Resources Connection, Inc. (RECN)

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Resources Connection, Inc. (RECN)

F2Q09 Earnings Call

January 6, 2009 5:00 pm ET


Kate Duchene - Chief Legal Officer & Executive Vice President of Human Resources

Thomas D. Christopoul - President and Chief Executive Officer

Nathan W. Franke - Chief Financial Officer

Anthony Cherbak - Chief Operating Officer and President, International Operations


Kevin McVeigh - Credit Suisse

James Janesky - Stifel Nicolaus & Company

Andrew Steinerman - J.P. Morgan

Paul Ginocchio - Deutsche Bank Securities

Gary Bisbee - Barclays Capital

Mark Marcon - Robert W. Baird & Co.

Scott Schneeberger - Oppenheimer & Co.



Welcome to the Resources Global Professional second 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

Good afternoon everyone and thank you for participating today. During this call we will be providing you with comments on our results for the second 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 a copy 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 Christopoul, our CEO, 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.

Thomas D. Christopoul

Good afternoon everyone and welcome to the Resources Global second quarter conference call. Joining me today here in Irvine are Don Murray, our Executive Chairman, and our senior leadership team of Nate Franke, Kate Duchene, Tony Cherbak, and Karen Ferguson.

Let me begin by giving you a brief snapshot of our second quarter operating results. Total revenues for the second quarter of fiscal 2009 were $190.2 million, down 7.9% over the second quarter a year ago.

Net earnings were $9.5 million, or $0.32 per share, compared to $0.27 per share that we reported a year ago this quarter.

Our second quarter revenues came in approximately 3.5% below what our computed run rate was for the first four weeks of the quarter. But despite the high level of turmoil and uncertainty in the global economy, our average weekly client service hours, excluding the holiday weeks, were relatively consistent throughout the quarter.

However, within the quarter we experienced significant movements in foreign currency exchange rates which caused us to lose approximately $3.3 million in revenue from early in the second quarter through the end of the quarter as the U.S. dollar strengthened dramatically against a host of foreign currencies, most notably for us, the Euro and the pound.

Second quarter gross margin increased 50 basis points to 39% and that compares to 38.5% a year ago, which was flat sequentially with last quarter.

Aggregate SG&A dollars decreased 3.7%, primarily the result of exchange rate differences from the first quarter. Nate will provide more detail on our second quarter financial results later in the call.

As many companies struggle to find financing in a difficult credit market, Resources continues to generate cash based on the strength of our business model. Our business model, as you know, suggests that 70% of our cash costs are variable and that is self-regulatory and as our cost of revenue decreases our revenue levels become less volatile.

The variable nature of our business model dramatically decreases our risk profile. Through the first half of fiscal 2009 we have generated approximately $31.0 million in cash from operations and ended our second quarter with approximately $134.0 million in cash and investments and no debt.

Our ability to generate cash allows us to be opportunistic in returning cash to shareholders or taking advantage of attractive investment opportunities as they present themselves in the global market.

Business today for Resources is definitely more difficult than it was 12 to 18 months ago and it is obviously testing the strength of our business model as well as the resolve of our people. We are quite confident that we will pass these tests successfully.

As I have communicated to our people all over the world, extraordinary times require extraordinary effort. Everyone at Resources is working harder today to develop business and take advantage of every revenue opportunity that presents itself while at the same time working efficiently to control discretionary costs.

These efforts are reflected in our current operating results and will also serve to make us a much stronger company as we emerge from this phase of the current economic cycle. We will continue to stay focused on what we can control and not be distracted by extraordinary events in the capital markets.

And I would also like to take this opportunity to discuss with you some very recent organizational changes within Resources. These changes to our senior leadership team are not revolutionary by any means, but rather are designed to support the evolution of our enterprise in accordance with our long-term growth strategies and the execution of our unique value proposition, which is the foundation of our competitive advantage in the market place.

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