RGP Publishes Letter From CEO Regarding COVID-19 - Seite 2

The timing of our recent restructuring initiative put us well ahead of the curve from both a financial perspective, and in preparing us for a swift transition to virtual operations. In early March—before the significant spread of COVID-19’s economic impact—we reduced our workforce by 8% and launched a plan to terminate a quarter of our real estate leases in North America. Upon completion of these actions, we expect a total pre-tax savings of $16 to $19 million annually. We intend to reinvest a limited portion of these savings over time into digital capabilities and to drive forward certain growth initiatives in core markets. Because of these actions, we will improve our Adjusted EBITDA performance which is a stated goal of the organization.

With respect to business trends during the COVID-19 pandemic, revenue from weeks ending 3/7/20 to 4/18/20 dropped by approximately 4% relative to the first seven non-holiday weeks of the calendar year. Over this same period, our gross margins remained relatively consistent with historical trends. Excluding the restructuring cost impact from the personnel reduction and real estate terminations, our SG&A performance as a percentage of revenue is improving in the fourth quarter. Given the fluid nature of this crisis, there is no guarantee we can maintain this performance. Our fiscal fourth quarter results will depend upon how quickly the economy reopens and how companies continue their focus on strategic projects and investments in transformation.

We’re also deeply proud of the transformation work we’ve accomplished over the last several years to create a more resilient company. We’ve evolved our operating mode and go-to-market strategy, expanded our mix and range of services, and established a function dedicated to digital innovation. We’ve made strides in modernizing our systems and structure to support growth and scale as well as ensure productive virtual operations. Lastly, we welcome the macrotrends around the Future of Work driving a pronounced shift to agility that favors RGP’s business model and creates opportunity on both the supply and demand sides of our business.

Although grateful for every advantage in navigating this unprecedented and challenging period, our management team has been taking proactive and protective measures to keep our business stable and to preserve our liquidity position. Among them:

• Drawing down our revolving Credit Facility to ensure substantial cash reserves;
• Taking full advantage of opportunities for payment deferral and incremental benefits under the CARES Act;
• Exploring benefits available to us under foreign stimulus packages for our international subsidiaries;
• Refraining from making share repurchases in the fourth quarter;
• Closely monitoring receivables and actively working with our clients on payment arrangements that are mutually beneficial;
• Proactively varying and managing cash disbursements;
• Negotiating real estate obligation concessions; and
• Conducting scenario planning/analysis to drive management decisions and maintain the health of the business.

While we focus on preserving cash and prudent fiscal management, we’re also closely tracking pipeline activity and coaching sales teams on how to adjust their approach given the pandemic and its impact on client operations and priorities. We’re actively uncovering areas of opportunity with our clients, including healthcare compliance, financial services compliance, returning offshored finance and accounting operational work and rethinking supply chain strategies. Finally, the Board approved a quarterly dividend in the fourth quarter to be paid on June 10, 2020. We’ve consistently paid our dividend over the past 10 years and believe the business remains stable enough to continue supporting that program.