Resources Connection Earnings Call INSIGHTS: Gross Margin Improvement, Europe Developments

On Thursday, Resources Connection Inc (NASDAQ:RECN) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Take a look.

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Gross Margin Improvement

Andrew Steinerman – JPMorgan Securities Equities: Could you talk about what type of bill rate, pay rate improvement you saw to drive part of that gross margin improvement. Are you finding that pricing is firming up because of the supply of the type of consultants that you have is tightening and did you have to walk away from any business to be disciplined on bill rate, wage rate improvement to move forward the gross margin in this environment?

Don Murray – Executive Chairman and CEO: Andrew, I would tell you that, kind of the last question that you posed in terms of walking away from work, I would say, no, we aren’t really experiencing where we’re walking away from work. I think this is – we talked a little bit about the environment seeming to change in the last quarter’s call and I think it’s just kind of a continuation of our folks working very hard. Obviously, in the average lead per hour, you saw that increase of about $1, that at the end of the day, just comes from a lot of work on a number of engagements. I think we’re also seeing in Europe the – that you saw their gross margin internationally and a lot of that was driven from Europe also, improved which is interesting given the economy over there; but again, I think it’s just a lot of negotiation with our clients.

Andrew Steinerman – JPMorgan Securities Equities: So, bill rates are up, both in the U.S. and in Europe year-over-year?

Don Murray – Executive Chairman and CEO: Yeah.

Andrew Steinerman – JPMorgan Securities Equities: Then, I also asked about the supply. How does the supply of candidates feel?

Don Murray – Executive Chairman and CEO: The supply of candidates in high-demand areas like, information management and supply chain management, is tighter, so we’re having to spend more effort on recruiting the exact skills the clients are looking for. In accounting and finance there’s a really good supply of great people. So, it’s really in the more specialized consulting areas, information management and legal and supply chain, where the supply is tight.

Europe

Jeffrey Silber – BMO Capital Markets: I wanted to focus on and look on Europe a little bit more. If you could give us a little bit more color by geography that would be great, and if you could also let us know just in terms of dollars, what the amount of revenues you generated in Europe in the quarter were?

Don Murray – Executive Chairman and CEO: Nate, you want to take that?

Nate Franke – EVP and CFO: Sure. Jeff, the overall – what I would tell you in Europe, the first toughest markets for us in the fourth quarter were the Netherlands and the U.K., and the revenue in Europe for Q4 was $23.2 million. The other countries are actually basically been performing on average about flat. So, the tailwinds are in the U.K. and in Netherlands. Tony and I just came back from Europe, and despite the negative economic rooms over there, our people were pretty upbeat about improving their metrics and improving revenue, especially in countries like Germany, and Sweden where we have had growth and continue to have growth. So, Europe is a better, but people seem to be really up to the task. Tony?

Tony Cherbak – President and COO: I would just tell you that the meeting was very positive. As Don says, the Europeans have done a good job improving their metrics this last year, and in Sweden in particular, we found out that we got kind of a large IT project with s city government doing an assessment of the requirements for a new ERP system. In that case, we beat out a bid for a competitor.

Jeffrey Silber – BMO Capital Markets: And I know you used to disclose the Netherlands revenues separately. If we can get that as well, I just want to see what percentage of Europe that comprised?

Nate Franke – EVP and CFO: The Netherlands was about $6.2 million for the quarter.

Jeffrey Silber – BMO Capital Markets: Great. U.K is smaller than that?

Nate Franke – EVP and CFO: Yes.

Don Murray – Executive Chairman and CEO: Yeah, we used to disclose Netherlands because it is by far the biggest piece of our European revenue, and it’s not anymore as the other countries are growing. So, it’s probably not an item we’re going to continue to disclose separately since it’s not that significant.

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