Resources Connection, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Q3 results were in line or better than expected with total revenue $129.4 million. Gross margin and SG&A beat outlook ranges.
• Strengthening in practices in Europe, Japan, and the Philippines; consulting segment had double-digit bill rate improvement, increased enterprise-wide engagements, and improved win ratio.
• Enhanced client offerings with diversified services platform, flexible engagement models, and focus on high-demand service areas. Leveraging CFO plus one strategy.
• Improved operational efficiency by lowering cost structure through optimized headcount, reduced real estate spend, and lower discretionary spending.
• Targeted investments to enhance value creation, including technology and infrastructure replacement for North America, and enhancing sales/delivery teams. Progress in India delivery capability.

Segment Performance

• Consulting segment: Revenue was $52.6 million, a decline of 2% from the prior year. Segment adjusted EBITDA was $5.9 million (11% margin) compared to $8.8 million (16% margin) in the prior year quarter. Bill rates improved 13% year-over-year and 4% sequentially. Nearly doubled the number of $1 million-plus opportunities won and pipeline of such opportunities.
• On-demand segment: Revenue was $47.1 million, a decline of 24% versus prior year. Segment adjusted EBITDA was $2.6 million (5% margin) compared to $7.3 million (11% margin) in the prior year quarter. Seeing early traction from cross-selling initiatives but impacted by macroeconomic conditions.
• Europe and Asia Pac segment: Revenue was $18.6 million, a decline of 2% from the prior year. Segment adjusted EBITDA was $0.8 million (5% margin) compared to $1.3 million (7% margin) in the prior year quarter. Impacted by consultant holidays in Europe and macroeconomic challenges in China.
• Outsourced services segment: Revenue was $9.4 million, similar to the prior year quarter, but with an implied growth of 3% on an adjusted basis. Segment adjusted EBITDA was $1.5 million (16% margin), approximately the same as the prior year quarter.

Guidance

• Fourth-quarter revenue outlook: $132 million to $137 million.
• Gross margin: Anticipate maintaining improved pay bill ratio, with normalized gross margin in range of 36% to 37% post-holiday.
• SG&A expense: Fourth-quarter run rate SG&A expected to be in range of $45 million to $47 million (14-week quarter vs. typical 13 weeks). Non-run rate and non-cash expenses around $2 million to $3 million.

Risks

• Uncertain US operating environment with delayed client decision-making due to increased uncertainty and decreased consumer confidence.
• Macro-economic challenges in APAC, particularly in China.
• Potential impact of tariffs and government actions on client spending and decision-making.

Q: What's the organic constant currency revenue growth in fourth quarter midpoint?

A: Excluding reference point, midpoint Q4 organic same-day revenue decline is 17% constant currency.

Q: Update on Hugo revenue traction?

A: Hugo revenue picked up, folded into on-demand segment. Adopted on talent side, but clients not yet using self-serve; driving new opportunities in existing client base.