Resources Connection, Inc. Q2 FY2025 earnings call

• Sequential improvement in revenue, gross margin, run rate SG&A, and adjusted EBITDA in Q2. Revenue grew top-line sequentially by over 6%, gross margin 38.5% (200 basis points improvement), adjusted EBITDA $9.7 million (margin 6.6%). - Europe saw 18% sequential top-line growth, Asia 4% growth, overall segment improvement 10%. On-Demand segment revenue stabilized. Consulting segment Veracity grew 10% in Q2. Outsourced Services Countsy flat sequentially but 4% year-over-year growth. - Implemented new technology platform in North America on Workday Financials and Professional Services Automation Module, optimizing Workday HCM and Salesforce. 75% of business on modern platform. - Diversified services portfolio benefits: meets clients where they are, positions for economic cycles, deepens client relationships, attracts diverse talent. - Cross-selling, pricing optimization, and operational efficiency improvements led to sequential growth, improved bill rates, and stable pipeline.

Consulting segment: Revenue was $60.6 million, with 6.8% sequential organic growth. Including Reference Point, consulting segment revenue grew 10.2% from Q1. Europe improved top line sequentially by 18%, Asia grew 4%, overall segment improvement 10%. On-Demand segment revenue was up slightly from Q1 and continuing to stabilize. Outsourced Services business Countsy was essentially flat sequentially and grew 4% year-over-year, adding 25 new logos.

Third quarter revenue guided $127 million to $132 million. Gross margin estimated 34% to 35%. SG&A run rate expected $46 million to $48 million. Early third quarter weekly revenue run rate improved, but third quarter impacted by global holidays and holiday timing affecting billable hours.

Q: Could you drill down on gross margin improvement?

A: Jenn Ryu said gross margin improvement from pay-bills ratio, bench utilization, and holiday impacts. Year-over-year had pay pressure and less favorable utilization but favorable holiday impact offset.

Q: How is Reference Point performing?

A: Kate Duchene said Reference Point performing to expectations, integrating to expand solution set into client base beyond financial services.

Q: Thoughts on stock buybacks?

A: Jenn Ryu said it's a timing issue, expect more activity after technology transformation.

Q: Color on On-Demand in Europe?

A: Bhadresh Patel said more activity in finance, accounting, digital transformation, supply chain, with pipeline filling in early stage discussions.

Q: Impact of amortization of transformation costs?

A: Jenn Ryu said annual amortization around $3 million, start amortizing in Q3.

Q: Impact of November/December project ends?

A: Bhadresh Patel said not seeing cyclical end-of-year cliffs, managing work as it ends and fills.

Q: Year-over-year revenue guidance midpoint?

A: Jenn Ryu said midpoint is a [15%] year-over-year decline on organic same day constant currency basis.

Q: Cross-selling areas?

A: Bhadresh Patel said finance transformation, ERP projects, digital, supply chain modernization, HR transformation.

Q: Technology platform go-live smoothness?

A: Jenn Ryu said go live December 21st went very smoothly, with robust structure to triage issues.

Q: Client activity post-election?

A: Kate Duchene said more positive sentiment, engaged in more meetings, optimistic but not hockey stick yet, transactional work and regulatory/tax change opportunities.