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spk03: quarter we saw good revenue growth and operational metrics as well as strong margin performance pipeline build and closed deals were strong and we were able to maintain the revenue momentum we noted at the end of the first quarter despite increasing macroeconomic uncertainty same day constant currency revenue excluding task force increased by nearly six percent and the overall demand profile for our services demonstrated continued strength throughout the quarter Geographic performance was solid across our core business, with strategic accounts, Asia Pacific, North America, healthcare, county, and veracity all performing well, with Europe the one area of weakness. Overall, we have performed well through the first half of the year, but are, of course, wary of recessionary trends impacting our clients. We will continue to work hard at top-of-the-file activity, as well as ensuring great care and shepherding opportunities from prospecting to deal closures. While our growth pipeline has now reached one of its highest levels in three years, the sales cycle requires more attention and more effort than it did a year ago. But a lot of opportunity remains as companies continue to shift their focus to co-delivery of important initiatives. Clients increasingly recognize the value of owning their own intellectual property and working with firms to help them execute on key projects. This allows them to run day-to-day operations and change for the future, which has always been our value proposition. As clients work through their workforce plans for the coming year, there is an enduring reality that the pace of change will continue to be relentless. The flexibility and speed required to meet that pace are hallmarks of RGP, and as such, we see real opportunity through the remainder of the year and beyond. One of the fast-moving trends we are currently seeing with our clients in the technology sector is a rapid shift in focus to profitability expressed via reduction in force, division closure, and a focus on only the initiatives that are a priority for the enterprise. However, many of these clients are seeing attrition beyond their desires and are quickly recognizing the value we can provide as a flexible solution versus the more rigid approaches of larger firms. As a result, we are getting the opportunity to increase our presence in key projects, and in several cases, entrees into new projects to replace incumbent firms. As an example, at one Fortune 500 technology client, two of the large projects we were to begin working on were initially paused as the company went through significant restructuring and layout. But we stayed close to our clients through the uncertainty, as many of them were concerned not just about the condition of their projects, but perhaps even the status of their own employment. As circumstances played out, we got more clarity on the timing of the existing projects, which we began to help with shortly thereafter, and we are currently in discussions with them on other projects brought about by the restructuring. Some of these projects are to help provide on-demand talent for gaps caused by attrition, and others relate to providing expertise and execution around important enterprise initiatives. Another way that we've been able to differentiate ourselves is by leveraging our international delivery capability. As an example, a large multinational conglomerate is undertaking several major initiatives related to a global restructuring. We have deployed over 200 consultants around the world to help with these overlapping priority projects. A primary reason that we were selected as a key partner was our ability to support their data cleansing and compliance efforts in Manila. an important center of excellence for our clients. Half of the consultants we have deployed are domiciled in the Philippines. Similarly, a global financial services client is undertaking myriad initiatives, including finance transformation and divestitures. We have nearly 100 consultants supporting these efforts with a large contingent working out of Mexico. Our ability to execute internationally, along with our presence and capability in Mexico, was the determining factor in our ability to win this work, which is already leading us to additional opportunity to take share from larger competitors. On the candidate side of our business in the second quarter, we continue to attract and retain exceptional talent to our platform. As I noted earlier, many clients have reacted to macro uncertainty with restructuring, layoffs, and reductions in benefits as they seek to buffer their bottom line. We have seen in this cycle in particular that talent really values the importance of control and community. Many begin to realize that in traditional employment, particularly during turbulent times, there truly is a lack of control and a dilution of community. For groups impacted by restructuring and their colleagues who are not directly impacted but affected, RGP becomes an even more attractive alternative to traditional employment. We have numerous examples of this contemplation in the workforce, as alumni, newcomers, and even former employees of existing clients have decided to work with us versus traditional alternatives. As the labor market remains tight, our talent team, which essentially manages the human capital supply chain, is performing exceptionally. Attrition is in line sequentially and year over year, and strong hiring trends persist as we become the premier destination for talent that is daring to work differently. The average tenure of our Agile employees approaches five years, and we have learned over time that the highest risk of attrition typically occurs in the first year of employment with us. This continues to be an area of focus for us, and we work very hard to provide transparency regarding the portfolio of opportunity that awaits each consultant. Additionally, our team envelops new joiners in our culture. as we understand that this community experience is a key differentiator for us and helps to underpin the trust that consultants have in our GP. Over the Thanksgiving holiday, I asked the talent team if there were any consultants who were struggling and if there was anything more we could do to support them. Our Southeast talent team informed me of a consultant who was dealing with a confluence of circumstances, including seriously ill family members and damage from Hurricane Ian. The team had stayed very close to our consultant, and when I spoke to her, she let me know she was fearful that her need for time off to care for her family would hurt her chances to work with us in the future. Nothing could be further from the truth. The team and I reiterated our support and decided that she actually needed a few extra days of time off given the burden she was shouldering. She shared with me that the outpouring of support she received was unmatched in her career and that while she is new to RGP, she had found her professional home. We are proud to be human first at RGP. Now let me turn back to our second quarter operations. In addition to our gross pipeline nearing a multi-year high, we continue to make progress with respect to pricing as well, increasing billing rates, excluding tax force, by 4% on a constant currency basis compared to prior year quarters. Pricing leverage will be an opportunity across the enterprise regardless of economic direction. While we were mindful of potentially broader impacts based on economic conditions, early non-holiday third quarter revenue and operational trends are in line with a solid Q2 trend. Finally, let me touch on operational leverage. In Q2, we continue to focus on controlling fixed costs and operating efficiently, resulting in significant adjusted EBITDA margin improvement over prior year quarters. We will remain especially vigilant about discretionary spend through the balance of the year. I will now turn the call over to Jen for a more detailed review of our second quarter results.
spk09: Thank you, Tim, and good afternoon, everyone. We achieved another quarter of strong performance, one of the best second fiscal quarters in more than a decade. Coming in near the high end of our guidance range for revenue, exceeding guidance range for growth margin percentage, and coming in better than the favorable end of the SG&A guidance range. Revenue for the quarter was $200.4 million, up 6% over the prior year quarter on a same-day constant currency basis, and excluding the impact of the task force divestiture. And our revenue for the first half of the fiscal year was up 11% on the same basis. In addition to strong top line growth, we also achieved record second quarter adjusted EBITDA margin of 14.8% and record second quarter adjusted EBITDA of 29.6 million, representing 19% growth over the same period a year ago. GAAP diluted EPS with 51 cents per share for the quarter, an improvement of 9 cents or 21% over the prior year quarter. Overall, demand remains stable despite uncertainties in the macro environment. While certain client segments have become more deliberate in their spending pattern as they wait for more macro certainty, mission-critical initiatives and projects are still being executed, particularly in our large global clientele, which tends to be more resilient. Revenue from our strategic global accounts grew 6% year over year on a constant currency basis. Our core solution areas in finance and accounting and technology and digital also continued to perform well with 9% and 17% year-over-year growth, offsetting certain other areas that were softer. Despite the Federal Reserve's effort to address elevated inflation, the labor market remained tight and continued to support our top-line performance. Also contributing to the solid revenue growth in the quarter was a continuous improvement in our bill rates with our ongoing effort to align pricing with the value delivered to our clients, yielding positive results. U.S. average bill rate rose to $156 from $148 in the second quarter of fiscal 2022, an increase of 5.4%, with both Europe and Asia PAC driving similar improvements. Our ability to improve pricing has and will continue to play a significant role in sustaining our top-line performance while also improving our overall operating leverage and profitability. Geographically, North America and Asia-Pacific both performed well with 6% and 16% year-over-year growth on a same-day constant currency basis, while Europe declined by 5% on the same basis and also excluding task force. largely because of delayed client buying patterns due to growing recessionary pressure. The tremendous growth in Asia Pacific was attributable to strong demand from our SCA clients as large global companies continue to shift their service centers to the Asia-Pac region. Growth margin in the first quarter was 41.1%, up 180 basis points over the same quarter a year ago, and just beating the high end of our guidance range. primarily driven by an improvement in the bill pay ratio of 270 basis points. Enterprise average bill rate for the quarter was 130, constant currency, up from 127 a year ago. Average pay rate was also favorable at $62, constant currency, an improvement from 63 in the prior year quarter. Now turning to SG&A. We remain disciplined with cost management and investment oversight in the business in light of ambiguity in the macro environment. Our run rate SG&A expense for the quarter was $52.7 million, or 26.3% of revenue, a 70 basis point improvement compared to the same period a year ago, and better than the favorable end of the guidance range of $54 to $58 million. As a reminder, run rate SG&A expense includes non-cash compensation, restructuring charges, contingent consideration, and technology transformation costs. Technology transformation costs associated with our system implementation was $2.7 million for the quarter, of which $1 million was capitalized with the remaining $1.7 million included as non-run rate operating expenses for the quarter. We expect these costs to ramp up in the second half of the fiscal year as we progress through the implementation. Estimated cash outlay in the third quarter is expected to be in the range of $5 to $7 million, of which approximately $3 to $4 million would be capitalized. Our implementation is on track, and we anticipate completing the project over the next 18 months. Turning to our liquidity, we generated $23.7 million of cash from operations during the first half of the fiscal year as a result of strong business performance. our debt level remained low with a leverage ratio of only 0.2x. And we ended the fiscal quarter with $89.4 million of cash and cash equivalents after distributing $4.7 million of dividends and repurchasing approximately 318,000 shares during the quarter at an average per share price of $1,680. We plan to continue to return cash to shareholders through dividends and through our share repurchase program, which has $60 million available at the end of the quarter. I'll now close with our third quarter outlook. The early third quarter revenue trend has been steady compared to Q2. While clients are evaluating their spending decisions more carefully as the macro economy continues to adjust, our sales metrics remain robust and the pipeline remains healthy, reflecting the favorable secular workforce trends Kate and Tim both mentioned. The long-term prospect of our business remains strong. In the short term, We expect a typical seasonal revenue pattern in the third quarter due to holidays across the globe. In addition, the strength in the US dollar will continue to impact the translation of financial results from our foreign entities. We estimate our third quarter revenue to be in the range of 181 to 186 million, which would be the second highest Q3 revenue in the last decade, despite the sale of task force earlier this fiscal year. As with every year, Gross margin will also be affected by the holidays, along with the reset of employer payroll taxes at the beginning of the calendar year. Nevertheless, we expect our sustained improvement in pay bill ratio to partially offset the seasonal impact, yielding a gross margin range of 37.5% to 38.5%, which would be the highest third quarter gross margin over the last 10 years. Finally, we expect our run rate SG&A expense to be in the range of 56 to 58 million, reflecting higher employer payroll tax expense at the beginning of calendar 2023. Non-run rate and non-cash expenses for the third quarter consist of two to three million of technology transformation costs and approximately three million of stock compensation expense. With that, our Q3 adjusted EBITDA margin is expected to return to the typical single digit percentage range, reflecting the normal seasonality factors I just pointed out versus prior year Q3's exceptionally strong adjusted EBITDA margin. I would also note that while we have a robust pipeline and will continue to work to outperform as we always do, the pause in stronger activity that is reflected in our third quarter outlook could potentially continue as we move through calendar 2023. depending on the broader macroeconomic trends that we obviously do not control. That concludes our prepared remarks. We will now open up the call for Q&A.
spk01: 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 JPMorgan Chase. You may proceed.
spk17: Hi, it's Andrew. I just wanted, Jen, if you don't mind, when talking about the revenue target for third quarter, $181 to $186 million, could you just give us what that would be on an organic, constant currency, revenue growth basis, year-over-year, excluding task force?
spk09: Yeah, sure. Hi, Andrew. At the high end of the range at 186 compared to Q3 of last year, same-day constant currency excluding task force, you're looking at approximately a 5% decline.
spk17: Right. And you just said same-day, so could you just mention what number of days in the third quarter and year-ago quarter?
spk10: Sure. It's 61 days.
spk12: For both?
spk10: For both, correct.
spk12: Okay. Thanks, Jen. Appreciate it.
spk10: Mm-hmm.
spk01: Thank you. One moment for questions. Our next question comes from Mark Marcon with Robert W. Baird. You may proceed.
spk23: Hey, Happy New Year, and it was nice to see the profitability come through for the quarter. I'm wondering, with regards to the guidance that you gave, you know, you are seeing, you know, really solid growth in North America. And then Asia was really strong. I'm wondering if we take a look at the overall guidance for revenue, how would that break out from a North America, Asia, Europe perspective?
spk09: Yeah, sure. The guidance contemplates continued softness in Europe.
spk10: Asia-Pac is expected to hold steady in this quarter, obviously taken into holiday impact, right, if you were to compare to Q2.
spk09: In North America, we're also expecting to be relatively steady to Q2. And to Q3, if you're comparing year over year, we are seeing some slower decision-making overall within our client base. We noted that our pipeline is still very strong. the revenue conversion has slowed down just a bit. So if you're comparing year over year, you know, we're seeing some softness in North America as well.
spk23: Sure. And, I mean, that wouldn't be unexpected given all the macro headlines that are out there. That's right. It should be fully expected by almost everybody. What I'm wondering is when you're talking about the slower decision-making, you know, could you give us a little bit of a dimension in terms of, hey, you know, typically when we get engaged or when the timing for decision is typically X number of weeks or X number of months, now it's getting stretched out to what – how do we think about that? And to what extent, you know, are you seeing some projects being canceled?
spk03: Hi, Mark. It's Tim, and Happy New Year to you. Let me just give you a little bit of color on that. know in terms of functionality we kind of measure aging overall and our aging overall has extended out um i don't know three or four days three or four business days which is basically ten amount to you know to a full week um but that i don't think that really measures the kind of the full extent of it because when you look at the when you look at the actual sales funnel the actual amount of opportunity the portfolio of opportunity is actually higher um is that one of the highest levels that we've had in a while or you know measured at the end of the quarter. The difference is getting from opportunity identification to qualification is kind of where you have more lengthening. And so that's the principle issue. It's like determining budget, understanding if people have the green light to go. Where people had green light before, they don't necessarily have it immediately right now. They have to ask for additional layer of approval. And the last comment I would make is just in general, there's a lot of our larger companies who are contemplating their overall portfolio of projects. And as a result of that, that creates an additional filter through which decision-making has to happen. So hopefully that gives you enough color.
spk21: It's very helpful. I appreciate that, Tim.
spk23: And then can you talk a little bit about, you know, you had really nice bill rate improvement, you know, particularly as we think about North America. What are you seeing from the big four? You know, we noticed, you know, some things from E&Y. You know, some chatter there in terms of what they're doing. Just wondering what you're seeing out there in terms of, you know, pricing and, you know, the project pipeline for the Big Four, and how would that impact you?
spk03: Well, I'll start. I think Kate can also add some commentary on this. But what I would say is that what we saw early on was that the Big Four was much more aggressive in terms of raising their prices, and they were slower to lower them going through previous cycles. So as a result, you know, they have their ability to kind of come down from those pricing for that pricing if they'd like to, to price more aggressively, they can. Now, we haven't really seen that yet. So what I would say is that what we're seeing in terms of opportunity is because they have, they still have enough demand in their pipeline that they can still price aggressively. There's an ability for us to take on some of the work that they may have done from an execution standpoint. And also for our ability to take over from where they're just kind of towing the line on pricing and we're just simply a better value. And we're starting to see those opportunities now, particularly in some of those large clients.
spk15: Yeah. Hi, Mark, and Happy New Year, too. I'd answer it a little bit differently, too. What I think we're seeing in the big four, and I'm hearing it directly from clients, is that they don't have the talent or they're experiencing quiet quitting from in the delivery of the work for clients. So I think the big four are certainly having talent challenges that aren't going away anytime soon. And the experience they're delivering in the client base is an opportunity for us.
spk23: That's really interesting. And it certainly sounds like a great opportunity for you. With regards to... you know, thinking strategically about your geographic footprint, how would you characterize the long-term opportunities in Asia-Pac? How big could that practice be? And then similarly, you know, how are you thinking about Europe? To what extent is it macro versus, you know, the reorganization and, you know, the divestiture of task force? Is that... impacting the, you know, kind of the pipelines over there.
spk15: Yeah, let me jump in and then I'll have Tim follow up because I think he'll have especially some further commentary on Europe. Let me start with Task Force, though, and then I'll turn to AsiaPAC. Task Force, strategically, we are looking at building our business with an employed consultant model. We think that the importance of creating that connection between and the global community of consulting talent is really important. And Task Force, if you remember, runs more of an independent contractor model. So strategically, we made that pivot, and I would say we're very pleased that we've done that. And we wish Task Force well. There was no animosity with that separation. It's just a different strategic vision of what we are building globally. I just came back, and so did Tim, from trips in Asia-Pac, and I think we're both incredibly bullish about our opportunities there, especially throughout Southeast Asia, continuing to build in both Manila and Bangalore and beyond Bangalore. The ability for us to tap into the right talent and to bring our model to that region, which is new for them, is exciting, and I think exciting for all of us. I was really struck by how passionate our people are about our business model there and the ability to attract talent to what is a newer or emerging consulting model for that region. I think you'll continue to see us. We've started a practice in Malaysia. There are some other geographies in Southeast Asia that we are looking at, in a very cost-effective way. But remember, too, the reason we're investing in upgraded technology globally is that we want to be able to tap in and capture this borderless consulting talent without the cost structure of 10 years ago. And that's what we're prepping the company for.
spk03: Yeah, I mean, I'll just add a couple comments about APAC. I'll just make a quick note on Europe. In APAC, I think, in addition to what Kate was talking about, a lot of the growth that we've seen has been centered around a similar strategy that we're using in Europe, which is to try to attach our largest and most important clients in our strategic client account program globally. And so there are global initiatives where we would only play in certain work streams, and most of that was done domestically. And what we've seen over the last year in particular, and particularly in APAC, is that there are large opportunities for us there, opportunities to work in centers of excellence over there, places where they have BPO and other setups. And so we're taking advantage of that with our footprint. In terms of Europe, I think the one thing to remember, Mark, is that we restructured that with an eye toward profitability and making sure that we could service our large clients there. And as a result of that, our revenue base is a smaller client base, and we're targeting more project execution projects, which will give us a little more volatility in terms of our run rate. But in the long term, as we continue to invest there, we'll be able to kind of steady the run rate, and we'll have right-sized the business from a profitability standpoint.
spk22: Great. And then can you give us any updates on Hugo?
spk15: yeah hugo is progressing as planned you know we're continuing to build talent pools in both the tri-state and southern california areas i think the opportunity for us as we move into the second half of 2023 and beyond is how can we continue to leverage the capability of digital engagement more broadly in our business i mean This management team is very focused on driving efficiency, lowering our cost of sales, and technology and digital engagement will be a piece of it. But so far, everything is going as planned. We don't break it out separately. It's not significant enough yet for us to focus on, but we're very pleased with where we're headed.
spk23: Great. And then, Kate, obviously, you know, everybody's talking about the macro environment. you know, the majority of economists are projecting a recession for this year. Philosophically, how should we think about, you know, if we end up having a mild recession, which seems to be the consensus, you know, how should we think about, you know, what the impact would be on the top line? And to what extent, you know, how should investors think about, you know, the level of profitability that you could maintain if we end up going into a mild recession?
spk15: Yeah, you know, we're very committed, Mark, to maintaining the profitability range we've set. We've set on an annual basis we want to be in the mid-teens range. you know, that's different than 10 years ago, and we're very committed to it. So while I think a mild recession, and you've started to see in these results, it's hitting us a little bit on the top line, we're delivering, we're continuing, especially in the quarter we're just reporting, record profitability, and we're not giving that up. I mean, we've made moves in the business to lower our cost structure, and we're continuing to do that with upgraded technology and the ability to do more with technology so we can bring headcount costs down. We've always said the two biggest costs for us are headcount and real estate and we've made moves on both and we continue to do so. I'm very optimistic that we will continue to deliver results on the bottom line in this business.
spk01: Thank you.
spk15: You're welcome. Thank you.
spk01: Thank you. One moment for questions.
spk06: Our next question comes from Mark Riddick with Sudoti.
spk01: You may proceed.
spk07: Good evening.
spk20: Hi, Mark.
spk04: So I wanted to – a lot of my main questions have already been covered, but I did want to touch on – first of all, I appreciated you sharing and undertaking the task and sort of going through the survey that you referred to. And I was wondering if you could sort of talk a little bit about that. It seemed as though it was pretty extensive, as though sort of thinking about a couple of things that came out of that. But could you sort of talk a little bit about maybe the – were there any of the learnings that you got from that outside of where you thought they would be? And has that led to any changes that you felt you needed to make operationally? And then also maybe just from a, I'm looking forward to actually seeing it, but was there sort of a, what was the timeframe of when you guys did that?
spk15: We did, conducted the survey largely in November. I think we started it at the end of October. but largely completed it in November. We did a preview of our findings in New York City on November 30th, and like I said, Mark will be publishing the full report in the next two weeks, so we will issue a press release. I would say the surprising thing for me, or the surprising insight, is the accelerating use of organizationally diverse teams. And while that's rapidly expanding in the companies that are leading in terms of their own project delivery and recognizing that the talent you have around the table that runs day-to-day operations is not necessarily the talent you need to drive change. And so I think as more organizations recognize that, that presents opportunity for companies like ours to be the right partner. And finally, companies starting to think about their human capital supply chains very differently. And the advent of technology is allowing them to do it. I think we've all learned so many lessons coming out of COVID. that it's really an interesting time to be in a human capital business. Um, because finally the world is catching up to our business model. Uh, and that feels very good. So while, while this upcoming quarter may have some top line challenge, the longer term trends are really moving in our favor. And you know, while we read today in the wall street journal that that bosses are demanding people come back to the office, think it's still really up in the air whether talent is going to respond to that in the right way I think talent clearly has choices today and our business model is one of them so you know the research I think confirmed where we are as a business more than surprised me okay excellent and thank you for that and then
spk04: There's been several comments on the positive bill rate environment, what you're seeing there. Is there much of a change at all as far as business mix that's helping that? Or is that just, you know, there just continues to be bandwidth for pricing? Hey, Mark. This is Tim.
spk03: I lost you a little bit there. You kind of, at least on my end, got a little garbled. Do you mind repeating the question? I'm happy to give you some color.
spk04: Sure, sure. I was asking about sort of the contributions on bill rate and maybe what you see going forward there, whether that was a business mix benefit or is that just sort of just pushing through pricing and the room that we may have for that going forward?
spk03: I think it's a good question. I mean, it's a little bit of both, but right now it's more really just pricing discipline and less of a mix shift for us. In reality, you know, Mark asked a question about kind of where we saw the big four. I mean, we realize that our pricing value to market, there's a huge opportunity for us. That's a big focus for us across the business. However, as we take on more project consulting projects where we're actually responsible for the deliverable and doing more of that type of work, we will command higher bill rates and higher margins. And we think there's more opportunity for that now for us to shift share from some of the larger firms as people think about value.
spk05: Great. And then the last... Yes, of course.
spk08: Can I just add a comment on bill rate?
spk09: I mean, if you look at across all of our regions, I mean, they all have increased this year compared to last year, five plus percent in their bill rate. And if you look at it on a weighted average basis, you know, remember we divested task force. Without task force, it actually, you know, task force within Europe, it tends to have a little bit more, you know, higher bill rate. Our overall weighted average actually came down a bit because of the mixed shift. So, but if you look at all the regions individually, you know, you know, they've all made really good progress this year in terms of, you know, bill rate increases.
spk04: Excellent. Excellent. And then, right out of my head. There was something that wasn't right out of my head. All right. I'll leave it there then.
spk00: Thanks, Mark.
spk07: Thank you.
spk01: 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 Duchesne for any closing remarks.
spk15: I just want to thank everyone for joining us again today. I wish you a happy and healthy new year, and we'll look forward to talking to you again after Q3. Thanks, everyone.
spk01: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
spk18: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1. The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1. The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1. you Thank you. Thank you.
spk16: Thank you. music music Thank you.
spk01: 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 second quarter ended November 26, 2022. They will also refer to certain non-GAAP financial measures. An explanation of 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, 2022 for a discussion of risk, uncertainties, and other factors that may cause the company's business, results of operation, and financial condition to differ materially from what is expressed or implied by forward-looking statements made during this call. I would now like to turn the call over to RGP CEO, Kate Duchesne.
spk15: Thank you, operator. Good afternoon, everyone. Thanks for being with us. We're pleased to report continued strong financial performance in Q2 despite ambiguity in the macro environment. Q2 revenue on a same-day constant currency basis was almost 6% higher than prior year, excluding the task force business, which we divested at the end of May. The growth delivered is on top of prior year growth rates, which were significantly into double digits. Gross margin improved 180 basis points over prior year to 41.1%. Run rate SG&A continues to decline as a percentage of revenue to just over 26% in the quarter. Adjusted EBITDA margin improved 230 basis points over prior year to nearly 15%. representing record performance for a second fiscal quarter. Net income grew to 17.4 million, up from 14.3 million over prior year, which represents the highest level in a decade. These profitability results exceeded our guidance as we grew top line, improved pricing, and maintained disciplined cost management. We entered Q3 with one of the highest pipelines in company history, and are working tirelessly to convert all the opportunity. Against this backdrop of strong demand, we also note that some clients have paused current initiatives and others have delayed project starts, so the conversion to revenue may take a bit longer this calendar year. While Q3 always reflects holiday impact, we remain cautiously optimistic as we move further into calendar 2023. I'll turn now to some of the underlying reasons for our long term positive perspective. We recently conducted a primary research project on the successes and challenges of executing mission critical projects in the wake of global disruptions and market volatility. Organizations have taken on more mission critical projects in the past two and a half years to keep up with the rising customer and competitive demands. From finance and digital transformation to enterprise-wide operational change and reimagined supply chains, these critical initiatives are imperative to success, yet many companies have found it more challenging to execute these strategic projects. A tight labor market, a changing workforce, a distributed workforce, a shortage of in-demand skill sets, and new technology demands have made it all the more difficult to balance and execute organizational priorities. This research we undertook informs us as to what leading companies are doing to execute work differently and what lagging companies are missing. We surveyed 400-plus companies in North America, Europe, and Asia Pacific with $1 billion or more in revenue in four industries. technology, pharma, financial services, and health services. The respondents were functional leaders and above. We also conducted in-depth interviews with 10 large global organizations that have been executing key initiatives with great success. Today, I'm pleased to share a summary of the insights we learned. Fundamentally, most companies have found that executing critical projects is very challenging since the pandemic began, with only 15% reporting all their projects met key goals. Second, project management skills are critical at all levels of an initiative, and most companies lack enough of the necessary talent in their organizations. Third, the management of hybrid, remote, and organizationally diverse teams is the number one challenge in execution, which ties to the need for strong project management and change management support. Fourth, the best companies at project execution have a much higher percentage of outsiders on their teams, and they intend to grow the mix. Fifth, a strong project framework supported by great digital collaboration tools is critical to success. These findings strongly support RGP's focus on project management and specific expert skill sets. Items four and five are the most significant findings for our business. First, in relation to core RGP, the research reflects the secular trends we have anticipated. Not all talent should be full-time, and blending in independent experts improves outcomes. This trend is gaining traction quickly in our global clients and is called organizational workforce strategy or total talent transformation. Finally, the idea of buy, build, and borrow is the way forward. RGP is perfectly positioned to provide the needed solutions. We engage with clients to provide project management, change management, and subject matter expertise. The majority of our work in our global client base is related to execution of change, transformation, regulation, and risk projects. These are the mission-critical projects our clients face today, and they lack all of the skill sets they require. Second, with respect to item five, we also know that most of the projects in which we engage have a digital element, especially related to employee experience. Digital transformation of the employee experience is the core competency of the Veracity team, utilizing exceptional software platforms like ServiceNow, Acumina, and Salesforce. We are currently working in several large global organizations to improve collaboration, manage hybrid and diverse teams, and drive knowledge sharing as companies learn to work differently. Veracity has won significant work in this area, delivering record revenue highs in the second quarter. We will publish the full research report this month, so please watch for our press release and full publication on our website. In addition, we remain optimistic about our expanding opportunities in Asia Pacific. This region delivered 16% revenue growth on a same-day constant currency basis in the quarter, with more to come. Consulting talent is now borderless. As we continue to support global clients who are migrating work to this region, we are increasingly winning partnership opportunities, leveraging our international presence. We are working with marquee clients in the region and expanding our reach within these clients in meaningful ways. The passion of our people and the quality of talent in the region is absolutely outstanding. In addition, we are helping clients in North America and Europe understand the power of diverse and distributed teams who can solve their problems in a differentiated way. Our strategy is to build delivery teams with both in-country and offshore talent which we manage with the oversight of our integrated global account teams. And as we upgrade our technology, this truly global approach, which cannot be replicated by the big four, will allow us to deliver a quality and value combination that cannot be matched. We are winning more and more work with this strategy, and we believe that our global operations, in particular in Manila, Bangalore, and Mexico City, will be important centers of excellence to support global client account growth. In closing, I'd like to share a story one of our consultants recently shared with me about her experience with RGP, our human first approach, and why she loves our model. She explained that she is bipolar and has always been very open about it. It is relatively managed, but she still has times of significant depression. This past summer, she suffered a fairly severe episode and shared with two RGP managers that she was having trouble. They both immediately asked what they could do to help, and they proactively worked on her behalf. When she expressed concern about shifting responsibilities to others, they both reassured her that all they wanted to do was make sure she was okay. She told her husband that in the 20 years of working at different firms, While her prior bosses had been concerned and hoped she felt better soon, this was the first time her bosses immediately acted for her, so she was able to focus on herself. That, she said, is what makes our GP so very different. We act and care for our people. We don't just talk. I'll now turn the call over to Tim for an update on operations.
spk03: Thank you, Kate, and good afternoon, everyone. During the second quarter, we saw good revenue growth and operational metrics, as well as strong margin performance. Pipeline build and closed deals were strong, and we were able to maintain the revenue momentum we noted at the end of the first quarter, despite increasing macroeconomic uncertainty. Same-day constant currency revenue, excluding task force, increased by nearly 6%, and the overall demand profile for our services demonstrated continued strength throughout the quarter. Geographic performance was solid across our core business, with strategic accounts, Asia Pacific, North America, healthcare, county, and veracity all performing well, with Europe the one area of weakness. Overall, we have performed well through the first half of the year, but are, of course, wary of recessionary trends impacting our clients. We will continue to work hard at top-of-the-file activity, as well as ensuring great care and shepherding opportunities from prospecting to deal closures. While our growth pipeline has now reached one of its highest levels in three years, the sales cycle requires more attention and more effort than it did a year ago. But a lot of opportunity remains as companies continue to shift their focus to co-delivery of important initiatives. Clients increasingly recognize the value of owning their own intellectual property and working with firms to help them execute on key projects. This allows them to run day-to-day operations and change for the future, which has always been our value proposition. As clients work through their workforce plans for the coming year, there is an enduring reality that the pace of change will continue to be relentless. The flexibility and speed required to meet that pace are hallmarks of RGP, and as such, we see real opportunity through the remainder of the year and beyond. One of the fast-moving trends we are currently seeing with our clients in the technology sector is a rapid shift in focus to profitability expressed via reduction in force, division closure, and a focus on only the initiatives that are a priority for the enterprise. However, many of these clients are seeing attrition beyond their desires and are quickly recognizing the value we can provide as a flexible solution versus the more rigid approaches of larger firms. As a result, we are getting the opportunity to increase our presence in key projects, and in several cases, entrees into new projects to replace incumbent firms. As an example, at one Fortune 500 technology client, two of the large projects we were to begin working on were initially paused as the company went through significant restructuring and layout. But we stayed close to our clients through the uncertainty, as many of them were concerned not just about the condition of their project, but perhaps even the status of their own employment. As circumstances played out, we got more clarity on the timing of the existing project, which we began to help with shortly thereafter, and we are currently in discussions with them on other projects brought about by the restructuring. Some of these projects are to help provide on-demand talent for gaps caused by attrition, and others relate to providing expertise and execution around important enterprise initiatives. Another way that we've been able to differentiate ourselves is by leveraging our international delivery capability. As an example, a large multinational conglomerate is undertaking several major initiatives related to a global restructuring. We have deployed over 200 consultants around the world to help with these overlapping priority projects. A primary reason that we were selected as a key partner was our ability to support their data cleansing and compliance efforts in Manila, an important center of excellence for our clients. Half of the consultants we have deployed are domiciled in the Philippines. Similarly, a global financial services client is undertaking myriad initiatives, including finance transformation and divestitures. We have nearly 100 consultants supporting these efforts with a large contingent working out of Mexico. Our ability to execute internationally along with our presence and capability in Mexico was the determining factor in our ability to win this work, which is already leading us to additional opportunity to take share from larger competitors. On the candidate side of our business in the second quarter, we continue to attract and retain exceptional talent to our platform. As I noted earlier, many clients have reacted to macro uncertainty with restructuring, layoffs, and reductions in benefits as they seek to buffer their bottom line. We have seen in this cycle in particular that talent really values the importance of control and community. Many begin to realize that in traditional employment, particularly during turbulent times, there truly is a lack of control and a dilution of community. For groups impacted by restructuring and their colleagues who are not directly impacted but affected, RGP becomes an even more attractive alternative to traditional employment. We have numerous examples of this contemplation in the workforce, as alumni, newcomers, and even former employees of existing clients have decided to work with us versus traditional alternatives. As the labor market remains tight, our talent team, which essentially manages a human capital supply chain, is performing exceptionally. Attrition is in line sequentially and year over year, and strong hiring trends persist as we become the premier destination for talent that is daring to work differently. The average tenure of our Agile employees approaches five years, and we have learned over time that the highest risk of attrition typically occurs in the first year of employment with us. This continues to be an area of focus for us, and we work very hard to provide transparency regarding the portfolio of opportunity that awaits each consultant. Additionally, our team envelops new joiners in our culture, as we understand that this community experience is a key differentiator for us and helps to underpin the trust that consultants have in our GP. Over the Thanksgiving holiday, I asked the talent team if there were any consultants who were struggling and if there was anything more we could do to support them. Our southeast talent team informed me of a consultant who was dealing with a confluence of circumstances including seriously ill family members and damage from Hurricane Ian. The team had stayed very close to our consultant, and when I spoke to her, she let me know she was fearful that her need for time off to care for her family would hurt her chances to work with us in the future. Nothing could be further from the truth. The team and I reiterated our support and decided that she actually needed a few extra days of time off given the burden she was shouldering. She shared with me that the outpouring of support she received was unmatched in her career, and that while she is new to RGP, she has found her professional home. We are proud to be human first at RGP. Now let me turn back to our second quarter operations. In addition to our gross pipeline nearing a multi-year high, we continue to make progress with respect to pricing as well, increasing billing rates, excluding tax force, by 4% on a constant currency basis compared to prior year quarters. Pricing leverage will be an opportunity across the enterprise regardless of economic direction. While we were mindful of potentially broader impacts based on economic conditions, Early non-holiday third quarter revenue and operational trends are in line with a solid Q2 trend. Finally, let me touch on operational leverage. In Q2, we continue to focus on controlling fixed costs and operating efficiently, resulting in significant adjusted EBITDA margin improvement over prior year quarters. We will remain especially vigilant about discretionary spend through the balance of the year. I will now turn the call over to Jen for a more detailed review of our second quarter results.
spk09: Thank you, Tim, and good afternoon, everyone. We achieved another quarter of strong performance, one of the best second fiscal quarters in more than a decade, coming in near the high end of our guidance range for revenue, exceeding guidance range for growth margin percentage, and coming in better than the favorable end of the SG&A guidance range. Revenue for the quarter was $200.4 million, up 6% over the prior year quarter on a same-day constant currency basis, and excluding the impact of the task force divestiture. and our revenue for the first half of the fiscal year was up 11% on the same basis. In addition to strong top line growth, we also achieved record second quarter adjusted EBITDA margin of 14.8% and record second quarter adjusted EBITDA of 29.6 million, representing 19% growth over the same period a year ago. GAAP diluted EPS was 51 cents per share for the quarter, an improvement of nine cents or 21% over the prior year quarter. Overall, demand remains stable despite uncertainties in the macro environment. While certain client segments have become more deliberate in their spending pattern as they wait for more macro certainty, mission-critical initiatives and projects are still being executed, particularly in our large global clientele, which tends to be more resilient. Revenue from our strategic global accounts grew 6% year over year on a constant currency basis, Our core solution areas in finance and accounting and technology and digital also continued to perform well with 9% and 17% year-over-year growth, offsetting certain other areas that were softer. Despite the Federal Reserve's effort to address elevated inflation, the labor market remained tight and continued to support our top-line performance. Also contributing to the solid revenue growth in the quarter was a continuous improvement in our bill rates with our ongoing effort to align pricing with the value delivered to our clients, yielding positive results. U.S. average bill rate rose to $156 from $148 in the second quarter of fiscal 2022, an increase of 5.4%, with both Europe and Asia PAC driving similar improvements. Our ability to improve pricing has and will continue to play a significant role in sustaining our top-line performance while also improving our overall operating leverage and profitability. Geographically, North America and Asia Pacific both performed well with 6% and 16% year-over-year growth on a same-day constant currency basis, while Europe declined by 5% on the same basis and also excluding task force. largely because of delayed client buying patterns due to growing recessionary pressure. The tremendous growth in Asia Pacific was attributable to strong demand from our SCA clients as large global companies continue to shift their service centers to the Asia-Pac region. Growth margin in the first quarter was 41.1%, up 180 basis points over the same quarter a year ago, and just beating the high end of our guidance range. primarily driven by an improvement in the bill pay ratio of 270 basis points. Enterprise average bill rate for the quarter was $130 constant currency, up from $127 a year ago. Average pay rate was also favorable at $62 constant currency, an improvement from $63 in the prior year quarter. Now, turning to SG&A. We remain disciplined with cost management and investment oversight in the business in light of ambiguity in the macro environment. Our run rate SG&A expense for the quarter was 52.7 million, or 26.3% of revenue, a 70 basis point improvement compared to the same period a year ago, and better than the favorable end of the guidance range of 54 to 58 million. As a reminder, run rate SG&A expense includes non-cash compensation, restructuring charges, contingent consideration, and technology transformation costs. Technology transformation costs associated with our system implementation was $2.7 million for the quarter, of which $1 million was capitalized with the remaining $1.7 million included as non-run rate operating expenses for the quarter. We expect these costs to ramp up in the second half of the fiscal year as we progress through the implementation. Estimated cash outlay in the third quarter is expected to be in the range of $5 to $7 million, of which approximately $3 to $4 million would be capitalized. Our implementation is on track, and we anticipate completing the project over the next 18 months. Turning to our liquidity, we generated $23.7 million of cash from operations during the first half of the fiscal year as a result of strong business performance. Our debt level remained low with a leverage ratio of only 0.2x. And we ended the fiscal quarter with $89.4 million of cash and cash equivalents after distributing $4.7 million of dividends and repurchasing approximately 318,000 shares during the quarter at an average per share price of $16.80. We plan to continue to return cash to shareholders through dividends and through our share repurchase program, which has $60 million available at the end of the quarter. I'll now close with our third quarter outlook. The early third quarter revenue trend has been steady compared to Q2. While clients are evaluating their spending decisions more carefully as the macro economy continues to adjust, our sales metrics remain robust and the pipeline remains healthy, reflecting the favorable secular workforce trends Kate and Tim both mentioned. The long-term prospect of our business remains strong. In the short term, We expect a typical seasonal revenue pattern in the third quarter due to holidays across the globe. In addition, the strength in the US dollar will continue to impact the translation of financial results from our foreign entities. We estimate our third quarter revenue to be in the range of 181 to 186 million, which would be the second highest Q3 revenue in the last decade, despite the sale of task force earlier this fiscal year. As with every year, Gross margin will also be affected by the holidays, along with the reset of employer payroll taxes at the beginning of the calendar year. Nevertheless, we expect our sustained improvement in pay bill ratio to partially offset the seasonal impact, yielding a gross margin range of 37.5% to 38.5%, which would be the highest third quarter gross margin over the last 10 years. Finally, we expect our run rate SG&A expense to be in the range of 56 to 58 million, reflecting higher employer payroll tax expense at the beginning of calendar 2023. Non-run rate and non-cash expenses for the third quarter consist of 2 to 3 million of technology transformation costs and approximately 3 million of stock compensation expense. With that, our Q3 adjusted EBITDA margin is expected to return to the typical single digit percentage range, reflecting the normal seasonality factors I just pointed out versus prior year Q3's exceptionally strong adjusted EBITDA margin. I would also note that while we have a robust pipeline and will continue to work to outperform as we always do, the pause in stronger activity that is reflected in our third quarter outlook could potentially continue as we move through calendar 2023. depending on the broader macroeconomic trends that we obviously do not control. That concludes our prepared remarks. We will now open up the call for Q&A.
spk01: 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 JPMorgan Chase. You may proceed.
spk17: Hi, it's Andrew. I just wanted, Jen, if you don't mind, when talking about the revenue target for third quarter, $181 to $186 million, could you just give us what that would be on an organic, constant currency, revenue growth basis, year-over-year, excluding task force?
spk09: Yeah, sure. Hi, Andrew. At the high end of the range at $186 compared to Q3 of last year, same day, constant currency, excluding task force, you're looking at approximately a 5% decline.
spk17: Right. And you just said same day, so could you just mention what number of days in the third quarter and year-ago quarter?
spk10: Sure. It's 61 days.
spk12: For both?
spk10: For both, correct.
spk12: Okay. Thanks, Jen. Appreciate it.
spk01: Thank you. One moment for questions. Our next question comes from Mark Marcon with Robert W. Baird. You may proceed. Hey, happy new year.
spk23: And it was nice to see the profitability come through for the quarter. I'm wondering with regards to the guidance that you gave, you know, you're, you are seeing, you know, really solid growth in North America and in Asia, you know, it was really strong. I'm wondering if, If we take a look at the overall guidance for revenue, how would that break out from a North America, Asia, Europe perspective?
spk09: Yeah, sure. The guidance contemplates continued softness in Europe.
spk10: Asia-Pac is expected to hold steady in this quarter, obviously taking into holiday impact, right, if you were to compare to Q2.
spk09: In North America, we're also expecting to be relatively steady to Q2. And to Q3, if you're comparing year over year, we are seeing some slower decision-making overall within our client base. We noted that our pipeline is still very strong. The revenue conversion has slowed down just a bit. So if you're comparing year over year, we're seeing some softness in North America as well.
spk23: Sure. And I mean, that wouldn't be unexpected given all the macro headlines that are out there. So it should be fully expected by almost everybody. What I'm wondering is when you're talking about the slower decision making, you know, could you give us a little bit of a dimension in terms of, hey, you know, typically when we get engaged or when the timing for decision is typically different, X number of weeks or X number of months. Now it's getting stretched out to what, how do we, how do we think about that? And, and to what extent, you know, are you seeing some projects being canceled?
spk03: Hi Mark, it's Tim and happy new year to you. Let me just give you a little bit of color on that. You know, in terms of dimensionality, we kind of measure aging overall and our aging overall has extended out, I don't know, three or four days, three or four business days, which is basically tantamount to, you know, to a full week. Um, but that, I don't think that really measures the kind of the full extent of it, because when you look at the, when you look at the actual sales funnel, the actual amount of opportunity, the portfolio of opportunity is actually higher. Um, is that one of the highest levels that we've had in a while or, you know, measured at the end of the quarter, the difference is getting from opportunity identification to qualification is kind of where you have more lengthening. And so that's, that's, that's the principal issue. It's like determining budget. Understanding if people have the green light to go, where people had green light before, they don't necessarily have it immediately right now. They have to ask for an additional layer of approval. And the last comment I would make is just in general, there's a lot of our larger companies who are contemplating their overall portfolio of projects. And as a result of that, that creates an additional filter through which decision-making has to happen. So hopefully that gives you enough color.
spk21: It's very helpful. I appreciate that, Tim.
spk23: And then can you talk a little bit about, you know, you had really nice bill rate improvement, you know, particularly as we think about North America. What are you seeing from the big four? You know, we noticed, you know, some things from E&Y, you know, some chatter there in terms of what they're doing. Just wondering what you're seeing out there in terms of you know, pricing and, you know, the project pipeline for the Big Four, and how would that impact you?
spk03: Well, I'll start. I think Kate can also add some commentary on this. But what I would say is that what we saw early on was that the Big Four was much more aggressive in terms of raising their prices, and they were slower to lower them going through previous cycles. So as a result, you know, they have – their ability to kind of come down for that pricing if they'd like to, to price more aggressively, they can. Now, we haven't really seen that yet. So what I would say is that what we're seeing in terms of opportunity is because they still have enough demand in their pipeline that they can still price aggressively, there's an ability for us to take on some of the work that they may have done from an execution standpoint. And also for our ability to take over from where they're just kind of towing the line on pricing and we're just simply a better value. And we're starting to see those opportunities now, particularly in some of those large clients.
spk15: Yeah. Hi, Mark, and Happy New Year, too. I'd answer it a little bit differently, too. What I think we're seeing in the big four, and I'm hearing it directly from clients, is that they don't have the talent or they're experiencing quiet quitting from in the delivery of the work for clients. So I think the big four are certainly having talent challenges that aren't going away anytime soon. And the experience they're delivering in the client base is an opportunity for us.
spk23: That's really interesting. And it certainly sounds like a great opportunity for you. With regards to... you know, thinking strategically about your geographic footprint, how would you characterize the long-term opportunities in Asia-Pac? How big could that practice be? And then similarly, you know, how are you thinking about Europe? To what extent is it macro versus, you know, the reorganization and, you know, the divestiture of task force? Is that... impacting the, you know, kind of the pipelines over there.
spk15: Yeah, let me jump in and then I'll have Tim follow up because I think he'll have especially some further commentary on Europe. Let me start with Task Force though and then I'll turn to AsiaPAC. Task Force, strategically, we are looking at building our business with an employed consultant model. We think that the importance of creating that connection between and the global community of consulting talent is really important. And Task Force, if you remember, runs more of an independent contractor model. So strategically, we made that pivot, and I would say we're very pleased that we've done that. And we wish Task Force well. There was no animosity with that separation. It's just a different strategic vision of what we are building globally. I just came back, and so did Tim, from trips in Asia-Pac, and I think we're both incredibly bullish about our opportunities there, especially throughout Southeast Asia, continuing to build in both Manila and Bangalore and beyond Bangalore. The ability for us to tap into the right talent and to bring our model to that region, which is new for them, is exciting, and I think exciting for all of us. I was really struck by how passionate our people are about our business model there and the ability to attract talent to what is a newer or emerging consulting model for that region. I think you'll continue to see us. We've started a practice in Malaysia. There are some other geographies in Southeast Asia that we are looking at, in a very cost-effective way. But remember, too, the reason we're investing in upgraded technology globally is that we want to be able to tap in and capture this borderless consulting talent without the cost structure of 10 years ago. And that's what we're prepping the company for.
spk03: Yeah, I mean, I'll just add a couple of comments about APAC. I'll just make a quick note on Europe. In APAC, I think, in addition to what Kate was talking about, a lot of the growth that we've seen has been centered around a similar strategy that we're using in Europe, which is to try to attach our largest and most important clients in our strategic client account program globally. And so there are global initiatives where we would only play in certain work streams, and most of that was done domestically. And what we've seen over the last year in particular, and particularly in APAC, is that there are large opportunities for us there, opportunities to work in centers of excellence over there, places where they have BPO and other setups. And so we're taking advantage of that with our footprint. In terms of Europe, I think the one thing to remember, Mark, is that we restructured that with an eye toward profitability and making sure that we could service our large clients there. And as a result of that, our revenue base is a smaller client base, and we're targeting more project execution projects, which will give us a little more volatility in terms of our run rate. But in the long term, as we continue to invest there, we'll be able to kind of steady the run rate, and we'll have right-sized the business from a profitability standpoint.
spk22: Great. And then can you give us any updates on Hugo?
spk15: Yeah, Hugo is progressing as planned. We're continuing to build talent pools in both the tri-state and Southern California areas. I think the opportunity for us as we move into the second half of 2023 and beyond is how can we continue to leverage the capability of digital engagement more broadly in our business. This management team is very focused on driving efficiency, lowering our cost of sales, and technology and digital engagement will be a piece of it. But so far, everything is going as planned. We don't break it out separately. It's not significant enough yet for us to focus on, but we're very pleased with where we're headed.
spk23: Great. And then, Kate, obviously, you know, everybody's talking about the macro environment and you know, the majority of economists are projecting a recession for this year. Philosophically, how should we think about, you know, if we end up having a mild recession, which seems to be the consensus, you know, how should we think about, you know, what the impact would be on the top line? And to what extent, you know, how should investors think about, you know, the level of profitability that you could maintain if we end up going into a mild recession?
spk15: Yeah, you know, we're very committed, Mark, to maintaining the profitability range we've set. We've set on an annual basis we want to be in the mid-teens. You know, that's different than 10 years ago, and we're very committed to it. So while I think a mild recession, and you've started to see in these results, it's hitting us a little bit on the top line, we're delivering, we're continuing, especially in the quarter we're just reporting, record profitability, and we're not giving that up. I mean, we've made moves in the business to lower our cost structure, and we're continuing to do that with upgraded technology and the ability to do more with technology so we can bring headcount costs down. You know, we've always said the two biggest costs for us are headcount and real estate, and we've made moves on both and we continue to do so. So, you know, I'm very optimistic that we will continue to deliver results on the bottom line in this business.
spk22: Terrific. Thank you.
spk15: You're welcome. Thank you.
spk01: Thank you. One moment for questions. Our next question comes from Mark Riddick with Sudoti. You may proceed.
spk07: Good evening.
spk20: Hi, Mark.
spk04: So I wanted to, a lot of my main questions have already been covered, but I did want to touch on, first of all, I appreciated you sharing and undertaking the task and sort of going through the survey that you referred to. And I was wondering if you could sort of talk a little bit about that. it seemed as though it was pretty extensive as I was sort of thinking about a couple of things that came out of that, but could you sort of talk a little bit about maybe the, were there any of the learnings that you got from that outside of where you thought they would be and has that led to any changes that you felt you needed to make operationally? And then also maybe just from a, I'm looking forward to actually seeing it, but was there sort of a, what was the timeframe of when you guys did that?
spk15: We conducted the survey largely in November. I think we started it at the end of October, but largely completed it in November. We did a preview of our findings in New York City on November 30th, and like I said, Mark will be publishing the full report in the next two weeks, so we will issue a press release. I would say the surprising thing for me or the surprising insight is the accelerating use of organizationally diverse teams. And while that's rapidly expanding in the companies that are leading teams, in terms of their own project delivery and recognizing that the talent you have around the table that runs day-to-day operations is not necessarily the talent you need to drive change. And so I think as more organizations recognize that, that presents opportunity for companies like ours to be the right partner. And finally, companies starting to think about their human capital supply chains very differently. And the advent of technology is allowing them to do it. I think we've all learned so many lessons coming out of COVID that it's really an interesting time to be in a human capital business. Because finally, the world is catching up to our business model. And that feels very good. So while this upcoming quarter may have some top line challenge, the longer term trends are really moving in our favor. And while we read today in the Wall Street Journal that bosses are demanding people come back to the office, I think it's still really up in the air whether talent is going to respond to that in the right way. I think talent clearly has choices today. And our business model is one of them. So, you know, the research, I think, confirmed where we are as a business more than surprised me.
spk04: Okay, excellent. And thank you for that. And then there's been several comments on the positive bill rate environment, what you're seeing there. Is there much of a change at all as far as business mix that's helping that? Or is that just, you know, there just continues to be banning with both pricing and .
spk02: Hey, Mark, this is Tim. I just, I lost you a little bit there.
spk03: You kind of, at least on my end, got a little garbled. Can you, by repeating the question, I'm happy to give you some color.
spk04: Sure, sure. I was asking about sort of the contributions on bill rate and maybe what you see going forward there. whether that was a business mix benefit or is that just sort of just pushing the pricing and the room that we may have for that going forward?
spk03: I think it's a good question. I mean, it's a little bit of both, but right now it's more really just pricing discipline and less of a mix shift for us. In reality, you know, Mark asked a question about kind of where we saw it before, like, I mean, there's, We realize that our pricing value to market, there's a huge opportunity for us. That's a big focus for us across the business. However, as we take on more project consulting projects where we're actually responsible for the deliverable and doing more of that type of work, we will command higher bill rates and higher margins. And we think there's more opportunity for that now for us to shift share from some of the larger firms as people think about value.
spk07: Great.
spk08: And then the last...
spk05: Yes, of course.
spk08: Can I just add a comment on bill rate?
spk09: I mean, if you look at across all of our regions, I mean, they all have increased this year compared to last year, 5 plus percent in their bill rate. And if you look at it on a weighted average basis, you know, remember we divested task force. Without task force, it actually, you know, task force within Europe, it tends to have a little bit more, you know, higher bill rate. Our overall weighted average actually came down a bit because of the mixed shift. So, but if you look at all the regions individually, you know, they've all made really good progress this year in terms of, you know, bill rate increases.
spk04: Excellent. Excellent. And then, right out of my head. That was something that was right out of my head. All right. I'll leave it there then.
spk00: Thanks, Mark.
spk07: Thank you.
spk01: 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 Duchesne for any closing remarks.
spk15: I just want to thank everyone for joining us again today. I wish you a happy and healthy new year, and we'll look forward to talking to you again after Q3. Thanks, everyone.
spk01: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
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