Q3 2022 Resources Connection Inc Earnings Call

April 6, 2022

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.

And instructions will follow at that time, if anyone should require assistance during the conference call. Please press the star key followed by zero button on your Touchtone telephone and Youll 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 third quarter ended February 26, 2022. They will also refer to certain non-GAAP financial measures an explanation and reconciliation of these measures to the most comparable GAAP financial measures are included in the press release issued today today's press release.

It can be viewed in the Investor Relations section of <unk> website, and also filed today with the SEC.

Also during this call management may make forward looking statements regarding plans initiatives and strategies and 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 <unk> 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 operation and financial condition to differ materially from what is expressed or implied by forward looking statements made during this call.

Now I'll turn the call over to RGB CEO Kate Mcshane.

Thank you operator, good afternoon, everyone and welcome to our call today, we will keep our remarks brief as we hope to see you at our Investor Day next week on April 12 at NASDAQ market site.

We're pleased to announce outstanding Q3 operating results, we've achieved record topline Q3 revenue and well exceeded the high end of our guidance range Q3 revenue was the highest attained during the same period since the company's founding over 23 years ago with 32% growth year over.

Mauro.

Moreover, we achieved growth across all client segments, including strategic global accounts and regional account as well as all major geographies.

We've also dramatically improved profitability year over year, adjusted EBITDA more than doubled versus the prior year quarter to $22 5 million and adjusted EBITDA margin improved to 11%. This is a fantastic result for a holiday impacted quarter.

These financial accomplishments reinforce that our strategies are working.

We have successfully built a business model and consulting capabilities that are more relevant and essential than ever in today's environment.

Talent is in the driver's seat today's talent wants more flexibility and mobility. According to Forbes, 50% of the workforce will be agile or gig oriented by the end of 2023.

We pioneered a good model for professional workers over 20 years ago, we know how to attract deploy and nurture project base agile professional talent given.

Given the powerful accelerating impact of the global pandemic, we have become a career destination for in demand experts, who desire to work with marquee clients to co deliver on high value impactful projects.

Our work model offers an attractive alternative to traditional role based career paths or professional services pyramid models.

Those models, often involved abdication of control choice and flexibility and scale of stagnation, we allow our employees to reclaim and own their careers to determine when and how much to work and what projects to work on.

Modern professionals, our Boulder and clear minded about what they want for many that's no longer traditional employment and we deeply understand what theyre looking for and how to provide it.

From the client perspective, the war for talent retirement trends immigration policy wellness considerations diversity priorities and other imperatives have led to significant talent shortages in gaps.

The growing challenges clients are innovating their workforce strategies three trends are preeminent in all aligned to RGB sweet spots.

First clients are rapidly evolving how work gets done with full time employees, who are remote hybrid or demand and improved experience to ensure retention.

These talent innovation strategies create opportunity for digital transformation project management and change management services as these projects often entail automation collaboration and knowledge sharing project initiatives.

<unk> has increasingly focused its expertise on workforce experience consulting delivering strategy through digital implementation.

Second clients are rapidly increasing the use of innovative talent engagement model.

That bring on demand experts into co deliver on projects, providing greater speed efficiency and agility.

Strategy is one part of the puzzle that execution is the game changer alphabet was the early adopter of this business strategy and many others are now at last following mislead.

According to Mckinsey survey, 85% of executives recently polled.

Back to increase the use of on demand talent over the next 24 months.

This strategy also aligns with Upskilling objectives, as our GP experts offer knowledge sharing mentorship and industry Cross pollination winco delivering with client teams.

Beyond demand Resourcing movement provides excellent growth opportunity for RG peace core capabilities, which align perfectly to the pressing business needs of today, including supply chain risk management talent innovation digital and finance and data excellent consulting.

The project based economy is growing across the board and across the Globe. The project Management Institute projects that 25 million New project managers will be needed over the next eight years to meet global talent demands.

Ceos report a preference to address todays biggest business challenges involving cyber security risks climate change the eni and quite chain disruption through a project oriented framework to accelerate outcomes and bring independent thinking to the solutions.

<unk> is strongly positioned to thrive in this space given our blend of project management change management and functional expertise.

Massive disruption has happened in the world of work talent supply and preferences have significantly changed and services demand has been permanently altered.

These disruptions are not ephemeral are retreating to the contrary they are growing.

So what is <unk> doing to own our position of strength and sustained growth and improved profitability for our shareholders.

During our Investor Day next week on April 12, as deck market site, we will be sharing deeper insights about macro trends.

Highlighting the growth and profitability opportunities across our offerings and outlining how they address different pain points in today's world of work challenges. We will also discuss our internal initiatives to execute more efficiently against opportunity trends, including our important initiatives to achieve greater brand clarity in the <unk>.

Marketplace.

We will also help attendees visualize how the interconnectivity of services within the <unk> ecosystem will drive further growth and profitability.

Whether we described the client success stories from County, veracity, our GP or Hugo we are building and growing a set of capabilities that deliberately and powerfully reinforce each other to solve client problems.

Investors will leave with a better understanding of how our GP is uniquely positioned to address the macro trends that are converging to fundamentally change the way work is accomplished.

In closing I want to share an employee story. This story happens to also tied to the tragic geopolitical events happening in the world today.

While <unk> does not have business exposure to Russia, or Ukraine, we do have people within our organization, who have loved ones in the region.

For them, we take a stand and denounce Vladimir Putin is unjustified military invasion of a sovereign country. We also encourage expressions of tightness and support for the people of Ukraine.

Specifically, we applaud one of our own who converted her employee recognition award two tickets to travel anywhere in the world.

Two tickets to fly strangers in need out of Ukraine.

Those two Ukrainian citizens a mother in young son are now staying with our GP employee until safe and affordable housing can be found.

I share this story of human kindness, because it is a beautiful example of the soul of our company empathetic human first and problem solving.

Thank you team our GP for your heart energy and enthusiasm and delivering the exceptional results. We are presenting today, we are a collaborative culture and strongly committed to continuing to deliver excellent results for each other our clients and our shareholders.

I will now turn the call over to Tim for an update on operations.

Thank you Kate and good afternoon, everyone. During the third quarter. We saw continued revenue growth strong operational metrics and margin performance. Despite the seasonal impact of the holiday season. In fact, this marks the sixth consecutive quarter of sequential growth.

I wanted to build five demonstrated continued strength led by penetration into existing accounts, coupled with new logo acquisition.

Momentum noted at the end of Q2 relative to revenue and closed yield sustained throughout Q3.

We saw the highest level to close deals in over a decade.

Enterprise revenue increased by 42% over prior year quarter, and 4% sequentially on a same day constant currency basis with top of the funnel activity was robust, especially when taking into account holiday impact for both Christmas and new year's day.

Geographic performance in the quarter were consistently strong across our core business with strategic accounts Asia Pacific Europe , North America, healthcare healthy and rapidly all demonstrating solid performance.

Demand trends across the portfolio continue to rise as business have been buoyed by our operational focus internationally and the macro trends that are driving the commercial aspects of our business in particular acquired heightened desire for code delivery on key initiatives as.

As we have previously known as the shift to the use of more agile resources as really a permanent win and which companies are re imagining the overall workforce plans and it's very much in line with our core value proposition of impact of agility.

Distributable this shift is a project we're doing with a large technology company in the west who is undergoing a transformation, which includes the carve out and stand up a minute.

And is that the maintenance of a transitional services agreement or TSA.

We initially started with approximately 10 consultants working on a team comprised of client and RGB personnel functional and program level focus on the carve out.

That too quickly work through additional work streams covering the new entity to help implement systems and processes in finance, which would freedom from the TSA.

The team doubled its initial size of the project is scheduled to be ongoing through most of FY 'twenty three.

Other co delivery opportunities expected on the horizon.

Similarly at a new medical device clients, we proposed unwanted significant projects around the integration of a major acquisition.

Our initial scope focused on managing the IP integration work stream, where we were delivering functional and program management expertise.

Currently our scope is expanding to include program and change management working with integration management office.

The program the project team combined client and RVP expertise with a sole focus of an efficient and successful integration.

The scope and complexity of the project, we anticipate additional work before the integration is complete.

On the candidate side, we continue to see more candidates attracted to our employment brand of course, taking control of their personal portfolio of experience, while retaining the community learning progression of protections that have been the hallmark of traditional employment.

Combination RGB have always provided.

Despite an overall employment environment rife with employment change of constricted supply hiring in total consultant count are the highest they've been in several years and our attrition rate has declined to a low not seen in recent memory labor trends of transform broadly and a much larger contingent of the overall workforce for daring to work differently. We continue to be confident in our demonstrated ability to attract them.

To obtain professional talent that is demanding flexibility and control despite a competitive labor market, which has more broadly impacted traditional employment.

In fact, the positive experience engendered in our hiring process generates morality, which is crucial for highly personal decisions such as employment.

As an example, one of our exceptional talent acquisition team members did a cold outreach to potential applicant.

Volume opportunity for which he was a good match.

After the initial call the prosperous decided that this opportunity wasn't a good fit for him at the time as he was happy to his current position.

However, he said it would be a perfect fit for his wife.

In short order his wife was on an F. P&A projects that RGB. In fact, she was still delighted at the speed personalization and professionalism of the process that you raised your husband in network.

Given her overall experience with our company her husband and decided to make the leap. Despite his initial reluctance and now as a candidate for a couple of other opportunities.

And we expect them to start shortly these examples show how the desire for flexibility and control permit at both our commercial and employment model and demonstrate compelling future opportunity as the market continues to evolve we.

We are competing with traditional employer for talent and are winning at increasing rates over.

Over time, we expect that more roles within more functions and organization will increasingly become a province of an agile workforce.

We remain keenly focused on overall consultant experience and are committed to investing in pathway driven by workforce desire ultimately leading to enhanced employment stickiness to RGB.

Now, let me turn back to our third quarter operations.

During the quarter, we saw continued pipeline growth and strong velocity average daily revenue grew throughout the quarter and ended at the highest rate in over a decade.

Additionally pipeline and book revenue are the strongest they've been in many years.

Terms of upfront, we continue to see pricing leverage as an opportunity across all of our business and remain focused on increasing.

Lead generation and opportunity identification continue to be strong into Q4.

And the early weeks of the quarter have shown strong positive trends in revenue pipeline and close deals.

The early quarter weekly revenue trends with day rates that we saw in the last week of Q3, which were very strong.

Finally, let me touch on operational leverage as in prior quarter in Q3, we continue to focus on controlling fixed costs and operating efficiently.

Adjusted EBITDA margin improved significantly from prior year quarter, and was especially strong given the seasonal impacts of the quarter.

We will continue to operate in a hybrid fashion, but we'll be opportunistic and utilize in person meetings to cultivate and solidify relationships.

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

Thank you Tim and good afternoon, everyone. We achieved record third quarter revenue and further improved our SG&A leverage which led to $22 5 million of adjusted EBITDA, 111% adjusted EBITDA margin of 490 basis point increase from the prior year quarter.

Third quarter revenue of $204 6 million exceeded the high end of our revenue guidance.

After adjusting for business day, and currency impact Q3 revenue represented growth of 32.

<unk> year over year and was up 4% sequentially the sustain sequential growth over an already robust second quarter revenue performance speaks to the strength in our business. Despite typical adverse seasonality.

We continue to see broad based growth across most of our core markets client segment solution areas as well as industry.

The labor market continues to tighten our clients are turning to us more to fill their workforce gap and to co execute their project professional staffing revenue increased 43% year over year, while project consulting revenue increased 25%, we continue to drive healthy growth in our strategic client accounts revenue from this client segment.

<unk>, 23% over the prior year quarter or.

Our solution offerings, and finance and accounting and business transformation grew 42% and 36% year over year, taking a look at industry health care financial services and technology industry revenues expanded by 49%, 43% and 35% compared to the prior year quarter.

Moving on to geographic revenue trend our revenue in North America improved 36% year over year and 6% sequentially on a same day constant currency basis, most geographic regions across North America grew by double digits over the prior year quarter as well as beating the sequential quarter.

Europe same day constant currency revenue grew 6% year over year, while there was a 6% deceleration compared to Q2 of the current fiscal year. The overall demand environment in Europe remains healthy.

Asia Pac also experienced broad based expansion and revenue across most markets over prior year third quarter revenue grew 24% on a same day constant currency basis and held flat sequentially.

Gross margin in the third quarter was up 110 basis points over the prior year to 37, 5% in line with expectation in the third fiscal quarter, which is typically lower due to the holiday.

We made solid progress in raising average bill rate by two 4% and improving pay bill ratio by 120 basis points from the prior year quarter.

Essentially average bill rate increased by one 6% and payable ratio remained flat.

Third quarter Enterprise average bill rate was $1 28, compared to $1 25 in the prior year quarter and $1 27 in Q2, we.

We will continue to drive revenue growth and margin expansion through pricing and believe there are abundant upside opportunity.

Building on the structural improvement in our SG&A run rate SG&A expense for the quarter was $54 4 million after excluding noncash stock compensation contingent consideration restructuring charges and technology transformation costs, representing 26, 6% of revenue of 380 basis.

Improvement compared to the same period a year ago.

SG&A dollars increase from the prior year quarter, primarily driven by higher variable compensation as a direct result of our strong business performance in the current fiscal year.

Also included in the third quarter SG&A expense with a onetime foreign currency gain of $1 million related to the dissolution of our France entity.

Now turning to the other components of our financial statements, our effective tax benefit rate for the quarter was 12, 7%.

With sustained profitability in our European entities, we recognized a discrete tax benefit of $7 5 million in the third quarter, specifically in the Netherlands related to both the reversal of its valuation allowance as well as the current quarter tax deductions related to the dissolution of the France entity.

Adjusted diluted EPS for Q3 rose significantly to <unk> 65 per share compared to <unk> 14 in Q3 of fiscal 'twenty, one the discrete tax benefit during the quarter favorably impacted adjusted diluted EPS by <unk> 22 per share.

We finished the quarter with $82 million of cash and cash equivalents and generated $23 million of cash from operations.

We maintained our 14th per share quarterly dividend in Q3, and repurchased $20 million of common stock.

We expect to engage in share repurchases opportunistically under our existing share buyback program, which has $55 million remaining at the end of the quarter.

Our technology transformation project is progressing.

Related cash expenditures for the third quarter were approximately 600000, a portion of which was capitalized.

I will now close with our fourth quarter outlook.

We're proud of achieving sequential revenue growth over the last six consecutive quarters as we not only recover from the pandemic, but are approaching our all time record.

Consistent with market trends, we anticipate sequential revenue growth to start to normalize.

While the fourth quarter will be impacted by spring break we believe the overall strength in our business remains solid.

Fourth quarter revenue is expected to be in the range of $211 million to $215 million.

Gross margin in Q4 is expected to be in the range of 38, 7% to 39, 5% and a run rate SG&A, which will exclude stock compensation and technology transformation costs to be in the range of $58 million to $61 million.

Before we turn to Q&A I'd like to remind everyone about our Investor Day next week on April 12, I'd NASDAQ marketplace, we look forward to sharing more about our business.

With that 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.

Withdraw your question press the pound key.

Please standby, while we compile the Q&A roster.

Yeah.

As a reminder to ask a question you will need to press star one on your telephone.

Please standby, while we compile the Q&A roster.

And I'm not showing any questions at this time I would now like to turn the call back over to Kate Mcshane for any further remarks.

Thank you operator, and thank you again, everyone for joining us today I hope you've saved your questions because you intend to participate with our Investor day event.

To remind you. It's next week April 12 in the morning at NASDAQ market site, and we hope to see you there for a more fulsome discussion of our business.

And our trends. Thanks, so much everyone and we'll see you there.

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

Yeah.

Okay.

Thanks.

Yes.

Okay.

Sure.

Okay.

[music].

Yes.

[music].

Okay.

[music].

If anyone should require assistance during the conference call. Please press the.

Starkey followed by the zero button on your Touchtone telephone then 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 third quarter ended February 26, 2022. They will also refer to certain non-GAAP financial measures.

An explanation and reconciliation of these measures to the most comparable GAAP financial measures are included in the press release issued today.

Today's press release can be viewed in the Investor Relations section of <unk> website, and also filed today with the SEC.

Also during this call management may make forward looking statements regarding planned initiatives and strategies and 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 <unk> report on Form 10-K for the year ended May 28, two.

<unk> thousand 21 for a discussion of risks uncertainties and other factors that may cause the company's business results of operation and financial condition 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 <unk> Chen.

Thank you operator, and good afternoon, everyone and welcome to our call today, we will keep our remarks brief as we hope to see you at our Investor Day next week on April 12th at NASDAQ market site.

We're pleased to announce outstanding Q3 operating results, we've achieved a record top line Q3 revenue and well exceeded the high end of our guidance range Q3 revenue was the highest attained during the same period since the company's founding over 23 years ago with 32% growth year over year.

Here Mauro.

Moreover, we achieved growth across all client segments, including strategic global accounts and regional account as well as all major geographies.

These financial accomplishments reinforce that our strategies are working.

We have successfully built a business model and consulting capabilities that are more relevant and essential than ever in today's environment.

Talent is in the driver's seat today's talent wants more flexibility and mobility. According to Forbes, 50% of the workforce will be agile or gig oriented by the end of 2023.

We pioneered a good model for professional workers over 20 years ago, we know how to attract deploy and nurture project based agile professional talent given.

Our work model offers an attractive alternative to traditional role based career paths or professional services pyramid models, where those models often involved application of control choice and flexibility and skill of stagnation, we allow our employees to reclaim and own their careers.

To determine when and how much to work and what projects to work on.

Modern professionals, our Boulder and clear minded about what they want for many that's no longer a traditional employment and we deeply understand what theyre looking for and how to provide it.

To solve the growing challenges clients are innovating their workforce strategies three trends are preeminent and all aligned to our GP sweet spot first clients are rapidly evolving how work gets done with fulltime employees, who are remote hybrid or demand and improved experience to ensure retention.

Veracity has increasingly focused its expertise on workforce experienced consulting delivering strategy through digital implementation.

Second clients are rapidly increasing the use of innovative talent engagement model.

That bring on demand experts in to co deliver on projects, providing greater speed efficiency and agility.

<unk> is one part of the puzzle that execution is the game changer alphabet was the early adopter of this business strategy and many others are now at last following mislead.

According to Mckinsey survey, 85% of executives recently polled expect to increase the use of on demand talent over the next 24 months.

This strategy also aligns with Upskilling objectives, as our GP experts offer knowledge sharing mentorship and industry Cross pollination winco delivering with client teams.

Ceos report a preference to address todays biggest business challenges involving cyber security risk climate change, the Eni and supply chain disruption through a project oriented framework to accelerate outcomes and bring independent thinking to the solutions.

<unk> is strongly positioned to thrive in this space given our blend of project management change management and functional expertise.

Massive disruption has happened in the world of work.

I'll, let supply and preferences have significantly changed and services demand has been permanently altered.

These disruptions are not a femoral are retreating to the contrary they are growing.

So what is <unk> doing to own our position of strength and sustained growth and improved profitability for our shareholders.

During our Investor Day next week on April 12.

Market site, we will be sharing deeper insights about macro trends, highlighting the growth and profitability opportunities across our offerings and outlining how they address different pain points in today's world of work challenges. We will also discuss our internal initiatives to execute more efficiently against opportune.

<unk> trends, including our important initiative to achieve greater brand clarity in the marketplace.

We will also help attendees visualize how the interconnectivity of services within the RGB ecosystem will drive further growth and profitability.

<unk> will leave with a better understanding of how our GP is uniquely positioned to address the macro trends that are converging to fundamentally change the way work is accomplished.

In closing I want to share an employee story. This story happens to also tie to the tragic geopolitical events happening in the world today.

While <unk> does not have business exposure to Russia, or Ukraine, we do have people within our organization, who have loved ones in the region.

Yeah.

For them, we take a stand and denounce Vladimir Putin is unjustified military invasion of a sovereign country.

We also encourage expressions of tightness and support for the people of Ukraine.

Specifically, we applaud one of our own who converted her employee recognition award two tickets to travel anywhere in the world.

The two tickets to fly strangers in need out of Ukraine.

Those two Ukrainian citizens a mother in young son are now staying with our GP employee until safe and affordable housing can be found.

I share this story of human kindness, because it is a beautiful example of the soul of our company empathetic human first and problem solving.

I will now turn the call over to Tim for an update on operations.

In fact, this marks the sixth consecutive quarter of sequential growth.

I've wanted to deal size demonstrated continued strength led by penetration into existing accounts, coupled with new logo acquisition.

That's a noted at the end of Q2 relative to revenue and close deals sustained throughout Q3, such that we saw the highest levels of closed deals in over a decade.

Geographic performance in the quarter with consistently strong across our core business with strategic accounts Asia Pacific Europe , North America, healthcare, Kelsey and veracity, all demonstrating solid performance.

Demand trends across the portfolio continue to rise as business have been buoyed by our operational focus on catastrophe and the macro trends that are driving the commercial efforts of our business in particular acquired heightened desire for code delivery on key initiatives as.

As we have previously noted the shift to the use of more agile resources as really a permanent win and which companies are re imagining their overall workforce plans and it's very much in line with our core value proposition of impact of agility.

I'll speak about this shift is a project we're doing with a large technology company in the west who is undergoing a transformation, which includes the carve out and stand up of an entity and the maintenance of a transitional services agreement or TSA.

We initially started with approximately 10 consultants working on a team comprised of client and RGB personnel at the functional and program level focus on the carve out.

That team quickly morph to additional work streams covering the new entity to help implement systems and processes in finance with freedom from the TSA.

The team doubled its initial size and the project is scheduled to be ongoing through most of FY 'twenty three with.

Other co delivery opportunity as expected on the horizon.

Similarly at a new medical device client, we proposed unwanted significant project around the integration of a major acquisition.

Our initial scope focus on managing the IP integration work stream, where we were delivering functional and program management expertise.

Currently our scope is expanding to include program and change management working with integration management office.

The program the project teams combined client and RVP expertise with a sole focus on an efficient and successful integration.

Given the scope and complexity of the project, we anticipate additional work before the integration is complete.

Combination RGB have always provided.

Despite an overall employment environment rife with employment change of constricted supply hiring in total consultant count are the highest they've been in several years and our attrition rate has declined to a low not seen in recent memory labor trends of transform broadly and a much larger contingent of the overall workforce or daring to work differently. We continue to be confident in our demonstrated ability to attract them.

Workday professional talent that is demanding flexibility and control despite a competitive labor market, which has more broadly impacted traditional employment.

In fact, the positive experience engendered in our hiring process generates morality, which is crucial for highly personal decisions such as employment.

As an example, one of our exceptional talent acquisition team members did a cold outreach to potential applicant speak volume opportunity for which it was a good match.

After the initial call the prosperous decided that this opportunity wasn't a good fit for him at the time as he was happy in his current position. However, he said it would be a perfect fit for his wife.

Short order his wife was on an F P&A project with RVP.

That she was so delighted at the speed personalization and professionalism of the process, but you raised your husband in network.

Her overall experience with our company her husband and decided to make the leap. Despite his initial reluctance and now as a candidate for a couple of other opportunities.

We expect them to start shortly.

These examples show how the desire for flexibility and control permit both our commercial and employment model and demonstrate compelling future opportunity as the market continues to evolve.

We are competing with traditional employers for talent and are winning at increasing rates over.

Over time, we expect that more role within more functions and organization will increasingly become a province of an agile workforce.

We remain keenly focused on overall consultant experience and are committed to investing in pathway driven by workforce desire ultimately leading to enhanced employment stickiness to our GP.

Now, let me turn back to our third quarter operations.

During the quarter, we saw continued pipeline growth and strong velocity average daily revenue grew throughout the quarter and ended at the highest rate in over a decade.

Additionally pipeline and book revenue are the strongest they've been in many years in terms of upfront we continue to see pricing leverage as an opportunity across all of our business and remain focused on increasing those.

Lead generation and opportunity identification continue to be strong into Q4 and the Earth.

And the early weeks of the quarter have shown strong positive trends in revenue pipeline and close deals.

The early quarter weekly revenue trends at the same rates that we saw in the last week of Q3, which were very strong.

Finally, let me touch on operational leverage as in prior quarter in Q3, we continue to focus on controlling fixed costs and operating efficiently.

Adjusted EBITDA margin improved significantly from prior year quarter, and was especially strong given the seasonal impacts of the quarter.

We will continue to operate in a hybrid fashion, but we'll be opportunistic and utilized in person meetings to cultivate and solidify relationships.

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

Thank you Tim and good afternoon, everyone. We achieved record third quarter revenue and further improved our SG&A leverage which led to $22 5 million of adjusted EBITDA or 11% adjusted EBITDA margin of 490 basis point increase from the prior year quarter.

Third quarter revenue of $204 6 million exceeded the high end of our revenue guidance.

After adjusting for business day, and currency impact Q3 revenue represented growth of 32.

We continue to see broad based growth across most of our core market client segments solution areas as well as industry.

The labor market continues to tighten our clients are turning to us more to fill their workforce gap and to co execute their projects.

Professional staffing revenue increased 43% year over year, while project consulting revenue increased 25%, we continue to drive healthy growth in our strategic client accounts revenue from this client segment increased 23% over the prior year quarter.

Our solution offerings, and finance and accounting and business transformation grew 42% and 36% year over year.

When you look at industry Health care financial services, and technology industry revenues expanded by 49%, 43% and 35% compared to the prior year quarter.

Asia Pac also experienced broad based expansion and revenue across most markets over prior year third quarter revenue grew 24% on a same day constant currency basis and help flat sequentially.

Gross margin in the third quarter was up 110 basis points over the prior year to 37, 5% in line with expectation in the third fiscal quarter, which is typically lower due to the holiday.

We made solid progress in raising average bill rate by two 4% and improving pay bill ratio by 120 basis points from the prior year quarter.

<unk> average bill rate increased by one 6% and payable ratio remained flat.

Third quarter Enterprise average bill rate was $1 28, compared to $1 25 in the prior year quarter and $1 27 in Q2, we.

We will continue to drive revenue growth and margin expansion through pricing and believe there are abundant upside opportunity.

Building on the structural improvement in our SG&A run rate SG&A expense for the quarter with $54 4 million after excluding noncash stock compensation contingent consideration restructuring charges and technology transformation costs, representing 26, 6% of revenue of 380 basis.

Improvement compared to the same period a year ago.

SG&A dollars increase from the prior year quarter, primarily driven by higher variable compensation as a direct result of our strong business performance in the current fiscal year.

Also included in the third quarter SG&A expense was a onetime foreign currency gain of $1 million related to the dissolution of our France entity.

Now turning to the other components of our financial statements, our effective tax benefit rate for the quarter was 12, 7%.

We finished the quarter with $82 million of cash and cash equivalents and generated $23 million of cash from operations.

We maintained our <unk> per share quarterly dividend in Q3, and repurchased $20 million of common stock.

We expect to engage in share repurchases opportunistically under our existing share buyback program, which has $55 million remaining at the end of the quarter.

Our technology transformation project is progressing.

Related cash expenditures for the third quarter were approximately 600000, a portion of which was capitalized.

I will now close with our fourth quarter outlook.

We're proud of achieving sequential revenue growth over the last six consecutive quarters as we not only recover from the pandemic, but are approaching our all time record.

Consistent with market trends, we anticipate sequential revenue growth to start to normalize.

While the fourth quarter will be impacted by spring break we believe the overall strength in our business remains solid.

Fourth quarter revenue is expected to be in the range of $211 million to $215 million.

Before we turn to Q&A I'd like to remind everyone about our Investor Day next week on April 12, I'd NASDAQ marketplace, we look forward to sharing more about our business.

With that 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.

Withdraw your question press the pound key.

Please standby, while we compile the Q&A roster.

As a reminder to ask a question you will need to press star one on your telephone.

These standby, while we compile the Q&A roster.

And im not showing any questions at this time I would now like to turn the call back over to Kate Mcshane <unk> for any further remarks.

Thank you operator, and thank you again, everyone for joining us today I hope you've saved your questions because you intend to participate with our Investor day event too.

To remind you. It's next week April 12 in the morning at NASDAQ market site, and we hope to see you there for a more fulsome discussion of our business and our trends. Thanks, So much everyone and we will see you there.

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

Q3 2022 Resources Connection Inc Earnings Call

Request a DemoDemo

RGP

Earnings