Q2 2021 Resources Connection Inc Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the resources connection Inc. Conference call.

This time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance during the conference call. Please press the star key followed by the zero, but on your talks tone telephone and you will be connected to an operator, who will assist you as a reminder, this conference call is being recorded.

This time I would like to remind everyone that management will be commenting on results for the second quarter ended November 28, 2020. They will also refer to certain non-GAAP financial measures an explanation and reconciliation of these measures to the most comparable GAAP financial measures is included in the press release issued today.

Today's press release, we viewed in the Investor Relations section of our GPS web sites and it was also filed today would be a SIFI.

Also during this call management may make forward looking statements regarding plans initiatives and strategies and anticipated financial performance of the company such statements that are predictions and actual events or results may differ materially. Please see argued piece report on form 10-K for the year ended may 32020 for a discussion.

The risks uncertainties and other factors that may cause the company's business results of operations and financial condition to differ materially from what is expressed or implied by forward looking statements made during this call I'll now turn the call over to RGB CEO Kate Mcshane.

Thank you operator, good afternoon, everyone and thank you for joining US with me today are Kim Brackney, our Chief operating officer, and General our Chief Financial Officer.

I'll start with an overview of the second quarter, including the ongoing progress we are making to overcome COVID-19 impact then I will share updates on our two most significant priorities. This fiscal year, our digital transformation and evolving our delivery model to be more flexible flexible virtual and borderless.

To drive growth within our client base existing in new Gtlds client programs in health care.

This evolution also supports our focus on EBITDA improvement I'll, then share client continuity statistics to reinforce our stickiness in a blue chip core client base and improving continuity quarter over quarter. Finally, I will close by touching on a few highlights from our new investor deck added to.

Our website today.

From a revenue perspective, we saw steady improvement and top line results as we move through the quarter the impact of the global pandemic notwithstanding in Q2, our revenue at 153.2 million was up 4% sequential improvement over Q1 and grew 6.4 per.

<unk> when comparing revenue based on the same number of billing days in constant currency.

Excluding our restructuring charges SGN, a also improved as expenses were reduced 4.7% sequentially.

Adjusted EBITDA margin increased 120 basis points sequentially to 8.1% as a result of our cost reduction initiatives and expense discipline.

We are continuing to pursue bottom line growth through operational efficiencies lowered real estate investment and head count management.

In his remarks next Tim will discuss some of the positive revenue trends that are emerging as well as steps, we're taking to maximize opportunity in our core geography is client programs and health care industry practice as we continue to position the company for sustained success in the coming year.

Yes.

Now, let's turn to our two primary growth priorities. This fiscal year. The first is to grow revenue by providing more digital transformation services and building out new digital pathways to engage for staffing services.

For the last several years explosive technological innovation has fueled the rise of digital transformation as a corporate imperative our clients have been force to rethink the way they do business.

Day ahead.

He with digitally native new entrants in order to support our clients, including these digitally native businesses. Our GP has evolved significantly to help clients automated streamline and drive efficiency through functional process redesign technology migration project management and.

Communication services these.

These initiatives are happening in every functional area of our clients finance and accounting risk and compliance tax human resources and project management.

[noise] to effectively address this evolution, we had the foresight to acquire veracity in 2019 to help US build end to end digital solutions for our clients strive to automate workflows any and increased collaboration which has become even more important given the increasingly virtual nature.

Sure as today's work force.

The past year has not only reinforced and accelerated digital and day Pearl corporations. It is placed an emphasis on the employee experience given remote work, which is a specialty of recipes.

Given an integrated go to market plan in fiscal 21, our GPM brassy are uniquely positioned to capitalize on the emerging trends combining BRAF. These robust capabilities around workflow automation leveraging <unk> premier platforms like service now in a cool Mina with our GPU deep functional experts.

Peace and process orientation Brad.

Veracity achieved record revenue during the quarter and this trend has continued in Q3, we also experienced growth in our cross selling success across the enterprise with Voracity, bringing our GP into project work and vice versa. We expect this positive momentum to continue through the second half of the fiscal year.

Although remember Q3 for all parts of our business is impacted by holidays.

With respect to our digital engagement platform development Hugo progress continues as planned we have finished the talent management release and that part of the software is in active use with a select set of candidates and internal management. We're on track to bring this digital engagement offering the market by the end of this fiscal year.

Here, we will however, ensure that the macro environment is stronger and more fully recovered from lockdown scenarios, when we bring the product to market and we'll share more detail as that timeline approaches.

We're excited that this new digital engagement model will bring transparency choice efficiency and speed in striking the right professional match for much sought after talent in finance and accounting Brown.

Our second growth priority initiative. This fiscal years to continue to evolve our delivery to be more fluid virtual and borderless.

This initiative is intended to enhance both revenue and earnings and it is as it is directly linked to client acquisition, new and existing and cost efficiency.

For example, we've recently closed several projects with consulting teams pulled together from multiple geographies to deliver an exceptional experience for clients. This type of approach would not have happened prieto bid when we operated with a more traditional geo focused mindset.

We're also demonstrating that we do not need physical offices to serve clients effectively for example, we just closed a new multi consultant engagement on a project out of des Moines, where we do not have a physical office or go to market team.

This exemplifies the opportunities, we're starting to uncover with new clients assets.

As Jan will also outline Weve made strong progress on our real estate consolidation plan, which will continue to drive forward. All of these actions help us continue to streamline our cost structure, while bringing our client delivery teams closer together and closer to client buyers.

Next our GPS client continuity was outstanding this quarter. These retention statistics demonstrate the value add we bring to clients each and every day.

During Q2, we served all of our top 50 clients from fiscal 2020, and 46 of the top 50 from 2019.

This sticking it has remained consistent year over year. Despite the global pandemic. In addition for Q2, our top 50 clients represented 44% of total revenues, while 50% of our revenues came from 70 clients.

Our largest client for the quarter was approximately 3.5% of revenues.

Also during the second quarter, 90% of our top 50 clients procured multiple services or functional expertise from our GP, which demonstrates our ability to build revenue beyond the origins of our finance and accounting rules and isn't improving trend as we start the second half of the year.

In closing I'm also pleased that we posted to our web site today, and new Investor day to kick off 2021, our new presentation synthesizes, our heritage our exciting future and our relentless focus on shareholder value creation.

We've also expanded our disclosure around environmental social and governance topics. This is particularly important to us in our efforts to become the employer of choice for high quality professional talent, who want to work differently with the community and company that cares about profit and purpose the importance of diversity.

Equity and inclusion and operating as a force for good in community and individual life.

The advent of the fifth industrial Revolution is here and it will be squarely focused on bringing humanity back to the workplace.

When you have a look at our new Investor presentation, We think you'll agree that our GP is very well positioned to deliver what talent and clients want today.

Now I'll turn the call over to Tim for his operational update.

Thank you Kate and good afternoon, everyone. During the quarter, we continued to embrace our de facto operating model of virtual delivery and utilization of borderless talent.

We saw positive movement in revenue and operating metrics as well as an appreciable increase in project teams working on large client initiatives.

As the overall macro environment began to improve our weekly revenue and pipeline also gained strength.

As Pik touched on sequential revenue trended up 6.4% on a same day constant currency basis void by increased client spend on project initiatives and some seasonal tailwind tied to yearend activities.

Project management, and communication became even more important with rising demand as we continue to operate mostly virtually traversing time zones to deliver projects. We've seen was demonstrated as demonstrated on numerous occasions, whether it be assisting and operational transformation for west Coast Entertainment client leveraging talent from Honolulu, Miami and Houston offices.

In the Pacific Northwest Health care clients transform their delivery operations with talent from Atlanta, Orange County, and the San Francisco Bay area.

This more Cmos matching up supply demand has allowed us to operate with greater efficiency, which was increasingly important as demand continued to rebound during the quarter.

Our ability to successfully deliver in a remote fashion provides a critical qualification, which will impact the buying decisions of clients in the post cobot environment we.

We believe the successful evolution of project delivery, coupled with our clients increased leverage of the distributed workforce has permanently changed our commercial environment. It opens up our ability to fashion solutions using a mixture of traditional and virtual delivery models bound together by our strength, an agile total livery project management and commitment to Holistically.

Indication.

This new market dynamic will provide a strong foundational underpinning as we enter into the second half of the fiscal year and initiate and initiate planning for EPS by 22, which will include expansion of client program leveraging broader market talent for virtual delivery and increased focus on account penetration.

Now, let me turn to our second quarter operations.

As noted in our first quarter remarks, we began to see a strengthening pipeline and increased daily revenue rates. This strengthening increased throughout the quarter as daily revenue rates reached levels that were the highest since April one.

Well Q2 demand was still impacted by the pandemic North America and Asia Pacific saw sequential increases in daily revenue rates as did Europe, which I will focus on in a moment.

Client programs in health care led the charge in North America, which also saw strengthening in key core markets, including pricing and the California, and Texas markets.

Asia Pacific also delivered positive rates and was consistently trending nearly pre cobot rates by the end of the quarter.

We neared completion of a significant restructuring in Europe during the second quarter impacting approximately 40% of the workforce and resulting in a cessation of operations in France and Italy.

I am extremely proud of the European team and the unwavering focus on clients and consultants during a very difficult economic times.

The sales despite working through this reorganization our European practice banded together renewed its focus on our most important clients and actually increased daily revenue over Q1.

Notable growth in demand, especially related to larger projects also positively drove volume and quality of pipeline in fact activity and pipeline were both strong in the quarter and while there remains uncertainty related to the macro environment given current operating trends, we could see sustained progress emerge as we move forward.

While we remain keenly focused on growth and expansion opportunities within existing clients and markets were also concentrating heavily on operating leverage and efficiency.

We are utilizing a more virtual and agile footprint and this new operating style coupled with continued focus on expense management has yielded EPS you the improvements of 4.7% sequentially and 11.1% from prior year quarter after excluding restructuring costs.

We will continue to be judicious about expense discipline, and we will continue to invest in areas, where we can achieve high returns.

In particular digital and technology health care and client programs continue their strong performance and offer opportunity to deepen and widen our relationships with important clients.

Before handing over to Jen I want to provide some additional insight in early third quarter trends.

The early weeks of Q3 have shown a continuation of positive trends in both revenue and growing pipeline with daily revenue up approximately 8% over Q2.

While we remain wary given the fluid macro environment. These positive indicators and some of the news around vaccine development and distribution are certainly encouraging.

I will now turn the call over to Jan for a more detailed review of our second quarter results.

Thank you Ken and good afternoon, everyone start.

Starting with an overview of our second quarter results revenue, notably improved this quarter compared to the first quarter gross margin was in line with our expectation given typical seasonality would Thanksgiving holidays.

As she continues to benefit from our restructuring initiatives as well as our increasingly virtual operating model.

As a result, we delivered a solid 8.1% adjusted EBITDA margin despite the ongoing pandemic.

Our balance sheet remains strong with an increase in available liquidity during the quarter and we continue to generate positive cash flow from operation.

Now, let me provide more color on our operating results starting with revenue.

We generated $153.2 million of revenue.

A 4% increase sequentially and a 17% decrease from the comparable quarter a year ago. After.

After adjusting for business day, and currency impact revenue increased 6.4% sequentially and decreased to 15.6% year over year.

Same day constant currency revenue increased sequentially by 5% in North America, 14.3% in Europe, and 10.2% in Asia Pac.

Compared to the prior year quarter same day constant currency revenue decreased 16.8% in North America, 7.9% in Europe, and 13% in Asia Pac.

Our second quarter gross margin was 38% down 130 basis points sequentially and down 230 basis points from the prior year quarter.

The reduction in gross margin was largely due to more holiday pay as a result of Thanksgiving as well as a decline in the bill pay spread.

Compared to the first quarter of fiscal 21, lower payroll taxes toward the end of the calendar year mitigated a portion of the gross margin decline.

The average hourly bill rate for the quarter was approximately 124 compared to 123 in the prior year quarter and 124 in Q1 of fiscal 21.

The average pay rate for the quarter was 63 compared to 61 in prior year quarter and 62 in the prior quarter sequentially.

As she net expenses for the quarter were 47.8 million after excluding 6.8 million of restructuring charges.

Meaningful improvement of 6 million compared to the prior year quarter.

We continue to realize more cost improvement this quarter as we make progress executing our restructuring initiatives.

Management compensation costs were reduced by 2.5 million and occupancy costs were reduced by point eightmillion compared to Q2 of fiscal plenty.

General business expense also improved down 1.8 million due to reduced travel and reduced discretionary spend.

Turning to the other components of our financial statements income tax provision was 2.3 million for the second quarter, representing an effective tax rate of 178.5% percent cut.

Compared to 30.2% in the prior year quarter.

The effective tax rate for the current quarter was driven by higher international losses, largely resulting from the restructuring costs incurred in our European entities, and our inability to realize any tax benefits due to the required valuation allowances.

Adjusted diluted EPS for Q2 fiscal 21, which excludes a net of tax impact of restructuring charges.

Compensation and contingent consideration was 21 cents per share compared to 42 cents per share in the prior year quarter.

Next let me provide an update on our progress in executing the restructuring plan.

We have substantially completed the reduction in force, including those carried out under the European plan in Q2.

We set out to exit from 22 real estate locations under the restructuring plan of which 11 have been completed.

To date, we incurred total restructuring charges of 12.8 million of which 7.8 million was incurred in the first half of the fiscal 2021.

We expect between two to 4 million of additional charges before completing the remaining action mostly related to real estate.

The timing of the planned real estate exits will depend on a number of factors some of which are not within our control, but we are committed to executing on our plan.

As I mentioned earlier, we have already realized significant cost reductions in the current fiscal year. As a result of these actions, we anticipate additional savings and the remainder of the fiscal year as it benefits from the European plan take full effect.

Longer term, we expect to continue to rationalize our real estate footprint beyond what's planned under restructuring and continue to control our discretionary in travel spend by taking a blended approach between traditional and virtual method of client engagement and delivery.

Now, let me turn to our balance sheet and liquidity our balance sheet remains strong we ended the quarter with cash and cash equivalents of 97.2 million up slightly since the end of fiscal 20, we generated approximately 30 million of positive cash flow from operations in the first half of the fiscal year and paid down 20 million at Althea.

Moving debt under the amended credit facility.

The board of directors maintained a 14 cents per share quarterly dividend in the second quarter.

We remain vigilant in managing our liquidity considering the ongoing pandemic the near term restructuring related cash obligations as well as other cash requirements to fund our digital transformation efforts.

In the long term, we continue to evaluate our capital allocation strategy and expect to return cash to shareholders through both dividends and share repurchases, while balancing debt repayment and the capital requirements of growing our business, both organically and strategically.

I'll close with our recent change in segment reporting and a discussion of third quarter trends.

Yes situation other European plan in the second quarter resulted in changes to our internal management structure in our reporting structure of financial information used to assess performance and allocate resources effective second quarter. Our businesses are organized and managing three operating segments, our GP task force instead.

Our he is over 90% of our business and drive the trends of our consolidated enterprise. Please refer to our press release and form 10-Q, four additional disclosure regarding segment.

Now looking ahead to Q3 average weekly revenue for the first three non holiday weeks for the quarter was 13.3 million, we expect typical seasonality in the third quarter around our revenue as well as gross margin.

From an EPS DNA perspective, while we anticipate cost savings from restructuring to continue we typically experience higher SGN in Q3 due to the reset of payroll taxes at the start of the calendar year.

Lastly, consistent with our approach last quarter, we will not issue any specific revenue or earnings guidance for the third quarter of fiscal 21, given the ongoing uncertainty as it relates to the pandemic.

Now we're happy to take questions.

Thank you Andrew.

As a reminder, adjusted question you'll need to press star one on your telephone to withdraw your question press. The pound you. Please stand by we compound culinary roster.

Our first question comes from Josh Vogel with Sidoti You May proceed with your question.

Thank you good afternoon, everybody and the new year.

My.

First question you know we saw some modest bill pay spreads in the quarter and with regard to bill rate when you're at the table and you try to win and deliver projects would vote on it.

It doesn't affect the pricing at a farm curious why do you think that is.

Hey, Josh, it's Tim Bracken happy new year.

What were a lot of the projects that we take on when you.

When you think about it it's the it's most if the outcome orientation to it so you think about the.

The.

Since we don't have to deliver locally it's really about kind of what expertise do you need to deliver and how is it deliberate so theoretically we should be able to get some.

Actual arbitrage from that if we're able to locate from other parts of the country. We're starting to see some of that but the reality of it is is that we're we're we're basing our bill rate on the project itself versus the locality of the delivery resource.

Understood. Thank you and on the other.

Other side, though with your consultants no longer having.

The constraint of Geo fencing couldn't we assume that maybe.

Give you some leverage over time on that side.

Yes that is and we anticipate that.

Yes.

It kind of comes down to you like this is still.

A world that everybody is a little bit getting used to but as we sort of open up the catalog that allows us to really match talent sufficiently irrespective of mortality as you pointed out no geo fencing salad.

We will have we will have the ability to.

Think about labor costs in a different way.

One of the advantages that we have I think through this is that we didn't we didn't really.

We really erred on the side of being fair to our consultant so.

As our we didnt.

We didnt negotiate downwards and that was intentional because we want to keep our best talent with us and we want our platform to be sticky and so as a result of that as demand picks up that will be an advantage for us as we force.

All right Great and then.

With the vaccine rollout and getting back to a normal life hopefully in the next few months or quarters. Do you think that you can and and we'll still have success in selling and deliver index remotely is that going to remain the new de facto operating model or do you expect it to revert back at all.

Well I think.

I definitely think there'll be modulation.

The most important thing about this let me think about the environment. We went to was largely on Prem and then we went to an environment that was all off site and what we've learned in that move is that there are parts of engagements and access to talent that we can that we can utilize from a virtual perspective that doesn't mean, we need to go all one way or the other in fact, we'll start to see I believe.

We will have some on site was slow delivery and that will be supplemented by folks who are on site for part of the time when some folks who are non side at all just depend on the composition of the team and the project itself.

Sure sure and last quarter, you talked about some challenges onboarding of new clients due to like some hardware and software constraints I'm sure I'm curious if that's eased at all.

Good how there's the those can spreads are still there, but it has you did have eased a bit I mean people.

We have a couple of clients to the hardware element of it was a real challenge than they have been able to kind of going to handle on their own supply chain.

You know as more people are working remotely I think everybody soundness, even even than the consumer world. The access access to some technology is not as.

Sufficient as it once was once was it's better than it was in the second quarter, we saw challenges.

Okay, great if I could just sneak into two plans I know I have a lot of questions. Thank you.

You referenced how.

You are seeing good traction with from your most significant client accounts and the healthcare client base I was just curious how much.

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Those clients represent pay and maybe what that looks like a year ago and even from Q1.

Hi, Josh I can take that.

Client program revenue represents about.

Roughly around 30% of our revenue consolidated revenue.

And it's grown.

Sequentially to Q1 or client program revenue on a same day basis grew almost 7%.

And health care health care is roughly around 20% of our North America revenue.

And we've also seen similar growth in health care clients as well comparing sequentially.

Okay, Great and then just last one day, maybe for you Jan I just want to make sure I was calculating the.

The work is for carrying forward you have that.

So whats quarter Josh.

Q3 and four.

The upcoming keys remember Keith Murray.

Q3, our North America workdays is going to be officially 63 day, but remember.

Due to the timing of the Christmas and new years holiday, we do have some adjacent impact of those holiday as well as an occasion presidents day, even though we're not officially counting them as as you know as holidays. So she threed holiday impact will definitely be more significant than Q2.

I mean, let me just jump in there Josh because we don't have the day off as you know our roots come from accounting firms. We don't have MLK in presidents day off many of our clients do so we always debate should we count that as a working day or not I think you err on the side.

Count not counting it as a working day, even though were open because so many of our clients take the day off yes.

And Josh.

People in North America.

Looking at 65 day.

Okay great.

So much taking my question.

Thanks, Josh.

Thank you. Our next question comes from Mark Marcon with Baird. You May proceed with your question.

Hey, good afternoon, and happy new year.

Wondering can you talk a little bit about.

The improvement that you're seeing with regards to Tri States, California, Dallas that all sounds.

You know like a marked improvement. This what are you seeing exactly or is it better execution better leadership or is just the orders are they starting to really increases as you repositioned.

Hey, Mark and a happy new year.

First of all is to say I mean, we have new leadership in both those markets and we have focused teams and so.

I would I would I would start there I would say we have I think we've got the right people in place and we're definitely executing better I would also say, particularly in the in the Tri State market. We are seeing some market rebound in financial services, which is which is nice.

In in the California markets we.

We started we thought we were going to see more impact in the entertainment space, there and what we've seen is that actually with some of the reorganization and pivots that the net that industry is doing.

We're actually getting some tailwind from that.

Add a northern California, where you've got a lot of technology that that market, while it kind of paused a little bit we're definitely starting to see that the tailwind related to technology is is a strong again.

The Texas markets.

It sort of three distinct markets you have Houston, Dallas, and you have central Texas, Dallas in Central Texas have really have really been strong and Houston, we have new leadership, there and we are very hopeful that we'll start to see some pretty good momentum there but out of all those markets.

Really with Tri state and northern California, starting to see some substantial step forward in terms of revenue bonds.

That's great and can can you talk a little bit more about this kind of the the cadence in terms of orders and how they built up through the quarter and then you know early into this quarter.

Has there been any sort of pause with regards to the surge in coated or any hesitancy or does it seem like hey, we've all gotten used to be you know this environment and there's some certainty.

People are continuing to build.

Go ahead, I'll I'll share a few thoughts and then Tim can add some specific color, but you know it it feels to us and and our pipe and our revenue trend is telling us that the initial panic and kind of standstill of Kobe, Ed has given way to decision making.

Now so the decisions may look different than they did a year ago, but we are starting to see opportunity open up clients moving forward unlock.

On large projects and we don't see a regional distinction seems like that's happening across the board with our core client base and remember our core client base or the larger organizations that tend to have more.

Budget and firepower, if you will.

To move their business forward.

Great and can you talk a little bit about the size of recipe that continues to do really well how big is it now.

Uh-huh brassy hit record revenue in.

There I don't have that calculation right in front of me, but.

They have had on a year to date bases there.

Compared to last year. They grew I think roughly 8.5% so it's pretty it's pretty substantial that improvement.

Great I mean, roughly speaking what percentage of revenue was for US you know.

Yes.

Yes.

Yeah.

And then it sounds like Q going I got it.

It's roughly 4% I got to do the math really quick.

Great and then Hugo.

It sounds like you've got the talent management.

Capabilities up and running you are going to obviously touched it make sure. It works exactly as you anticipate what's the next step that you need to.

To get to and tore this from a technical perspective in terms of being ready for launch I know you're waiting also for the economy to be in a good position as well so that the launch really has a zone.

You know has a meaningful impact, but just wondering.

Where where are we from a technical perspective.

Yes. So the next day element of the platform will be the client side. So that's what we're working to finish.

Right now Mark and when we're done with that we'll be ready to bring the product to market that will be our minimum viable product and we'll continue then from there to make certain enhancements.

And so you're right. There are two things at play here in terms of our timeline one is our own internal product development and that is a lot of software development and perfecting the match algorithm and the second is an assessment of the macro environment and is the environment.

Ready because remember we're going to launch you go in an adjacent market not where we operate right now it's a level or two down from where we operate primarily in finance and accounting and that kind of work.

No may require more on premise delivery. So we want to make sure when we launch that the market is healthy and ready for that if that makes sense.

Totally does and then with regards to.

Obviously this is fairly recent but when we think about solar winds and the implication as it relates to cyber and your push on digital transformation, what sort of impact are you seeing there are you seeing more audit opportunities is that meaning full is there any day.

Word of slowdown or pause from clients in terms of any sort of initiatives until they get a better handle what are you seeing from that perspective.

I mean I'm not aware, we're seeing any pause Tim are you I think we all.

Have opportunity there in terms of assessment work and the audit work.

Great and then in terms of the gross margin how much was the health care increased.

The increased health care utilization a function of the growth.

The lower gross margin.

Oh, it's roughly about 25%.

Okay, and so do you anticipate that continuing John or or do you think that that was just kind of a blip.

Yeah, I mean, you know the health care trends is a is a bit.

You know unpredictable to a certain extent I mean, we saw the our health care costs come down right. When we entered into coded and it started ticking back up in Q1 and Q2.

So you know just depending on where it where covitz, Dan and participant behavior. That's a little bit you know, it's somewhat hard to predict but I think that we've we've seen some some kind of pent up demand coming back in Q1 and Q2 so.

I don't know that it's going to materially go up going forward, but but is it possible.

Okay, well, how should we think about the gross margins for this current quarter. Obviously, there's there's holidays. There's also going to be the reset in terms of payroll taxes. So how should we think about that relative to this past quarter.

Given the holiday impact, it's going to be more significant. So I think you know Q3's gross margin is is going to be relatively lower compared compared to this past quarter compared to Q2.

And if you take into consideration the payroll tax reset. So all of those are contributing factor to a lower EPS to a lower gross margin percentage in Q3.

Yes I.

I mean would it be in line with historical seasonal pattern to play drums.

Okay correct right.

And then help and then you said estuary is going to go up a little bit sequentially, obviously again because of the payable reset and then any sort of new compensation structures, but.

But then obviously the offset is we should have some benefits from the restructuring how I mean, roughly speaking how much of a.

Although delta should we see in terms of estimate from a short term perspective.

Yeah, I think you know the impact of payroll taxes I'll, just give you a kind of a reference point normally in Q3, our payroll taxes run about 10% of our of our payroll costs versus 7.5% in Q2. So you know I think roughly you're looking at excluding restructuring costs.

You are probably looking at a couple of million or more maybe higher from from payroll taxes increased.

Terrific.

And then it sounds like in Europe can you just talk a little bit about how you were able to.

Maintaining the revenue while you.

While doing the significant restructuring it sounds like there was a really good performance there.

Yeah, Mark I guess I would definitely say that was the case and we have a couple of large projects clients over there, where we were where we have been working on both existing projects in expanding our footprint there.

And.

Again candidly, we have we have a very engaged.

And dedicated team there that kind of soldier through.

A tough situation and managed to keep keep.

Keep our clients happy and make sure that our consultants.

GAAP connected to us. So it was as you pointed out it's just it's a it's a story of good performance.

Great. Thank you.

Thank you Mark.

Thank you. Our next question comes from Andrew Steinerman with JP Morgan You May proceed with your question.

Hi, happy New year, everybody I, just wanted to focus on the 13.3 million, which was the kind of day three weeks in December.

Trend year over year, what kind of percentage change would that be on a year over year basis.

Oh based on the first few weeks trend compared to a year ago were roughly down about 9%.

Okay.

And that that same day and constant currency growth total company.

Okay, that's funny, Jeff Thanks.

Okay.

Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Kate machine for any further remarks.

I just want to thank everyone for attending with US today, and we look forward to reporting after our third quarter of fiscal 21 happy new year everyone.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

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