Resources Connection, Inc. (RECN)

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Resources Connection, Inc. (RECN)

F1Q09 Earnings Call

October 2, 2008 5:00 pm ET


Kate Duchene - CLO

Thomas Christopoul – Chief Executive Officer

Nate Franke – Chief Financial Officer

Anthony Cherbak – Executive Vice President, Operations


Mark Marcon – Robert W. Baird & Co.

Andrew Steinerman – JP Morgan

Gary Bisbee – Barkley’s Capital

Michel Morin – Merrill Lynch

T.C. Robillard – Banc of America Securities

Analyst for Paul Ginocchio – Deutsche Bank

Kevin McVeigh – Credit Suisse

James Janesky - Stifel Nicolaus

Scott Schneeberger - Oppenheimer & Co.



Welcome to the Resources Global Professional first quarter fiscal year 2009 earnings results conference call. (Operator Instructions) At this time, for opening remarks and introductions I’ll turn the call over to Kate Duchene.

Kate Duchene

Joining me are Thomas Christopoul, our Chief Executive Officer; Tony Cherbak, our Executive Vice President of Operations and Nate Franke, our Chief Financial Officer. Tom will speak first about the quarter's results, followed by Nate who will discuss the financial details and then Tony will conclude the call.

During this call we will be providing you with comments on our results for the first quarter of fiscal year 2009. By now you should have a copy of today's press release. If you need a copy and are unable to access it via our website, please call Patricia Marquez at 714-430-6314 and she will be happy to fax a copy to you.

Before introducing Tom, I would like to read an important announcement about certain statements that we may make during this call; specifically, we may make forward-looking statements. In other words, statements regarding future events or future financial performance of the company.

We wish to caution you that such statements are just predictions and actual events or results may differ materially. We refer you to our 10-K report for the year ended May 31, 2008 for a discussion of some of the risks, uncertainties and other factors, such as seasonal and economic conditions that may cause our business, results of operations and financial condition to differ materially from results of operations and financial conditions, expressed or implied, by forward-looking statements made during this call.

I'll now turn the call over to Tom Christopoul, our Chief Executive Officer, to give an overview of the first quarter.

Thomas Christopoul

Before we begin let me just address the fact that Don Murray is not joining us on this call today. Don is recovering from a medical procedure he had last week. He is quite fine and recovering well and will actually be home here in Southern California with us tomorrow.

Now on to the quarter. Total revenues for the first quarter of fiscal 2009 were $207 million, up 7% over the first quarter a year ago. Net earnings were $12.5 million or $0.27 per share, a 17% improvement over the $0.23 per share we reported a year ago.

Fiscal 2009 began like a continuation of our strong fourth quarter in 2008 with revenue averaging $16.5 million per week for the first six weeks of this quarter. However, over the last half of the quarter revenues decelerated to an average of $15.3 million per week as the summer vacation season for our clients and consultants kicked in for the year.

Over the course of the quarter 15 new offices hit new weekly revenue highs; 9 internationally and six domestically. As you know, historically our first quarter is our seasonally weakest due primarily to summer vacations in both the U.S. and Europe and to a lesser extent in Asia. Vacation hours in our first quarter increased approximately 10% over the comparable period last year.

First quarter gross margin increased 110 basis points to 39% compared to 37.9% a year ago. This margin improvement offset the impact of the revenue shortfall in our earnings for the quarter. Last year we told investors that improving gross margin was one of our most important operational initiatives and that all our managing directors and client service personnel were focused on it.

Throughout fiscal 2008 we worked hard to secure reasonable bill rate increases from our clients on existing projects and negotiate fees commensurate with the value we were delivering on new projects. These efforts have obviously paid off and we are very pleased to see gross margins in our first quarter much more closely resembling those we have enjoyed historically.

We have also worked very hard over the last several quarters to reduce nonessential SG&A. We are happy to report that SG&A in the first quarter of fiscal 2009 was well within our third and fourth quarters of fiscal 2008 and also consistent with our plan to tightly control SG&A spend especially in this current environment.

Nate will give you more details on gross margin and SG&A in his finance report in a few moments.

As we head into our second quarter and obviously the balance of fiscal 2009 it appears we, like everyone else, will continue to encounter a very challenging economic environment with exceptional volatility in the world financial markets. Obviously 18 months ago it would be impossible to predict the failure of Bear Stearns and Lehman Brothers, the failure of Merrill Lynch or the federal bail out of Freddie or Fannie, the toll of the credit crisis in the U.S. along with the recent economic contraction in Europe and Asia has caused many global companies to rethink their capital budgets and obviously plan more conservatively.

We are not immune to the effects of this cautionary approach in current operations as post Labor Day revenues have not rebounded as much as I would have liked. Revenues for the first four weeks of our second quarter, this current quarter which included the Labor Day holiday, totaled about $60 million, down about 2.5% from the first four weeks of the comparable period a year ago.

We have got $60 million for this fiscal year and beyond [audio breaks up]. Many of our clients will need help in navigating the new regulations and multiple industry consolidations that are likely to come in response to the credit crisis and we will be able to help many of those clients restructure and reorganize their businesses. While we believe the enormous change taking place in the global capital market will present many new opportunities for us going forward the timing of those opportunities is much less certain as these companies and our clients try to determine their way forward in this tumultuous business environment.

In any event, as you know our business model which is designed such that approximately 70% of our cash costs are variable will allow us to navigate profitably even in this incredibly tough business climate.

In addition to our continued focus on gross margin and SG&A spend, we are fine-tuning other aspects of our business like how we position our services within our clients, improving operations in markets that have greater potential than what is currently being recognized and importantly developing our readiness for emerging business opportunities like regulatory compliance and the establishment and promulgation of IFRS.

In short, we will continue to focus on our clients and consultants, those things we can control, and not be distracted by events that are occurring in the global economy. After my first four months as CEO I have had the opportunity to spend time with many of our offices domestically and internationally, our employees and executives and most importantly our consultants. I’m actually more encouraged today even given the global environment than I was here on day one. We clearly have the right business model and the right talent for continued growth in this market.

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