Resources Connection Earnings Call Nuggets: M&A Side and Headcount Reductions

Resources Connection Inc (NASDAQ:RECN) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

M&A Side

Kevin McVeigh – Macquarie: I wonder, it sounds like you’re starting to see some signs of pick-up on the M&A side and things like that. What percentage of the revenues at currently – and Tony, I know you’ve commented in past on what’s kind of more revenue-enhancing opportunities as opposed to cost-cutting projects, and how those trends just overall are trending. Are we seeing more towards revenue enhancement or is it still pretty close to cost cutting projects?

Tony Cherbak – President and CEO: What I would say on the M&A side, Kevin, what we’re seeing is a lot of companies going through some divestitures and we’re doing a little bit of work there on the carve-out side. I would tell you that a lot of the projects that we’re seeing our clients do though are pretty (distensive) or trying to further cut cost and we see that in the supply chain management projects and we also see them just doing a lot of work around taking cost out of their supply chain. We also see a lot around IT to further improve their productivity and therefore cut their employment costs.

Kevin McVeigh – Macquarie: Then in terms of – it looks like there was a little spread compression; number one, and you closed some offices. Any thoughts on kind of the office closures, particularly given where we are in this cycle?

Tony Cherbak – President and CEO: I think the office closures were really more – just taking a look at being able to serve them out of nearby markets as well as eliminating some of our own occupancy costs. So, we’re always taking a look at where we can save money and we continue to look at probably a couple of other offices.

Don Murray – Executive Chairman: I think Tony has been focused on where we invest our money, and if we can take some of the non-performing offices and use that overhead and invest it in the more performing offices, that’s going to pay off a lot quicker than some of these other markets.

Headcount Reductions

Sara Gubins – Bank of America: Could you talk about potential run rate savings from the headcount reductions, and whether or not any of the outflows included in the fourth quarter results?

Nate Franke – EVP and CFO: Yes, Sara, on an annualized basis, the total people come out to about 500,000 per quarter but that would be allocated – some of them were consultants with a more or less be into the gross margin or cost of revenues. The impact on SG&A was included in the numbers I gave in terms of the $800,000 decrease from the GAAP number in Q4.

Sara Gubins – Bank of America: But as we are thinking about cost of services, would it be reasonable to think that you’d be able to get the lower – that that would be lower by about 500,000 per quarter going forward?

Nate Franke – EVP and CFO: Yeah, I mean it probably is 10 to 20 basis point impact on gross margin, all else being equal.

Sara Gubins – Bank of America: When you talked about gross margin declining sequentially 70 to 80 basis points from fourth quarter to first, just to check, that was reported gross margin; correct, not backing out?

Nate Franke – EVP and CFO: That’s correct. Yeah, all the comparisons were based on the GAAP reported numbers.

Sara Gubins – Bank of America: And then, I am wondering if you could talk about areas of strength and weakness by capability that you are providing, and within that, if you’ve seen much pick-up on the healthcare front?

Nate Franke – EVP and CFO: I think the healthcare has been nice and steady. I mean there has been a lot of impetus on obviously the developing of the Pavisse system. So those first implementations are happening during the current quarter; and I think we are seeing a fairly nice level of request for demonstrations. So that is something over the long-term. As we can build that, it will help us from a revenue standpoint. I think as Tony mentioned, some of the other areas of strength is again around kind of the regulatory and business process improvement, which is both IM supply chain, and that gets back to, I think, what Kevin was asking about, some of the demand in – there is a sense that companies are starting to move forward on things that had been deferred and that they tend to be, I would label, compliance or business process improvements, efficiency-type stuff.