fees and costs associated with dedicated internal resources.

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 measures of financial performance or financial condition prepared in accordance with GAAP for purposes of analyzing our revenue, profitability or liquidity. 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 but rather considered in addition to performance measures calculated in accordance with GAAP.

Year Ended May 28, 2022 Compared to Year Ended May 29, 2021

Percentage change computations are based upon amounts in thousands. Fiscal 2022 and fiscal 2021 consisted of 52 weeks.

Revenue. Revenue increased $175.5 million, or 27.9%, to $805.0 million for the year ended May 28, 2022 from $629.5 million for the year ended May 29, 2021. On a same-day constant currency basis, revenue increased 28.7% in fiscal 2022 compared to fiscal 2021. In addition to higher volume of billable hours, we improved bill rates. Billable hours increased by 25.0% and the average bill rate improved 2.4% year over year, meaningfully contributing to the overall year over year revenue growth in fiscal 2022.

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The following table represents our GAAP consolidated revenues by geography (amounts in thousands, except percentages):

[[GREPCENT_TABLE]]
[["","For the Years Ended"],["","May 28,","","","May 29,"],["","2022","","","2021"],["North America","$","676,419","84.0","%","","$","512,777","81.5","%"],["Europe","","76,075","9.5","","","","72,496","11.5"],["Asia Pacific","","52,524","6.5","","","","44,243","7.0"],["Total","$","805,018","100.0","%","","$","629,516","100.0","%"]]
[[/GREPCENT_TABLE]]

Revenue grew across all geographies during fiscal 2022 compared to fiscal 2021, as we continued to benefit from favorable secular trends including a shift in businesses adopting more workforce agility, workforce gaps caused by the tightening labor market, the demand for digital transformation services, an increase in client spending on significant and transformational initiatives, our sustained improvement in sales execution and operational efficiency to match supply and demand and continued progress in raising our bill rates. The strong revenue performance was also driven by our client segmentation and client service strategy to deepen our relationship within the Strategic Client Account base as well as other key client sets to further expand our presence across multiple buying centers. Our successful execution led to larger deal sizes, longer project durations and record high pipelines and closed deals. The robust revenue growth was across most client segments, and the majority of our markets, and was led by solution areas in Finance and Accounting, Risk and Compliance and Business Transformation.

North America experienced robust revenue growth of 31.9%, or 32.4% on a same-day constant currency basis, compared to fiscal 2021. As the macro economy in the U.S. continued to strengthen in fiscal 2022, our clients increased their spending to advance change initiatives, such as finance and digital and workforce paradigm transformation. The tightening labor market and almost record low unemployment rate drove significant growth in our professional staffing revenue, particularly in the U.S., as our clients looked to us to supply quality talent to fill their temporary workforce gaps. The shift towards workforce agility and the increased acceptance of co-delivery and remote delivery not only enhanced our value proposition to our clients, but also allowed for better and more efficient matching of supply and demand, enabling us to achieve sustained improvement in our operational efficiency. In Europe, our adoption of a more integrated global go-to-market approach to focus on serving our tier one multi-national clients in this region also drove sustained top-line growth. Europe revenue in fiscal 2022 grew 4.9%, or 7.0% on a same-day constant currency basis, compared to fiscal 2021. Asia Pacific revenue improved 18.7%, or 22.1% on a same-day constant currency basis, compared to fiscal 2021, as the economies in this region continued to strengthen despite episodic COVID-19 outbreaks.

Direct Cost of Services. Direct cost of services increased $100.3 million, or 25.8%, to $488.4 million during fiscal 2022 from $388.1 million for fiscal 2021. The increase in direct cost of services year over year was primarily attributable to a 25.0% increase in billable hours.

Direct cost of services as a percentage of revenue was 60.7% for fiscal 2022 compared to 61.7% for fiscal 2021. The decreased percentage compared to the prior year was primarily attributable to bill rate increases leading to an improvement of 100 basis points in the overall pay/bill ratio. Pay rate increases were relatively modest in fiscal 2022 despite tight labor supply conditions and rising wages. In addition to these macro labor market conditions, other factors impacting average pay rate included the impact of revenue mix across solutions and geographies and foreign currency fluctuations against the U.S. dollar. Our target direct cost of services percentage is below 60%.

The number of consultants on assignment at the end of fiscal 2022 was 3,388 compared to 2,902 at the end of fiscal 2021.

Selling, General and Administrative Expenses. SG&A was $224.7 million, or 27.9% as a percentage of revenue, for the year ended May 28, 2022 compared to $209.3 million, or 33.3% as a percentage of revenue, for the year ended May 29, 2021. SG&A as a percentage of revenue improved by 5.4% in fiscal 2022 compared to fiscal 2021 as a result of the improvement in our operating leverage due to significant year over year revenue growth. The $15.4 million increase in SG&A year over year was primarily attributed to (1) a $21.0 million increase in management compensation and benefits primarily related to higher incentive compensation due to significant growth in both revenue and profitability, (2) a $1.6 million increase in stock-based compensation expense, (3) an increase of $1.4 million in technology transformation costs incurred in fiscal 2022, (4) a $1.3 million increase in other business and travel expenses as the impact of the Pandemic subsided and business travel started to resume gradually, (5) a $1.2 million increase in computer software and consulting costs, (6) $0.5 million of impairment related to exiting a real estate facility, and (7) a $1.2 million increase in all other general and administration expenses. These incremental costs were partially offset by (1) a decrease of $7.4 million in restructuring costs as the restructuring activities wound down toward completion in fiscal 2022, (2) a $4.3 million adjustment related to the Veracity contingent consideration recorded in the prior year, and (3) a $1.1 million gain in foreign currency related to the dissolution of a foreign entity in the third quarter of fiscal 2022.

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Management and administrative headcount was 871 at the end of fiscal 2022 and 851 at the end of fiscal 2021. 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. Any unutilized time is converted to full-time equivalent headcount.

Restructuring charges. The Company initiated its global restructuring and business transformation plan in North America and Asia Pacific (the “North America and APAC Plan”) in March 2020 and in Europe (the “European Plan” and, together with the North America and APAC Plan, the “Restructuring Plans”) in September 2020. We substantially completed our Restructuring Plans in fiscal 2022. All employee termination and facility exit costs incurred under the Restructuring Plans were associated with the RGP segment, and are recorded in selling, general and administrative expenses in the Consolidated Statements of Operations, as further discussed in Note 19 – Segment Information and Enterprise Reporting in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. Restructuring costs for the years ended May 28, 2022, May 29, 2021 and May 30, 2020 were as follows (amounts in thousands):

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

For further information on our restructuring initiatives, please refer to Note 14 – Restructuring Activities in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Amortization and Depreciation Expense. Amortization expense was $4.9 million and $5.2 million in fiscal 2022 and fiscal 2021, 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 our internally developed digital engagement platform (HUGO). HUGO was placed in service in October 2021 as we launched the software in the New York Tri-state area, resulting in amortization expense associated with the development costs in fiscal 2022. Depreciation expense was $3.6 million and $3.9 million in fiscal 2022 and fiscal 2021, respectively. The decrease in depreciation expense was primarily due to fully-depreciated computer equipment during fiscal 2022.

Income Taxes. The provision for income taxes was $15.8 million (effective tax rate of 19.0%) for the year ended May 28, 2022 compared to an income tax benefit of $2.5 million (effective benefit rate of 11.2%) for the year ended May 29, 2021. 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 and the resulting uncertainty of our ability to utilize historical net operating losses in such jurisdictions. The current year rate benefitted from the improvement in operating results in the international entities, enabling us to utilize the benefits from historical net operating losses in certain foreign jurisdictions by reversing a $4.9 million valuation allowance in a specific European entity in the third quarter. The Company also recognized a $2.6 million benefit from the dissolution of our France entity. In fiscal 2021, we recognized a $12.8 million benefit from the carryback of net operating losses to higher tax rate years as permitted under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in the U.S., resulting in an effective tax benefit rate of 11.2%. The losses carried back resulted from accounting method changes in the treatment of self-constructed assets.

We recognized a net tax benefit of $2.1 million for fiscal 2022 and a breakeven impact in fiscal 2021 from compensation expense related to stock options, restricted stock awards, restricted stock units, performance stock units and ESPP during fiscal 2022 and fiscal 2021, respectively.

We reviewed the components of both book and taxable income to prepare 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 disqualifying dispositions of certain stock options. Based upon current economic circumstances and our business performance, management will continue to monitor the need to record additional or release existing valuation allowances in the future, primarily related to certain foreign jurisdictions. Realization of the currently reserved foreign deferred tax assets is dependent upon generating sufficient future taxable income in those foreign territories.

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We have maintained a position of being indefinitely reinvested in our foreign subsidiaries’ earnings by not expecting to remit foreign earnings in the foreseeable future. Being indefinitely reinvested does not require a deferred tax liability to be recognized on the foreign earnings. Management’s indefinite reinvestment position is supported by:

RGP in the U.S. has generated more than enough cash to fund operations and expansion, including acquisitions. RGP uses its excess cash to, at its discretion, return cash to stockholders through dividend payments and stock repurchases.

RGP has sufficient cash flow from operations in the U.S. to service its debt and other current or known obligations without requiring cash to be remitted from foreign subsidiaries.

Management’s growth objectives include allowing cash to accumulate in RGP’s profitable foreign subsidiaries with the expectation of finding strategic expansion plans to further penetrate RGP’s most successful locations.

The consequences of distributing foreign earnings have historically been deemed to be tax-inefficient for RGP or not materially beneficial.

Operating Results of Segment

As discussed in Business Segments in Item 1, Note 2 – Summary of Significant Accounting Policies and Note 19 – Segment Information and Enterprise Reporting in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we revised our historical one-segment position and identified the following new operating segments effective in the second quarter of fiscal 2021 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, taskforce, and Sitrick. RGP is the Company’s 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.

We regularly evaluate all parts of our business to ensure that we align our time, resources and efforts to market opportunities that will enable us to maximize profitability and shareholder value. On May 31, 2022, we completed the sale of taskforce to the senior leaders of the business. We believe an interim management business that primarily serves the middle market client base in Germany no longer aligns with our strategy in the European region, which highly focuses on providing project consulting and execution services to large global clients. Beginning in fiscal 2023, we will operate in the remaining two operating segments, RGP and Sitrick. See the discussion in Note 2 – Summary of Significant Accounting Policies and Note 20 – Subsequent Events in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

The following table presents our operating results by segment (amounts in thousands, except percentages):

[[GREPCENT_TABLE]]
[["","","For the Years Ended"],["","","May 28,","","May 29,"],["","","2022","","2021"],["Revenue:"],["RGP","","$","764,350","94.9","%","$","587,620","93.3","%"],["Other Segments","","","40,668","5.1","","","41,896","6.7"],["Total revenue","","$","805,018","100.0","%","$","629,516","100.0","%"],["Adjusted EBITDA:"],["RGP","","$","134,187","130.1","%","$","77,589","147.0","%"],["Other Segments","","","3,527","3.4","","","3,580","6.8"],["Reconciling Items (1)","","","(34,583)","(33.5)","","","(28,375)","(53.8)"],["Total Adjusted EBITDA (2)","","$","103,131","100.0","%","$","52,794","100.0","%"]]
[[/GREPCENT_TABLE]]

(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.

(2) A reconciliation of the Company’s net income to Adjusted EBITDA on a consolidated basis is presented above under “Non-GAAP Financial Measures--Reconciliation of GAAP to Non-GAAP Financial Measures.”

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Revenue by Segment

RGP – RGP revenue increased $176.7 million, or 30.1%, to $764.4 million compared to $587.6 million in fiscal 2021, primarily as a result of a 25.6% increase in billable hours and a 3.3% increase in bill rate year over year. Revenue from RGP generally represents more than 90% of total consolidated revenue. Geographic revenue trends in North America and Asia Pacific within the RGP segment are consistent with the revenue trends discussed within Consolidated Operating results above. Revenue in the European region within the RGP segment grew by 8.1%, or 8.8% on a same-day constant currency basis, during fiscal 2022 compared to fiscal 2021. The growth in the European region outside of Germany was led by continued penetration and growth in the Strategic Client Account base.

The number of consultants on assignment under the RGP segment as of May 28, 2022 was 3,263 compared to 2,795 as of May 29, 2021.

Other Segments – Other Segments’ revenue decreased $1.2 million, or 2.9%, in fiscal 2022 compared to fiscal 2021, primarily due to a $1.2 million decrease in Sitrick revenue. The declines in Sitrick revenue during fiscal 2022 compared to the prior year were primarily due to the closure of the U.S. courts during the Pandemic and the continued lingering impact on the court system, resulting in slower business development and revenue conversion.

The number of consultants on assignment under Other Segments as of May 28, 2022 was 125 compared to 107 as of May 29, 2021.

Adjusted EBITDA by Segment

RGP – RGP Adjusted EBITDA increased $56.6 million, or 72.9%, to $134.2 million in fiscal 2022, compared to $77.6 million in fiscal 2021. The increase was primarily attributable to the $176.7 million increase in segment revenue partially offset by the increase in the related cost of services of $101.0 million. Additionally, SG&A costs attributed to RGP increased $18.4 million in fiscal 2022 as compared to fiscal 2021 primarily due to the increase in bonuses and commissions of $17.8 million as a result of higher revenue and profitability achieved; an increase in other business and travel expenses of $1.2 million as the impact of the Pandemic subsided and business travel started to resume gradually; a $0.4 million increase in recruiting expenses; a $0.5 million impairment related to exiting a real estate facility; a $0.7 million reduction in other income; and a $0.6 million increase in all other general and administration expenses; and partially offset by reductions in occupancy costs of $2.4 million primarily as a result of the restructuring effort and fixed management compensation of $0.4 million in fiscal 2021 that did not occur in fiscal 2022. For fiscal 2022, the material costs and expenses attributable to the RGP segment that are not included in computing the segment measure of Adjusted EBITDA included depreciation and amortization expense of $8.0 million and stock-based compensation expense of $7.6 million.

The trend in revenue, cost of services, and other costs and expenses at RGP year over year are generally consistent with those 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 declined $0.1 million in fiscal 2022 compared to the same period in fiscal 2021. This decline was primarily driven by a decrease in revenue of $1.2 million, which was partially offset by a decrease of $0.8 million in cost of services and a $0.3 million reduction in general and administrative expenses. For fiscal 2022, the material costs and expenses attributable to the Other Segments that are not included in computing the segment measure of Adjusted EBITDA included depreciation and amortization expense of $0.5 million and stock-based compensation expense of $0.6 million.

Year Ended May 29, 2021 Compared to Year Ended May 30, 2020

For a comparison of our results of operations at the consolidated and segment level for the fiscal years ended May 29, 2021 and May 30, 2020, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended May 29, 2021, filed with the SEC on July 23, 2021 (File No. 0-32113).

Liquidity and Capital Resources

Our primary sources of liquidity are cash provided by our operations, our $175.0 million senior secured revolving credit facility, as further discussed below, 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. As of May 28, 2022, we had $104.2 million of cash and cash equivalents, including $35.4 million held in international operations.

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Prior to November 12, 2021, we had a $120.0 million secured revolving credit facility with Bank of America (the “Previous Credit Facility”), which was scheduled to mature on October 17, 2022. On November 12, 2021, the Company and Resources Connection LLC and all domestic subsidiaries of the Company as guarantors, entered into the New Credit Agreement and concurrently terminated the Previous Credit Facility. The New Credit Agreement provides for a $175.0 million senior secured revolving loan, which includes a $10.0 million sublimit for the issuance of standby letters of credit and a swingline sublimit of $20.0 million. The New Credit Facility also includes an option to increase the amount of the revolving loan up to an additional $75.0 million, subject to the terms of the agreement. The New Credit Facility matures on November 12, 2026.

Borrowings under the New Credit Facility bear interest at a rate per annum of either, at the Company’s election, (i) Term SOFR (as defined in the New Credit Agreement) plus a margin ranging from 1.25% to 2.00% or (ii) the Base Rate (as defined in the New Credit Agreement), plus a margin of 0.25% to 1.00% with the applicable margin depending on the Company’s consolidated leverage ratio. In addition, the Company pays an unused commitment fee on the average daily unused portion of the New Credit Facility, which ranges from 0.20% to 0.30% depending upon on the Company’s consolidated leverage ratio.

The New Credit Facility is available for working capital and general corporate purposes, including potential acquisitions, dividend distribution and stock repurchases. Additional information regarding the New Credit Facility is included in Note 8 – Long-Term Debt in the Notes to consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K.

As of May 28, 2022, we had $54.0 million outstanding under the New Credit Facility. We borrowed $20.0 million under the New Credit Facility on December 6, 2021 to finance the repurchase of 1,155,236 shares of our common stock from Dublin Acquisition, LLC (the “Seller”) pursuant to a Stock Purchase Agreement, dated December 3, 2021, entered into between the Company and the Seller. See Note 12 – Stockholders’ Equity in the Notes to consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K.

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 2022 Strategic Focus Areas” above, requires significant investments over multiple years. As of May 28, 2022, we have non-cancellable purchase obligations totaling $9.9 million, which are payable as follows pursuant to the licensing arrangements that we have entered into in connection with this initiative: $3.4 million due during fiscal 2023 and 2024, $3.6 million due during fiscal 2025 and 2026, and $2.9 million due thereafter. While we are still finalizing the assessment of the total amount of the investments required for this multi-year initiative, we currently expect to incur total investments between $20.0 million to $25.0 million through the completion of the system implementation. Such costs primarily include software licensing fees, third-party consulting fees and costs associated with dedicated internal resources that are not capitalized. The exact amount and timing will depend on a number of variables, including progress made on the implementation. We expect the majority of the investment will take place in fiscal 2023 and fiscal 2024. 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 effort 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 New Credit Facility will provide sufficient funds for these initiatives.

At May 28, 2022, we have substantially completed our restructuring initiatives globally. We do not expect future cash requirements for restructuring initiatives to be material. Additionally, during the three months ended November 27, 2021, we made the final cash earn-out payment of $7.0 million related to the acquisition of Veracity. We have no remaining contingent consideration liabilities as of May 28, 2022.

Other trends impacting our near-term liquidity include the deferral of payroll taxes under the CARES Act and certain tax planning strategies implemented in the fourth quarter of fiscal 2021. The CARES Act includes provisions, among others, allowing deferral of the employer portion of the social security payroll taxes and addressing the carryback of net operating losses (“NOLs”) for specific periods. We previously elected to defer the employer portion of social security payroll taxes through December 31, 2020 totaling $12.6 million. Subsequent to the deferral, we elected to make a partial repayment of $6.3 million in May 2021 and $2.3 million in December 2021. We expect to pay the remaining $4.0 million of deferred payroll taxes in late calendar 2022. In addition, as part of our tax planning strategies, we made certain changes related to the capitalization of fixed assets effective for fiscal 2021. This strategy allowed us to carry back the NOLs of fiscal 2021 to fiscal years 2016 to 2018. We recognized a discrete tax benefit of $12.8 million in fiscal 2021 and filed for a federal tax refund in the amount of $34.8 million in April 2022. We expect to receive such refund in the first half of fiscal 2023.

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On a macro level, the Pandemic and uncertain macroeconomic conditions, including recent inflationary pressures, rise in interest rates and global uncertainties associated with the current conflict in Ukraine, have created significant uncertainty in the global economy and capital markets, which is expected to continue into fiscal 2023 and beyond and impact our financial results and liquidity. 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 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 New Credit Facility will be adequate to meet our working capital and capital expenditure needs for at least the next 12 months.

Beyond the next 12 months, if we require additional capital resources to grow our business, either organically or through acquisitions, we may seek to sell additional equity securities, increase use of our New Credit Facility, expand the size of our New Credit 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 New Credit Facility. The sale of additional equity securities or certain forms of debt financing could result in additional dilution to our stockholders. Our ability to secure additional financing in the future, if needed, will depend on several factors. These include our future profitability and the overall condition of the credit markets. Notwithstanding these considerations, we expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements.

Operating Activities, Fiscal 2022 and 2021

Operating activities provided cash of $49.4 million and $39.9 million in fiscal 2022 and fiscal 2021, respectively. In fiscal 2022, cash provided by operations resulted from net income of $67.2 million and non-cash adjustments of $6.9 million. Additionally, in fiscal 2022, net unfavorable changes in operating assets and liabilities totaled $24.7 million. These changes primarily consisted of a $44.8 million increase in trade accounts receivable, mainly attributable to accelerated revenue growth throughout fiscal 2022, and a $5.5 million decrease in other liabilities, which includes the final Veracity contingent consideration payment, of which $3.7 million was categorized as operating (the remaining $3.3 million of the total $7.0 million contingent consideration payment was categorized as financing cash flow) partially offset by a $22.0 million increase in accrued salaries and related obligations due to the significant increase in accrued incentive compensation as a result of strong business performance during the fiscal year, and a $2.1 million decrease in prepaid income taxes due to timing of estimated quarterly tax payments.

In fiscal 2021, cash provided by operations resulted from net income of $25.2 million and non-cash adjustments of $33.9 million. Additionally, in fiscal 2021, these were partially offset by net unfavorable changes in operating assets and liabilities totaling $19.2 million, primarily consisting of an increase in income taxes receivable of $32.6 million as a result of certain tax method changes elected in the fourth quarter of fiscal 2021 and the first quarter of fiscal 2022, which allowed us to recognize a tax benefit of $12.8 million in fiscal 2021, partially offset by a decrease in trade accounts receivable of $11.4 million, mostly attributable to improved collection on our accounts receivable and an increase in accrued salaries and related obligations of $2.4 million primarily as a result of increased vacation accrual year over year.

Investing Activities, Fiscal 2022 and 2021

Net cash used in investing activities was $3.0 million in fiscal 2022 compared to $3.8 million in fiscal 2021. Net cash used in investing activities in both periods was primarily for the development of internal-use software and acquisition of property and equipment.

Financing Activities, Fiscal 2022 and 2021

The primary sources of cash in financing activities are borrowings under our New Credit Facility, cash proceeds from the exercise of employee stock options and proceeds from the issuance of shares purchased under our ESPP. The primary uses of cash in financing activities are repayments under the New Credit Facility, payment of contingent consideration, repurchases of our common stock and cash dividend payments to our stockholders.

Net cash used in financing activities totaled $13.4 million in fiscal 2022 compared to $59.5 million in fiscal 2021. Net cash used in financing activities during fiscal 2022 consisted of $19.7 million used for the repurchase of our common stock, cash dividend payments of $18.6 million, the final Veracity contingent consideration payment, of which $3.3 million was categorized as financing (the remaining $3.7 million of the total $7.0 million final Veracity contingent consideration payment was categorized as operating), and the Expertforce Interim Projects GmbH, LLC (“Expertence”) contingent consideration payment of $0.3 million, partially offset by $10.4 million of net borrowing under the New Credit Facility (consisting of $73.4 million of proceeds and $63.0 million of repayment), and $17.9 million in proceeds received from ESPP share purchases and employee stock option exercises.

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Net cash used in financing activities in fiscal 2021 consisted of repayments under the Previous Credit Facility of $45.0 million, cash dividend payments of $18.2 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 $6.8 million in proceeds received from ESPP share purchases and employee stock option exercises.

For a comparison of our cash flow activities for the fiscal years ended May 29, 2021 and May 30, 2020, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended May 29, 2021, filed with the SEC on July 23, 2021 (File No. 0-32113).

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 II, Item 8 of this Annual Report on Form 10-K.