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spk17: Good afternoon ladies and gentlemen and welcome to resources connections in conference call. Currently 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 third quarter ended February 24th, 2024. They will also refer to certain non-GAAP financial measures. An explanation and reconciliation of these measures to the most comparable GAAP financial measures are included in the press release issued today. Today's press release can be reviewed in the investor relations sections of RGP's website and 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 or predictions and actual events or results may differ materially. Please see the risk factor sections in RGP's report on Form 10-K for the year ended May 27, 2023 for a discussion of risk, uncertainties, and other factors that may cause the company's business results of operations and financial condition to differ materially from what is expressed or implied by forward-looking statements made during this call. I'll now turn the call over to RGP's CEO, Kate Duchene.
spk15: Thank you, Operator. Good afternoon, everyone, and thank you for joining us today. In Q3, we delivered solid performance across the enterprise despite a macro environment that continues to be sluggish and uncertain. In the quarter, client engagement extensions and client retention have been robust, with new project starts still taking longer to convert than previous cycles. On revenue, we performed consistent with expectations while also continuing to deliver strong cash flow conversion this fiscal year. On SG&A, and therefore adjusted EBITDA, we well exceeded our expectations, remaining disciplined on cost in this environment and driving efficiencies in headcount. Our balance sheet remains pristine. During Q3, we saw positive momentum in certain regions. Asia Pacific returned to growth from earlier quarters in the fiscal year. Our Mexico, India, and Switzerland practices all grew year over year, as we delivered long-term projects for large strategic clients. North America reflected the overall choppy operating environment, as clients want more confidence in lower interest rates and improving economic indicators before moving ahead with many major initiatives. County, which is our business unit, delivering outsourced finance and accounting and HR services for startups, scale-ups, and spin-outs also grew in the quarter. In fact, County is seeing the strongest demand for services since the pandemic. Our pricing initiative in the U.S. has progressed with a 1% increase in bill rate year over year. Overall, this quarter reflects success with what we can control, including superb customer service and client retention, improving operating efficiencies, and maintaining a very strong balance sheet. This success will allow us to be fast and ready as soon as the broader buying environment improves. Turning to our operational metrics, we're pleased that our pipeline remained resilient and steady through the quarter. The pipe is not created equal as we see growth in both healthcare and financial services opportunities while other sectors are still cautious. Veracity, our full-service digital transformation business, added almost 100 new opportunities in its pipeline during Q3. We are laser-focused on all the opportunities involving technology, digital, and portfolio change. Such deals are non-discretionary, longer-term, and require larger teams. For example, ERP cloud migration opportunities are on the rise, and we've built consulting delivery and a talent pipeline ready to respond. We're also building thought leadership around SAP S4 HANA migration, including hosting events like the webinar held last week, which drew over 600 registered attendees. Of the largest closed deal won this quarter, The majority involve SAP and Oracle cloud migration services, digital and finance transformation. During the quarter, we also continue to focus on enhancing our consulting capabilities, which we first outlined strategically during our last investor day. Last week, we entered into a definitive agreement to acquire management consulting firm reference points. This accretive acquisition is expected to close by early summer, subject to customary closing conditions. Reference Point is an advisory firm serving the financial services sector across four areas of focus. Strategy and management, risk and regulatory compliance, digital and technology, and data and analytics. Under the leadership of its managing partner, Scott Godin, Reference Point employs a differentiated consulting delivery model where engagements are led by former industry executives with exceptional backgrounds in technology, digital, and data, and risk management. Like RGP, the company builds delivery teams using a combination of experienced bench and on-demand talent. We believe this acquisition offers clear benefits to both organizations, allowing us to provide an integrated value proposition to accelerate the growth of our financial services business. With the largest consulting services spend, the financial services industry was one of the first sectors we invested in and has been a top three industry vertical for RGP since inception. This highly strategic acquisition will expand our portfolio of high-value advisory services, particularly in the technology, data, and risk management arena. We offer reference point instant access to RGP's expansive financial services client base and an expert sales team that knows how to effectively sell into this space. RGP's robust talent engine will help scale its delivery teams with expert on-demand talent. We very much look forward to welcoming the Reference Point team into the RGP family. We feel fortunate to have once again found a business whose culture is well aligned with RGP's values and our focus on client centricity and client relationships, and which expands our growth prospects moving forward. Next, I'm delighted to announce that Badresh Patel will serve as our new Chief Operating Officer. Badresh joined RGP in 2019 as the CEO of Veracity. He is an engineer by background and started his professional career at Anderson. He has more than 25 years of experience spanning top-tier consulting firms and boutique specialized consulting firms. A successful entrepreneur, Bidresh has helped build two high-growth digital transformation businesses over the last 10 years. In joining RGP, he has proven to be a critical member of our executive leadership team, serving as our chief digital officer and leading Project Phoenix, which, as you know, is RGP's technology transformation initiative. He is perfectly positioned for this role as we continue to evolve our business to lead with strategic advice and follow with seasoned consultants who execute with excellence. He knows our enterprise well while also bringing innovative ideas to improve execution to drive sustainable growth. This evolution requires effective coordination across people, process, and technology, domains that Bidresh understands well. As we bring our core consulting capabilities together under a single umbrella, experience delivering with a bench plus on-demand model is critical. In addition, in today's world where every client problem has an element of digital, automation, use of AI, and or UX, Bidresh's background and experience will be invaluable for the future of the firm. Bidresh will assume his position later this month. In his new role as COO, Badresh will continue to lead Project Phoenix. We completed wave one of the project in February with the implementation of our new talent acquisition software, our contract management software, and the optimization of Salesforce for the go-to-market team. Our project team comprised of internal employees and our own expert consultants did a fantastic job in delivering wave one. From my vantage point on the steering committee for Project Phoenix, I've seen our on-demand talent model work brilliantly. Our consultants have taken lead roles in program management, change management, data migration, testing, cutover, and functional expertise. For any company undergoing system transformation, having the right combination of insiders and on-demand experts is critical. Most companies do not have the muscle they need solely in-house. We offer clients on-demand experts who deliver with excellent speed and efficiency. It is also a very differentiated client outcome when the on-demand talent is experienced, has judgment, and has been to the rodeo many times before. Finally, I'm pleased to share the results of a recent survey we commissioned with YouGov to discover what priorities financial decision-makers are ready to fund when interest rates start to decline. We learned that more than 80 percent of the 200 financial decision-makers who participated in the survey plan to increase investment in workforce development. Specifically, most are prioritizing reskilling, upskilling current employees, and utilizing new engagement strategies to blend full-time employees with external on-demand resources. They desire knowledge transfer, independent perspective, and financial flexibility. Also, more than half said they would invest new capital in digital transformation and AI. In discussions last week with a global pharmaceutical and medical device client, I learned they are following this pattern exactly. They're funding a total talent initiative to inventory incumbent employees' skill sets and development desires. and capturing this data with new digital tools. They are also building execution teams related to strategic initiatives with a blend of internal employees and on-demand experts to target exactly the skill sets needed for specific projects for specific periods of time. They are adamant about not caring full-time employees for skill sets needed only on a fractional basis. In sum, we're working hard to close every business opportunity with creativity and grit. We are improving our operating model to align our consulting capabilities with more focus and under one leadership structure to also deliver scale with the on-demand talent platform. We're improving brand positioning and training for all account development teams to enable more cross-sell to drive growth. Far from standing still, we are aggressively optimizing our business to quickly capitalize on improving conditions to deliver long-term shareholder value. I'll now turn the call over to Jen.
spk08: Thank you, Kate, and good afternoon, everyone. This quarter, we achieved $151.3 million of revenue, which was consistent with our outlook range provided in January. Both our gross margin of 37% and our run rate SG&A of $45.2 million were significantly better than the favorable end of the outlook ranges provided. We produced solid adjusted EBITDA of $10.8 million, or a 7.1% adjusted EBITDA margin, and have delivered $34.9 million of free cash flow in the last 12 months. On a same-day constant currency basis, Revenue declined by 20% year-over-year as our clients continue to be cautious with the pace of spending in the face of uncertain macro conditions, particularly in North America and Europe. Our Asia-Pacific region performed relatively better with a decline of 4% year-over-year on a same-day constant currency basis. Markets such as India and the Philippines continue to perform well. primarily attributable to project opportunities with our large strategic clients as they continue to shift their spend to lower cost markets in an effort to advance transformation initiatives while containing costs. In addition, Singapore and Australia grew over the prior year from the expansion of our digital business with CloudGo. Operationally, as Kate mentioned, our growth pipeline remained resilient during the quarter. While the velocity of converting new opportunities in the pipeline to actual engagements remained slow, extensions on existing engagements were strong. We also saw an uptick in average deal size on closed deals during the third quarter. While the current economic environment still lacks a bit of direction, we do believe we are starting to see more movement in the sales cycle in recent weeks. Consistent with our survey results that Kate highlighted earlier, conversations with our own clients suggest that budgets do exist. and targeted investments are highly concentrated in technology upgrades and transformation. We have been laser focused on building our pipeline in this key area to grow our top line. Growth margin in the third quarter was 37%, once again, exceeding our 35.5 to 36% outlook range and reflecting a more normalized level of healthcare costs than we anticipated. Growth margin in the quarter also reflects the usual holiday seasonality and a heavier mix of business in Europe and Asia-Pacific, where we tend to see higher pay-bill ratios than in North America. As mentioned during our January call, the pricing environment across the globe has become increasingly competitive, and this trend continued in the third quarter. Furthermore, large multinational clients shifting work to lower-cost markets, such as India and the Philippines, have shifted our global revenue mix and therefore weighted average bill rate. Enterprise average bill rate for the quarter was $119 constant currency, down from $129 a year ago. Despite the pricing pressure, our U.S. standalone average bill rate was up 1% compared to the third quarter of fiscal 2023. We will continue to optimize our overall operating results by effectively balancing pricing and volume growth. Now on SG&A. Our run rate SG&A expense for the quarter was $45.2 million, which, as I noted, was also significantly better than our outlook range. We have remained disciplined with cost management, and the reduction in force we executed in late calendar 2023 contributed approximately $3 million of SG&A savings over the prior year quarter. Variable compensation expense was also favorable in the third quarter, reflecting a true up in bonus expense to align with the company's overall financial performance this fiscal year. Turning to liquidity, we continue to generate healthy free cash flow despite the macro environment. We ended the fiscal quarter with $114 million of cash and cash equivalents and zero outstanding debt after distributing $4.7 million of dividends and after $3.7 million of continued investments in our technology implementation. With total available financial liquidity of $287 million at the end of the quarter, we will continue to focus on investing in the most impactful areas of the business, including completing our technology transformation project and pursuing a disciplined M&A strategy to accelerate long-term growth and profitability, while continuing to return cash to shareholders through dividends and by opportunistically repurchasing shares under our share repurchase program, which had 45 million remaining at the end of the third quarter. Now let me provide an update on the two areas of investment in capital deployment, our technology transformation project and strategic acquisition. We have made tremendous progress and launched our new talent management and contract management systems in North America during the quarter. Our financial systems go live is planned for later in the calendar year. We're already seeing immediate benefits including enhanced speed and accuracy in talent matching, ease of talent marketing campaigns, and improved visibility into consultant and contract status. We will continue to extract value from the new platform as we optimize system functionalities and user adoption, and we believe this technology will enable us to achieve higher operating leverage and positions us perfectly to scale for growth. On the acquisition front, as Kate stated, we signed a definitive agreement to acquire ReferencePoint, a strategic advisory firm serving the financial services industry, which is an important vertical for RGP. We expect this acquisition to be accretive to our financial performance. I'll now close with our fourth quarter outlook. As we anticipated, the pace of revenue conversion for new opportunities in the pipeline remained sluggish in the third quarter, putting pressure on early fourth quarter revenue trends. Coupled with the timing of completion for certain large engagements, Early fourth quarter weekly revenue runway has been modest compared to the third quarter. We project fourth quarter revenue to be in the range of $137 million to $142 million. Growth margin in Q4 will continue to reflect the competitive pricing environment and the current global revenue mix, with a higher proportion of revenue coming from Europe and Asia Pacific. We estimate growth margin in Q4 to be in the range of 37.5% to 38%. We expect our fourth quarter run rate SG&A expense to be in a range of $50 to $52 million with more normalized variable compensation expense. Non-run rate and non-cash expenses for the fourth quarter will consist of technology transformation costs and stock compensation expense, both of which will be approximately $2 million. In closing, Despite headwinds presented by the prolonged market uncertainty, we see compelling opportunities ahead as macro conditions start to recover, and we're ready to execute and excited about our business model and longer-term outlook. With a durable variable cost model, a pristine balance sheet, ample liquidity, and impending accretive acquisition of reference points, we believe we are well positioned to continue driving long-term value creation for our shareholders. This concludes our prepared remarks and we will now open the call for Q&A.
spk17: Thank you so much. And as a reminder, to participate on the Q&A, you must press star 1-1 to get in the queue and wait for your name to be announced. To withdraw your question, simply press star 1-1 again. Again, that is star 1-1 if you have a question. One moment for our first person. It is from Mark Marcon with Baird. Please proceed.
spk06: Good afternoon, and thanks for taking my questions. Can you give us a little more detail with regards to reference point, like how large is it? What's the growth rate? How much did you, are you anticipating spending?
spk19: Kate and Jane, please check your mute button.
spk15: Sure. Hi, Mark. I'll start, and then Jen's going to jump in. We did have one correction in our prepared earnings script that we want to clarify, which Jen will do in just a moment. With respect to reference point, we're not disclosing the size at this time. It is a boutique consulting firm, and we expect to close this within the next 60 days. What this enables us to really do is bring together their strategic advisory work and then more fulsome execution. They have left opportunity on the table given that they don't have as much execution scale that we do, especially from a global perspective. For example, there's an opportunity that's already in front of us with an existing client actually of both firms, but our competitive bid will be stronger together because we allow reference point access to our center of excellence talent pool in Mumbai, for example. So we really are excited about bringing our capabilities together very synergistically to serve what you know has been a long-term industry vertical for us. and where we have a very strong sales team.
spk06: Is there something that you wanted to correct from the transcript?
spk15: Yes. Jen's trying to jump in. I can't hear you, Jen. Operator? Yes.
spk19: Jen is unmuted.
spk15: Okay. I'll jump in and correct this. It was the disclosure we made about APAC being down constant currency 4%. That stat is actually much better, and it's really a 1.8% decline constant currency. So we just want to call that out. It's not, again, a 4% decline, a 1.8%. Okay, great. Thanks. You're welcome.
spk06: Can you talk a little bit about what you're seeing in North America, both in terms of, you know, the ability to close deals? So I'll start there and then want to ask about pricing and then the markets specifically. But just in terms of like, Kate, you're close to your clients. What exactly do they need to see? Because, you know, GDP has been healthy employment growth has been healthy. Obviously interest rates are still high, but what exactly are they waiting for?
spk15: I think broadly, they're waiting for the first interest rate decline that is going to show, you know, it's going to be a firm line in the sand that we're moving in the right direction. So I do think the Fed decision will unlock more capital. I would say I characterize my outlook as more bullish on opportunity right now while remaining cautious on timing. So we are starting to see these green shoots, especially around technology migration. You know, I was just reviewing prior to the call both our closed one for Q3 and our biggest pipeline opportunities in Q4. Most involve technology change. Most require project management, change management, and then the wraparound services that I already talked about in my prepared remarks. So we are starting to feel more bullish about opportunity. It's really timing that's the challenge. I'd say the other thing, Mark, about revenue, and we're conservative about that is that we do have a couple of major projects for in the energy sector that will roll or conclude in Q4. And so we've taken that into account. Now, we've already identified new opportunities at those clients, but there may be a gap between the prior projects ending and the ramp up of the new projects that we have to take into consideration.
spk06: Really appreciate that. And Kate, can you talk a little bit about some of your major markets, whether it's the Tri-Cities New York area, or if we think about Northern or Southern California or Chicago, what are you seeing in those markets? And I'm just trying to factor in like, okay, you gave us the North America numbers, but how are those
spk15: biggest offices doing and how would you compare and contrast that to some of your um not small offices but smaller offices within the u.s yeah i think the smaller offices um which serve more middle market clients have been a little bit slower um because that buying base has been more conservative you know i really look at it not as much territories mark but um industries, like where are we starting to see momentum in industries? So we talked about financial services. Pipeline is definitely growing in financial services. In healthcare, you know, our longest standing client has, you know, we have three big proposals into that client right now. I feel bullish on our opportunities to continue to serve them, but it's just when those projects will start. The next category that we're starting to see spending again is in the retail or consumer goods space. That's particularly true because that's an important concentration of clients in Europe. And then last, I'd say manufacturing is starting to come back a little bit. So, you know, that impacts more of the Chicago area. That central of the country base probably impacts Atlanta a little bit more too. So that's really how we think about how we're gaining momentum. Let me also talk about technology because we mentioned in our earnings call a couple of quarters ago that we were starting to see some movement in technology, which has also been a very strong sector for us. And I'd say that we're seeing kind of fits and starts. We'll see some momentum, then we'll see more layoffs. Then we'll see things get put on hold because nobody wants to start a big project with on-demand talent when they've just done layoffs. So that's been a little bit, I'd say, herky-jerky. But we're starting to see more momentum in the media and entertainment space, which is pretty exciting. And that will have some positive impact in Southern California, where we've had some leadership and turnover changes. So we're addressing those actively. as we get ready for more opportunity there. So I hope this color has been helpful for you.
spk06: Absolutely. And then can you just talk a little bit more about the pricing within North America? What are you seeing from the big four and other competitors? We've obviously been reading about some of the things that they've been doing, but just wondering, when you're competing with them, How does that come through? Would you anticipate that pricing would actually continue to stay up year over year in North America? Or how are you thinking about that?
spk08: Yeah. So, Jen. Yeah, I'm back, you guys. I'm so sorry. I was having some technical difficulties. I think I heard, Mark, I think I heard Kate correct the question. one of the stats that I said, you know, in Asia pack, instead of a decline of 4% is actually an increase of 1.8% on a constant currency basis. Yeah, so, so I want to make sure that we clear that up. And, and then maybe I'll take a stab at the pricing question mark, and then Kate, feel free to jump in. I mean, what we're seeing from the big four, we talked about this at the last, in the last call, you know, obviously, the big four, they deploy bench resources. And, you know, when When they have some bench resources, they can kind of, you know, deploy for free. They're certainly doing that. And they also have deployed, you know, offshore resources. Therefore, they can blend the rates down. And, you know, there's a lot of competition when we compete with the boutique staffing firms, too. You know, for sure, they tend to want to race to the bottom in terms of pricing. You know, to combat this, I mean, we're actively, we talked about this last quarter, actively building our own kind of offshore resources. talent delivery hubs and then using them as much as we can in order to blend down the rate while protecting our margin. You know, obviously, we've got to now strike a balance between volume and pricing to maintain our market share. But the good news is, you know, given our predominantly variable cost model, you know, even with lower bill rates, we're still able to maintain our margin. So that's what we're seeing. Hopefully that helps. Mark, hopefully that answered your question.
spk15: Yeah, I would just add that We remain very focused on value-based pricing, Mark. That is not changing. But when you have the big four giving their bench resources away for free, it puts your rational pressure in the short term, not the long term.
spk06: Understood. Really appreciate all the comments. Thank you.
spk15: You're welcome.
spk19: Thank you. One moment for our next question, please. All right, and it comes from the line of Andrew Steinerman with JP Morgan.
spk17: Please proceed.
spk20: Hi, Jen. Thanks for the revenue guide for the fourth quarter. Could you just go over what that would be on an organic constant currency basis year over year in terms of a percentage change on a same day basis? And if you could mention if there's a difference in days in this fourth quarter versus the year ago fourth quarter.
spk08: Yes, sure. The full quarter guidance at $142 million, which is the top end of the range, it's about a 23% down compared to year-over-year on a same-day constant currency basis. And in the U.S., there is no business day difference. Okay. Thank you very much.
spk17: Thank you. One moment for our next question. And as a reminder, that is star 1-1 if you do have a question. One moment. and he comes from the line of Mark Riddick with Sidoti. Please proceed. Good evening.
spk03: Hi, Mark. So I think you mentioned in your prepared remarks financial services and health care. I was wondering if you could touch a little bit on those, particularly maybe starting with financial services, maybe what maybe some of those drivers are. Is that a regulatory driver? Is that maybe or are you seeing a little bit of a pickup from regulators improved M&A out there, which seems to be off to a decent start so far this year?
spk15: Yeah, I'd say primarily it's tied to regulatory requirements. Some technology, investment and change, you know, in financial services that have grown with a lot of consolidation, system alignment is something that we're starting to see those large organizations address. And I think there is some activity related to M&A, and we're starting to see an uptick in requests for project management-type resources, Mark.
spk03: Okay, great. And then it was very encouraging to see the launch in North America around the talent management system. I think you mentioned in your prepared remarks that the financial system I wasn't sure if you said calendar year or fiscal year. Is there sort of a ballpark timeframe we should be thinking about for that?
spk08: Yeah. Yeah. The financial systems will go live later this calendar year.
spk03: Calendar year. Okay. Okay. Excellent. And then I was sort of thinking about, I guess maybe sort of circling back to the M&A question, but in a different way. So I appreciate the commentary around reference points. So there's now been a couple of transactions during the year. Could you maybe sort of, give your thoughts and views as to are things getting to be more attractive out there as far as potential acquisition targets and maybe the volume of what's out there, the quality of what's out there, and the valuation?
spk15: Yeah, so we're very much focused on continuing to invest in our digital capabilities and looking at companies that bring, I would say, more forward-looking capabilities to bear. Because we're so strong in functional expertise here and so investing in in more of the veracity type platform is something that we're looking at and looking globally. You know, we did cloud go, which is now part of the veracity brand in late calendar 23 we've been looking to add to that platform as well and valuations are getting more reasonable so. Our pipeline of companies that we're looking at has grown. We're also though looking in a very targeted way at capability to add to what we might have. So think about the procurement supply chain space. That seems to be gaining some momentum in terms of project attention and budget in our client base. And we'd like to grow our capabilities there.
spk22: Okay, great.
spk03: And then the last thing, I know you had made commentary around the fits and starts around technology activity. And I was wondering, do you get any sense that some of that is maybe tied to some of the regulatory pressures, whether they be home or abroad or whether or not the tech customers are more sort of tied to the interest rate discussion that you mentioned earlier?
spk15: Yeah, I think it's tied to interest rate and I think headcount decisions that those firms are making. I don't know that I would say it's so tied to regulatory. I don't feel qualified, Mark, to answer that question fully. But I do think that At our largest account, for example, that is a technology company, we had been worried about some roles that we knew were coming, and those folks have all been extended, and we see now growing opportunity in that account again. So, you know, I think it's a matter of, you know, those firms tended to overhire more coming out of the pandemic. And now that they're right-sizing or justifying more of that headcount, it's really a matter of timing again more than, I think, opportunity.
spk02: Gotcha. That's right. Thank you very much.
spk15: You're welcome, Mark. Thank you.
spk17: Thank you. And as I see no further questions in the queue, I will turn it back to Kate for final comments.
spk15: Thank you, Operator. Well, thank you, everyone, for attending the call. We'll look forward to adding Badresh. to our earnings call following the end of our fiscal year and talking to you all again then. Thank you very much.
spk17: And with that, I conclude the conference. Thank you all for participating. You may now disconnect. you Thank you. Thank you. Good afternoon ladies and gentlemen and welcome to resources connections in conference call. Currently 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 third quarter ended February 24, 2024. They will also refer to certain non-GAAP financial measures. An explanation and reconciliation of these measures to the most comparable GAAP financial measures are included in the press release issued today. Today's press release can be reviewed in the investor relations sections of RGP's website and 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 factor sections in RGP's report on Form 10-K for the year ended May 27, 2023 for a discussion of risk, uncertainties, and other factors that may cause the company's businesses results of operations and financial condition to differ materially from what is expressed or implied by forward-looking statements made during this call. I'll now turn the call over to RGP's CEO, Kate Duchene.
spk15: Thank you, Operator. Good afternoon, everyone, and thank you for joining us today. In Q3, we delivered solid performance across the enterprise despite a macro environment that continues to be sluggish and uncertain. In the quarter, client engagement extensions and client retention have been robust, with new project starts still taking longer to convert than previous cycles. On revenue, we performed consistent with expectations while also continuing to deliver strong cash flow conversion this fiscal year. On SG&A and therefore adjusted EBITDA, we well exceeded our expectations, remaining disciplined on cost in this environment and driving efficiencies in headcount. Our balance sheet remains pristine. During Q3, we saw positive momentum in certain regions. Asia Pacific returned to growth from earlier quarters in the fiscal year. Our Mexico, India, and Switzerland practices all grew year over year, as we delivered long-term projects for large strategic clients. North America reflected the overall choppy operating environment, as clients want more confidence in lower interest rates and improving economic indicators before moving ahead with many major initiatives. County, which is our business unit, delivering outsourced finance and accounting and HR services for startups, scale-ups, and spin-outs also grew in the quarter. In fact, county is seeing the strongest demand for services since the pandemic. Our pricing initiative in the U.S. has progressed with a one percent increase in bill rate year over year. Overall, this quarter reflects success with what we can control, including superb customer service and client retention, improving operating efficiencies, and maintaining a very strong balance sheet. This success will allow us to be fast and ready as soon as the broader buying environment improves. Turning to our operational metrics, we're pleased that our pipeline remained resilient and steady through the quarter. The pipe is not created equal as we see growth in both healthcare and financial services opportunities while other sectors are still cautious. Veracity, our full-service digital transformation business, added almost 100 new opportunities in its pipeline during Q3. We are laser-focused on all the opportunities involving technology, digital, and portfolio change. Such deals are non-discretionary, longer term, and require larger teams. For example, ERP cloud migration opportunities are on the rise, and we've built consulting delivery and a talent pipeline ready to respond. We're also building thought leadership around SAP S4 HANA migration, including hosting events like the webinar held last week, which drew over 600 registered attendees. Of the largest closed deal won this quarter, The majority involve SAP and Oracle cloud migration services, digital, and finance transformation. During the quarter, we also continue to focus on enhancing our consulting capabilities, which we first outlined strategically during our last Investor Day. Last week, we entered into a definitive agreement to acquire management consulting firm reference points. This accretive acquisition is expected to close by early summer, subject to customary closing conditions. Reference Point is an advisory firm serving the financial services sector across four areas of focus. Strategy and management, risk and regulatory compliance, digital and technology, and data and analytics. Under the leadership of its managing partner, Scott Godin, Reference Point employs a differentiated consulting delivery model where engagements are led by former industry executives with exceptional backgrounds in technology, digital, and data, and risk management. Like RGP, the company builds delivery teams using a combination of experienced bench and on-demand talent. We believe this acquisition offers clear benefits to both organizations, allowing us to provide an integrated value proposition to accelerate the growth of our financial services business. With the largest consulting services spend, the financial services industry was one of the first sectors we invested in and has been a top three industry vertical for RGP since inception. This highly strategic acquisition will expand our portfolio of high-value advisory services, particularly in the technology, data, and risk management arena. We offer reference point instant access to RGP's expansive financial services client base and an expert sales team that knows how to effectively sell into this space. RGP's robust talent engine will help scale its delivery teams with expert on-demand talent. We very much look forward to welcoming the Reference Point team into the RGP family. We feel fortunate to have once again found a business whose culture is well aligned with RGP's values and our focus on client centricity and client relationships, and which expands our growth prospects moving forward. Next, I'm delighted to announce that Badresh Patel will serve as our new Chief Operating Officer. Badresh joined RGP in 2019 as the CEO of Veracity. He is an engineer by background and started his professional career at Anderson. He has more than 25 years of experience spanning top-tier consulting firms and boutique-specialized consulting firms. A successful entrepreneur, Bidresh has helped build two high-growth digital transformation businesses over the last 10 years. In joining RGP, he has proven to be a critical member of our executive leadership team, serving as our chief digital officer and leading Project Phoenix, which, as you know, is RGP's technology transformation initiative. He is perfectly positioned for this role as we continue to evolve our business to lead with strategic advice and follow with seasoned consultants who execute with excellence. He knows our enterprise well while also bringing innovative ideas to improve execution to drive sustainable growth. This evolution requires effective coordination across people, process, and technology, domains that Bidresh understands well. As we bring our core consulting capabilities together under a single umbrella, experience delivering with a bench plus on-demand model is critical. In addition, in today's world where every client problem has an element of digital, automation, use of AI, and or UX, Bidresh's background and experience will be invaluable for the future of the firm. Bidresh will assume his position later this month. In his new role as COO, Badresh will continue to lead Project Phoenix. We completed wave one of the project in February with the implementation of our new talent acquisition software, our contract management software, and the optimization of Salesforce for the go-to-market team. Our project team comprised of internal employees and our own expert consultants did a fantastic job in delivering wave one. From my vantage point on the steering committee for Project Phoenix, I've seen our on-demand talent model work brilliantly. Our consultants have taken lead roles in program management, change management, data migration, testing, cutover, and functional expertise. For any company undergoing system transformation, having the right combination of insiders and on-demand experts is critical. Most companies do not have the muscle they need solely in-house. We offer clients on-demand experts who deliver with excellent speed and efficiency. It is also a very differentiated client outcome when the on-demand talent is experienced, has judgment, and has been to the rodeo many times before. Finally, I'm pleased to share the results of a recent survey we commissioned with YouGov to discover what priorities financial decision makers are ready to fund when interest rates start to decline. We learned that more than 80% of the 200 financial decision makers who participated in the survey plan to increase investment in workforce development. Specifically, most are prioritizing reskilling, upskilling current employees, and utilizing new engagement strategies to blend full-time employees with external on-demand resources. They desire knowledge transfer, independent perspective, and financial flexibility. Also, more than half said they would invest new capital in digital transformation and AI. In discussions last week with a global pharmaceutical and medical device client, I learned they are following this pattern exactly. They're funding a total talent initiative to inventory incumbent employees' skill sets and development desires. and capturing this data with new digital tools. They are also building execution teams related to strategic initiatives with a blend of internal employees and on-demand experts to target exactly the skill sets needed for specific projects for specific periods of time. They are adamant about not caring full-time employees for skill sets needed only on a fractional basis. In sum, we're working hard to close every business opportunity with creativity and grit. We are improving our operating model to align our consulting capabilities with more focus and under one leadership structure to also deliver scale with the on-demand talent platform. We're improving brand positioning and training for all account development teams to enable more cross-sell to drive growth. Far from standing still, we are aggressively optimizing our business to quickly capitalize on improving conditions to deliver long-term shareholder value. I'll now turn the call over to Jen.
spk08: Thank you, Kate, and good afternoon, everyone. This quarter, we achieved $151.3 million of revenue, which was consistent with our outlook range provided in January. Both our gross margin of 37% and our run rate SG&A of $45.2 million were significantly better than the favorable end of the outlook ranges provided. We produced solid adjusted EBITDA of $10.8 million, or a 7.1% adjusted EBITDA margin, and have delivered $34.9 million of free cash flow in the last 12 months. On a same-day constant currency basis, Revenue declined by 20% year-over-year as our clients continued to be cautious with the pace of spending in the face of uncertain macro conditions, particularly in North America and Europe. Our Asia-Pacific region performed relatively better with a decline of 4% year-over-year on a same-day constant currency basis. Markets such as India and the Philippines continued to perform well. primarily attributable to project opportunities with our large strategic clients as they continue to shift their spend to lower cost markets in an effort to advance transformation initiatives while containing costs. In addition, Singapore and Australia grew over the prior year from the expansion of our digital business with CloudGo. Operationally, as Kate mentioned, our growth pipeline remained resilient during the quarter. While the velocity of converting new opportunities in the pipeline to actual engagements remained slow, extensions on existing engagements were strong. We also saw an uptick in average deal size on closed deals during the third quarter. While the current economic environment still lacks a bit of direction, we do believe we are starting to see more movement in the sales cycle in recent weeks. Consistent with our survey results that Kate highlighted earlier, conversations with our own clients suggest that budgets do exist, and targeted investments are highly concentrated in technology upgrades and transformation. We have been laser focused on building our pipeline in this key area to grow our top line. Growth margin in the third quarter was 37%, once again, exceeding our 35.5 to 36% outlook range and reflecting a more normalized level of healthcare costs than we anticipated. Growth margin in the quarter also reflects the usual holiday seasonality and a heavier mix of business in Europe and Asia-Pacific, where we tend to see higher pay-bill ratios than in North America. As mentioned during our January call, the pricing environment across the globe has become increasingly competitive, and this trend continued in the third quarter. Furthermore, large multinational clients shifting work to lower-cost markets, such as India and the Philippines, have shifted our global revenue mix and therefore weighted average bill rate. Enterprise average bill rate for the quarter was $119 constant currency, down from $129 a year ago. Despite the pricing pressure, our U.S. standalone average bill rate was up 1% compared to the third quarter of fiscal 2023. We will continue to optimize our overall operating results by effectively balancing pricing and volume growth. Now on SG&A. Our run rate SG&A expense for the quarter was $45.2 million, which, as I noted, was also significantly better than our outlook range. We have remained disciplined with cost management, and the reduction in force we executed in late calendar 2023 contributed approximately $3 million of SG&A savings over the prior year quarter. Variable compensation expense was also favorable in the third quarter, reflecting a true up in bonus expense to align with the company's overall financial performance this fiscal year. Turning to liquidity, we continue to generate healthy free cash flow despite the macro environment. We ended the fiscal quarter with $114 million of cash and cash equivalents and zero outstanding debt after distributing $4.7 million of dividends and after $3.7 million of continued investments in our technology implementation. With total available financial liquidity of $287 million at the end of the quarter, we will continue to focus on investing in the most impactful areas of the business, including completing our technology transformation project and pursuing a disciplined M&A strategy to accelerate long-term growth and profitability, while continuing to return cash to shareholders through dividends and by opportunistically repurchasing shares under our share repurchase program, which have $45 million remaining at the end of the third quarter. Now let me provide an update on the two areas of investment in capital deployment, our technology transformation project and strategic acquisition. We have made tremendous progress and launched our new talent management and contract management systems in North America during the quarter. Our financial systems go live is planned for later in the calendar year. We're already seeing immediate benefits including enhanced speed and accuracy in talent matching, ease of talent marketing campaigns, and improved visibility into consultant and contract status. We will continue to extract value from the new platform as we optimize system functionalities and user adoption, and we believe this technology will enable us to achieve higher operating leverage and positions us perfectly to scale for growth. On the acquisition front, as Kate stated, we signed a definitive agreement to acquire ReferencePoint, a strategic advisory firm serving the financial services industry, which is an important vertical for RGP. We expect this acquisition to be accretive to our financial performance. I'll now close with our fourth quarter outlook. As we anticipated, the pace of revenue conversion for new opportunities in the pipeline remained sluggish in the third quarter, putting pressure on early fourth quarter revenue trends. Coupled with the timing of completion for certain large engagements, Early fourth quarter weekly revenue runway has been modest compared to the third quarter. We project fourth quarter revenue to be in the range of $137 million to $142 million. Growth margin in Q4 will continue to reflect the competitive pricing environment and the current global revenue mix, with a higher proportion of revenue coming from Europe and Asia Pacific. We estimate growth margin in Q4 to be in the range of 37.5% to 38%. We expect our fourth quarter run rate SG&A expense to be in a range of $50 to $52 million with more normalized variable compensation expense. Non-run rate and non-cash expenses for the fourth quarter will consist of technology transformation costs and stock compensation expense, both of which will be approximately $2 million. In closing, Despite headwinds presented by the prolonged market uncertainty, we see compelling opportunities ahead as macro conditions start to recover, and we're ready to execute and excited about our business model and longer-term outlook. With a durable variable cost model, a pristine balance sheet, ample liquidity, and impending accretive acquisition of reference points, we believe we are well positioned to continue driving long-term value creation for our shareholders. This concludes our prepared remarks and we will now open the call for Q&A.
spk17: Thank you so much. And as a reminder, to participate on the Q&A, you must press star 1-1 to get in the queue and wait for your name to be announced. To withdraw your question, simply press star 1-1 again. Again, that is star 1-1 if you have a question. One moment for our first person. It is from Mark Marcon with Baird. Please proceed.
spk06: Good afternoon, and thanks for taking my questions. Can you give us a little more detail with regards to reference point, like how large is it? What's the growth rate? How much did you, are you anticipating spending?
spk18: Kate and Jane, please check your mute button.
spk15: Sure. Hi, Mark. I'll start, and then Jen's going to jump in. We did have one correction in our prepared earnings script that we want to clarify, which Jen will do in just a moment. With respect to reference point, we're not disclosing the size at this time. It is a boutique consulting firm, and we expect to close this within the next 60 days. What this enables us to really do is bring together their strategic advisory work and then more fulsome execution. They have left opportunity on the table given that they don't have as much execution scale that we do, especially from a global perspective. For example, there's an opportunity that's already in front of us with an existing client actually of both firms, but our competitive bid will be stronger together because we allow reference point access to our center of excellence talent pool in Mumbai, for example. So we really are excited about bringing our capabilities together very synergistically to serve what you know has been a long-term industry vertical for us. and where we have a very strong sales team.
spk06: Is there something that you wanted to correct from the transcript?
spk15: Yes. Jen's trying to jump in. I can't hear you, Jen. Operator? Yes.
spk19: Jen is unmuted.
spk15: Okay. I'll jump in and correct this. It was the disclosure we made about APAC being down constant currency 4%. That stat is actually much better, and it's really a 1.8% decline constant currency. So we just want to call that out. It's not, again, a 4% decline, a 1.8%. Okay, great. Thanks. You're welcome.
spk06: Can you talk a little bit about what you're seeing in North America, both in terms of, you know, the ability to close deals? So I'll start there and then want to ask about pricing and then the markets specifically. But just in terms of like, Kate, you're close to your clients. What exactly do they need to see? Because, you know, GDP has been healthy employment growth has been healthy. Obviously interest rates are still high, but what exactly are they waiting for?
spk15: I think broadly they're waiting for the first interest rate decline that is going to show, you know, it's going to be a firm line in the sand that we're moving in the right direction. So I do think the Fed decision will unlock more capital. I would say I characterize my outlook as more bullish on opportunity right now while remaining cautious on timing. So we are starting to see these green shoots, especially around technology migration. You know, I was just reviewing prior to the call both our closed one for Q3 and our biggest pipeline opportunities in Q4. Most involve technology change. Most require project management, change management, and then the wraparound services that I already talked about in my prepared remarks. So we are starting to feel more bullish about opportunity. It's really timing that's the challenge. I'd say the other thing, Mark, about revenue, and we're conservative about that is that we do have a couple of major projects for in the energy sector that will roll or conclude in Q4. And so we've taken that into account. Now, we've already identified new opportunities at those clients, but there may be a gap between the prior projects ending and the ramp up of the new projects that we have to take into consideration.
spk06: Really appreciate that. And Kate, can you talk a little bit about some of your major markets, whether it's the Tri-Cities New York area, or if we think about Northern or Southern California or Chicago, what are you seeing in those markets? And I'm just trying to factor in like, okay, you gave us the North America numbers, but how are those
spk15: biggest offices doing and how would you compare and contrast that to some of your um not small offices but smaller offices within the u.s yeah i think the smaller offices um which serve more middle market clients have been a little bit slower um because that buying base has been more conservative you know i really look at it not as much territories mark but um Industries, like where are we starting to see momentum in industries? So we talked about financial services. Pipeline is definitely growing in financial services. In healthcare, you know, our longest standing client has, you know, we have three big proposals into that client right now. I feel bullish on our opportunities to continue to serve them, but it's just when those projects will start. The next category that we're starting to see spending again is in the retail or consumer goods space. That's particularly true because that's an important concentration of clients in Europe. And then last, I'd say manufacturing is starting to come back a little bit. So, you know, that impacts more of the Chicago area. That central of the country base probably impacts Atlanta a little bit more too. So that's really how we think about how we're gaining momentum. Let me also talk about technology because we mentioned in our earnings call a couple of quarters ago that we were starting to see some movement in technology, which has also been a very strong sector for us. And I'd say that we're seeing kind of fits and starts. We'll see some momentum, then we'll see more layoffs. Then we'll see things get put on hold because nobody wants to start a big project with on-demand talent when they've just done layoffs. So that's been a little bit, I'd say, herky-jerky. But we're starting to see more momentum in the media and entertainment space, which is pretty exciting. And that will have some positive impact in Southern California, where we've had some leadership and turnover changes. So we're addressing those actively. as we get ready for more opportunity there. So I hope this color has been helpful for you.
spk06: Absolutely. And then can you just talk a little bit more about the pricing within North America? What are you seeing from the big four and other competitors? We've obviously been reading about some of the things that they've been doing, but just wondering, when you're competing with them, How does that come through? Would you anticipate that pricing would actually continue to stay up year over year in North America? Or how are you thinking about that?
spk08: Yeah. So, Jen. Yeah, I'm back, you guys. I'm so sorry. I was having some technical difficulties. I think I heard, Mark, I think I heard Kate correct the question. one of the stats that I said, you know, in Asia pack, instead of a decline of 4% is actually an increase of 1.8% on a constant currency basis. Yeah, so, so I want to make sure that we clear that up. And, and then maybe I'll take a stab at the pricing question mark, and then Kate, feel free to jump in. I mean, what we're seeing from the big four, we talked about this at the last, in the last call, you know, obviously, the big four, they deploy bench resources. And you know, when When they have some bench resources, they can kind of, you know, deploy for free. They're certainly doing that. And they also have deployed, you know, offshore resources. Therefore, they can blend the rates down. And, you know, there's a lot of competition when we compete with the boutique staffing firms, too. You know, for sure, they tend to want to race to the bottom in terms of pricing. You know, to combat this, I mean, we're actively, we talked about this last quarter, actively building our own kind of offshore resources. talent delivery hubs and then using them as much as we can in order to blend down the rate while protecting our margin. You know, obviously, we've got to now strike a balance between volume and pricing to maintain our market share. But the good news is, you know, given our predominantly variable cost model, you know, even with lower bill rates, we're still able to maintain our margin. So that's what we're seeing. Hopefully that helps. Mark, hopefully that answered your question.
spk15: Yeah, I would just add that We remain very focused on value-based pricing, Mark. That is not changing. But when you have the big four giving their bench resources away for free, it puts your rational pressure in the short term, not the long term.
spk06: Understood. Really appreciate all the comments. Thank you.
spk15: You're welcome.
spk19: Thank you. One moment for our next question, please. All right, and it comes from the line of Andrew Steinerman with JP Morgan.
spk17: Please proceed.
spk20: Hi, Jen. Thanks for the revenue guide for the fourth quarter. Could you just go over what that would be on an organic constant currency basis year over year in terms of a percentage change on a same day basis? And if you could mention if there's a difference in days in this fourth quarter versus the year ago fourth quarter.
spk08: Yes, sure. The full quarter guidance at 142 million, which is the top end of the range, it's about a 23% down compared to year over year on the same day cost and currency basis. And in the U.S., there is no business day difference. Okay. Thank you very much.
spk17: Thank you. One moment for our next question. And as a reminder, that is star 1-1 if you do have a question. One moment. and he comes from the line of Mark Riddick with Sidoti. Please proceed. Good evening.
spk03: Hi, Mark. So I think you mentioned in your prepared remarks financial services and health care. I was wondering if you could touch a little bit on those, particularly maybe starting with financial services, maybe what maybe some of those drivers are. Is that a regulatory driver? Is that maybe or are you seeing a little bit of a pickup from regulators improved M&A out there, which seems to be off to a decent start so far this year?
spk15: Yeah, I'd say primarily it's tied to regulatory requirements. Some technology, investment and change, you know, in financial services that have grown with a lot of consolidation, system alignment is something that we're starting to see those large organizations address. And I think there is some activity related to M&A, and we're starting to see an uptick in requests for project management-type resources, Mark.
spk03: Okay, great. And then it was very encouraging to see the launch in North America around the talent management system. I think you mentioned in your prepared remarks that the financial system I wasn't sure if you said calendar year or fiscal year. Is there sort of a ballpark timeframe we should be thinking about for that?
spk08: Yeah. Yeah. The financial systems will go live later this calendar year.
spk03: Calendar year. Okay. Okay. Excellent. And then I was sort of thinking about, I guess maybe sort of circling back to the M&A question, but in a different way. So I appreciate the commentary around reference points. So there's now been a couple of transactions during the year. Could you maybe sort of, give your thoughts and views as to are things getting to be more attractive out there as far as potential acquisition targets and maybe the volume of what's out there, the quality of what's out there, and the valuation?
spk15: Yeah, so we're very much focused on continuing to invest in our digital capabilities and looking at companies that bring, I would say, more forward-looking capabilities to bear. because we're so strong in functional expertise here. And so investing in, in more of the veracity type platform is something that we're looking at and looking globally. Uh, you know, we did cloud go, which is now part of the veracity brand in late calendar 23, we've been looking to add to that platform as well. And valuations are getting more reasonable. So, Our pipeline of companies that we're looking at has grown. We're also, though, looking in a very targeted way at capability to add to what we might have. So think about the procurement supply chain space. That seems to be gaining some momentum in terms of project attention and budget in our client base. And we'd like to grow our capabilities there.
spk22: Okay, great.
spk03: And then the last thing, I know you had made commentary around the fits and starts around technology activity. And I was wondering, do you get any sense that some of that is maybe tied to some of the regulatory pressures, whether they be home or abroad or whether or not the tech customers are more – sort of tied to the interest rate discussion that you mentioned earlier?
spk15: Yeah, I think it's tied to interest rate and I think headcount decisions that those firms are making. I don't know that I would say it's so tied to regulatory. I don't feel qualified, Mark, to answer that question fully. But I do think that at our largest account, for example, that is a technology company. We had been worried about some roles that we knew were coming and those folks have all been extended and we see now growing opportunity in that account again. So, you know, I think it's a matter of, you know, those firms tended to over hire more coming out of the pandemic. And now that they're right-sizing or justifying more of that headcount, it's really a matter of timing again more than, I think, opportunity.
spk02: Gotcha. That's right. Thank you very much.
spk15: You're welcome, Mark. Thank you.
spk17: Thank you. And as I see no further questions in the queue, I will turn it back to Kate for final comments.
spk15: Thank you, Operator. Well, thank you, everyone, for attending the call. We'll look forward to adding Badresh. to our earnings call following the end of our fiscal year and talking to you all again then. Thank you very much.
spk17: And with that, I conclude the conference. Thank you all for participating. You may now disconnect.
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