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 like to remind everyone that management will be commenting on results for the third quarter and it's February 27th, 2021. They will also refer to certain non-GAAP financial measures. An explanation and reconciliation of these measures to the most comparable GAAP financial measures is included in the press release issued today. Today's press release can be viewed in the investor relations section of RGP's website and was also filed today with the SEC. Also during this call, Management may make forward-looking statements regarding plans, initiatives, and strategies in the anticipated financial performance of the company. Such statements are predictions and actual events or results may differ materially. Please see RGP's report on Form 10-K for the year ended May 30, 2020, for a discussion of risks, uncertainties, and other factors that may cause the company's business results of operations and financial conditions to differ materially from what is expressed or implied by forward-looking statements made during this call. I'll now turn the call over to RGP CEO, Kate Duchene.

Thank you, Operator. Good afternoon, everyone, and thank you for joining us. With me today are Tim Brackney, our Chief Operating Officer, and Jennifer Roux, our Chief Financial Officer. I'll start with an overview of the third quarter, which I'm pleased to report showed continued improvement. I will then discuss opportunities that are building as we execute on our defined strategy. Next, I'll provide an update on our digital initiative, HUGO, and close my remarks with insights on the macro environment that we believe bode well for fiscal 22 and beyond. Then I'll turn the call over to Tim and Jen for further color and detail. From a revenue perspective, we delivered 156.6 million in Q3, representing a sequential improvement of 3.4% same-day constant currency, despite the seasonal holiday impact. This performance continues to narrow the year-over-year decline caused by the global pandemic. Fourth quarter trends continue to show improvement. Another highlight from our financials this quarter is the 200 basis point improvement in adjusted EBITDA margin from prior year performance, driven by sequential revenue improvement and cost improvement of 12% year over year, excluding contingent consideration and restructuring costs. We remain focused on improving our margin performance as we continue to drive top line growth, extract operational efficiencies, and lower costs, including real estate expenses. I want to now make a few remarks about our strategies and how they align with opportunities that have been building throughout this fiscal year. Results achieved during this quarter reinforce, more so than in any other prior quarter, our strategy to build more capability in the digital and technology and healthcare practice areas. Both practice areas are delivering growth despite COVID impact. Specifically, Veracity's revenue was up 20% year over year, and we believe the pipeline of opportunity is near pre-COVID levels. Healthcare opportunities across the client set of payer provider, medical device, and pharma are all increasing as projects that were delayed due to COVID reemerge or new needs created by COVID arise. For example, we're currently engaged in multiple significant projects in the areas of revenue integrity, continuum of care, vaccine distribution, and clinical trials development. We also recently entered into a multi-year contract with a preeminent group purchasing organization in the healthcare space and have seen our pipeline continuing to expand. Additionally, technology and digital revenue continues to rise as a percentage of our overall mix. Now for a quick update on our digital transformation initiatives, specifically Hugo. For anyone who's new to our story, Hugo is our digital engagement platform to offer clients and talent the opportunity to connect digitally for project work in the accounting and finance space with speed, transparency, and choice. What is special and different about our platform is the foundation of employment versus an independent contractor model. We have purpose-built this platform for the professional knowledge worker who wants the safety net and community of employment with the agility and choice of a gig-oriented career. We believe Hugo will be one of the first platforms to revolutionize how accounting and finance professionals join the fluid workforce of the new gig economy. We're in the final stages of product development, testing, and marketing readiness for the initial rollout of Hugo. We will launch Hugo first in the New York tri-state area, although specific timing remains fluid. We're keeping a close eye on market conditions for launch to ensure the pandemic recovery is stable enough to support on-premise work if required. Many clients are in various stages of office reopening plans. So we will carefully evaluate their readiness when determining the final timeline for launch. We're excited that this digital engagement model creates a new pathway to serve clients and consultants with user experience at its heart. We believe this approach will only grow in the coming years as digital natives become our core buying set. Let me now share a few insights on trends materializing on the anticipated backside of COVID, which we believe should serve as longer-term drivers for our business. We know the economic environment is strengthening. GDP growth is expected to exceed 6% in the U.S. this calendar year, according to the Fitch Ratings Global Economic Outlook March 2021 report. And in the other regions in which we operate, they project growth in the range of 5% to 8%. Last week, the conference board reported that consumer confidence is the highest it's been in a year, and last week's jobs report beat expectations. Staffing industry analysts also projects U.S. staffing revenue to grow 12% in 2021. Specifically for RGP's clients, COVID has hastened the shift to fluid talent strategies as a dynamic force for improving corporate performance. In other words, in a world filled with technology change, demographic shifts, and economic uncertainty, having the right talent in the right place at the right time has become an imperative to compete and thrive in today's business environment. Add the dimension of evolving labor preferences toward remote work, additional flexibility and increased choice, and the human capital marketplace has drastically changed. These factors explain why a growing number of large enterprises will now define staffing needs with agility in mind. A recent study published by Harvard Business School and BCG Henderson, after serving 700 business executives and companies with more than $100 million in revenue, highlighted the importance of adopting a strategic approach to an on-demand workforce. Here are a few of the salient research findings from that study. 60% of the executives surveyed expect that they will increasingly prefer to rent, borrow, or share talent with other companies. Almost 90% of business leaders report agile talent platforms will be somewhat or very important to their organization's future competitive advantage. And nearly 50% of the executives expect their use of new digital platforms to increase significantly in the future. We believe that this research, like many other studies recently published, confirms that the full-time equivalent paradigm is yesterday's framework. Agile or fluid talent strategies are taking hold today. play right to RGP's strengths and capabilities, and will accelerate as we move forward in the now of work. I'll now turn the call over to Tim for his operational update.

Thank you, Kate, and good afternoon, everyone. During the quarter, we saw progress in our revenue and operating metrics as clients embraced the start of a return to normalcy. Top of the funnel activity is approaching pre-pandemic levels as new and existing buyers have become more eager to discuss current and future initiatives. Opportunities identified through our enhanced outreach led to an appreciable increase in pipeline and closed engagements. As the overall macro environment continues to improve, our revenue has also gained strength. As Kate touched on, sequential quarterly revenue trended up 3.4% on a same-day constant currency basis despite seasonality, buoyed by the positive dynamic of clients resuming engagements that have been paused, starting projects that were delayed, and generally committing to larger spend on initiatives, including initiatives that have been driven by the changes to the workforce paradigm as a result of the pandemic. COVID has and still does present challenges for our business. At the outset, demand creation was challenged. However, as client initiatives have continued to ramp, it has impacted timing in terms of engagement starts, creating a lag between closed-won engagements and revenue generation. We are seeing improvements in this dynamic as well, but timing continues to be fluid on an engagement-by-engagement basis. Overall momentum, coupled with our ability to deliver borderlessly, has given us capacity to pursue a more robust set of strategic initiatives. While there have been increased calls for on-prem resourcing, we also continue to deliver with blended teams and still, in many cases, fully remotely. We believe that a blended approach will be the standard operating model going forward as we serve clients that are comprised of increasingly distributed teams and have become more conditioned to flexible ways of engagement, focusing on outcomes versus zip codes. We have seen numerous examples of this, including helping a large consumer goods company headquartered in the UK drive trade promotion efficiencies and benefits through better process and tooling using advanced analytics, machine learning, and AI. Our delivery team for that project has worked both onsite and remotely and is based in various localities across Europe and North America. Another example is the fast ramp assistance we delivered to a client for SPAC readiness. This was a quick turn and featured a multi-city team delivering in a blended fashion to help prepare a client to go public and then comply with ongoing public company requirements around financial systems, Sarbanes-Oxley, and equity administrations. As we have stated before, we believe this new way of working is here to stay and that it allows us to operate with increased efficiency while offering clients and consultants more choice and agility. As we push into more of a post-pandemic environment, we believe that utilizing a mixture of traditional and remote delivery models will be critical in a commercial environment rife with pent-up demand. Specifically, our ability to capitalize on speed to market and to spin up solutions that produce the desired outcomes was one of our core competencies before the pandemic and has been further enhanced by lessons learned during the last year. We believe that this foundation provides the backbone for growth and profitability as we fully embrace life in a borderless world. Now let me turn to our third quarter operations. During the quarter, we began to see a strengthening pipeline and increased average daily revenue rates. This strengthening increased throughout the quarter, partially offset by some of the adverse weather effects that impacted parts of North America, and renewed COVID outbreaks in parts of APAC in Europe. Nonetheless, average daily revenue rates ended the quarter at the highest they have been in nearly a year. Enterprise revenue grew sequentially, despite typical seasonality, and pipeline and booked revenue also nearly reached pre-pandemic levels. Average daily revenue rates in Europe ended the quarter nearly matching pre-COVID levels, despite some latent outbreaks, while North America also continues to make good progress. In fact, the majority of North American markets continued sequential progress, while several markets, including Tri-State, Detroit, Cleveland, Toronto, and Mexico, had Q3 revenue results that exceeded the prior year quarter. APAC was slightly down sequentially due to renewed waves of COVID and some holiday impact, although Japan continued their strong run, improving both sequentially and over the prior year quarter. Finally, there was continued strong performance from strategic client programs, healthcare, veracity, and count fee, which either equaled or exceeded prior year quarter results and are building strong pipeline. We are laser focused on strategic growth and expansion, and we are also concentrating heavily on operating leverage. Executing in a more borderless fashion, continued migration to a more agile footprint, and consistent focus on expense management has yielded improvement in operational leverage and a reduction in SG&A. We believe as we return to a more open economy, our discipline around driving operational efficiencies combined with our increased sophistication in adapting to the new modalities we use to meet, deliver, and commune will allow for a more efficient and effective operating model in the future. We will continue to invest in the areas where we see upside opportunity and allow us to elevate and widen our relationships within our client base, including in Hugo, digital and technology, healthcare, Client Programs, and Office of the CFO. Before handing over to Jen, I want to provide some additional insight on early fourth quarter trends. The early weeks of Q4 have shown a continuation of positive trends in both revenue and growing pipeline. While we are optimistic, given operational indicators and broad economic trends, we recognize that there is still some fluidity in the macro environment. I will now turn the call over to Jen for a more detailed review of our third quarter results.