Q2 2022 Resources Connection Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Resources Connection Inc. Conference call. At 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.
If anyone should require assistance during the conference call. Please press the star key followed by zero button on your Touchtone phone and you will be connected to an operator, who will assist you as a reminder, this conference call is being recorded.
At this time I would like to remind everyone that management will be commenting on results for the second quarter ended November 27 2021.
We'll 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 can be viewed in the Investor Relations section of our GPS website and also filed today with the SEC.
Also during this call management may make forward looking statements regarding plans initiatives and strategies and the anticipated financial performance of the company.
Such statements are predictions and actual events or results may differ materially. Please see the risk factors section in RTP report on Form 10-K for the year ended May 28, 2021 for a discussion of risks uncertainties and other factors that may cause the company's business results of operations and financial.
<unk> to differ materially from what is expressed or implied by forward looking statements made during this call I will now turn the call over to <unk> CEO take Duchenne.
Thank you operator, and welcome everyone to our second quarter earnings call. Thank you for joining the call I'll cover four topics starting with a quick review of our outstanding second quarter results.
I'll, then discuss market trends supporting our sustained performance.
We have done to capitalize on the trends.
Our favorable outlook for the balance of the fiscal year.
Ill also provide an update on our Hugo initiative.
Close with the introduction of our newly established Advisory Board.
During our Q1 call, we guided towards 24% growth year over year and I am very pleased to say that our results were even stronger revenue was again the highest achieved in over 10 years with 31% growth year over year.
The growth was delivered in both professional staffing and project consulting and was delivered across nearly all geographies.
Our healthcare business grew by 21% year over year and the strategic client account program grew 27% over prior year quarter and both have strong deal flow in the pipeline.
Our adjusted EBITDA doubled versus the prior year quarter to nearly $25 million and our adjusted EBITDA margin improved to 12, 5%.
This accomplishment is the result of driving sustained revenue growth, creating an improved fixed cost structure and expanding our gross margin.
Worked hard to increase the profitability of the business by driving greater sales productivity and operating efficiency.
Our focus on shareholder return includes delivering low to mid teen adjusted EBITDA margins, while also making the appropriate investments in the business to drive top line growth over the long term.
We remain optimistic about the balance of the fiscal year.
At present to tail wins are providing more business opportunity than we have experienced in over a decade.
First the great resignation or talent reassessment has caused many of our clients to experience skills gaps or temporary opening in critical operational roles that we can help fill to allow them to bridge the gap to permanent hires RG piece model is increasingly attractive to professional talent.
Do you want more choice transparency and flexibility in their work.
This business model is absolutely built for today's knowledge worker.
The second tailwind is the growth of project initiatives in our client base.
Emerging from Covid Lockdowns, many companies have accelerated transformation projects, which provide growing opportunity for agile talent model.
We are staffing and co executing change projects related to finance technology, and digital supply chain and compliance transformation.
Often these projects also require program project management expertise and change management support which are core competencies of our consultant base.
Our client base largely the fortune 1000 rely on us for agile talent support to run the place.
And change the place.
Neither business challenge showed signs of slowing down and because we are a trusted partner with a breath mutation for quality talent and outstanding client service, our pipeline is stronger than ever.
We're not however, simply relying on evolving and favorable trends. We've recently executed the following initiatives can be ready for these favorable market conditions.
We've reengineered, our sales process organization and account strategy.
Revolutionized our delivery strategy to be bored or less to ensure our clients have access to the best talent and our talent and have access to the best projects, regardless of geography, we've redesigned incentive compensation with a focus on employee return aligned with shareholder value we've developed technology in.
Digital consulting capabilities to address our clients' most pressing need.
And we built a new digital pathway for stakeholder engagement.
The secular tailwind coupled with the operational improvements we have made creative hurdle operating environment for our G. P.
Next I'm happy to provide an update on Hugo the digital engagement platform. We launched in October in the Tri state market to allow finance and accounting professionals to find good work in a digital world.
We've launched with a pilot approach for a designated set of clients and finance and accounting roles.
The functionality of the platform is working as planned our engagement with both talent and clients is growing as planned and the early feedback from engagement with Hugo was very positive with all stakeholders from clients to talent to our G. P users, describing the ease and fluidity of the designs and interactions.
So far this early feedback is a good indication that our investment in patients and building an enterprise grade architecture built to scale is the right strategy in this rapidly rapidly evolving competitive landscape.
Currently we're building more inventory in terms of registered talent on the platform and we'll be driving additional client engagement during the second half of the fiscal year with targeted go to market and marketing activities.
This is a new pathway for engagement with our clients that will deliver results and returns for the business for years to come as technology disruption and the human capital industry marches forward.
We believe we are first to market with a fully self service platform for professional knowledge workers, who want the benefits of gig as well as the safety net and community of an employee employer relationship.
Our team continues to plan for our Investor day at the NASDAQ market site on April 12th during which we'll share and demonstrate the powerful functionality and client and consultant experience of Hugo while we eagerly look forward to in person engagement with the investment community that day, we will leave open the possibility.
<unk> the virtual event, depending on the Covid restrictions in place at the time.
In closing I'm pleased to introduce our Gpus inaugural Advisory Board. This board was created with the purpose of gathering valuable strategic insights from senior level executives within the business and professional services industry.
These influential executives will provide our G P with independent guidance and advice on market strategies and trends that are defining today's changing workplace and workforce.
The Advisory Board will also support our highest level global business development efforts with broader access to new clients and prospects by leveraging the deep professional networks of the five well connected executives who have joined us.
We welcome Jeff Gal fan, John now Fatone, <expletive> Pietri, and Craig Shaffer to the RG P family, along with fruit Hughes, who will continue to support us in this new role in Europe.
They are impressive and diverse bios can be accessed via our website.
We believe this group will help us expand our brand awareness at the C level, and we will attract new clients, who are increasingly looking for an alternative high value partner I'll now turn the call over to Tim for an update on operations.
Thank you Kate and good afternoon, everyone. During the second quarter. We saw continued strong revenue and margin growth as well as fortitude and operating metrics.
We saw larger deal sizes continued penetration into existing accounts as well as heightened success with new logos.
The momentum noted at the end of Q1 relative to revenue and pipeline continues.
Enterprise revenue increased by 31% over prior year quarter, and 9% sequentially, while top of the funnel activity demonstrated continued strength. Despite the Thanksgiving holiday leading to significant increases in qualified opportunities and ultimately to the highest level of closed deals in several years.
Performance was consistent across our core business in Asia Pacific Europe, North America, Voracity and Kelsey.
While a rising economy and macro trends germane to our business have provided some economic tailwind our operational focus and tenacity has led to increased opportunity bigger wins and growing foundational strengths.
The growth we are seeing reflects the speed with which companies are taking unchanged, but also a broader and more permanent shift in the way workforce plans are built.
So delivery and the use of an agile workforce are here to stay as much for the fact that companies recognize the benefits of access to talent that can be rapidly deployed for discrete purpose as the realization that labor trends have changed in a broader swap of people are choosing to work differently.
Desire for flexibility are symbiotic and has a powerful economic force that continues to accelerate we.
We see more candidates seeking flexible employment with more control and has seen declines in attrition rates and increases in hiring in our variable employee base over the last four quarters.
More nontraditional employment, which was prevalent when <unk> was founded has now dissipated stability of opportunity variety of choice remote delivery optionality and ultimate control over one's portfolio of experience as a desirable value proposition to increasingly larger segment of the workforce that simply want to work differently. We will continue to work tirelessly.
It leads to provide broad opportunity in depth of choice for our existing consultants and those considering joining our platform.
We are confident that our demonstrated ability to give people career control access to professional community and our strong roster of clients will continue to be an attractive home for the modern worker. Despite a tightening labor market, which is more immediately impacted traditional employment.
As an example, a new consultant and our taxes practice was considering two traditional employment opportunities one of the consulting and one in the financial services industry. He turned down both opportunities to work for us on a long term project that a premier client.
The ability to make immediate impact without being restricted to a singular industry.
Another recent hire joined for the opportunity to work on a large scale finance transformation at a well known technology client.
She left her job in industry for the opportunity to learn new things work with varied colleagues and to gain experience in normal environments.
These examples demonstrate our ryzen desire for our employment model and the durability and the commercial environment to sustain that over time, we expect to continue to compete with traditional employers for talent and to win at increasing rates.
We are focused on enhancing overall consulting experience and our remaining closely attuned to workforce desires, leading to more employment stickiness to RVP.
Our hybrid returned to work with companies embracing distributed employee bases and utilizing a blend of onsite and virtual team is the dominant operating model. This allows for flexibility and resilience in the wake of current and future variance impacting the way, we all live and work.
The ability to tap into a wider array of talent unbounded by geography allows us to improve operational efficiency and our own success rate and the matching of supply and demand.
A good example of this is a climb in the southeast that has a pre IPO technology Unicorn.
Client service team persistently merchant relationships through the pandemic and when the opportunity arose was able to rapidly deploy a team to effectively standup of finance function and help with the system implementation.
That team is close to three dozen geographically dispersed and working across the enterprise supporting day to day operations with professional staffing and via project consulting a larger initiatives.
Our advisory and project services group has had a large footprint with the clients since day, one and is currently leading a cross functional program office, coupled with change management.
This demonstrates how operational tenacity, coupled with strong delivery intersect with today's macro trends to provide excellent commercial opportunity for RVP.
Now, let me turn back to our second quarter operations.
During the quarter, we saw continued strength in the pipeline in top of the funnel activity average weekly revenue grew by approximately 11% from the first weeks of the quarter to the last in fact average daily revenue rates ended the quarter at the highest they've been in over a decade and pipeline and book revenue are the strongest they've been in several years pricing.
Pricing continues to be a big opportunity across all sectors and we will continue to be very focused on pricing as we know there's upside and leverage to be gained.
Lead generation and opportunity identification continues to be strong into Q3 and the early weeks of the quarter have shown strong positive trends in revenue pipeline and closed deals in fact, the early quarter weaker revenue trends are built upon the last weeks of Q2, which were very strong with the holiday season falling in the quarter, we will be impacted but expect to return strong in early January.
Sure.
Finally, let me touch on operating leverage as in prior quarters in Q2, we focused on making strides in controlling fixed costs and focusing on efficiency.
Adjusted EBITDA margin improved both sequentially and from prior year quarter, we will continue to sell deliver and operate in a more hybrid fashion look for opportunities to reduce our fixed real estate footprint and utilize technology to improve the way, we operate and provide a better experience for our stakeholders I will now turn the call over to Jim for a more detailed review of our second quarter.
No.
Thanks, Tim and good afternoon, everyone.
During our second fiscal quarter sustained strength in demand coupled with successful go to market execution enabled us to attain the strongest top line revenue in the last 10 years.
We improved enterprise average bill rate and achieved better pay bill ratio.
Additionally, higher leverage and indirect cost of service further contributed to above guidance gross margin.
But persistent focus on reducing fixed cost and improving operating efficiency SG&A leverage continued to be favorable we delivered $24 9 million of adjusted EBITDA or a 12, 5% adjusted EBITDA margin, which is the highest margin in any quarter in the last decade.
Now, let me provide more color on our operating results starting with revenue.
With quarterly revenue of $200 2 million, we well exceeded the high end of our revenue guidance of 190 million after adjusting for business day and currency impact Q2 revenue represents growth of 31% year over year, and 11% and 6% over the pre pandemic second quarter periods of fiscal 'twenty.
And <unk> 19, respectively.
In addition, our revenue was up 11% sequentially on a same day constant currency basis.
Revenue growth in the second quarter was broad based across most of our core markets key client account solution areas as well as industry.
Macro trends, including the shift towards a more agile workforce model increase in the use of contingent labor to fill workforce, Scott and companies embracing and executing more transformational initiatives all continued to be meaningful secular tailwind in driving our top line growth.
Professional staffing revenue increased 41% year over year, while project consulting revenue increased 26%.
Strategic client accounts grew 27% year over year and 7% sequentially.
Our solution offering and business transformation includes 37% year over year and digital transformation service revenue continue to expand with <unk>, leading the way at a gross rate of 36% year over year.
In North America revenue increased 36% year over year, and 12% sequentially on a same day constant currency basis, most core markets in North America experienced double digit growth year over year with Tri State and California, leading the growth of 51% and 36%.
In Europe, excluding revenue from markets, we exited as part of our recent restructuring initiatives same day constant currency revenue grew 10% year over year and 8% sequentially.
Our focus on large tier one clients, particularly in the United Kingdom continues to pay dividend revenue in the U K almost double the prior year quarter, while our German market experienced a modest decline due to the impact of Covid related lockdown on middle market clients in the region.
Asia Pacific also experienced broad based expansion and revenue across most markets led by Japan, and India second quarter revenue grew 18% year over year and 11% sequentially on a same day constant currency basis.
Gross margin in the second quarter was up 130 basis points over the prior year to 39, 3%. We've raised our average bill rate by one 7% and improved PCL ratio by 80 basis points.
Our leverage on indirect benefit costs drove the remaining improvement of 50 basis points in gross margin compared to the first quarter gross margin was up 30 basis points, which was primarily a result of lower payroll taxes towards the end of the calendar year.
Tight labor market and wage inflation have not have broad impact on our consultant pay rate.
The inherent nature of our agile talent platform involves continuous evaluation of market pay rate and appropriate adjustment.
Our continued focus on value based pricing has yielded higher enterprise wide average bill rate, which has more than covered the nominal increase in average pay rates average bill rate for the second quarter with $1 27, compared to $1 24 in the prior year quarter and $1 26 in Q1.
Looking ahead, we see opportunities to achieve higher bill rate across our solution offerings.
Building on the structural improvement in our SG&A run rate SG&A expenses for the quarter were $54 1 million after excluding noncash stock compensation contingent consideration expense restructuring charges and technology transformation cost reps.
Representing 27% of revenue of 320 basis point improvement compared to the same period a year ago.
The increase in SG&A dollars from the prior year quarter was primarily driven by higher variable compensation as a direct result of our strong business performance in the current fiscal year.
Fixed costs remained modest and similar to prior year as a result of our streamlined real estate footprint continued adoption of our hybrid model and our disciplined approach of managing and allocating our internal resources.
Now turning to the other components of our financial statements effective tax rate was 28% for the quarter. This more normalized effective tax rate was a result of better operating results in Europe, enabling us to utilize the benefits from historical Nols.
With sustained profitability in our foreign entity, we expect to begin releasing certain valuation allowances as early as the second half of fiscal 'twenty, two which could result in material favorable impact on our effective tax rate in the current fiscal year.
Adjusted diluted EPS for Q T rose significantly to 47 per share compared to <unk> 20 was that in Q2 of fiscal 'twenty. One we continue to generate positive cash flow from operations in the first half of fiscal 'twenty. Two we finished the quarter with $71 million of cash and cash equivalents after paying $7 million.
And contingent consideration in the second quarter relating to the acquisition of veracity.
In November we completed the financing of a new multi bank credit facility, we increased the borrowing capacity from $120 million 175 million and improve the overall pricing as well as the flexibility of the financial covenant with increased liquidity and financial flexibility. We are now even better positioned to execute our feature.
Growth strategies, while continuing to return capital to our shareholders.
We maintained our 14th per share quarterly dividend in Q2, reflecting approximately 3% dividend yield we expect to continue to engage in share repurchases opportunistically under our existing share buyback program, which has 65 million available as of today.
Now let me provide an update on our technology upgrade project. During Q2, we continue to refine our cost and scope of investing in a set of new ERP and talent management system as discussed last quarter.
These will enable us to optimize efficiency scale, our operations and enhance the stickiness of our platform by providing our stakeholders is seamless and digital experience.
Total investment in this initiative and expect it to be in the range of $20 million to $25 million over the next 18 to 24 months.
A significant portion of the investment is expected to be capitalized beginning in early calendar 2022, as we formally kickoff implementation non capitalized costs associated with this project will be included in SG&A as reported as technology transformation costs, which will be an adjustment in deriving adjusted EBITDA and.
Until the implementation is complete.
Now I'll close with our third quarter outlook.
While we continue to monitor the impact of omicron and evolving dynamics in the labor market. We're very pleased with the overall momentum in the business, we expect to see the typical seasonality in the third quarter in our revenue gross margin and SG&A, including the impact of holiday across the globe and in certain cases extended Holly.
Any shutdowns at some of our large clients as well as the reset of payroll taxes at the beginning of the calendar year.
Taking into account. These factors, we expect revenue in Q3 to be in the range of 192 to 197 million gross margin to be in the range of 37 to 37, 8% and run rate SG&A to be in the range of $53 million to $56 million now we're happy to take questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
John a question for the balance sheet. Please standby, while we compile the Q&A roster.
Our first question comes from Josh Vogel with Sidoti and company. You May proceed with your question.
Thank you good afternoon, everyone and happy new year.
Happy New year, Josh. Thank you. Thank you. Thank you.
I guess the first question I have for Ken you talked about.
Our early successes and positive feedback.
With Hugo in the Tri State area.
And.
I guess just a couple of questions around this you know when do you anticipate.
We did have some commentary around the back half of the fiscal year, but when do you anticipate this goes from pilot to full rollout and.
To build off that you know where the next markets you plan to introduce Hugo.
And would it be a deliberate move maybe into some regions or at that point would it be national.
And also would you do it under a pilot method or would it be a full rollout I know, there's a lot rolled into one I'm just curious how we should anticipate.
Hugo really go into market in coming quarters.
Right. So right now in our pilot stage and this early stage, we are focused on feedback and engagement more than revenue.
And we're really focused as I said in my prepared remarks on filling the vending machine so to speak so it's a lot about inventory right now.
We're working toward a six month timeframe or moving beyond pilot and I think it's too early to tell Josh whether that would be to the next select markets that we're going to focus on which is Texas and northern California.
But given the way the world is working now that may well bleed quickly into more of a national pursuit.
We just have to learn as we go a little bit, but I'd say within the next six months, we're going to move beyond pilot.
That's helpful. Thank you.
Switching gears, a little bit you know I'm kind of surprises environment and with the war for talent in general shortages out there that.
They are showing such success and traction in the pay to Bill ratio I was curious and it sounds like this is sustainable so I just wonder if maybe maybe more for John if you could just talk about.
The wage environment and wage inflation today, and why or why it appears so easy that you are passing this along to clients I know you've talked about the value based pricing and the intention to stay ahead of the impending rising pay rates.
But do you anticipate any potential pushback from clients or prospects. When this comes up or do you think this will still remain a relatively easy conversation given.
You know the secular tailwind here.
Hi, Josh Yeah sure let.
Let me talk about pay rate.
First and just talk about a few factors that impact our overall average pay rate.
It really hasn't moved that much this quarter as pay rate compared to last year same quarter as well as Q1. It really only moved by about roughly 10 says it didn't move up a little bit, but not not a whole lot and one of the things that's impacting our overall average pay rate is mixed right not only mixed by geography, but also mixed by our.
Our solution. So we are seeing.
More impacting certain solution areas, such as tech and digital we are seeing.
Pay rate go up a bit more but in the finance and accounting areas, we have not really seen that.
How much of a significant increase and given that M&A is still a.
More than 40% of our business and that's why you're seeing a mix impact there from a from an average pay rate standpoint, and the other factor is that you know I commented in my remarks wishes, given our agile talent model and because of the fluidity of our of our talent supply I would I would argue that our pay rate is already reflected.
We're very close to what market is.
How the market is moving because of the fluidity of our account to buy and we're constantly and continuously evaluating market pay rate and in making those adjustments.
So you know so I think while we are we are impacted by overall wage inflation, but when youre going to see is more of a gradual movement.
Movement as opposed to any sharp rises in our feature.
In terms of setting expectations for our future pay rates.
And in terms of bill rate.
We've been we've been focused on working on raising bill rates for you know for a number of quarters now right is anticipating the movement in our in the pay rates. So this is the perfect time to have these conversations with our with our clients because wage inflation and this is really happening to everybody broad based so I think that.
At a time like this and because of the labor shortage. You know I think our clients are really starting to appreciate more of the value that we bring to them because we can supply the talent to them at a time when they you know when when when they really needed to be able to fill that gap. So it's making those conversations regarding bill rates much easier.
And <unk>.
Tim if you have anything to add please feel free to jump in here on the bill rate side.
I would just say this.
I think the construction and the labor market is probably what makes it an easier conversation because the pace of change hasnt slowed down at all and so as <unk>.
Clients are losing.
Employees to non traditional employment and other opportunities.
I understand sort of the macro situation, where and so it is an easier environment to have those discussions and I would just tell you as I said.
On the last call that.
I think we're priced under market in any way. So there's a there's still an opportunity for us to get lift on the wage side, just one comment on that which is what you see it from a macro standpoint, the more people want to migrate to this form of employment and not all of that is related solely to pay rate a lot of it has to do with the ability to have control and scale.
Will that have a broader portfolio of experience and I highlighted a couple of those examples.
In my prepared remarks, and I can say that at least one of those situations.
It turned out an opportunity to make significantly more money to be able to have control and work on projects that they want it.
Those are really helpful insights. Thank you.
Just a couple quick housekeeping type questions.
Obviously really strong and impressive performance all around.
Consistently been a strong generator of cash in.
We saw that announcement in early December I was just curious are there other instances of opportunities were.
You could buy back a slug of stock from a shareholder connected to any prior acquisition.
I was just curious about that person and just building off of that after.
Yeah sure Josh we did buyback about $20 million with us with a shares in early December in a in a privately negotiated transaction with a with a.
Felt the seller is.
Related to a prior acquisition and from a share buyback perspective, you know I think sort of safe to say probably for the rest of the fiscal year I don't foresee us being back in the market and buying if they can save a significant amount more.
Share buyback, but going forward in fiscal 'twenty, three we will continue to do that.
Engaging in the share buyback, possibly to offset some of our dilution.
Dilution right and.
But the more opportunistically when we feel that the value is the valuations right.
Okay, and then just given the event, which was pretty early in the quarter.
Whats a good share count we should be thinking about for Q3.
I think $33 million.
With the mill, what we bought back about 1 million one so I would I would say probably somewhere in the mid $32 million range.
Okay, Great and just lastly, when you had the comments on this.
Given the opportunity to utilize benefits from the historical net operating losses and foreign regions.
Is 28% is that a good <unk>.
<unk> rate to use going forward.
That's right.
That's about right and we are if we are to reverse some of the valuation allowances in the second half of the second half of the fiscal obviously, that's going to give us a huge benefit and in Q3 achieved a Q4 of fiscal 'twenty, two but going forward. I think 28 is a good way to look at or think about effective tax rate.
Alright, great well. Thank you for taking all my questions and very impressive results and again happy new year everyone.
Thank you Hector.
Thank you. Our next question comes from Mark Marcon with Baird. You May proceed with your question.
Hey, good afternoon, and happy new year.
Gratulation.
Really nice quarter wondering can you talk a little bit more about Hugo just in terms of what the experience was in Tri States.
Just in terms of the roles that were being filled.
How quickly were you able to get people into the system.
How you envision that.
Impacting the economics within the Tri state.
Region as it as it matures because I'm, assuming that as that unfolds, then that would rollout across the country.
Yeah. So early days the positions we've been focused on it's been accounting accountant physician staff accountant kind of position fund accountant positions and payroll possess.
Physicians, especially as it's related to some of the recent news around them.
Payroll.
The payroll firm that was hit by a cyber security.
Incident.
But right now as I said before Mark we are very focused on feedback and engagement with the platform.
It's more about that than revenue at this moment, while we do have revenue goals for the platform. This year, we want to make sure. The experience is right before we roll out the functionality and access to the platform more broadly.
So far.
Everything is going according to plan, we're excited about the early feedback and the interest from existing clients, who want to get their hands into the platform in and start using it. So it's really we have been constricting more of the flow just to ensure that all the functions.
<unk> is performing the way we want it.
Before we go lives because.
You only get.
One time at a first impression and we want to make sure that that is an excellent experience for both client and consultant alike.
Great and what's what.
The process for for for basically getting some of the consultants.
Set up in the system, how how difficult is that.
What are what are the barriers or hurdles to that.
Yeah, it's really not hard, but we do have an element of quality control. So we have uploaded.
A lot of data from our core our G. P system. So all of our talent is really loaded into Hugo and accessible there. If we have the right client opportunities, but remember we started in and our early focus and Hugo as a level or two down so I wouldn't expect that.
Kind of overlap yet in our core our GT consultant base.
But then we do have a level of quality control that is still a human touch.
Touch element to ensure that those who want to be published on the Hugo platform will represent the brand and the quality of our GP the way we want them to.
Got it.
Great and then can you talk a little bit more about.
Some of the changes that you are seeing just in terms of the types of people.
That are that are coming onto the platform you mentioned a couple of.
Examples, but I'm wondering are.
Are these people who are at very senior levels.
What what qualifications are they are they you know former big four with seven to 12 years of experience or are they a M. D levels. What what are you seeing just from a.
From a from a demographic perspective.
And Youre talking Mark I want to make sure I'm answering your question you were talking about Hugo in particular, no no no I'm shifting over to William was talking about with regard. Okay. Then I'm going to give him. This question. If you outlined Mark I think he is perfect for this one.
Hey, Mark happy new year.
If not.
What I would say to you is for for those who have been here a long time like what I would say is the demographic that we usually saw was around 15 years of experience and we still see that demographic, but we're seeing sort of a broader spectrum. So you are seeing.
Folks who are earlier in their career, who are deciding that they wanted to take a different career path in journey and.
We're also seeing.
More senior people, who are trying to figure out if they want to.
Just do one or two projects a year and can be really really accretive to a particular client experience or problem. So what I would say the biggest thing as.
What we're seeing is sort of a broader array in around that 15 year of experience and particularly in the.
Earlier career, so the five to 10 year, we're seeing more of those and you've seen historically.
But secondarily I would say, we're just seeing more.
Part of that comes down to just the broad trend toward wanting to work in a different way so the volume itself or.
Or at least the will the volume itself around willing participants for those that are curious is significantly higher than that.
That's been a trend that's been that's been coming that's been accelerated by what we've all been through in the last couple of years.
Tim can you quantify that a little bit just in terms of like number of applicants or.
Number of resumes that you're getting or people that you've loaded onto the database I mean any way to quantify.
How much more interest you're getting just in terms of people that are interested in this more flexible.
Career.
When I look at the.
Have the actual applicant I don't have the African information pardon me Mark if I can follow up with you to give you an order of magnitude on that but what I can tell you in terms of number of buyers looking back sort of pre pandemic.
And comparing it to the pandemic is probably not.
The appropriate comp, but looking back into the early parts of 2020 are our levels are up 10% to 15% that just gives you a sense for kind of volume but.
Then think about.
The level of experience within that.
I'd have to look at the slides, but I can tell you from.
Looking at the data as it comes in is kind of the data is updated monthly you can really see that.
The level of experience.
I'm not experience I guess, what is the level of sort of a number of years of experience in the workforce has gotten markedly lower so if it was 15 before it's several pick lower from that now on average.
Okay, Great and then with regards to the.
The Tri State and California.
Much of the the the increase that Youre seeing there is just due to some of the capital market's activity that's been occurring both in terms of.
Venture funding as well as you know ipos.
Any sense for that.
Thats definitely a contributing factor, but I wouldn't say, it's the driving force.
Really what youre seeing.
You've got sort of these macro forces where companies are recognizing that they need to tap into firms like ours to help them just with the regular changes and transformation that they have in their day to day business.
And then there are also the transactions that are spit off.
And some of the iPhone. So that is a component of it I would say.
What's probably.
I think a bigger fourth driving it is just the pace of change that companies have to go through today.
To make sure just to ensure that they are staying with the herd let alone try to get stuff ahead, and then when you couple that with both the workforces desire to not be tethered to traditional employment, but also companies management's desire to have more of a flexible resource sort of the intersection of those three plants is really what's driving us ahead.
Great and then digital transformation, obviously, that's picking up can you give us a sense against the.
The size of that practice and.
Now how much stronger it has now been than it was say six months ago or a year ago.
Yeah, Hi, Mark digital check.
Tech and digital it's roughly about just below 15% of our overall business.
And it has fluctuated it really increased over the last few quarters, but as you know.
Remainder of the business is growing as well so.
It's still roughly about 15% right now.
But definitely certainly growing at the at the same pace, if not faster than some of our other solution family.
And then on the on the bill rates and the opportunity for lift in being under market.
Can you talk about how quickly you might be able to do that and kind of what the magnitude is say an M&A relative to.
Tech and digital.
Well the answer to your first question is not fast enough.
Yeah.
There is a certain amount of element of our book of business, that's under sort of existing rate cards and things like that that we know would be extended we renegotiated the cards that will have that discussion, but so it'll be faster.
Opportunities, where we're going into a new client or we're going into a new project is an existing client and be.
A little bit more confident in thinking about our pricing.
I think the I mean.
I think there is opportunity across the board to raise prices generally I think the opportunity within F&I is probably an order of magnitude less than it is in tech and digital because theyre constriction of supply impact in digital.
That's probably a higher level than we have in other functional areas, but also because there's just so much that's going on.
From a digital transformation standpoint, as folks are companies are trying to improve.
Improve the experience of our stakeholders that they are willing to spend more.
Upfront and more immediately.
Great and then what about the length of assignments and also being able to keep consultants on assignment through the length of the contract are you seeing.
You know obviously there is.
Great resignation, great reshuffled or is that.
Creating any challenges for you or are you seeing kind of sustained levels of completion.
Completion percentage.
I mean, we're I mean, it's.
It's a great question because I.
I would say to you that our average length of assignment really haven't varied that much I think where the challenge comes in is that there is more opportunity for consultants and some of them do get poached at what I would say are in opportune times like almost.
Prior to the third order and now you almost never saw somebody commit to a project and then sort of at the 11th hour.
We need to go to another project and we've seen that happen.
Several times much through the combination of our client service team, but it is a function of kind of what's happening in the world today, what I will say as well so all that is frustrating it hasn't it hasn't reduced our.
Our opportunity to close the work.
And what I think one of our greatest strengths is resilience when those types of things happen and we're able to we're able to turn those situations around.
But I think if you compare that to sort of the migration away from traditional numbers is that some of our clients are seeing.
While were impacted I feel like we're not as impacted as heavily there.
Great and then I mean, obviously you're.
Really nice turnaround.
How are you thinking about longer term, what the margin profile should look like.
As we kind of go through this.
You know evolution in the business.
Yeah, Hi, Mark.
Yeah, I mean, we are this year.
Year to date, our margin right now.
Roughly around 12, 12, 3% I think I think longer term, we think that we can I think he referred to this in her remarks, you know low to mid teens in terms of margin I think in the in the near to midterm I think 12% ish.
Sustainable, but I think over the long term.
As you know were working on this technology transformation project and you know one of the one of the benefit that we're expecting out of this project is that we're going to achieve much better automation and more automation and better efficiency, which is really going to help us scale.
Scale and improve our SG&A leverage so with that was that that project is complete.
Complete and once we go live we do expect to too there's more room in terms of margin I believe that we can get to a mid.
Mid mid teen margin, Yeah, let me just add to that just a little bit Mark you know, it's a combination of the things that we're working on now certainly the technology that Jim talked about and the fact that we're moving from really end of life core systems to state of the art systems, and we do believe that will matter in the business and will matter.
Through our financial results, but also as Hugo gains adoption in that self service platform and continuing to build back kind of digital experience and everything we do at our GP.
We will drive efficiencies that can help us.
Think of our margin in ways that we wouldn't have 10 years ago, and we're all committed to that to delivering shareholder return and really driving everything we do to improve that.
Terrific. Thank you so much.
Youre welcome. Thank you Mark.
Thank you and our next question comes from Andrew <unk> with JP Morgan You May proceed with your question.
Great Happy New year I'll Jen My question is about your comment towards the end of your prepared remarks. When you were talking about the outlook for third quarter, you mentioned extended shutdowns around the holidays and.
Sort of in the same breath, you said you were expecting kind of typical seasonality.
And I definitely concur with you that kind of at the middle of the range for revenues of minus 3% sequentially for a third quarter from as compared to our second quarter is typical seasonality for my question is a little more nuanced. My question is what are you trying to call out unusual negative seasonality.
Around the holidays in December and then made up for kind of in a faster start kind of January February. So just kind of break down for us when you say kind of a typical seasonality and you also said extended shutdowns was December kind of a normal.
December <unk>.
So I'm counting on kind of January February to make up for any kind of short falls around to get them kind of people taking holidays.
Yeah.
You know I was beginning weeks in in Q3, I think Tim referred to this in his remarks wishes. We are we are still building momentum from the end of Q2. So early weekly revenue in Q3 and in December before the holidays, we were seeing roughly about a one ish percent of increase compared to that at the end of Q2.
And so.
So we're.
Even though we're ahead, we know that we're gonna hits, our holiday season, and you know over the last couple of years, we are seeing some of our larger clients having extended shutdown for example, RVP we since Covid to now we also decided to give our people a week break over the holiday. So that is going that is contributing to it.
A little bit more seasonal impact compared to compared to previous years and so it's really it's really accounting for that that that seasonality and holiday and tiger and the peripheral holiday impact if you will.
And then also taken into account.
<unk> is still out there so we did build in.
Loosely some some impact from potential impact from Amazon as well.
We do expect we do expect in January and February we could pick up some acceleration right right right right right and just that last little piece on <unk>. So it is it's obviously nice and conservative that you built in some impact from home a climb but shouldn't omicron sort of be very little impact to your business.
Is it your business just as easily delivered remotely as it is on site and so like I I get it you know the last sort of 10 days around omicron has been nervous for all of us, but when you just look at the way you deliver would you really expect there to be much of an oboe chron.
Impact even if you know the let's just call it the national Workforces more remote in January and February.
Yeah, Let me let me let me just make a comment on in case, you want to jump in I mean, yes, we are more resilient in terms of delivering.
Remotely, but it's also about project starts RASM it could it could push back <unk> could have an impact on our clients' business at Cushing It could push that project starts. So that's kind of what we're what we're baking into in terms of potential alcon.
The impact yeah, and I think what we're what we're working with as we publish the mandatory policy that we're required to publish Andrew by I think it's the 10th or 11th of this month is what kind of requirements. While our clients have which then go to pushing out start dates et cetera, and that's the only thing we worry about.
Right, but just to be clear, it's good that you've built that into your assumptions you havent seen any delayed project starts question global crime yet right.
No not yet.
Nothing material, but.
We're really starting to see places in some of the major markets, where you're starting to see some.
<unk>.
Larger incidences of breakout and so yes.
Yes.
Want to be careful about that because of that.
You get in all kinds of.
Logistical things around starting consultants and screenings and things like that mhm, Yeah, No I appreciate.
Appreciate the sensitivity of it and I think you take as a sensible approach.
<unk>.
Thanks, Ken.
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 to shape for any further remarks.
We're proud of this quarter's results and we look forward to delivering good news at the end of our Q3 happy new year everyone.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
Yeah.
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