Resources Connection, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Resources Connection, Inc. conference call. At this time, all participants are on listen-only mode. Later, we'll conduct a question-and-answer session, and instructions will follow at that time. Joining for management are Kate DeShane, Chief Executive Officer, Tim Brackney, President and Chief Operating Officer, and Jim Rue, Jennifer Rue, Chief Financial Officer. As a reminder, today's conference call is being recorded. At this time, we'd like to remind everyone that management will be commenting on results for the third quarter ending February 25th, 2023. They will also refrain to certain non-GAAP financial measures. An explanation and reconciliation of these measures to the most comparable GAAP financial measures are included in the press release issued today. Today's press release can be viewed in the investor relations section of RGP's website and also filed today with the SEC. Also during this call, management may make forward-looking statements regarding plans, initiatives, and strategies. and anticipated financial performance of the company. Such statements are predictions and actual event or results may differ materially. Please see the risk factor section in RGP's report on Form 10-K for the year ending May 28, 2022 for a discussion of risk uncertainties and other factors that may cause the company's business results or operations and financial conditions to differ materially from what is expressed or implied by forward-looking statements made during this call. I will now turn the call over to RGP CEO, Kate DeShane.

Thank you, operator. Good afternoon, everyone. Thanks for being with us. We're pleased to report solid financial performance in Q3 despite the macro environment. We exceeded the high end of our guidance on top line revenue and gross margin was toward the high end of our guidance range and at more than a 10-year high for the third quarter. Our SG&A cost containment efforts surpassed guidance expectations as well, as we remain focused on delivering value for our shareholders. Taking a closer look, Q3 revenue was almost $187 million, with our digital consulting business, Veracity, delivering year-over-year and sequential growth. Gross margin improved 80 basis points over prior year to 38.3%, as we continue to roll out our value-based pricing initiative. This improvement represents our strongest third quarter performance since 2010. Given that the talent crisis, especially in the professional arena, remains acute, we see this pricing initiative as a continuing opportunity to improve both the top line and gross margin. With respect to run rate SG&A, we spent less than our guidance anticipated as we remain disciplined on cost control. Adjusted EBITDA margin was nearly 9% this quarter, which is strong performance in the typical seasonally impacted third quarter. As we enter Q4, our revenue pipeline remains sizable. This leading indicator means that we've earned a seat at the table as a valued partner for mission-critical work. We are keenly focused on execution and confident in our relevance and value to the market. We will be all the more ready to execute when the macro environment strengthens and buyers regain a sense of economic stability. As we shared on our last call, we are not experiencing project cancellations, but rather project delays. And while the start of net new projects softened somewhat in the quarter, clients are extending current engagements at a record pace. This indicates our consultants are providing exceptional value that clients do not want to lose, even when faced with restructurings and layoffs in traditional talent pools within their organizations. Strategically, we're confident in the moves we are making to support an economy in transition. In short, we're focused on the following three areas. strengthening our core white glove on-demand talent platform, expanding the capability and reach of our digital consulting business, and building more tech enabled revenue delivery with Hugo and broader technology transformation. I'll provide further color on each and why they represent growth levers for our business. First, we continue to build the premier global on-demand talent platform for professionals to engage in operational and transformational work on a project basis. We give professional talent access to on-trend interesting work with top global brands and Fortune 500 clients as they engage to co-deliver strategic imperatives. Clients are increasingly evolving their workforce strategies to become more agile, project focused, and skill set oriented. They want a trusted partner to deliver with them as they take back responsibility from traditional professional services firms for strategic execution. As one of our key clients at a global healthcare company recently expressed, they want to engage with a trusted firm that is adjacent to the big four, who helps them shape the scope and skill sets needed in project execution, but allows them to remain in control. This type of client knows that in an increasingly disrupted world, they do not need to hand the reins for execution to an outside firm. They also don't want or need to staff up in a traditional sense to own all the skill sets they need to compete and evolve. As discussed during our last earnings call, our recent in-depth research established that companies are increasing by double digits their engagement with interim on-demand and agile professional talent to deliver better outcomes and greater efficiency. At its executive forum event in March, staffing industry analysts also shared two important data points regarding growth in the contingent workforce space. In 2021, spend grew 28% and over the next 10 years, workforce composition will increase to nearly 30% agile versus 21% today. Talent is also looking for more modern ways to pursue career development and work. Gone are the days of the career employee. The global pandemic accelerated the mindset shift away from a single lens employee for life approach. Today, what is emerging is the rise of the portfolio based professional who's committed to betting on herself and broadening her experience. While this shift first accelerated because of the global pandemic, We believe the recent increase in layoffs will only continue to reinforce this talent trend as traditional employment models no longer equate to greater security. In fact, in 2022, MBO partners reported that project-based professionals are happier, healthier, and feel more secure than they did in traditional employment models. Second, we are prioritizing our investment in fast-growing opportunities like digital transformation. Veracity is our digital consulting business delivering employee, client, and workplace transformation. Coming out of the pandemic, remote and hybrid work has forever changed the rules, timing, place, and pace of work. Such shifts require that organizations realign how work is accomplished. Veracity is squarely in this sweet spot, which has allowed us to increase the penetration of such services into our core RGP client base this year. For example, Veracity recently completed a significant project for a Fortune 50 global pharmaceutical company to help connect employees with services, tasks, and hyper-targeted communication. By harnessing the power of Employee Center Pro and ServiceNow, Veracity delivered a comprehensive set of services, including a first-of-its-kind service delivery intranet, creating a consumer-grade experience for employees. Through a new network of connected content under a single taxonomy, employees can now self-serve first, reducing frustration, increasing productivity, and giving the call center a much-needed break. In addition, our subject matter experts within RGP have been working more closely with Veracity to bring a deeper functional lens to ServiceNow projects to automate workflows. During the quarter, Veracity launched a center of excellence in India to increase offshore talent pools. And our corporate development activities are focused on building scale and reach for Veracity's digital consulting platform. Third, we are continuing to invest in Hugo as a modern digital engagement marketplace for talent and clients to engage directly for finance and accounting needs that are highly sought after and well-defined. We've piloted Hugo in three markets, New York, New Jersey, Southern California, and Texas, and are ready to pursue a more aggressive digital marketing plan to accelerate commercialization. We believe that digitalization for flexible placement and well-defined talent pools will increasingly disrupt the staffing industry. And we're optimistic about our position as a first mover in this professional category. SIA recently reported that in 2021, staffing platforms grew more than five times faster than traditional staffing firms at 58% versus 11%. Of note, we are increasingly receiving RFPs for professional staffing services from global Fortune 500 clients, specifically attracted to our capabilities and investment plans for self-service digital engagement models. We live in an age of relentless digital disruption and must be prepared to meet the future with investments like Hugo and core business technology transformation. Turning to our technology transformation project, We are on track to implement a state of the art technology stack in fiscal year 24. Not only will this digital initiative improve experience for all of our core constituents, consultants, internal employees, and clients, but we expect it to drive improved financial metrics through automation, better data analytics, and faster global collaboration. Once implemented, we'll have a global view of the business and can deploy talent more effectively efficiently and faster on the broader stage. Seamless execution differentiates us as a preferred partner for global transformation projects and allows us to build talent delivery with a blended financial model. Many of our largest clients are increasingly moving global services capabilities to developing markets and we will be well positioned to support them. Summing up, we are confident that our on-demand talent platform, whether delivered traditionally or digitally, and our digital consulting capabilities are more relevant than ever in today's marketplace. We are optimistic about the investments we are making to align with the emerging dominant trends in the world of work, and the incoming data supports our thinking. In the meantime, we have a very resilient and profitable core business with a pristine balance sheet. allowing us to continue to strengthen the enterprise with capabilities and innovation that will accelerate growth as the economy recovers. I'll now turn the call over to Tim for an update on operations.

Thank you, Kate, and good afternoon, everyone. During the third quarter, we saw solid revenue performance and operational metrics and were able to exceed top-line expectations. The overall demand profile for the business continued to be healthy, However, client uncertainty related to the overall macro environment made it more challenging for new business. Total pipeline remained strong throughout the quarter, indicating endurance of opportunity, yet converting opportunities to project starts was slower, related to myriad factors, including heightened approval levels and delays in proposed initiative timelines. These opportunities are intact, but require increased patience and care, and we believe they represent real prospects for growth as clients rapidly adjust to the new environment. Regional performance was mixed, reflecting increased vacation impact over a prior year and the increased choppiness in client demand. Despite these two factors, Veracity County in the central U.S. demonstrated solid growth over a prior year quarter. Additionally, our international business showed resilience as Europe generated sequential growth on a constant currency basis and Asia Pacific posted strong results despite the first fully celebrated Chinese New Year since the outset of the pandemic. Our strategic client accounts program was also affected by the broader trend, but has performed well overall on a year-to-date basis, growing approximately 4% over prior years. Overall, we have performed solidly through the first three quarters of the year, growing by about 6% exclusive of the divested task force business on a same-day constant currency basis, and our growth pipeline continues to be sizable. Client hesitation requires more patience and persistence with respect to top-of-the-funnel activities, as well as extra vigilance, communication, and consideration while shepherding opportunities through the sales cycle to deal closure. The overall market opportunity remains as companies continue to transform and build workforce plans accounting for a distinct transition and labor force mindset toward flexibility and choice. The pace of required change and the alteration in employee mentality are really permanent shifts framing each company's future workforce plan. A movement toward co-delivery of important initiatives had already begun, and now a resetting of plans through the lens of reductions in force will likely require many to lean in more to agile partners. Feed and flexibility are essential in order to right-size workforce plans, seamlessly run day-to-day operations, and transform for the future. We know this provides a runway for opportunity for us once companies re-baseline their plans. We see true upside in the future, but timelines are really driven by clients as they carefully rationalize and build for tomorrow. Here are two examples of work with Fortune 500 technology clients that help us illustrate the current mixed environment. One of the clients long ago transitioned to a plan centered around a more fluid workforce. They continue to transform during the current environment and have started to rely on us more broadly for support. A leading reason for this reliance is the investment we have made in understanding their business, their organizational structure, and their culture. Key client relationships built over time, coupled with the fast-moving trends we are currently seeing, have provided immediate opportunity for us both in on-demand talent and consultants as our briars prioritize value in their purchasing decisions. In recent weeks, we've been invited to bid on several RFPs and join successful outcomes. This represents substantial movement in our ability to win share from larger consultancies within this long-time client and reflects a renewed flight to value. On-demand staffing within the client continues to grow as stakeholders work hard to fill gaps and to move away from low-staffed arrangements with larger firms. In fact, we are directly collaborating with our client's global procurement team to build a resourcing plan for existing and forthcoming initiatives around the globe. Velocity within this client is growing, and we expect to continue to take shares our client trust RGP to help them with their most important initiatives. Other clients whose Agile workforce plans are less mature will have longer timelines for adjustment. As an example, another one of our Fortune 500 technology clients has gone through multiple rounds of layoffs during the strategic reorganization. Like many, they overhired during a tight labor market and are now sorting through where best to utilize the remaining talent. In these periods of uncertainty, attrition rises and initiatives are paused. As a result, even though some projects that were won and many in pipeline have been delayed, our stakeholders are extending our existing teams as they do not want to lose approved resources that they will likely need as plans solidify. On the candidate side of our business, in the third quarter, we continued to attract and retain exceptional talent to our platform, which is viewed as an increasingly appealing option because of worker sentiment and economic tumble. As clients and actors structurings and layoffs, more people begin to realize that there is very little difference in stability when comparing agile and traditional employment. In fact, the strength of community and human-first culture that has always been at the center of RGT's value proposition does not wane or flicker during turbulent times as it does for many traditional employers. We have numerous examples of impacted workers seeking to work with us, including alumni and a large cadre new to our platform, bringing new skill sets and experience to our already deep employee base. The labor market remains tight and project start dates are fluid, which impacts engagement timing, an interesting dynamic that our talent team manages beautifully. Through it all, consultant attrition rate has remained relatively consistent, which speaks to the excellent performance of our team and the strength of our employment brand. We believe that the unique, current conditions will only accelerate recent employment trends and make RGP the premier destination for talent that is daring to work differently. In the past I've spoken of boomerangs, alumni who have left RGP over time and have returned realizing that in reality the grass is not greener and that the experience of working within our community is hard to replicate. We work hard to stay very close to our consultant alumni and it is apparent that many people want to return after succumbing to the allure of traditional employment. Some have been impacted by restructuring, but many want to return because of the experience we provide. As just one example, we have three consultants working together on a project for a financial services client who left separately to pursue different traditional opportunities. All three returned during the quarter, largely because the role they left were not as rich in terms of experience and culture, and they miss working with our go-to-market team. All of them re-engaged in different projects and are happy to be back with our GP. Now let me turn back to our third quarter operation. In addition to gross pipeline remaining at a high level, we were able to make continued progress in pricing. Excluding divested task force operations, bill rates increased by 3.1% on a constant currency basis compared to prior year quarters. Pricing leverage continues to be an opportunity across the enterprise as clients trust our consultants and trust is at a premium today. While project timing will continue to be a challenge and it is impacting weekly revenue in the early fourth quarter, we believe there is revenue upside based on the deals and the pipelines. Finally, let me touch on operational leverage. In Q3, we continue to focus on controlling fixed costs and operating efficiently, resulting in strong EBITDA margin, particularly given the economic environment. We will remain especially vigilant about discretionary spend through the fourth quarter and beyond. I will now turn the call over to Jen for a more detailed review of our third quarter results.