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. 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 in 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 risk, 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 Duchesne.

Thank you, Operator. Good afternoon, everyone, and thanks for being with us. We're very proud of our recent performance, strongly capping off an outstanding year. We delivered exceptional Q4 results with double-digit revenue growth and the highest margin and profitability levels reached in well over a decade. These results all exceeded the high end of our guidance. Specifically, Q4 revenue was almost 26% higher than prior year. Growth margin increased more than 170 basis points over prior year to 41.3%. Gross profit increased more than 31% quarter over quarter, and adjusted EBITDA margin increased 340 basis points to 15.4% over prior years. We have communicated throughout the year that we are growing top line, improving pricing, and managing costs. We stated at the beginning of fiscal 22 that our goal is to deliver mid-teen adjusted EBITDA margins over the long term. In Q4, we exceeded this goal while also investing in the business and kicking off a major technology modernization project. This performance trend reflects the hard work we have put into the business to continue increasing shareholder value. These financial accomplishments also demonstrate that we're on the right path and our strategies are on point. We have successfully built a business model for agile, diverse, and expert talent WHO WANTS TO WORK AND CONSULT IN A DIFFERENT WAY. MEETING WITH AGILITY IS MORE RELEVANT AND ESSENTIAL THAN EVER IN TODAY'S MACRO ENVIRONMENT. WE WORK ACROSS FIVE CORE AREAS OF EXPERTISE. FINANCE AND ACCOUNTING, RISK AND COMPLIANCE, DIGITAL, SUPPLY CHAIN AND PEOPLE EXPERIENCE. WE ARE THE GO-TO PROJECT EXECUTION FIRM WITH PROJECT MANAGEMENT, CHANGE MANAGEMENT AND SUBJECT MATTER EXPERTISE FOR MANY OF THE WORLD'S MOST BELOVED BRANDS AS THEY TACKLE A MYRIAD OF TRANSFORMATION AND OPTIMIZATION INITIATIVES. WE CONTINUE TO BUILD DEEPER AND BROADER CLIENT RELATIONSHIPS TO GAIN MISSION CRITICAL STATUS AND DRIVE REOCCURRING REVENUE. WE MADE A STRATEGIC DECISION TO DIVEST THE TASK FORCE BUSINESS IN GERMANY AT THE CLOSE Effective May 31, 2022, we sold the business back to senior leadership and task force for two primary reasons. First, as part of our earlier restructuring initiative in Europe, we made the decision to focus on project execution in our strategic client segment, which includes large global enterprises with fulsome transformation agendas. This client focus does not align with the task force middle market client strategy in the interim management space. Second, RGP's consultant engagement, while primarily agile, is built on a suite of benefits and professional development that is different than the task force approach of creating a partner network of independence. Going forward, we will invest in building strategic client account teams in Germany for our healthcare and financial services practices. Next, I want to spend a few minutes outlining our strategic plan for the next three years and how we are breaking the plan down into enterprise objectives for fiscal 23. Our strategic plan has five core pillars spanning digital to brand to operational excellence, which we first outlined at our investor day. The plan is designed to modernize RGC to align to today's workforce and consulting needs for both talent and clients. We began to invest in digital transformation three years ago, and it's only growing in priority. In fiscal 23, we will work to advance three projects, the commercialization of Hugo, which is expanding into the California market this quarter, The execution of Project Phoenix, which is the modernization of our core technology stack, and the continued improvement of consultant experience through digital means. The brand work for fiscal 23 is twofold. We are refreshing our brand voice to align with hybrid workforce experience strategy and where our clients need us most. Execution with subject matter expertise. As we have shared previously, our business model is aligned well to the needs of modern professionals who want more control, choice, and transparency in how, where, when, and on what they work. We empower our talent by giving them access to high-value work on their terms. Our employee brand proposition is built on shared values, empathy, control, and choice. From the client perspective, our business also aligns well with leading companies who need access to critical, expert talent to accelerate projects with efficiency and better outcomes. Through fiscal 23, we will also be refining our brand architecture to make our services easier to buy and sell. Within our five core areas of expertise, we engage with our clients in two primary ways. Project consulting and on-demand talent. Within project consulting, we engage as management consultants, scoping and leading projects, and we co-execute project deliverables defined by our client strategy 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 MARKET 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 23, WE HAVE ESTABLISHED A STRATEGIC PRICING TEAM WITH INXOTA MARKETS to ensure we are applying a value-based approach to pricing. As the business has transformed over the last 10 years from primarily on-demand talent support to primarily project consulting, pricing strategies still have ample room to evolve. Finally, as we reviewed in our investor day, we will pursue strategic and disciplined tech 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 9, WHEN WE FOCUS PREDOMINANTLY ON FINANCE AND ACCOUNTING STAFFING WORK, INCLUDING STOCKS. TODAY WE SERVE THE NEEDS OF LARGE AND MID-SIZED ORGANIZATIONS TO CONTINUE TO MOVE FORWARD WITH MULTIFUNCTIONAL TRANSFORMATIONAL INITIATIVES EVEN AS THEY ENTER TROPEO WATERS. OUR GROWING PIPELINE DEMONSTRATES THAT TRANSFORMATION AND OPERATIONAL EXCELLENCE INITIATIVES REMAIN IMPERATIVE FOR OUR CLIENTS. IN ADDITION, FOR CLIENTS FACING MACRO INCERTAINTY AND RELUCTANCE TO INCREASE PERMANENT HEAD COUNTS, 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 STRATEGIES 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 our GPs 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 HELPS 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 ADAHUN, A LONG-TERM CONSULTANT FROM THE CHICAGO experienced a very serious medical emergency in her family. Her husband was 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. I quote, 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 mountaintop how much we are valued here. Not just us, but our entire family unit feels it too. To be heard, supported, and cared for is truly a gift. So I am never leaving. Thank you for opening your hearts in so many ways I cannot begin to express. End quote. 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.

GOOD AFTERNOON, EVERYONE. DURING THE FOURTH QUARTER, WE SAW CONTINUED STRONG REVENUE GROWTH, OPERATIONAL METRICS AND MARGIN PERFORMANCE. IN FACT, THIS MARKED THE SEVENTH PROSECUTIVE QUARTER OF POTENTIAL GROWTH. THE MOMENTUM WE HAVE NOTED AT THE END OF THE THIRD QUARTER CONTINUES 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 23. Huge asset performance in the quarter was consistently strong across our core business, with strategic accounts, Asia Pacific, Europe, North America, healthcare, county, and veracity also forming one. Despite some of the recessionary worries in the current macro environment, we continue to encounter strong demand profiles across our portfolio, propelled by tenacious operational focus and the continued shift to co-delivery on important initiatives. We see this continually 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 institution firm has provided the backdrop for increased opportunities, including expanding work within the same initiative, winning adjacent work based on delivery power, and being utilized in new ways despite longstanding, albeit previously narrow, relationships. In the third quarter, I highlighted a large technology client 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 capability, 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 understands the value of RGP in helping them quickly meet 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 intranet earlier this year. That project has since increased in scope to nearly double the initial proposal, and the relationship has rapidly expanded, leading to new veracity engagements focused on redesign of existing technology implementation. Additionally, we have begun to identify more core RGP work leveraging this initial breakthrough with veracity. We have another client example is a long-time energy client, which has traditionally utilized RTP for on-demand talent, but has recently started to migrate their workforce strategy to utilize partners in 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 to 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 continue throughout this quarter, and our consultant count remains at the highest level in many years. We expect this trend to continue given a shift in the way people want to work and live, 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 boomerangs, and affectionately used for alumni who returned to life, many of whom left with a little promise of something that didn't materialize. As an example, one of our consultants joined RGP in the fall of 2020. He immediately hit the ground running, demonstrating failing experience, a take charge style, and the ability to build teams. The client took notice 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 her RGP team, the challenge of new assignments, and her ability to work a hybrid schedule. This example shows how powerfully the desire for flexibility and control has shifted the mindset of the workforce at large. Clients and consultants demand agility and will 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 first quarter operations. During the quarter, we saw continued pipeline growth and velocity, building on an exceptionally strong first quarter. Pipeline and budget revenue continue 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 this strategic objective. New generation and opportunity identification continue to be strong in the Q1, and the early weeks of the new fiscal year have shown strong positive trends in revenue pipeline and close deals. While we are cognizant of potentially broader macro conditions, early revenue trends remain consistent with Q4 and seasonal patterns 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 with compared to prior year reports. 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 Jen 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 environments. 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 industries. In a persistently tight labor market, we continue to support the needs of our clients in filling both their workforce gaps and co-execution demands. Revenue and on-demand talent, which we formerly called 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 the healthcare, financial services, and technology industries also all well exceeded 30% compared to the prior year quarter. Geographically, our revenue in North America increased 30% year-over-year, while Europe and Asia pack grew 9% and 29% on a same-day constant currency basis. So its 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 22. 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 GROWTH MARGIN IMPROVEMENT. WE BELIEVE THERE ARE ABUNDANT OPPORTUNITIES TO CONTINUE TO DRIVE REVENUE GROWTH AND GROWTH MARGIN EXPANSION THROUGH HIGHER BILL RATES. TURNING TO STNA. 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, runway 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 capability, 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 benefits from historical NOLs were utilized. Adjusted diluted EPS for Q4 was $0.67 per share compared to $0.80 in Q4 of fiscal 21, which included a one-time 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 task force subsequent to the end of the fiscal year. The transaction did not result in any material financial impact in fiscal 22. While our top line revenue in fiscal 23 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 the 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 22. As we mentioned during our investor day, we see a range of 6% to 9% revenue cater from fiscal 22 to 25. OUR FIRST QUARTER REVENUE IS EXPECTED TO BE IN THE RANGE OF 195 TO 200 MILLION. THIS RANGE INCLUDES THE IMPACT OF THE TASK FORCE DEVASTATURE AS WELL AS OUR ANTICIPATION OF PENTUP'S SUMMER VACATION IMPACT THIS YEAR. FOR COMPARISON, OUR FIRST QUARTER FISCAL 22 REVENUE WAS 176 MILLION EXCLUDING TASK FORCE. GROWTH MARGINING 2-1 IS EXPECTED TO BE IN A 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. As a reminder, to ask a question, you will need to press star 1 1 on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from Andrew Steinerman with JP Morgan. You may proceed.

Hi, Jen. You were good to give, you know, 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, you know, kind of June, July, August, as you think about, you know, the quarter as a whole. That's my first question. And then my second question has to do with Yugo. I was just hoping you could give us any quantitative figures of how the initial Yugo 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 Yugo. And just remind us if that grouping of Yugo professionals, meaning the talent supply, is totally separate from RGP's existing professional databases.

Hi, Andrew. So your first question is with respect to summer impact. Yes, we do expect more summer impact this year. You know, travel overall has picked up, and so we do expect more this summer through, you know, June, July, as well as August. The second question on Hugo, yes, we launched it in Tri-State back in October of 2021. And, you know, so far, I think it's too early to share any financial results right now. But, you know, what I can share is that talent adoption is up and we've gotten favorable feedback from all of our constituencies. And it's, you know, we do expect to roll this out in the California and Texas market in fiscal 23. And so we'll have more to share probably later on this year.

Right. And the last part of that question, is it a totally separate professional database?

Correct. 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.

Okay. Thank you, Kate.

Mm-hmm. Thank you. And as a reminder, to ask a question, you will need to press star 1-1 on your telephone. 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 Jen talk a little bit about the pay rate and, you know, if you want to talk more quantitatively. But let me just add color to your question. You know, 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 the value, which we haven't done as good a job as we'd like to over the years, but have started to make slow progress. In fact, if you look over the last several quarters, we've been slowly increasing our average bill rate, but we think there's plenty of, there's still plenty of ceiling 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. You know, 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, you know, the strong gross margins and, you know, and that bill pay spread are going to evolve as we go through the year? You know, and both in terms of, like, the progress that you're seeing now and then how that could end up fluctuating depending on, you know, what the macro environment's like.

Mark, Ms. Jenner, I can take this one. You know, I think, as Tim said, I mean, we see a lot of upside from a bill rate perspective. And, you know, this year, even though there's been a tight labor market, we haven't really seen pay rate kick up that much. It's, you know, it picked up a little bit, but essentially, it's pretty flat. So, we do expect that, you know, this year, if the labor market continues to be tight, that pay rate could increase. But we, you know, but we do believe that our bill rate upside is going to outpace pay rate increases. you know, pay-to-bill ratio should improve over the fiscal year.

Okay, great. And then, I mean, the EBITDA margin, you know, 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 – you know, that was kind of a one-time factor that ended up helping to drive that because it was really great.

Yeah. I mean, you know, Q4 didn't have any holidays. So, you know, we're going to go through, if we go through fiscal 23, we're going to go through the typical seasonality throughout the quarter. And so Q1, you're really looking at, you know, we're not going to achieve 15% in Q1 just given the holiday as well as the summer vacation impacts. On a full year basis, and we set those during our investor day, that this year, heading into fiscal 23, we expect our SG&H to continue to hold at the 27-ish percent. But we're also making some investments this year back into our business, making investments in our digital practice as well as our technology platform projects. So it is going to impact SG&A if you think about fiscal 23 as a whole. But overall, as we continue to grow our revenue, you know, our SG&A leverage is going to 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, you know, in on-demand versus project consulting projects? And, you know, to what extent do you have exposure to, you know, early stage companies that are, you know, going through financings versus, you know, some of your more traditional, you know, Fortune 2000 type companies?

Yeah, I mean, first of all, they have money. You know, the competition of our pipeline, if you think about the mix of our business between project consulting and on-demand talent this year, on-demand talent was probably 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, kind of mirrors that still going forward. You know, we'll 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 back on the professional side, we're seeing a 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 early-stage companies. outside of our county 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 path. 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 you know, 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, you know, talk about the tri-state, Southern Cal, Northern Cal, Chicago, Houston.

Yeah. 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 Northeast has 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, you know, 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 comments. You got it.

Thank you. One moment for questions. Our next question comes from Mark Riddick with Sedoti. 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 that have been showing better strength more recently or maybe impacted a little differently on their spending over the last few months, given the potential for economic challenges.

Yeah, hi, Mark.

I'll give you some color, and then Jen will have to jump in if she can here, but I will tell you that we started really focusing on healthcare 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 the energy sector. And so, you know, kind of, I would say, you know, 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 the new fiscal.

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

That's 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... Hello, can you hear me?

Hello, can you hear me?

Oh, okay. Sorry. I'll repeat that. I was wondering if you could 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 23. Thanks.

Yeah. Mark, I think you're referring to the technology modernization projects and spending there. If you are, I mean, we're in the final phase of developing a detailed roadmap, and we should have more clarity at the end of August. The total investment that we planned, as we stated on Investor Day, is, you know, between $25 to $30 million. And the majority of that will, well, we're going to start the official implementation beginning in September. So, this is going to be Q2. So, I expect, you know, CapEx will be elevated starting in Q2 of fiscal 23. You're probably looking at roughly around, you know, $3 to $4 million of CapEx spending on a quarterly basis.

Okay, great. And 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 shifts as far as their type of focus or projects that they're engaging in, whether that's macroeconomically driven or otherwise. Thank you.

Yeah, I think, Mark, we're seeing the same kinds 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.

Excellent. Thank you for taking my questions. Thank you.

Our next question comes from Andrew Steinerman with JP Morgan. You may proceed.

Hi, Jen. I just wanted to jump a little bit more into the first quarter of 23 revenue guide of 195 to 200. 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 to 200, 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 I'm looking for what the implied organic constant currency same day basis growth rate at the middle of the range.

Yeah, sure. IT'S THE SAME NUMBER OF BUSINESS DAYS IN Q1 OF FISCAL 23. 53 TO 63. SO IT IS ON THE SAME DAY BASIS ALREADY. SO, YOU KNOW, AT THE TOP END OF THE RANGE, MID TO TOP END OF THE RANGE, YOU'RE LOOKING AT ABOUT 14% GROWTH YEAR OVER YEAR. AND WE'VE ALREADY BASED IN SOME FX IMPACT INTO THE GUIDANCE THAT WE'RE DOING, THE 190,000 TO 200,000. AND SO ON A COST AND CURRENCY SAME DAY BASIS, you know, you're probably looking at a 15% plus growth year-over-year.

At the top end, right?

Correct.

Yeah. Okay. Thanks, Jen. Appreciate it.

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.

Thank you, Operator. 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.

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