Good afternoon, ladies and gentlemen, and welcome to the Resources Connection, Inc. Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded.

At this time, I would like to remind everyone that management will be commenting on results for the fourth quarter ended May 28, 2022. They will also refer to certain non-GAAP financial measures. An explanation and reconciliation of these measures to the most comparable GAAP financial measures are included in the press release issued today.

Today’s press release can be viewed in the Investor Relations section of RGP's website and also filed today with the SEC. Also during this call, management may make forward-looking statements regarding plans, initiatives and strategies and the anticipated financial performance of the company.

Such statements are predictions and actual events or results may differ materially.

Please see the Risk Factors section in RGP's report on Form 10-K for the year ended May 28, 2021, for a discussion of risks, uncertainties and other factors that may cause the company's business, results of operations and financial condition to differ materially from what is expressed or implied by forward-looking statements made during this call.

Such discussion will also be included in the Risk Factors section in RGP's report on Form 10-K for the year ended May 28, 2022, which will be filed today, July 28, 2022. I'll now turn the call over to RGP's CEO, Kate Duchene..

project consulting and on-demand talent. Within project consulting, we engages management consultants, scoping and leading projects and we co-execute project deliverables defined by our client strategic team. With respect to project consulting, we are working to better focus our delivery capabilities so we can move faster in closing business.

We will continue improving our go-to-market design and strategic pursuits to deepen client centricity. We have trusted relationships with our largest clients, and the goal is to deepen and broaden them through expanded marketing account and industry vertical programs.

We have established a new emerging account segmentation to serve the long tail of the business in more efficient ways, including an omnichannel approach with HUGO. For fiscal year 2023, we have established a strategic pricing team within go-to-market to ensure we are applying a value-based approach to pricing.

And the business has transformed over the last 10 years from primarily on-demand talent support, two primarily project consulting, pricing strategy still has ample room to resolve.

Finally, as we reviewed in our Investor Day, we will pursue strategic and disciplined tuck-in M&A to strengthen areas of practice where we see enhanced market opportunities. We believe we have compelling opportunities in certain areas, including digital, people experience and finance and accounting advisory services.

These strategies and enterprise objectives I’ve outlined will serve to strengthen our business in the face of high inflation and recessionary pressures in the macro environment.

RGP's business today is much more diverse than during the Great Financial Crisis of 2008 and 2009 when we focus predominantly on finance and accounting staffing work, including SOX.

Today, we serve the needs of large and midsized organizations to continue to move forward with multifunctional transformational initiatives even as they enter choppier waters. Our growing pipeline demonstrates that transformation and operational excellence initiatives remain imperative for our clients.

In addition, for clients facing macro uncertainty and reluctance to increase permanent headcount, our model presents an attractive alternative to execute our mission-critical work. Recent headlines declare that well-known companies are putting the brakes on full-time equivalent hiring and bringing more agility into their workforce.

This foundational shift in talent strategy for greater resiliency is a favorable tailwind for our business. Our growing pipeline metrics and improving win rates reinforce the relevancy of our business model in today's economic environment.

It's also worth noting that even for clients that don't alter their hiring plans in response to recessionary pressures, the persistence of a tight labor market alone favors RGP's model, which allows clients access to high-quality talent on a project or on-demand basis.

I will close with a story of resiliency from one of our consultants that helped explain our continued strong performance. It reinforces why we describe our culture at RGP as human first, showcasing how our people lead with empathy and care in a troubled world.

Grace Atkin, a long-term consultant from the Chicago market, experienced a very serious medical emergency in her family. Her husband is suddenly diagnosed with a rare illness that required emergency brain and heart surgery. Grace needed time off with financial protection to continue to care for him and their young son.

The RGP team mobilized right away, coordinating a PTO donation program that afforded Grace the time off and peace of mind to care for her family. Her husband is now recovering very well, and Grace had this to say about her RGP experience at the first post-pandemic in-person Chicago consultant event last week.

"One of the theme topics from yesterday was the value of RGP. From a consultant perspective, every single one of us is screaming from the mountain top, how much we are valued here. Not just us, but our entire family unit feels it to, to be heard, supported and cared for is truly a gift. So I am never leaving.

Thank you for opening your heart in so many ways I cannot begin to express." This story exemplifies why we are attracting the best talent in the marketplace by taking great care of our people who are then able to take great care of our clients and one another. Getting stickier with exceptional clients and consultants is our goal.

I'll now turn the call over to Tim for an update on operations..

Thank you, Kate, and good afternoon, everyone. During the fourth quarter, we saw continued strong revenue growth, operational metrics and margin performance. In fact, this marks the seventh consecutive quarter of sequential growth.

Pipeline and deal flow remains robust, and the momentum we have noted at the end of the third quarter continued throughout the fourth quarter and into June and July. Revenue increased by 27.5% over prior year quarter on a same-day constant currency basis while top-of-the-funnel activity was strong, fortifying the pipeline going into fiscal 2023.

Geographic performance in the quarter was consistently strong across our core business with strategic accounts, Asia-Pacific, Europe, North America, Healthcare, Countsy and Veracity all performing well.

Despite some of the recessionary worries in the current macro environment, we continue to encounter strong demand profile across our portfolio propelled by tenacious operational focus and the continued shift to co-delivery on important initiatives.

We see this continuing in our client base, both with new and existing clients who are undertaking transformational projects at a faster and faster pace.

This change and the desire to partner with an agile project execution firm has provided the backdrop for increased opportunities, including expanding work within the same initiatives, winning adjacent work based on delivery talent and being utilized in new ways despite longstanding, albeit previously narrow relationship.

In the third quarter, I highlighted a large technology plant undergoing a transformation, which included a carve-out and stand-up of an entity. The initial deployment of the project was to implement an ERP and related applications utilizing a blended team comprised of client and RGP personnel at the functional and technical program level.

That work continues, and our footprint has increased to support the documentation and optimization of key global business processes as well as functional execution within the supply chain organization.

As the RGP team has continued to demonstrate true partnership and capabilities, the team continues to grow and we see further opportunity to assist in other key functional areas. This was a new client that has continued to embrace co-delivery and fully understand the value of RGP and helping them quickly use their objectives.

Similarly, at a new Midwestern financial services client, we closed an initial Veracity engagement focused on workforce experience and the relaunch of an Internet earlier this year.

That project has since increased in speed to nearly double the initial proposal and the relationship has rapidly expanded, leading to new Veracity engagement focused on redesign of existing technology implementation. Additionally, we have begun to identify more core RGP work, leveraging its initial breakthrough with Veracity.

We have another client example is a long-time energy client, which is traditionally utilized RGP for on-demand talent and have recently started to migrate their workforce strategy to utilize partners and co-delivery of important projects.

They have always appreciated our ability to solution expediently and decided to widen their aperture to work with us on a delivery of a key technology implementation. Today, we have a team of nearly 2,000 deployed in North America, Europe and Asia providing project management and functional expertise.

On the candidate side, we continue to attract strong talent for our company and have driven down attrition significantly during the year.

As Kate mentioned, we compete successfully with traditional employers, both in industry and at other professional services firms because we offer flexibility and control while retaining financial security, community, learning pathways and other professions that have been the hallmark of traditional employment.

While the labor market continues to be tight, our teams that are focused on talent acquisition and consultant engagement have done an incredible job attracting and retaining talent. We’ve seen strong hiring trends that continued throughout the quarter and our consultant count remains at the highest level in many years.

We expect this trend to continue given the shift in the way people want to work in with, and we are rapidly becoming the premier destination for professional talent that is demanding flexibility and daring to work differently.

Included in our overall consultant count are many boomerang, an approach we're trying to use to return to work, many of whom left for the allure of promises that didn't materialize.

As an example, one of our consultants joined RGP in the fall 2020 and immediately hit the ground running, demonstrating salient experience, a take-charge file and the ability to build teams. The client have noticed and elevated her to an even more prominent role in their finance transformation.

During her time on the project, she continued to be approached by both the client and other companies about joining their team. And finally, in the spring of 2021, she relented, joining a fast-growing startup.

Six months later, she returned to RGP as she missed RGP's flexible model, the support of our RGP team, the challenge of new assignments and her ability to work a hybrid schedule. This example shows how powerful the desire for flexibility and control has shifted the mindset of the workforce at large.

Clients and consultants demand agility and we'll move quickly to get it. Over time, we expect this shift to broaden and accelerate increasing the number of roles and functions that are full time agile. Now let me turn back to our fourth quarter operations.

During the quarter, we saw continued pipeline growth in Veracity driven on an exceptionally strong third quarter. Pipeline and booked revenue continued to be very strong.

Also, while we made progress with respect to pricing, increasing bill rates by 4% compared to prior year quarter and 2% sequentially, we continue to see pricing leverage as an opportunity across the enterprise and remain focused on the strategic objectives.

Lead generation and opportunity identification continued to be strong into Q1 and the early weeks of the new fiscal year have shown strong positive trends in revenue pipeline and closed deals.

While we are cognizant of potentially broader macro conditions, early revenue trends remained consistent with Q4 and seasonal pattern typical of the summer months prior to the pandemic. Finally, let me touch on operational leverage. As in prior quarters, in Q4, we continue to focus on controlling fixed costs and operating efficiency.

Adjusted EBITDA margin improved significantly, both sequentially and when compared to prior year quarter. We continue to operate in a hybrid fashion but are committed to serving our clients based on what the situation dictates. I will now turn the call over to Jenn for a more detailed review of our fourth quarter results..

Thank you, Tim, and good afternoon, everyone. We achieved the best financial performance in over a decade during fourth quarter. Revenue of $217 million exceeded the high-end of our guidance and represented a 28% year-over-year growth after adjusting for currency and business day impact.

The sustained top-line growth over the last seven consecutive quarters reflects our ability to execute and the relevance of our agile business model in today's changing workplace and macro environment.

In addition to excellent top-line growth, we also successfully expanded our adjusted EBITDA margin by 340 basis points from the prior year quarter to 15.4%, which is also the highest margin in over a decade. We continue to see broad-based growth across our core markets, client segments, solution areas as well as industry.

In a persistently tight labor market, we continue to support the needs of our clients in filling both their workforce gaps and co-execution demand. Revenue in on-demand talent, which we formally call professional staffing, increased 37% year-over-year, while project consulting revenue increased by 21%.

We continue to drive growth within our strategic client accounts by deepening our relationships to expand our services into more buying centers. Revenue from this client segment increased 17% over the prior year quarter. We saw strong growth across all of our solution offerings.

Finance and accounting, risk and compliance and business transformation all grew approximately 30% year-over-year. On the industry front, revenue growth in health care, financial services and technology industries also all well exceeded 30% compared to the prior year quarter.

Geographically, our revenue in North America improved 30% year-over-year while Europe and Asia-Pac grew 9% and 29% on a same-day constant currency basis. Gross margin in the fourth quarter was 41.3%, up 170 basis points over the same quarter a year ago. Our ongoing efforts to enhance pricing continue to pay dividends.

Enterprise average bill rate of $131 represents an increase of 4% compared to the prior year quarter and 2% compared to Q3 of fiscal 2022. As a result, pay bill ratio improved by 190 basis points from the prior year quarter and 110 basis points compared to Q3, driving the overall gross margin improvement.

We believe there are abundant opportunities to continue to drive revenue growth and gross margin expansion through higher bill rates. Turning to SG&A. Over the last 24 months, we have made significant structural improvement in SG&A through our restructuring efforts to reduce fixed costs.

We've also made a number of operational enhancements to drive higher operating leverage. Now coupled with significantly higher revenue this quarter, run rate SG&A expense for the quarter was $56.3 million or 25.9% of revenue, a 190 basis point improvement compared to the same period a year ago.

As a reminder, run rate SG&A excludes non-cash stock compensation, restructuring charges, contingent consideration and technology transformation costs. We will continue to invest in our technology platform to build more automation and self-service capabilities, unlock additional operating efficiency and scalability in our business.

Now turning to the other components of our financial statements. Our effective tax rate for the quarter was 26.1%. Sustained profitability in our European entities contributed to the more favorable effective tax rate as the benefit from historical NOLs were utilized.

Adjusted diluted EPS for Q4 was $0.67 per share compared to $0.80 in Q4 of fiscal 2021, which included a onetime favorable impact of $0.39 per share relating to an NOL carryback under the CARES Act. We generated $27 million of cash from operations during the fourth quarter and ended the fiscal year with $104 million of cash and cash equivalents.

As Kate mentioned in her remarks, we completed the sale of taskforce subsequent to the end of the fiscal year. The transaction did not result in any material financial impact in fiscal 2022. While our top-line revenue in fiscal 2023 will be adversely impacted by the divestiture, we expect there will be favorable impact on our enterprise profitability.

I'll close with our first quarter outlook. We believe the strength in our business is solid, despite the volatility in macro environment, consistent with industry and market trends.

While we anticipate continued near- to mid-term revenue growth, the pace of growth is expected to normalize compared to the 28% year-over-year revenue growth we experienced in fiscal 2022. As we mentioned during our Investor Day, we see a range of 6% to 9% revenue CAGR from fiscal 2022 to 2025.

Our first quarter revenue is expected to be in the range of $195 million to $200 million. This range includes the impact of the taskforce divestiture as well as our anticipation of pent-up summer vacation impact this year. For comparison, our first quarter fiscal 2022 revenue was $176 million, excluding taskforce.

Gross margin in Q1 is expected to be in the range of 39.5% to 40%, reflecting summer seasonality, and our run rate SG&A is expected to be in the range of $53 million to $58 million. With that, I now would like to open it up for Q&A..

Thank you. [Operator Instructions]. Our first question comes from Andrew Steinerman with JPMorgan. You may proceed..

Hi, Jenn, you were good to give outlook into the first quarter of the fiscal. I was just wondering if you're expecting to see kind of normal seasonal trends kind of monthly kind of June, July, August, as you think about the quarter as a whole. That’s my first question. And then my second question has to do with HUGO.

I was just hoping you could give us any quantitative figures of how the initial HUGO efforts are going within New York City Tri-State market. I'm particularly thinking about kind of the engaged professional side, the talent supply side that is using HUGO.

And just remind us if that grouping of HUGO professionals, meaning the talent supply is totally separate from RGP's existing professional database..

Good morning, Andrew. So your first question with respect to summer impact. Yes, we do expect more summer impact this year. Travel overall has picked up, and so we do expect more this summer through June, July as well as August. The second question on HUGO. Yes, we launched -- we launched it in Tri-State back in October 2021.

And so far, I think it's too early to share any financial results right now. But what I can share is that talent adoption is up and we've gotten favorable feedback from all of our constituencies. And if we do expect to roll this out in the California and Texas market in fiscal 2023, and so we'll have more share probably later on this year..

Right. And the last part of that question -- yes.

Is it totally separate professional database?.

Andrew, it's Kate. It is almost 100% separate. So we're building that talent pipeline with the center of excellence in the Philippines as well..

Thank you. [Operator Instructions]. Our next question comes from Mark Marcon with Robert W. Baird. You may proceed..

Hey, good afternoon and congratulations. It's nice to see the progress that you've worked so hard to accomplish and the results coming through. Can you talk a little bit about the bill rates and the gross margin expansion? It was nice to see the bill rates are up 4%.

What are you seeing in terms of pay rate inflation? And how are you thinking about both bill rate and pay rate inflation as we go into not just the first quarter but looking a little bit longer term?.

Hey, Mark, it's Tim. I'll let Jenn talk a little bit about the pay rate and if you want more quantitatively. But let me add some color to your question. When we look at the bill rate side of our business, and we've said this for many quarters that we believe that there's upside pricing leverage in our business.

A lot of that has to do with the way we think about pricing our projects and pricing and value, which we haven’t done as good a job as we like to over the years that have started to make slow progress. In fact, if you look over the last several quarters, we’ve been slowly increasing our average bill rates.

And we think there's plenty of -- there's still plenty of feeling and opportunity there. In terms of pay rates, the pay rates have been actually pretty consistent this year. We haven’t seen a significant increase relative either to some of the economic factors or the tight labor market. That could change a little bit as we go into next year.

But I would say to you that the people who choose to work with us are taking into account a whole host of factors beyond simply compensation. And so as a result, what we've seen is that they're making a pretty holistic decision in terms of joining us for employment..

And how would you anticipate that the strong gross margins and that bill pay spread are going to evolve as we go through the year. And both in terms of like the progress that you're seeing now and then how that could end up fluctuating depending on what the macro environment is like..

Mark, this is Jenn. I can take this one. I think as Tim said, I mean, we see a lot of upside from a bill rate perspective. And this year, even though there's been a tight labor market and we hadn't really seen pay rate tick up that much. It ticked up a little bit, but essentially, it's pretty flat.

So we do expect that this year, the labor market continues to be tight, that pay rate could increase. But we do believe that our bill rate upside is going to outpace pay rate increases. So pay bill ratio should improve over this fiscal year..

Okay. Great. And then I mean the EBITDA margin expansion was impressive.

I mean it’s obviously the best in years, how sustainable do you think the type of performance that we ended up seeing in the fourth quarter is how sustainable is that? And was there anything that was kind of a one-time factor that ended up helping to drive that because it was really great..

Yes. I mean Q4 didn't have any holiday. So we're going to go through -- I think in fiscal 2023, we're going to go through a typical seasonality throughout the quarter. And so Q1, you're really looking at -- we're not going to achieve 15% in Q1, just given the holiday as well as the summer vacation impact.

On a full-year basis, and we said this during our Investor Day, that this year heading into fiscal 2023, we expect our SG&A to continue to hold at the 27-ish percent, but we're also making some investments this year and back into our business, making investments in digital practice as well as our technology platform project there.

So it is going to impact SG&A, if you think about fiscal 2023 as a whole. But overall, as we continue to grow our revenue, our SG&A leverage is going to be -- continue to be favorable..

That's great. And then can you talk a little bit, Tim, you mentioned the pipeline building.

Can you talk about what the source of the pipeline build is? How much of that is coming in on-demand versus project consulting? And to what extent do you have exposure to early-stage companies that are going through financings versus some of your more traditional Fortune 2000-type companies?.

Yes. I mean, first of all, the composition of our pipeline, if you think about the mix of our business between project consulting and on-demand talent this year, on-demand talent is probably -- was a little hotter this year because of some of the things that are going on with the great resignation and things like that.

There are a lot of companies that were -- and are still dealing with gaps in parts of their infrastructure that need to be filled. The pipeline, when I look at it, it kind of mirrors that still going forward. I think there are a lot of companies that are going through important strategic or transformative initiatives.

And so we're getting pulled into those but also positively because of some of the tightness in the labor market and it's not bouncing on the professional side. We're seeing our continued strength on the on-demand side as well.

With regards to our customer mix, I mean the majority of our mix -- we don't have a lot of exposure to two early-stage companies outside of our Countsy business, which is still really strong because of the way -- of how sticky they are relative to the businesses themselves. They're actually a critical mass.

But for the majority of the core business, most of that work and most of the pipeline is being generated from more of the Fortune 1000-type clients that we have..

Great. And then can you just give us an update on the big offices just in terms of how you feel about the leadership across the board? Obviously, it sounds like the leadership in Chicago is really standing out. But just wondering if you could talk about the Tri-State, Southern Cal, Northern Cal, Chicago, Houston..

Yes. I mean I would characterize it as saying that I feel very strong about our leadership there. I think our big muscles are functioning well. I think you're right about Chicago.

We have new leadership there and an invigorated team, Northeast and Southeast have strong leadership and have -- Northeast have bounced back, obviously, over the last year and has continued strength and the West Coast continues to be strong. We have some new leadership in Houston, but we've already started to see progress there as well.

So I'm as optimistic as I've ever been relative to our prospects because of the leadership that we have..

Terrific. That's great to hear. Thanks for the color..

Got it..

Thank you. One moment for questions. Our next question comes from Marc Riddick with Sidoti. You may proceed..

Hi, good afternoon.

I was wondering if you could talk a little bit about maybe some of the differences that you’re seeing as far as activity from your various industry verticals, particularly if there are any -- they have been showing better strength more recently or maybe impacted a little differently on the spending over the last few months given the potential for economic challenges?.

Yes. Marc, I'll give some color and then Jenn wants to jump if she can here, but I would tell you that we started really focusing on health care three, four years ago, and we've seen that continually grow and have strength.

We saw, especially in this last year, financial services and technology come forward as really strong pieces of our business, and that strength continues relative to the pipeline that we're seeing. We don't have a ton of exposure in retail or in energy sector.

And so kind of I would say that the top three industries are the ones that I listed and they've shown continued strength, both going through the year and continuing on into new fiscal..

Yes, Marc, I mean from a growth standpoint, all three industries that can refer to health care, financial services and technology, they're all in the mid-35 -- mid-30 percentage range growth compared to last year..

Great. And then I wanted to just follow-up on -- just from the timeframe of the investment spending for the upcoming years. Wondering if there's any -- [Technical Difficulty]. Hello.

Can you hear me?.

We lost you for a moment..

Okay. Sorry. I'll repeat that. Can you give us a little bit of an update as to the timeframe of the investment spending that you talked about at your Investor Day and sort of how that might flow out through 2023? Thanks..

Yes. Marc, I think you’re referring to the technology modernization projects and spending there. I mean we're in the final phase of developing a detailed road map, and we should have more clarity at the end of August. The total investment that we planned, as we stated on Investor Day is between $25 million to $30 million.

And majority of that will -- well, we're going to start -- the official implementation beginning in September, so it’s going to be Q2. So I expect CapEx will be elevated starting in Q2 of fiscal 2023. You're probably looking at roughly around $3 million to $4 million of CapEx spending on a quarterly basis..

Okay. Great. And then the last one for me.

I was wondering, just as far as sort of how the digital transformation picture looks for maybe the scope of the projects that you're seeing, whether that's changed much from the beginning of the year or the focus that you're seeing from customers, whether you've seen any shift as far as their type of focus on projects that they’re engaging in, whether that’s macro-economically driven or otherwise..

Yes. I think we're seeing the same kind of projects come through the pipeline. It's a lot of transformational-type initiatives, mission-critical work, competition, the desire to automate and drive digitization is not changing in our client base. I think we're seeing our projects lengthen a bit and the value of our projects is increasing as well..

Thank you. Our next question comes from Andrew Steinerman with JPMorgan. You may proceed..

Hi, Jenn, I just wanted to jump a little bit more into the first quarter of 2023 revenue guide of $195 million to $200 million. If you could just mention how many business days we have in this current quarter, I think a year ago quarter, it was 63.

And then also in that $195 million to $200 million, if you could just tell us how much FX headwind you're assuming? And then if you could total it out for us, you can imagine what's the implied organic constant currency same-day basis growth rate at the middle of the range..

Yes, sure. Andrew, it's the same number of business days in Q1 of fiscal 2023 of 63 to 63. So it is on a same-day basis already. So at the top end of the range, mid to top end of the range, you're looking at about a 14% growth year-over-year. And we've already baked in some FX impact into the guidance that we're doing the $195 million to $200 million.

And so on a constant currency same-day basis, you're probably looking at a 15- % plus growth year-over-year..

At the top end, right?.

Right. Yes..

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Kate Duchene for any further remarks..

Sure. Thank you, Operator. And thank you all for attending this call. We appreciate your continued interest in RGP, and we look forward to sharing our progress at the end of Q1. Thank you all, and have a good summer..

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect..