Resources Connection, Inc.

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. If anyone should require assistance during the conference call, please press the star key, followed by the zero button on your touchstone telephone, and you will be connected to an operator who will assist you. As a reminder, this conference call is being recorded. At this time, I would now like to turn the call over to your host today, Ms. Lauren Elkerson, General Counsel of Resources Connection, Ms. Elkerson, you may now begin.

Thank you, Operator. Good afternoon, everyone, and thank you for participating on this call. Joining me here today are Kate Duchesne, our Chief Executive Officer, Tim Brackney, our Chief Operating Officer, and Jennifer Rue, our Chief Financial Officer. During this call, we will be commenting on our results for the first quarter ended August 29, 2020. By now, you should have a copy of today's press release, which is available on our website. During this call, we may make forward-looking statements regarding future events or future financial performance of the company. Such statements are predictions, and actual events or results may differ materially. Please see our report on Form 10-K for the year ended May 30, 2020 for a discussion of risks, uncertainties, and other factors such as seasonal and economic conditions and epidemic diseases. Such factors may cause our business, results of operations, and financial condition to differ materially from 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 our CEO, Kate Duchesne. Thank you, Lauren, and congratulations on your new role as our general counsel. Welcome to our Q1 fiscal 21 earnings call, and thanks for listening today. Let me start with an overview of the first quarter, including the continued impact of COVID on results. I will then comment on industry trends, followed by commentary on current RGP opportunities and priorities. Tim will offer deeper operational color, and Jen will dive into specific financial performance and early Q2 financial trends. As expected, our revenue results are still impacted by the global pandemic. Our revenue at 147.3 million was down 14% year over year. Gross profit was 57.9 million in the quarter compared to 67.5 in the prior year quarter. However, our gross margin of 39.3% represents an improvement of 10 basis points from prior year quarter thanks in part to pricing discipline. In addition, adjusted EBITDA remained steady as a percentage of revenue at 6.9, consistent with prior year quarter, which we attribute to focused cost reduction and rationalization initiatives. I'm also proud to share we were able to achieve revenue growth in pockets of the business despite COVID impact. These bright spots included veracity, county, and our strategic client and key account programs. So far in the second quarter, we're starting to see a broader based uplift in both revenue trends and pipeline growth. Average deal size is growing and our at-bats are rising with significant improvement in meeting metrics in Asia-Pac and North America. We are also continuing to close numerous extensions especially as many clients tackle year-end mission-critical activities. The near-term opportunity areas we continue to pursue aggressively include rising demand for digital transformation services across all industries, data analytics, clinical trial, and revenue cycle opportunities in our healthcare client segment, and organizational change management needs given enterprise shifts to virtual operating models. Tim will dive deeper into these growth opportunities. Let me next revisit the most important industry trends we believe support opportunity to grow our business over the short and longer term. I've discussed these trends in prior calls, but we anticipate acceleration given impact of the global pandemic. As recently reported by the conference board, flexibility is moving to the forefront. CEOs and C-suite executives globally rank workforce flexibility as a priority initiative, including enabling remote work and flexible hours, increased use of contingent labor, and creation of agile project teams. In another recent research study by Citrix, with futurist consultancy Oxford Analytica and research firm Coleman Parkes, Most C-suite executives said that by 2035, traditional employment models will become rare. They plan to utilize high-value knowledge workers in the form of on-demand talent working through platform models. Needless to say, workforce strategies are evolving quickly, and the pandemic only serves to hasten this process. We believe RGP is well-positioned to benefit from these shifts given our depth of experience in managing variable talent for well over two decades. Now I want to turn to current RGP priorities, which I introduced on the last call. With regard to our digital expansion efforts, which are high on my agenda, we continue to make progress, including growing our veracity business and developing the human cloud product. I will take each in turn. Veracity had a strong Q1 and is trending up in Q2. The revenue growth has come from net new clients as well as extensions of existing projects. During the quarter, we also closed the first ever digital project in RGP's strategic client set. This first project for a life sciences client is already building to a second and third opportunity. It's this sort of penetration that we're very focused on delivering in fiscal 21. In addition, Veracity's business is positively impacted by the enhanced focus on improving employee experience during these challenging times. We see strong opportunity for digital to drive collaboration, automation, and self-service in worker and customer experience. This is where Veracity shines and we know can deliver. Progress continues as planned on the development of Hugo, our human cloud product. We're on track to bring this platform offering to the market this fiscal year, and we'll share more detail as we get closer to launch. We're excited that this new digital engagement model will delight both clients and talent alike by bringing transparency, choice, efficiency, and speed in striking the right professional match. Our second priority area for fiscal 21 centers on further strengthening core operations. We continue to build revenue growth and impact with our strategic client and key account programs. We've now combined the initiatives around these client sets into what we now simply refer to as client programs. In fiscal 20, despite the impact of COVID, we grew this client set by 15%. This quarter, again, despite the overall revenue dip and seasonal vacation impact, these programs grew 1%. We continue to invest in building broader and deeper relationships in these important clients so we become stickier and reduce time to close. This type of initiative takes time and focus, but is paying off in all regions. Equally important to core strength is the success of our healthcare industry program. Many of our largest clients are healthcare or life sciences enterprises with significant transformation projects underway. In particular, we see tremendous opportunity in revenue cycle, clinical trials development, supply chain, and digital transformation within this buyer set. Current opportunities include assisting a very large integrated delivery network, provider and payer, with a side-by-side operational benchmarking of their multiple medical centers to identify process improvements and cost savings opportunities. Another current healthcare payer project of note is leading the development of their business case analytics and process models to determine their three-year IT investment strategy related to digital innovation for member experience and operational excellence. Our third main area of focus for fiscal 21 is a commitment to cost containment. While managing cost is always important for its own sake, and especially given today's macro environment, we're looking to free up investment dollars to redirect to higher impact areas, like our client programs, digital expansion, and targeted M&A opportunities. In early September, following a thorough strategic review process, we launched an important initiative to reimagine our European business. Through this restructuring work, we will enhance account and revenue focus streamline management, and accelerate virtual delivery. Jen will discuss more in her remarks, but this initiative follows the project strength work we initiated in early March for North America and Asia Pacific. Reimagining Europe serves to both strengthen our core and leverage down cost, so it hits two of our three priority areas for fiscal 21. I'll now turn the Call over to Tim for his operational update.

Thank you, Kate, and good afternoon, everyone. In this quarter, we continue to work efficiently in a virtual manner. In fact, the selling and delivery of projects remotely is no longer a novel part of our business, but our de facto operating model, a trend that has been underway for some time. As the economy opens up, our ability to flex seamlessly between traditional on-premise and virtual models will offer greater optionality in how we deliver projects and our go-to-market motion. Supply and demand alignment is a key operating principle which can be truly streamlined in a world of borderless talent. Removing the constraint of geofencing our consultants based on locality has opened up new avenues of opportunity for both our clients and our talent. As an example, we virtually onboarded a multi-country engagement team to help a life sciences client integrate a newly acquired division. This project was sold and is being delivered virtually to the delight of our client. I am really proud of the way we have worked in numerous instances like this to deliver engagements wholly virtually and look forward to seeing our teams combine onsite and virtual capabilities to sell and deliver projects for clients and prospects in a post-COVID world. This enables us to attract and retain talent on a broader geographic basis, allows for a wider field of play in terms of prospect cultivation, client engagement, and project delivery. We believe that this agile way of working is not a temporary trend, but a meaningful shift in the way we work. We're exceptionally well positioned to handle this change and believe this represents a net benefit to our company and clients. Now, let me turn to our first quarter operations. As noted in our fourth quarter remarks, we saw declining weekly velocity and pipeline towards the end of the fourth quarter. Uncertainty related to the economic environment prompted delays of new engagements and some slowdown of existing projects. Additionally, onboarding at some clients was challenged due to hardware and software constraints as the shift to virtual environments has depleted laptop inventory. As we moved through the fourth quarter, however, we were able to stabilize operational metrics with velocity, pipeline, and activity holding steady throughout the quarter. By the beginning of the first quarter, both velocity and pipeline stabilized, with average weekly velocity down approximately 11% sequentially. We began to see upward momentum emerge towards the end of August as we neared the end of vacation season in North America. Europe followed a similar velocity to North America, while Asia Pacific, which experienced COVID-related decline and stabilization in Q3 of FY20, is heading toward recovery. Our margins have remained strong through the course of the current quarter and deal pricing remains consistent. Additionally, virtual delivery and travel restrictions have reduced the amount of engagement delivery expense, positively impacting margins. We have been disciplined and flexible in pricing and will continue to be as clients still need to deliver on key projects and work through transformation. There is increased client demand for project co-delivery, which is a core competency. We are staying close to potential buyers and remain willing to invest in key relationships. We continue to be focused on growth and expansion within existing clients and markets. We are working hard to position ourselves for what we feel will be a post-pandemic world rife with opportunity. As Kate noted, we will continue to manage expense. This discipline around discretionary spend and a commitment to operating with a smaller footprint has yielded SG&A declines of 17.5% sequentially and 10.2% from prior year quarter. We will be judicious about reinvesting these savings, but will not shy away from investing in parts of the business where we achieve the highest return. These include client programs, which manage to grow quarter over quarter, veracity, which offers access to new buying centers, and the healthcare and technology industry sectors, which have built a robust pipeline despite the economic client. Before I conclude my remarks, I want to provide some additional insight on early second quarter trends. The early weeks of Q2 have demonstrated sustained upward momentum in both velocity and pipe. Average non-holiday weekly velocity in the early part of the quarter has increased 2.2% sequentially over Q1, although lags the prior year quarters non-holiday average by 12.4%. Likewise, the pipeline has increased significantly from the early part of Q1 and is also strengthening in quality. These positive indicators are certainly encouraging, but we remain vigilant given potential macro developments outside of our control. I will now turn the call over to Jen for a more detailed review of our fourth quarter results.