Kate Duchene - CEO Herb Mueller - CFO Alice Washington - General Counsel.
Michael Chow - JPMorgan Kevin McVeigh - Deutsche Bank Greg Mendez - Robert W. Baird.
Good day, ladies and gentlemen, and welcome to the Resources Global Professionals Q3 FY’18 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the call over to Alice Washington, General Counsel. Please go ahead..
Thank you, Operator. Good afternoon, everyone, and thank you for participating today. Joining me on this call are Kate Duchene, our Chief Executive Officer; and Herb Mueller, our Chief Financial Officer. During this call, we will be commenting on our results for the third quarter of fiscal year 2018.
By now, you should have a copy of today's press release. If you need a copy and are unable to access the copy on our website, please call Shannon MacPhee at 714-430-6363, and she will assist you. Before introducing Kate, I would like to remind you that we may make forward-looking statements during this call.
Such statements regarding future events or future financial performance of the company are just predictions, and actual events or results may differ materially.
Please see our Form 10-K report for the year ended May 27, 2017, for a discussion of some of the risks, uncertainties and other factors, such as seasonal and economic conditions, that may cause our business, results of operations and financial conditions to differ materially from the results of operations and financial conditions expressed or implied by forward-looking statements made during this call.
I'll now turn the call over to Kate Duchene..
Thank you, Alice. Hi everyone and welcome to our third quarter fiscal year 2018 earnings call. Here's a quick overview of what I will cover on our call today. First, I'll start with a brief overview of our third quarter operating results. Second, I will preview trends we are seeing in Q4.
Third, I will report on the progress we have made in integrating the two acquisitions, taskforce and Accretive Solutions. Fourth, I will provide an update on our strategic initiatives. Finally, I will highlight our priorities for the remainder of our fiscal year and the year ahead.
Our total revenues, including taskforce and Accretive for the third quarter of fiscal ’18 were $172.4 million, which represents an increase of 20% compared to the third quarter a year ago. Excluding revenue from the acquisitions, the increase was 5%.
On a sequential basis, third quarter revenue, including both acquisitions, increased by 10%, up from $156.7 million in the second quarter of fiscal ’18. Without the acquisitions, revenue decreased $1.8 million sequentially or 1.2%.
This slight decline was not a surprise and can be attributed primarily to the impact of Christmas, New Year's and Chinese New Year's holidays in Q3, with the only significant holiday in the second quarter being Thanksgiving here in the US. On a regional basis, we saw strong revenue growth across the board.
Europe again led the pack, reporting organic revenue growth of approximately 34% year over year and up 61%, including taskforce. This marks the ninth consecutive quarter that Europe has grown its revenue. US revenue was up 15% year over year, including the Accretive acquisition, and the Asia-Pac region grew 9.4% year over year.
Herb will provide additional details on our revenue performance a bit later in this call. Net income improved to $4.6 million or $0.14 per diluted share, compared to $2.9 million or $0.09 per diluted share a year ago.
These results were positively impacted by $0.07 per diluted share related to the tax reduction from the Tax Reform Act, and were offset by cost of $0.11 per diluted share related to severance, acquisition and transformation related expenses during the quarter.
SG&A was $55.3 million in the third quarter, 32.1% of revenue compared to $45.4 million in the third quarter a year ago, 31.5% of revenue. The increase is mostly attributable to SG&A expense from the acquired businesses.
The company’s SG&A was also higher than originally planned this quarter, largely due to costs associated with the integration of the company’s two acquisitions, as well as increased business development efforts to drive growth. In addition, we experienced several onetime expenses that were out of the ordinary and hit at the same time.
Herb will outline these costs in greater detail in a moment. Controlling SG&A expense remains one of our strategic priorities, and we are fully committed to improving cost containment efforts within our day to day operating model. We acknowledge that our timing on delivering SG&A savings is delayed, but we are competent that they will normalize.
We are committed to the longer term goal of SG&A below 30% by the end of fiscal ’19. In Q2, we marked the start of a compelling growth story at RGP. This past quarter, that story has continued to grow and evolve, rooted in the success of our strategic initiatives and acquisitions.
In Q4, we are looking to build on our momentum and begin capturing more of the opportunities created by our recent efforts. Let me now share some of the positive revenue trends we're seeing in our business. Our strategic client program, which is leading the way for elements of our sales transformation, is reporting revenue up 9% year over year.
We expect to see that growth continue through Q4 and into fiscal ’19. The account planning work and deeper focus on client initiatives is paying off, as we're earning more work within that client base. In our top 10 clients in Q3, all but two were up strong double digits.
Our business development team, which is primarily responsible for net new logos, is performing well in five of our major markets. In addition, organic year over year revenue trends have continued to increase nicely so far in Q4. Again, Herb will outline the trends with more color later in the call.
With respect to our investments, we're very pleased to report that significant progress has been made in integrating our two acquisitions, taskforce and Accretive Solutions. In fact, the integration of our taskforce acquisition is substantially complete.
We are also in the final stages of integrating Accretive, and remain on track to complete the integration during Q1 of fiscal ’19.
The acquisitions have already begun to have a positive impact on our business results, with taskforce contributing revenue of approximately $3.8 million and EBITDA of $700,000, and Accretive contributing revenue of approximately $17.3 million and EBITDA of $1.1 million.
Herb will cover the cost synergies we have captured from the acquisitions, but I am pleased that we have already achieved over half of the cost reductions we expected to realize from these deals. Now I want to provide an update on our continued progress against the three strategic initiatives we first outlined at our Q3 2017 earnings call.
That was a year ago. We are 12 months into this work and I'm pleased to share that we've made substantial progress. I’ll begin with sales transformation. In the US, our sales transformation is largely complete.
We have accomplished all but one of the objectives we outlined for this initiative in April 2017, having rolled out sales force throughout the enterprise, developed go to market sales management and account development playbooks, and launched a new learning and development program.
All that remains is the deployment of a new incentive compensation program for our sales team members, which we plan to complete by the end of Q4 and implement for fiscal year ’19.
Internationally, our sales transformation is well underway, as we are making certain personnel changes, investing in business development roles, and launching account planning by client in all markets. While the bulk of the work may be behind us here in the US, we are being very careful to avoid complacency.
We are now in a refinement period, reinforcing accountability and working to review and adjust the sales initiatives that we have implemented over the past 12 months, to ensure we are optimizing results. Next, our business model structure.
In the third quarter, we finished building out our talent group, marking the completion of all of our major organizational updates. In our major markets, we have also implemented a sales structure in our revenue team to focus on middle market client acquisition and penetration.
This objective will also allow us to sell our solutions capabilities into that client base, with less brand pressure than we faced in the Fortune 500. The Accretive acquisition also directly supports this initiative because their client base is primarily middle market.
We are now functioning fully under our new organizational design in the US, and remain confident that we have the right people in the right roles, focused on the right clients. We are driving accountability and productivity across all positions.
We recently hosted a leadership summit in Dallas designed to hone our management team’s focus on our strategy to grow our business objectives and clear definition of roles and responsibilities.
We will continue these alignment and accountability efforts going forward, and expect them to improve efficiencies and results across the company over the longer term. I've already touched a bit on our third initiative, cost containment. We have made good progress on managing our core SG&A expense.
We have however experienced higher expenses related to severance, our acquisitions, sales transformation and business development costs. These costs will normalize and we have not lost sight of our cost savings goals as we move toward completion of our transformation efforts.
Creating alignment throughout the organization on growth strategies and results did take some investment. We believe it is money well spent as we continue to see an uptick in revenue performance as we move through Q4. Pardon me.
As I stated on the two previous earnings calls, cost reduction does not follow a straight line, and we continue to expect that there will be some short term lumpiness as we complete the integration of our two acquisitions, make needed adjustments to our talent mix, invest in business development, and middle market client penetration.
This has been an extremely busy year for us, and I and the entire management team are pleased that we are seeing tangible results in our business from our efforts. But we're even more pleased with the momentum and the potential to see continued improvement as we close out the year and look ahead to fiscal ’19.
We are now one full year from the announcement of our key strategic initiatives, and remain on track to hit all our milestones and goals within the timeframe that we originally laid out.
As we complete those efforts in the coming quarter, we plan to shift our focus to evaluating how our initiatives are performing, and making adjustments where necessary to continue growing revenue while making balanced investments. We will also focus on finalizing the integration of Accretive, including aligning their sales function with our own.
We will continue our efforts to deepen our client development plans and cross sell within a client base that has embraced RGP as a premier provider of high quality talent. Our business model aligns perfectly with the growing (good) economy mindset, finding specialized talent on demand to help drive business forward.
I’ll now turn the call over to Herb for a more detailed review of our third quarter results..
Thank you, Kate and good afternoon everyone. I’ll start by giving detail on our fiscal third quarter financial results, and will then discuss the early trends we’re seeing in the fourth quarter. I’ll also give further detail on the financial impact of the strategic growth initiatives and recent acquisitions that Kate discussed.
Starting with an overview of our third quarter results. Total revenue for the third quarter of fiscal 2018 was $172.4 million, a 20% increase from the comparable quarter a year ago, including our acquisitions, and up 5% excluding them. Sequentially, revenue was up 10%.
On a constant currency basis, revenue increased 17.6% year over year and 9.6% sequentially. Our third quarter gross margin was 36.3%, flat compared to the prior year third quarter. SG&A expenses were $55.3 million or 32.1% of revenue, compared to $45.4 million, 31.5% of revenue in the fiscal third quarter a year ago.
I’ll provide more color on SG&A shortly. Our net income was $4.6 million or $0.14 per diluted share. In quarter three, adjusted EBITDA was $8.7 million or 5% of revenue, compared to $8.4 million or 5.8% of revenue in the year ago quarter. Now let me discuss some of the highlights of our revenues geographically.
As Kate mentioned, we had strong revenue growth across the board. For the third quarter, total revenues internationally were approximately $38.1 million versus $26.9 million in the third quarter a year ago, an increase of 41.4% year over year, 29.6% constant currency, and an increase of 2.1% sequentially, 0.6% constant currency.
These results were bolstered by our strong performance in both Europe and Asia Pacific.
Europe showed improvement for the ninth successive quarter, reporting revenue growth of about 34% year over year, excluding revenue from taskforce and flat sequentially, even though there were two additional holidays in the third quarter compared to the second quarter.
Asia Pacific reported strong revenue, up 9.4% year over year and flat sequentially. Our US performance strengthened in the quarter, with revenue increasing 14.9% year over year, including Accretive.
These results reflect increased activity overall, higher bill rates in several of the company's largest markets, and also reflects our continued progress on our strategic initiatives and the integration of Accretive. Sequentially, revenue in the US increased approximately 12.5%, including our acquisitions.
Excluding acquisitions, revenue sequentially decreased slightly at 2%. A normal trend since this quarter includes the Christmas, New Year’s holidays. Turning to the revenue trends for the fourth quarter of fiscal 2018. Weekly revenues in Q4 are trending approximately 22.5% ahead of last year, including taskforce and Accretive.
If the current trend continues, revenue would be in the range of $178 million to $182 million overall compared to $148.6 million a year ago. Without Accretive and taskforce, the revenue trend is $156 million to $160 million. The high end of the range is based on the current trend of 7.5% organic growth.
As we continue the integration of Accretive in the fourth quarter, we will lose the ability to break it out from overall RGP results. Turning to gross margins. Including our acquisitions, gross margin for the third quarter was 36.3%, flat compared to the prior year third quarter, and decreasing 160 basis points sequentially.
The sequential decrease is related primarily to the normal resetting of employer payroll tax obligations at the beginning of a new calendar year, and a slight increase in pay rate per hour. Excluding reimbursable expenses, our third quarter gross margin was 36.9%, which compares to 37% in the third quarter a year ago.
For the third quarter, our gross margin in the US was 36.9%, the same as last year's third quarter mark. And our international gross margin improved to 34%, compared to 33.8% a year ago. For the court quarter, we expect our gross margin to be in the 38% to 39% range, compared to 39.1% a year ago.
The year over year decrease is primarily a result of pressure on pay rates, the growth of our international business, as well as the two acquisitions having slightly lower gross margins.
The average hourly bill rate for the quarter, including acquisitions, was approximately $123, which compares to $123, including acquisitions in the second quarter and $118 in the year ago quarter. The average pay rate for the third quarter was approximately $63, compared to $59 last year, and $61 last quarter.
As a reminder, these hourly rates are derived based on prevailing exchange rates during each given period. Now to headcount. Quarter end consulting headcount was three 3,143, including 402 from Accretive, and 48 from taskforce, versus 2,611 a year ago. The total headcount of the company, including Accretive and taskforce, was 4,033 at quarter end.
While overall headcount increased, we will remain diligent in our efforts to ensure we have the right level of personnel in the right markets. For instance, we've added talent in Europe to support their growth. Now looking at other components of our third quarter financial results. SG&A expenses were $55.3 million or 32.1% of revenue.
This compares to SG&A of $45.4 million or 31.5% of revenue in the third quarter of fiscal 2017, and $47.5 million or 30.3% of revenue in the second quarter of fiscal 2018. Our SG&A also includes non-cash charges for stock compensation expense of $1.4 million or 0.8% of total revenue.
The year over year increase of $9.9 million from last year's third quarter, relates largely to costs associated with the SG&A of the taskforce and Accretive operations, integration costs associated with the acquisitions, and increased business development efforts.
Specifically, SG&A includes $6.2 million directly from the acquired businesses, $0.7 million from severance, $2.9 million from integration of the acquisitions, and the ongoing efforts to transform our sales and business development efforts. The combined impact of these charges were $0.11 per diluted share on (stage) results.
In addition, the increase over our estimated range for the quarter included medical claims that were approximately $350,000 higher than normal.
We also booked an additional $300,000 of bad debt reserve due to higher AR levels and a currency hit of $1 million compared to last year, primarily relating to the strengthening of the Euro, Yen and Pound in the quarter.
We view the temporary bump in SG&A costs as necessary short term investments in the growth of our business and our client base, and expect that some of these costs will continue into the fourth quarter.
We anticipate the bulk of these integration and transformation costs will taper off beginning in fiscal year 2019, and be further offset by additional cost synergies realized with the successful integrations of the Accretive transitions.
As Kate discussed earlier, reducing SG&A as a percent of revenue, remains one of our strategic priorities and we're fully committed to improving cost containment efforts within our day to day operating model, and we'll continue to closely monitor SG&A while focusing on growth.
In the fourth quarter, we expect SG&A to be in the range of $54.5 million to $55.5 million, approximately 31% of sales, which will include $2.5 million to $3 million of spending for the transformation and integration of the acquisitions. This includes cost for consultants and training related activities.
We recognize that these costs are a little higher than we previously outlined, but our goal is to ensure that the integration and transformation is extremely successful. The resulting growth we are currently achieving supports our decisions. At the end of the third quarter, our office count was 74, 48 domestic and 26 international.
During the third quarter, we added five offices in the US as a result of our acquisition of Accretive. Turning to the other components of our financial statements. Deprecation was just over $1 million, compared to approximately $950,000 in the second quarter.
Amortization expense was $1 million, compared to $300,000 in the second quarter, as a result of the additional amortization of intangibles relating to Accretive.
Our adjusted EBITDA cash flow margin, which we define as EBITDA before stock compensation, was 5% in the third quarter, down slightly from 5.8% a year ago, and 8.5% in the second quarter of fiscal 2018. Our pretax income was $4.6 million in the third quarter.
During the quarter, we recorded a provision for income taxes of $46,000, representing an effective tax rate of 1%.
The drop in tax expense this quarter relates to the revaluing of our deferred tax assets and liabilities as required by the Tax Cuts and Jobs Act of approximately $1.1 million and additional $1.1 million related to bringing our overall tax expense into line with the new US mandated lower rate.
The favorable impact on EPS in the quarter for these changes was $0.07 per share. For the fourth quarter, lower tax rate will continue to reduce the US tax rate by approximately 5%. We will also incur a write off of deferred tax assets of approximately $1.4 million related to the expiration of unexercised stock options.
Also note that our GAAP tax rate for each of the upcoming quarters is difficult to predict, and could be volatile as the rate will be dependent on several factors, including the operating results of our US and foreign locations, each of which are taxed or benefited at different statutory rates, and the offset of the tax benefit of foreign losses in certain locations by valuation allowances.
On a cash basis, our tax rate was about 36%, and we expect that rate to decrease going forward. We do not expect any charges on our accumulated offshore earnings. Finally, our GAAP net income was approximately $4.6 million or $0.14 per share during the third quarter. Now let me turn to the balance sheet.
Cash and investments at the end of the third quarter were $43.2 million, a $13.1 million decrease from the second quarter of fiscal 2018.
This was primarily a result of the Accretive acquisition, share buybacks during the quarter, interim bonus payments during the quarter, and the settlement of payroll obligations on the last working day of the quarter. Receivables at quarter end were approximately $126 million, compared to approximately $109 million at the end of the second quarter.
The increase of $17 million is split between approximately $10 million of new receivables from former Accretive clients and growth in our core business. Days of revenue outstanding were approximately 65 days compared to 63 days in the second quarter of fiscal 2018. Dividends for the quarter totaled proximately $3.7 million.
Capital expenditures were $836,000 during the quarter, net of landlord reimbursements. In the third quarter, we repurchased approximately 321,000 shares at an average stock price of $15.95 per share for approximately $5.1 million. Our stock buyback program has $120 million remaining.
We will continue to return cash to shareholders through our quarterly dividend, while balancing debt repayment, the capital requirements of our growing business, organically and inorganically, and fiscal prudence. Our shares outstanding at the end of the third quarter were approximately 31.5 million.
We issued 1,072,000 shares (indiscernible) third quarter related to the Accretive acquisition. Now turning to the financial impacts of our Accretive and taskforce acquisitions. As Kate mentioned, the integration of our taskforce acquisition is substantially complete. We're also nearing completion of our integration of Accretive.
As Kate and I both mentioned earlier, the acquisitions have already begun to have a positive impact on our results, including taskforce revenue of approximately $3.8 million and EBITDA of $700,000, and Accretive revenue of approximately $17.3 million and EBITDA of $1.1 million.
We’ve already achieved over half of the cost reductions we expected to realize from these acquisitions, including $500,000 in back office cost reductions attributable to Accretive. We’re on track to complete the balance of the cost reductions by the first quarter of FY’19, and expect to have both acquisitions fully integrated at that time.
We’re excited about our acquisition of Accretive and taskforce, and we're continuing to work to identify additional growth opportunities, both inorganic and organic. And finally, I’d like to discuss the financial impacts of the strategic initiatives that Kate covered earlier.
As a reminder, we first outlined these three initiatives just one year ago, with specific goals to reduce costs over time, enhance our revenue and improve our operating model. We said we expected to take 18 months, and we've been able to accelerate the timeline, though with that, we increased our cost in the short term.
However, this will allow us to see the overall benefits earlier than originally expected. We continue to successfully implement these initiatives, and are pleased with the progress we made in the third quarter, in particular with the sales transformation initiative and the redesign of our business model.
Our revenue enhancement we continue to believe that initially as we've outlined, will put us in a stronger financial position going forward, and we're already seeing growth. As Kate mentioned earlier, in the US, our sales transformation is largely complete. We have achieved all but one of the objectives we initially outlined for this initiative.
We have completed the rollout of sales force throughout the company and now have developed go to market, sales management and account development playbooks. We've also launched a new learning and development program.
Our new incentive compensation structure for our sales team is still under development, but we expect to have that completed by the end of Q4 for implementation in FY’19. Revenue for our strategic client program is up 9% year over year and trending positively.
We expect to complete substantially all of our sales transformation by the end of the fiscal year, and we're now working to refine all of the sales initiatives that we've implemented over the last 12 months to ensure we're optimizing our efforts.
With regards to the redesign of the business model, this quarter we finished building out our talent group, marking the completion of all of our major structural updates. We’re now fully - operating fully under the new organizational design in the US, and we're focusing on driving accountability and productivity across all positions.
We expect these efforts to continue to improve efficiencies across the company. While we discussed our cost containment initiative earlier in the call, I want to reiterate that we remain committed to lowering SG&A as a percentage of revenue over the last several years.
Despite some onetime expenses related primarily to severance, our acquisition and our sales transformation and business development costs, we have not lost sight of our cost savings goals. As mentioned earlier, we’ve accelerated the timeline of our initiatives.
These efforts have already delivered improved revenue growth, and we expect this upward performance trend to continue throughout fiscal year 2018 and into 2019.
Our efforts to executing against our strategic initiatives have already delivered improved revenue growth and have been further supported and enhanced by the client offerings at taskforce and Accretive. As such, we anticipate that this upward performance trend will continue.
As Kate discussed earlier, we’re very pleased to see our acquisitions and strategic initiatives beginning to bear fruit. We expect the momentum to continue and anticipate seeing improvement as we finish out the fiscal year.
We will now begin to focus - shift our focus to evaluating how our initiatives are performing and finalizing the integrations of our two acquisitions. In summary, we're very excited about - that our transformation and acquisition initiatives are ahead of schedule, and believe that we're set for an exciting FY’19.
Now I'd like to turn the call back over Kate to for some closing comments..
Thank you, Herb. We achieved a lot during the quarter, and we have been busy. We’re optimistic about closing out fiscal ’18 and laying a strong foundation for fiscal ’19. Our client continuity has remained strong throughout our transformation. During the third quarter, we served all of our top 50 clients from fiscal 2017, and 49 of 50 from 2016.
Our top 50 clients represented 34% of total revenues, while 50% of our revenues came from 124 clients. Our largest client for the quarter was approximately 2.2% of revenue. That concludes our prepared remarks, and we're now happy to answer any question. .
[Operator Instructions]. And our first question comes from the line of A Andrew Steinerman with JPMorgan. Your line is now open..
Hi. Good afternoon. This is Michael Chow in for Andrew. My first question is - I’m sorry if I missed it.
What was the total organic constant currency revenue growth year over year for the third quarter?.
That was 3.3%..
Herb is getting it, Michael..
Sure. Okay..
Yes. 3.3%. Yes, that was 3.3%. .
3.3%. Got it. And then - and I think you - correct me if I'm wrong, I heard in the fourth quarter trending comment that the comparable number is 7.5% year over.
Is that right or?.
That’s correct. If you look at the first five weeks year over year and that's not adjusted for currency. It’s just the way we're running right now, 7.5%0..
Okay. Understood.
So what would the comparable organic constant currency number be for fourth quarter?.
I don't really have that calculated out, Michael..
No problem..
Yes. We didn’t calculate that mid quarter. We look at currency impact at the end of the quarter, Michael..
Understood.
And can just ask one on Accretive? Can you give us a sense for what the credence like for like, year over year growth was for the third quarter?.
Yes. It was up slightly. And then - but their profitability and primarily due to the cost reductions that we put in place when the EBITDA last year was essentially breakeven to $1 million this year..
Got it. And then if I could just squeeze in one more on gross margin trends. I know you gave by regions. Can you give a little bit more color on those gross margin trends? I recall there was some lingering pressure in Europe, but it sounded like it was flat year over year.
So is that - do you see that improvement continuing?.
Yes. Overall, we've got a little bit of pressure due to - there’s a combination of things. One is the mix. As Europe is - and international is growing at a faster rate than the US, and overall their gross margin is below the US. The weighted average ends up bringing our overall gross margin down slightly.
We’re also having a little bit of wage pressure that we mentioned. You saw that our pay rates have gone up. We’re working hard now to start recovering that as we’re moving up. And of course, obviously our topline - our bill rate has increased at the same time, but we need to do - continue to really focus on that to get that up even higher..
Understood. Perfect. Thanks so much. .
Thank you. And our next question comes from the line of Kevin McVeigh with Deutsche Bank. Your line is now open..
Great. Thanks. Hey, I wonder, can you give us a sense - if I heard the numbers right, it sounds like the taskforce EBITDA margins are about 18% and then Accretive 6.3, if I heard the numbers right, Herb.
Is that right? and if that isn't the case - if that is the case, why is taskforce so much higher and is there - because it sounds like from a gross margin perspective, it's a little dilutive, but the EBITDA margin seemed a lot higher. So maybe help us understand that dynamic a little bit. .
Yes. The taskforce has a very lean structure. So their gross margin is typically a little bit lower, but manage that business very, very efficiently. the Accretive is - I don't want to say turnaround, but we - clearly in what we outlined when we bought them, that they've been running annually in the - only in the $2 million, $3 million EBITDA range.
And so we've got the synergies that we took out. So we had - upon acquisition, we took out part of their back office at that time and then also some of their people in the field. And then we'll balance that out at the end of the integration. We have about another $0.5 million to take out.
So they’re going to be close to a 10% EBITDA ratio when everything's completed. So again, we're going to lose visibility of that going into next year because even going into this next - this quarter that we're in, as we're tightly tucking them into our offices, so it won't be clear cut. But we’ll definitely be removing that cost..
Got it.
And then it sounds like, was it four offices that you picked up? Are you going to keep those offices or will they be combined into existing resources?.
Yes. There was five and they'll be combined. We’re in the process of doing that now. For example in Atlanta, that's already been done. We’ve exited out of their location there. They’re working with our group. In LA, Chicago we’ll be removing those offices for long and working on a consolidation in the Bay Area as well.
But they still will keep their Sacramento office as well. And you get into individual location versus truly a different geographic presence, I mean for example in Detroit, technically you’ve got two separate locations. You have ours and theirs, but ours will eventually go away. .
Got it.
and then could you give any commentary just on a regional perspective, was there any outpaced activity like it in Tri-State as opposed to other regions of the country or just any thoughts you could on a region by region perspective?.
Yes. Overall, Tri-State we've talked about that over the last several quarters, has still lagging year over year. We’re in our turnaround mode. I’m going to let Kate talk about that just in a second. But if you take out Tri-State, we were up in the US just under 4% as a whole. So we feel good about going there.
And then Kate, do you want to talk a little bit about?.
Yes. I'll turn to the optimistic and I'll touch on Tri-State too, Kevin. I’d say our strongest region right now is northern California. We’re very bullish about what we're seeing from both our core business and the Accretive business in the Bay Area. So that is really our strongest regional bright spot.
In Tri-State, we’re stabilizing and we have a lot of change, change in leadership, change and structure in Tri-State and we've been able to stabilize and hold our revenue through all that change. And now we're going to start seeing more progress as we get that business turned and growing again.
So I feel like we're not satisfied with the result yet there, but we’ve made a lot of progress in terms of setting the foundation for growth. .
Got it. And then just real quick.
Can you remind us what percentage of the revenue Tri-State is today?.
Yes. Typically, historically they've been in the 20% range. Right now they're running about 16% of US revenue. .
Thank you..
[Operator instructions]. And our next question comes from the line of Greg Mendez with Robert W. Baird. Your line is now open. .
Hi. Thanks. This is Greg on for Mark Marcon. Thanks for taking my question. First, I was just wondering, Europe continues to do really well.
I know we’ve gotten a little bit aggressive to get some gains there, but how are you thinking about the momentum going forward for that business?.
Yes. I think we feel very optimistic about the momentum in that business. It's a lot about leadership and talent that we've been able to bring into the European practices. We have a new leader in Stockholm for example that came to us from E&Y and McKinsey. He’s having a good, positive impact in the business.
Our leader who runs all of Europe who is based in London has done an excellent job. It takes a while to turn the ship and now we've done that and we're seeing the fruits of all that labor.
I would also say that we've invested there in some of our managing consultant partner type talent resources that can drive more strategic project opportunity in our largest client and be able to go deeper with our services, and we’re seeing a positive impact from that. .
Okay, great. And on the SG&A, so it sounds - I mean would we expect then - I know you mentioned it's going to be lumpy, but it sounds like the integration, the acquisitions you're thinking would be complete at the end of Q1 of fiscal ’19.
So after that point then, would we expect some of the larger charges to kind of be done with, or?.
Yes..
Okay..
Yes. The short answer is yes, and you'll start seeing that trending in Q1 as we ramp down some of the additional charges at that time..
Okay, got it. And can you just talk a little bit - I mean how - you talked about an emphasis on not going into mid-market. Accretive obviously is a step into that space as well.
So how does the - can you just talk about the interaction between how Accretive focuses on the mid-market versus what you're going to have the organization - the core organization focusing on in mid-market? How do those two interact and how are you thinking about that?.
Yes. So we'll be integrating our sales teams really by the end of the fiscal year. So we won't be running legacy Accretive differently than we ran the core business in fiscal ’19.
I will say we've done a better job this year of analyzing our client base by segment, understanding what they're buying from us by segment and then mobilizing parts of the revenue team to focus on the particular client segment they’re best suited to serve.
And that's a different go to market strategy than we've deployed in the past and we think will be more effective. .
Okay, got it. And just a quick numbers question.
Did you - Herb, did you say 500 bps sequentially decline in the tax rate for Q4?.
The - we’re going to be up in that 36% range overall would be statutory. Now, there's - but then you've got the other hit of the $1.4 million. So I would actually calculate out to an actual percentage, but there’s ins and outs there.
And we have a tough time predicting that every quarter because it just depends on exactly how the profitability comes also in Europe and international that drives change there. .
Okay. Got it. Thank you..
Thank you. And I'm showing no further questions at this time. So with that, I’d like to turn the call back over to CEO Kate Duchene for closing remarks. .
Thank you, operator. We appreciate all of you attending the call and your interest in RGP. We look forward to talking to you again on our next earnings call following the end of our fiscal year 2018. Thanks again. .
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a wonderful day..