Q3 2020 Earnings Call
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Ladies and gentlemen, please continue to hold your conference call will begin momentarily.
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Good afternoon, ladies and gentlemen, and welcome to the resources connection Inc. Conference call. At this time all participants are in listen only mode. Later, we'll conduct a quick.
I didn't answer session and instructions will follow at that time.
If anyone should require assistance during the call. Please press the star can you followed by the zero button on your Touchtone phone and you'll be connected to an operator, who will assist you.
This conference call is being recorded at this time I like to turn the call over to your hosts for today's call Mr., Alex Washington General Counsel of resources connection. That's Washington, you May now begin.
Thank you operator.
Afternoon, everyone and thank you for participating on this call.
Joining me here today are Kate to Shane our Chief Executive Officer, Jim Brackney, Our Chief operating officer, and Jennifer <unk>, Our Chief Financial Officer.
During this call we will be commenting on our results for the third quarter ended February 20 circa 2025 now you should have a copy of today's press release, if you need a copy and are unable to access it on our website. Please call Shannon, let's see.
I've been once the war for three zero.
Right.
Great.
During this call we may make forward looking statements regarding future about for future financial performance of the company.
Such statements are predictions and actual events or results may differ materially.
Please see our report on form 10 trade for the year ended May 20 to 29 chain and our report on form 10-Q for the quarter ended February 20, circa 2020, which we are filing today for a discussion of risks uncertainties and other factors such as seasonal when economic conditions as well.
This epidemic diseases, such as the recent outbreak and the Carbonite chain illness.
Such factors may cause our business results of operations and financial condition to differ materially from results of operations and financial conditions expressed or implied forward looking statements made during this call.
I'll now turn the call over to our CEO Kate you Shane.
Thank you Alan.
Welcome to our Q3 fiscal 20 earnings call. This is the first time in company history, well, where all participants are delivering remotely and we will be answering acuity virtually this is the new normal for us as it is for many companies. Thank you very much for attending the call today during.
Such unprecedented times.
Our GP is a human first company. So I will begin with my remarks with a human perspective on our current circumstances amid the Kobe 19 pandemic.
First we are grateful that today, we only had the you cases of co bid in our employee population.
We have other personnel practicing self quarantine activities and still others facing health challenges of loved ones.
Our priority during these challenging times is the safety and health and mental wellbeing of our people.
Our limited direct impact to date is good news you don't take it lightly and for which we are immensely grateful we.
We will continue to monitor our workforce active lead to ensure we're providing the right support including regular communications access to knowledge access to resources, including Tele medicine, and employee assistance programs and access to virtual learning training program and I T support.
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We are also proud we already all for paid time off and sick leave benefits to those coping with this current situation.
Second we have implemented aggressive work from home plans for both consultants and internal management, given all restructuring activities in early March which I'll talk more about in a moment. We were ahead of the curb and preparing for a transition.
Over the past three month as part of the projects strength initiative, we developed a specific road map for virtual work arrangement.
Including designating the right leaders and organizational structure processed fees and technology tool.
We established and communicated virtual work policy to the whole population, we've implemented something we called project virtual connect which includes the rollout of new technology and collaboration tools that you do Microsoft team.
Okay, and smart cheap and we've developed a learning and training resources to help employees stay connected in productive within the virtual working environment.
As knowledge workers, we are much better off to transition to the virtual workplace effectively.
And so I'm I'm confident we're ready for these seismic shift given the work we did throughout January and February before we knew we'd be in the serious grip of a global pandemic.
Third I want to show data from our experience in China, Japan, Singapore in South Korea, where we have operation.
Our China business was most dramatically impacted in January with the first furious shelter in place rules.
The pandemic impacted our Q3 results in Asia Pac by approximately $2 million and lost revenue.
Persevering in the face of adversity, our teams in Asia Pac have proven to be tenacious in their client care.
So much so that we've seen our business in these markets beginning to normalize.
While these practices do represent a smaller percentage of our global revenue we are learning from the regions experiences.
As a testament to this team resilient and the inherent agility of our GP business model, we have identified opportunities and stabilize opportunities by shifting talent to deliver for clients and alternate locations.
For example, a client in Japan shifted a critical technology transformation project.
Tokyo to New Jersey in February when Japan, with most seriously impacted by work from home and business travel disruption.
Similarly, we're currently talking with a number of clients about potential global Nondiscretionary audit support given travel bans.
We're well positioned to help clients in new ways. During these fluid in uncertain times as RG <unk> founding principle is to provide the very human agility companies need right now.
Now, let me talk for a minute about restructuring initiative, which I just referred to as project strength.
As I previewed on her last earnings call. During Q3, we undertook a deep business review to become more resilient ahead of that potential economic downturn.
Project strength had three primary elements.
First.
Streamline our management structure to improve efficiency employee engagement and reduce costs.
Second to eliminate nonessential head count and focus our solution offering on project management change management business transformation services, and three reduce geographic footprint and real estate spend in order to focus on high growth core markets.
With respect to this last element as mentioned earlier, we are actively shifting to deliver with a more virtual operating model.
This strategic move also aligns with the development and deployment of our human cloud platform coming in fiscal 21.
Tim will provide more color on our restructuring activities and their anticipated impact.
Well project strength was in no means designed with a global pandemic in mine. We are relieved we engaged in the restructuring work when we did as it enhances our ability to confront todays unprecedented challenges.
The restructuring decisions, we made in early March to reduce management head count by approximately 8% and terminate a quarter of the real estate leases in North America will provide substantial annualized cost savings.
The project strength review of our European business is ongoing in Q4.
It may be delayed by the impact of coal bed and our European theater, but we will report on actions there during our earnings call. Following the first quarter fiscal 21.
Jan in a moment, we'll share more detail on the cost of the restructuring efforts as well is projected annual saving.
The last topic I want to address before I turn the call over to Tim in Jan is the question of RG piece past performance in the face of recession.
Who is our GP now and how are we likely to perform if the economic crisis deepens.
Without a doubt the impacted the 2008, great recession hit our GP hard.
At the time, we were mostly known as a finance and accounting staff augmentation firms and Sarbanes Oxley compliance provider.
In 2008, or nine with the economic downturn and the commodity deflation of stocks work, we saw revenue opportunities declined significantly.
We spent the last several years evolving our business and operational model and our today a different company.
The old Glenn does not apply.
From primarily a finance and accounting staffing and Sox compliant shop, we've grown could become a trusted human capital partner to our clients.
Supporting their change and transformation initiative.
We operate today in two main buckets.
National staffing and project consulting we work, primarily with large and very large companies.
Our professional staffing business is today broader based functionally then 12 years ago.
What I mean by Dad is we serve the resourcing needs of not only the CFO, but also now the chief procurement officer, the Chief Auditor.
The CIO this DHR ROE and the project management office.
With respect to consulting or services bogus as I mentioned on project execution that includes program and project management organizational change management and specific subject matter expertise, which we call Advisory project services.
Companies turned to our GP today, because they increasingly own their transformation strategies and need execution support.
They want to keep talent resourcing agile because the skills needed for each transformation initiative change.
When it comes to transformational project work it no longer makes sense to rely on full time equivalent with skillset that may only temporarily be relevant.
Most transformation initiatives today fall within one of three main areas.
Finance transformation, including automation digital transformation, including technology, and cloud migration and risk and compliance.
We have adjusted our focus in our service capabilities to match our clients agendas.
Not only are we better position today due to the evolved in focused portfolio work. Our project business is driven by needs are rising during different business cycle.
Sounds good projects, we work on are focused on topline growth initiative.
For example, we developed financial in supply chain frameworks for the clinical trial of the new cancer drug.
Other projects stem from cost savings directive.
Another example, we project manager at supply chain optimization initiative to reduce cost for a global life Sciences client.
Should the current economic climate deteriorate further we expect to see more project opportunity of the latter variety.
Equally important to the RG P. resiliency question are the macro trends that favor our business model now.
Consider to make good trends already well under way before Google searches for Kobin 19 spiked.
These trends provide opportunity for our GP on both the supply and demand side that the business.
First demographic.
Three years ago, the U.S. workforce across the major generational threshold for the first time millennial old today Ages 24 to 39 made up the largest generational cohort in Americas workforce.
We're passing baby boomers and Gen xers, According to Pew research and U.S. census data.
This year 2020, well mark another threshold being cross millennials will soon comprised the majority of U.S. workforce with their born digital successors, janvey or just entering the workforce in their first job not far behind.
This means a lot for workplace flexibility trends.
One study found that 92% of millennials and your total majority identified flexibility as a top priority one job hunting.
Many may not even considered job offer unless remote work or other flexible options are on the table.
And it's not just the millennials.
A recent you case study found that only 17% if those over 50 Faber traditional patterns of 95 office work, leaving the vast majority favoring more part time and other flexible options just like they were younger colleagues.
And at the very same time that talent increasingly prefers agility organizations are rapidly embracing project oriented workforce strategy.
As we've discussed on previous calls, we see a pronounced shift in procurement trends for professional services.
This can be summed up its fit for purpose and price initiatives large companies are rationalizing their supply chains do it to identify strategy implementation and operation support partners.
Our G.P. fits wholly in the latter to provide or categories.
And as clients conduct recessionary planning, we believe they will increasingly look to rely on agile resources.
Fit for purpose in price to complete projects without the burden and limitations of traditional full time employee decision making.
Google Mckesson, Unilever, Microsoft and others have already publicly acknowledge that strategic shift.
Which we believe will grow.
Which brings us to the third Mega trend.
The Corona virus itself.
Not a long term trend, we hope, but rather a short term catalysts that will accelerate the demographic and workforce planning trends just mentioned.
As more companies respond to that grown the virus with great greater flexibility and new workforce strategies I'm confident these agile changes won't be temporary fixed visit all.
Rather they will become long term practices.
Business agility as an imperative today and business leaders no now more than ever before that human agility is a critical driver of business agility.
And that's where our G.P. fits in.
It's genie is not going back into the bottle.
I'll now turn the call over the Tam to cover certain results of operations in quarter, three and also our trends in early Q4.
Thank you Kate and good afternoon, everyone.
I will highlight operating trends in initiative that impacted our results of operations for the third quarter provide more color on the reorganization of our go to market operations and the scoped early fourth quarter trends.
He's brought by touching it operations in a world afflicted by global pandemic.
Hi, I'm extremely proud where a company has responded in a jumped into this new temporary normal no matter. They shifted course to look dominantly on premise world to a wholly virtual our GP.
It was forced the sudden merging a personal and professional which is unprecedented in our company's history, but one which are people embrace seamlessly without getting to be we've continued to engage directly with our clients at each other moving past the discomfort and novelty bar surrounding embracing a new way of doing business.
Early returns have been mostly positive would only some project interruption scope modifications or delays.
Today, we have had very few engagement termination.
Additionally, we've had some opportunity to support clients, a new albeit virtual way.
We are currently baselining and tracking booked existing business and pipeline in order to better comprehend the direct effects.
Pandemic.
This is a fluid and rapidly changing environment. So management remain vigilant and can be the kids frequently to ensure the safety more people buoyancy of morale and preservation of our financial fundamentals.
We are grateful wouldn't have like this where the inherent resilience embedded in our business model of Keurig noted our agile employment modeling purpose built for the flexibility demand, both clients and talent, which makes it especially relevant in a category of uncertainty.
We have the ability to serve our client base by deploying globally and virtually help stabilize operations and she initiatives that happened that impacted by travel movement restrictions.
For example, one of our financial services clients and twice they ask for helping closing their books, knowing that have to do that were mostly <unk>. We mobilized presented a team plan and modalities for virtual execution.
We were often running.
Additionally, our platform built on a scale that largely balances robin even call. It differentiator in today's market. Finally does your continued to move into the digital transformation arena with Rhapsody, we find that more and more of these projects are delivered remotely and many of the client interactions are already conducted virtually.
Well there was no we'll look for the I've known we do know, but our business model off we before the flexibility that at the precious commodity in today's world.
Now, let me turn to a third quarter operations.
Last quarter, we started to see increased people off of the in type one activity that has persisted throughout the third quarter, excluding three holiday weeks.
While revenue declined in the quarter over quarter basis, principally due to the timing of holiday sunsetting of large projects or revenue velocity was the highest it's been in several quarters. Additionally, our focus on fuel pricing has remained strong yielding a year to date average billing rate increase in North America compared to the same prior year period.
I will give more color on financial metrics in her remarks.
We have worked hard at managing activity in pipeline and this discipline continue even through the choppy waters of the current environment type one going up to the increase in North America and Europe in the third quarter wont Asia Pacific was impacted by holidays. The protests in Hong Kong and pulled in my view during the latter half of a third quarter.
As I mentioned last quarter clients are engaging crucial projects and transformation efforts, even in uncertain time deposits environment may impact timing and scope. However, we believe the many initiatives will continue to perform well listen mine, we're doubling our outreach efforts and looking for new and innovative ways to help these clients navigate this due to normal as an example for governor.
Controlled engagements, we were able to complete engagement for a review into made documentation interviewing t. personnel and running test that's remotely.
We continue to optimize our core business platform with a focus on go to market productivity delivery effectiveness efficient matching supply demand and cost containment.
Organization efforts, we undertook in the early days for fourth quarter, well positioned around these key elements and mostly focus in North America at the European view was still underway and the Asia Pacific business, one bleed it has been historically profitable.
The North American core business will be centered around four distinct portfolio.
Core secondary in emerging markets and independent businesses, which include Rhapsody count to consider.
Advancing our go to market productivity requires building more quite centricity and relentless privatization of high return investment area.
North America, the majority of our largest clients, including those in our strategic account program Donald So I wouldn't be core markets Tristate, Atlanta, Chicago, Dallas, Houston, Northern California, Los Angeles, and Orange County, where we will continue to operate the traditional footprint and look to concentrate investment in account and target development.
That's not people quite aggregation in metropolitan GDP leads to a significant locus of revenue within core markets.
There are an additional 60 in secondary markets that are significant based on client presence from operations on headquarters. These practices will operate with we'll go to market team combined with reduced physical real estate commitment. The strategy allows us to episodes of all a minimum locales, where we traditionally underinvested and thereby improving service we extend to our most important part.
That's clearly demonstrated by the 13% year to date growth in our SVP and key account program, when and where we focus we're likely to win.
Well the review process, including an effort to rationalize the size and depth of our footprint that awful evolved in evolution of operating model into one that is purely virtual and our smallest markets. As a result, six practices will be for by a single leader, who will manage all of our go to market efforts with support from centralized operational and back office functions.
Markets will not have dedicated real estate and will operate Fortunately.
Finally, we will wind down eight practices and serve them from Boston the geography, we will not maintain market briefing operational personnel or real estate and he's location.
These changes leave us with more to record leadership marquee clients and geographies and give us the necessary agility to capitalize quickly on market trends an opportunity. These shifts necessitated leadership and personnel realignment and overall net reduction head count and real estate ultimately providing positive impacted productivity delivery I'll come back haul.
And we'll provide more color on restructuring and her talk.
While we were encouraged by the productivity strides made to date and feel that the realignment of our operations and leadership will provide for a stronger crisper and more efficient go to market process.
Recognizing a consistency of performance across our portfolio.
For example, what we thought reasonable off the lift in some of our core markets on a year to date basis. The group with the exception of Atlanta has not performed a desired in contractor secondary markets have performed strongly up the portfolio, but but Seattle, Philadelphia, Tulsa and the Caroline.
Although consists of bright spots had been are healthy and executive search businesses Task Force veracity and Asia Pacific led by strong performance in Japan. We appreciate these efforts and know that have an enterprise, we mcmaster consistency of result.
Now onto the supply side of our business this quarter like last when compared both sequentially and with the prior year quarter, we saw improvement them consulting retention time to Phil when rates and overall yield metric I know our talent organization is probably the progress to date, but we made fiercely committed a continuous improvement we all know the stronger filled in operations.
Planning on half decision, making and drive a quicker self broker and ultimately higher client satisfaction.
Our team to work, it's a difficult 21 plan and currently with an eye toward achieving stronger supply and demand alignment better inventory management, and ensuring focused field sales motion based on delivery capability.
We've adopted a three other country mentality with sales talent and advisement project services or Hps working closely together, which is yielding stronger integration planning and execution.
We know that are quite based predominantly larger clients will continue to look to off for professional staffing and recently increasingly significant assistance on co delivery of key initiative.
For RG PT that needs to focus on transformation project can change management procurement optimization, along with functional burst resource.
Additionally, as you put your new buying centers within existing clients and targets, our digital capabilities and customer user experience as well as cloud migration led by Voracity in or if you ask lease respectively will be crucial.
Finally, we have made great strides in healthcare and life Sciences, and we feel that segment as a clear growth lever for us next year.
Before I conclude my remarks, I want to provide some insight about early fourth quarter trend.
Recognizing a fourth quarter results will be adversely impacted by the global pandemic. We're number we're pleased with operational trends today.
The first few weeks for the quarter trailing average enterprise run rates are the highest they've been the fiscal year and the highest in several months. Additionally, we are seeing upward momentum in some of our core North American markets, including Tri State, Northern California and Dallas.
Overall pipeline a pull through was also relatively solid and stable in the first few weeks of the fourth quarter.
While we went first why these trends and strengthening of our overall pipeline we understand there if you're if uncertainty ahead and we'll remain focused on things we can control.
Rich climbing consulting service and innovative delivery and he's trying circumstances.
I'll now turn the pull over to again for more detailed review of our third quarter results.
Thank you Ken and good afternoon, everyone.
I'll start by giving detail or a third fiscal quarter financial results. I will then discuss the trends we're seeing in the fourth quarter fiscal 20, as well as a financial impact of our restructuring plan.
Starting with an overview of our third quarter results.
Total revenue for the third quarter fiscal 20, with Onesixty 8.1 million, 6.4% decrease from the comparable quarter a year ago.
An 8.9% decrease sequentially on a constant currency basis revenue decreased 6.2% year over year, a 9.1% sequentially.
Our third quarter gross margin was 36.5% down 130 basis points from the third quarter fiscal 19, and 380 basis points sequentially.
As expected third quarter revenue and gross margin with both significantly impacted by additional holiday.
Further revenue was adversely impacted by the cobot Nike outbreak in China at the beginning of the calendar year.
I will provide more color revenues by geography, as each geography was impacted by different set of circumstances.
As she name expenses for the quarter was 55.3 million for 32.9% of revenue compared to 55.6 million was 31% of revenue last year.
Our net income for the third quarter was 6.9 million or 21 cents per diluted share up from 5.8 million <unk> 18 cents per diluted share in the prior year quarter.
Third quarter net income benefited from a U.S. tax deduction of 6.6 million relating to the exit from the Nordics in Belgium market earlier in the fiscal year.
In Q3, adjusted EBITDA, which we defined as EBITDA before stock compensation and contingent consideration adjustment was 6.8 million or 4% of revenue down from 13.9 million was 7.8% of revenue in the prior year quarter, reflecting the impact of lower revenue and gross margin.
Now, let me provide some color around our third quarter revenue geographically.
North America revenue decreased 8 million were 5.4% year over year.
Voracity contributed 5.4 million of revenue in the third quarter, excluding veracity North America revenue decreased 13.4 million when 9.1% year over year.
As discussed during our second quarter earnings call, we expected our third quarter organic revenue to be impacted by approximately 11 to 13 million due to the Thanksgiving holiday, which were in Q2 last year and the mid week timing of Christmas and new years day.
Sequentially compared to Q2 fiscal 20, we experienced a similar decreased 13.6 million in North America revenue due to the impact of holidays.
To review the noise caused by the timing of holidays, and thereby enhancing compare ability between periods management uses daily revenue run rate as its performance metric.
D.V. revenue run rate is calculated by taking total revenue divided by the number of equivalent working day.
Equally working days are the number of actual what Dave adjusted when the timing of the holiday.
In the third quarter fiscal 20, we had 58 equivalent working days compared to 63 days in the third quarter fiscal 19, and 64 days in Q2.
The U.S. baby revenue from the third quarter fiscal 20 with on par with prior year quarter and increased by approximately 3% compared to the first half average a fiscal 20.
The rebound in organic revenue was a result, an active pipeline management and business development efforts.
Well the decrease in DC County implementation revenue continue to place a drag on the third quarter, we were able to replace it with revenues from other solution offerings, primarily in operational accounting.
Well revenues in our tristate, northern and southern California markets, we're still down compared to the prior year, we saw upward momentum in those markets in the third quarter. Despite the holiday impact we continue to see significant improvement in markets such as San Antonio.
Yeah, I don't Philadelphia and in our account fee business, although we understand its progress maybe tempered by the current environment.
Your third quarter revenue decreased 13.8% year over year and 6.9% sequentially.
Our exit from the Nordics and Belgian markets resulted in a 2.4 million decrease in revenues compared to Q3 fiscal 19.
Excluding this impact your third quarter revenue showed a decline of 2.6% compared to a year ago or a decline of 1.2% on a constant currency basis.
Similar to the U.S. Europe was also impacted by the effect in the mid week holidays compared to prior year.
The bright spot in the third quarter with UK, showing strong performance compared to prior year quarter.
Asia comps third quarter revenue decreased 4.8% year over year and 11.9% sequentially.
On a constant currency basis Asia Pac should have any decreased 4.6% year over year and 12% sequentially.
In light of the Cobot 19 outbreak our practice is based in China and other parts of Asia adopted virtual methods of working in order to ensure business continuity for us as well as far clients. Nevertheless, the events with leading to call that 19 had an adverse impact on our revenue in Asia Pac, especially in China and Hong Kong in it.
In China was further impacted by the extended lunar new years holidays in Hong Kong by the ongoing protest in Q3.
The cheap bright spots in Asia Pac in the third quarter, when Japan, and India. They had not experiencing immediate impact of cobot 19, she three and showed solid growth year over year.
In recent weeks revenue in China has shown some signs of stabilizing as a spread of cobot nikesh it slowed and business in China attend to redeem operation.
Turning to gross margin.
Gross margin for the third quarter was 36.5% decreasing 130 basis points from the prior year equivalent period, and 380 basis points sequentially.
Year over year decreases related primarily to me increase in holiday pay for consultants in the U.S. due to additional holiday and a lower bill pay ratio.
The sequential decrease in gross margin reflect a similar trends and was also impacted by higher payroll taxes during the beginning of the calendar year.
For the third quarter, our gross margin in the U.S. was 37.4% compared to 38.6% last year in our international gross margin was 33.1% compared to 34.8% a year, though.
The average hourly bill rate for the quarter was approximately 123 compared to 124 in the prior year corner and 123 sequentially.
The U.S. Europe average bill rate improved, 5.9% and 0.4% compared to the prior year quarter, respectively. The gains in the U.S. in Europe were offset by a decline in average bill rate in Asia Hot in the third quarter.
The outage pay rate for the third quarter fiscal 20 was $63 compared to 62 in the third quarter fiscal 19 and 61 in the second quarter fiscal 20 as a reminder of these hourly rates are derived based on prevailing exchange rates during each given period.
Now looking at other components of our third quarter financial results.
Machine expenses were 55.3 million or 32.9% of revenue.
This compares to achieving a 55.6 million was 31% it revenue in the third quarter fiscal 19, and 53.8 million were 29.1% of revenue and the second quarter fiscal 20.
The year over year dollar decrease is primarily attributable to lower incentive comp as a result in lower revenue in the third quarter fiscal 20.
A decrease in stock compensation and benefits related to contingent consideration adjustment.
Cost reductions were partially offset by an increase in payroll and benefit costs due to additional headcount related to project delivery and digital transformation efforts as well as lower utilization of our salary consultant.
Sequentially. This I've seen a dollar increase is due to higher payroll taxes. During the early part of the new calendar year.
Tax advisory fees associated with their analysis in the U.S. tax deduction and higher bad debt expense related to certain client receivables. These additional costs were partially offset by benefits related to estimated contingent consideration payout.
Turning to the other components of our financial statements during the third quarter fiscal 2020, we took a U.S. tax reduction related to your worthless stock loss in our investments in Belgium, Luxembourg, and the Nordics, which included Sweden and to Norway, We filed a U.S. taxi election to disregard these entities, enabling us to.
Claim a 6.6 million benefit on a U.S. tax returns.
Well the tax bases of investment as a result, we had an income tax benefit or 4 million for the third quarter, representing an effective tax benefit rate of 135%.
After adjusting for noncash tax items, such as changes in valuation allowances on a cash basis, our effective tax benefit rate was approximately 194%.
Our GAAP tax rate for each of the upcoming quarters is difficult to predict and could be volatile as a rate will be dependent on several factors, including the operating results of our U.S. and foreign locations each of which I passed or benefited at different statutory rate the offset of the top benefit of foreign losses in certain locations by valuate.
In allowances and a change in reserves on uncertain tax position.
Now turning to our fourth quarter trends I mean passive cook at 19.
As events relating to covert 19 continue to develop globally. There is significant uncertainty as to the likely effects of this kinda like which among other things may reduce demand for or delay client decisions to procure our services.
In the most recent weeks leading up to today, we're beginning to experience some cancellations and delays by certain clients.
On the other hand, we're also seeing new opportunities to serve our clients' needs as a result of government imposed travel restrictions.
Our average weekly revenue in the first three weeks of the fourth quarter was 14 million in the most recent she weeks through March 20, Eightth, we have seen a slight downward trend at approximately 2% to 3% compared to the earlier weeks, we expect to see further impact on revenue and pipeline as called at 19 continues to develop.
However, however, such impact is difficult to predict and quantify at this time.
It is difficult to predict how our gross margin and as she may be impacted as well.
Especially if the pandemic persist for an extended period fluctuations and paid time off self funded medical insurance and bench times name a few examples could have material impact on our gross margin in etch DNA.
Given the fluidity of the current environment, we will not be providing any forward looking guidance for the fourth quarter.
Before I turn to our balance sheet I'd like to discuss the financial impact of the restructuring plan I cant intend shared earlier the main components as our restructuring plan, our streamlining and reducing our headcount and our real estate footprint. These actions were initiated in the fourth quarter and did not have any material input.
Have done our third quarter results.
With respect to you the reduction in force, we expect total employee termination costs to be in a range of four to 5 million of which approximately 3 million will be taken in the fourth quarter.
Upon completion of risk reduction in force, we expect annual pre tax meeting a 13 to 15 million in personnel costs.
As we emerged from Kogut 19 impact we may reinvest some of the personnel cost savings to support key initiatives.
With regard to reducing our real estate footprint, we expect to terminate a number of leases in the fourth quarter. Approximately 1 million of charges are expected relating to lease termination costs costs relating to exiting the facility, including non cash asset write off.
Additional real estate related restructuring charges are expected to fiscal 2021, as we continue to execute the plan to exit the leases either through termination or some leasing the exact amount and timing of these charges depends on a number of variable, making it difficult to estimate at this point.
Upon completion of the exit plan for leases, we expect to annual pretax savings of three to 4 million in occupancy costs.
As Tim mentioned earlier, the review of our European operations is still underway, we expect additional charges as a restructuring plan is finalized.
Now, let me turn to our balance sheet and liquidity cash and cash equivalents at the end of the third quarter with 35.9 million receivables at quarter end were 130.9 million compared to 133.3 million and he ended the fourth quarter fiscal 19.
Days of revenue outstanding were approximately 71 days compared to 70 days in prior year and 68 days in the second quarter fiscal 20.
To date, we have not experience must deterioration in our receivables due to cook at 19.
Industry that we consider to be at an elevated risk include retail transportation energy and entertainment collectively represented just under 10% of our total outstanding receivables.
As companies transitions virtual operations, the speed of payment processing, maybe in passive.
Further as the pandemic continues to persist impacting our clients liquidity positions. We do you expect to see some levels of slow down in collection and potential increase in bad debt reserve.
Capital expenditures were 2 million through the first nine months of fiscal 20, we expect capex being a one to 2 million range in Q4, we paid 4.5 million in dividends during the quarter, we repurchased 318000 shares.
5 million during the quarter, our stock buyback program has 85.1 million remain.
During the first nine months of fiscal 20, we borrowed 35 million to finance the acquisition that veracity, and we repaid 29 million under our revolving credit facility.
In recent weeks events relating to close it 19 continues to impact the global economy in capital markets, We're actively and closely monitoring all aspects of our liquidity and cash management.
In March I was an abundance of caution we borrowed 39 million under our credit facility to provide substantial additional cash reserve, leaving us with 30 million of additional borrowing availability.
Our should be has a strong balance sheet, including healthy levels of cash on hand, and healthy debt ratio.
In addition, our variable Mont operating model further serves to mitigate our risk profile.
Well I believe we are well positioned to whether through any potential financial crisis that might arise. It is not possible to predict the outcome of code at Nike and the impact and they have on our business.
Our short term priority is to preserve liquidity as a result, we expect to refrain from share repurchases in the fourth quarter.
In the long term, we will continue to evaluate our capital allocation strategy and expect to return cash to shareholders through dividends and share repurchases.
While balancing debt repayment and the capital requirements ugliness business, both organically and strategically.
Our shares outstanding at the end of the third quarter, where approximately 32.1 million.
Before I turn the call back to key I am pleased to hear that we have officially adopted a new stock ticker symbol effective this morning.
Our new symbol is simply RVP, we're happy with this change and hope this more intuitive ticker symbol will provide greater clarity in the marketplace.
Now I would like to turn the call back to keep for some closing remarks.
Thank you Jan before we turn to questions as usual I'll review, our client continuity for Q3.
Our client continuity does remain strong we served 48 of our top 50 clients from fiscal 2019, and 47 of the top 50 from 2018.
In the quarter, we have 274 clients for whom we provide services at a run rate exceeding 500000 in fees down from two Lady one in fiscal 2019.
In addition, our top 50 clients for the quarter represented 40% of total revenues, while 50% of our revenues came from 85 clients.
Our largest client for the quarter was approximately 3.6% of revenue.
At the end of the third quarter, 90% of our top 50 clients have use more than one type of solution.
This penetration reflects the diversity of relationships, we have within our client organizations are shifts toward client centricity and read this reinforces the opportunity for growth as we improve account planning and penetration.
This concludes our prepared remarks, and we're now happy to answer any questions.
Thank you as a reminder to ask a question you know superstar one on your telephone.
So would draw your question personal county, please stand by we've compiled acuity roster.
I show our first question comes from Andrew Steinerman from JP Morgan. Please go ahead.
I've two questions. The first one I know you spoke a multiple times about that some of your work for your billable associates has been able to be delivered remote way. So my question is you know what percentage of your Billables I've been able to continue their work remotely meeting the works getting done and they continue to bill.
My first question and my second question is I realize it's uncertain, you're not giving a potential revenue our guidance for the fourth quarter, but my question is more just about detrimental margins in the sense that when revenue is down into fourth quarter, what margin is that revenue likely to.
To be associated with.
Okay, Andrew I'll take the first part of the question then I'll turn it over probably to Tim.
I would say almost 100% of our consultants who are billable are delivering remotely. So we pivoted and been able to do that fairly seamless Lee.
And they continue to build they continue to issue there weekly status reports to clients and we're really following our client sleep.
With respect to the margin question, Tim I'll turn that to you or to Gen.
I could I could pick up and it could you repeat that question I'm, sorry, I'm on a cellphone it broke up a little bit sure. So the question is in the fourth quarter, what might be detrimental margins just to define it for you I mean, when revenues are down into fourth quarter, what margin will be associated with that.
Revenue decline.
Well, it's hard for me to give you an answer that isn't.
What I would say is that what we're trying to do from both the revenue preservation standpoint and to be flexible for our clients is that we are going to we will make we'll have some downward pressure on our margins from as an investment in making sure that we are doing the right thing, but in terms of as you can see primark from our trends today.
Stuff through the first sit at the quarter. Our revenue has been strong and our margins have been strong. So it's it's difficult it's difficult to put an absolute number on that because <unk> 'cause tomorrow I mean, the situation. So fluid it feels like we have to come deal would be situation day by day week by week, Okay, Alright. Thank you.
Thank you on next question comes from Mark Mark Huh from Baird. Please go ahead.
Oh, good afternoon, and hope you guys roasting safe.
I'm just wondering with regards to the the office reductions that you've done in place what what percentage of your revenue was associated with the practices that your children any.
Tim do you want to take that you had a lot of the the eight okay I guess I.
I do I do work nice to hear you hope your six days as well.
Opposite we're closing it's a very small percentage is actually less than 1%. What we're trying to do is make sure that.
We didnt have.
Either direct market personnel or certainly real estate commitment, where we have such a small locus of revenue.
Less than 1% cumulatively.
He left from 1%.
Let them, 1% in terms of where we expect our year to end up and also less than 1% when we look at them in historical perspective.
Because of the thinking about last year.
Okay.
Great and then with regards to what you're seeing in terms of just you know current weeks I think you were describing the revenue trends that you were saying can you talk a little bit about the top of the pipeline just what you're seeing in terms of orders.
Ability to generate you know new engagements, how how's that being impacted and the question is both both broadly and then specifically in Detroit Studer.
Yeah, Andrew Thanks for that question I'll, let him take that he's closest to our operational reports.
Sure market I'll I'll tell you that you know was I'll give you both with respect velocity. We you know as we mentioned our velocity is still is still strong what I will tell you is that as we started to look at pipeline. You are applied why would you consider that year over year going into the third quarters and very strong.
Over the last couple of weeks, we started to see some degradation with respect to pipeline. What I will tell you is that wallets down it's still higher than where we were the most similar period for last year.
But I definitely think that are impacted by obviously the overall situation that we have with the pandemic, but also our transition both from from a from clients and and and ourselves having to be able do sort of adjusted this new normal of communicating to each other through different means that modality. So Ah you know I think that huh.
Part of that decline is expected I was actually on a pipeline call earlier today, where we live by region I talked I spent some time looking at the.
Practice, obviously, they're impacted a little bit more.
Given these that Theres, a set or the center of the pandemic hotspot flux right now appears to be in New York City, and so what we I mean more there than in other situations. When we attempt to do reach out to clients and targets. There there are more people, who either casegoods call or caring for somebody who will.
And so it's a it's a different kind of.
Ah experience than we have another parts of the country.
[laughter], how big is New York, the Tri State area now.
It's I don't know where I mean, all doubts you had if we actually disclose that information, but the data we are you start.
It's just anecdotally what I would tell you is out in terms of North America. It's it's our second largest regional practice. So it's a significant piece of our business.
Okay.
And then can you talk a little bit about where you're seeing in trying to just in terms of the pace of things getting a little bit better and and.
How you would extrapolate that.
Yeah, Andrew in talking to the team I had one of our client service directors say he feels like answering landmark so everywhere we have.
Oh, I'm, sorry, I'm, sorry, Mark I'm, managing a lot of their dreams here I apologize sure I apologize.
So as one of our directors of client service said in Shanghai. It feels like the business is about 80% back in terms of how clients are feeling about their business and getting into the regular cadence of our business activity.
And as Tim and Jan said, we've seen some degradation, but our revenues stream. There is really starting to normalize as it is in Japan, I think that the impact going forward in Asia Pac will be in India, which is in real locked down.
Which is.
Bad news, but it also is creating some opportunity for us as clients, who have offshore some of their accounting and finance work and can't get it done now because of the infrastructure in India and not supporting as much work from home activity that we're starting to talk to clients about some.
Virginity.
Thank you very much.
Yeah, sorry, Mark again double.
Thank you.
Thank you as a reminder to ask a question at this time, even need superstar one on your telephone.
I show no further questions in the queue at this time I would like to turn the call over to take you shouldn't CEO for closing remarks.
Thank you operator.
We send our support and good health wishes to all of those facing cobot 19 challenges and we sure hope that the world health and economies start stay he'll soon.
Again, we thank you for attending the call today and your interest in our GP and we'll look forward to talking with you about our results of operations. After the ended the fiscal year. Thanks, again, everyone and stay healthy.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect [noise].
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