Resources Connection, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Resources Connection, Inc. 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 fourth quarter ended May 25, 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 viewed in the investor relations section 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 in the anticipated financial performance of the company. Such statements are predictions and actual events or results may differ materially. please see the risk factors section in RGP's report on Form 10-K for the year ended May 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. Such discussion will also be included in the risk factors section in RGP's report on Form 10-K for the year ended May 25, 2024, which will be filed on July 19th, 2024.

I'll now turn the call over to RGP CEO, Kate Duchesne.

Thank you, operator. Good afternoon, everyone. And thank you for joining today. I welcome the dress Patel to this call as it is his first as our chief operating officer. Following my remarks address will comment on the execution of our strategy to drive performance with our new operating structure and leadership team in place. Jen Rue, our CFO, will then provide a detailed review of our financial performance for Q4, key operational metrics, and the outlook for Q1 fiscal 25. In Q4, our business stabilized as we exceeded the top end of our revenue and gross margin outlook. On revenue, we performed almost 4% above the top end of our range, while also continuing to deliver strong cash flow conversion. By driving cost discipline and operating efficiency, we also outperformed the favorable end of our run rate SG&A outlook and delivered an 11% decrease in run rate expense from last year. Our balance sheet remains pristine with no outstanding debt. The current outlook on the global economy presents a mix of cautious optimism and challenge, and we're focusing our business pursuits in areas where clients are investing to improve their operating performance and drive transformation. During the quarter, client engagement extensions and retention were strong, with new projects starting to convert more consistently in certain pockets. We see increasing opportunity around ERP cloud migration, preparation for AI adoption, and digital workflow implementations and optimizations. At the same time, our core solutions supporting the operational needs of the CFO and CHRO will stabilize further as talent shortages, automation, and change initiatives present growing opportunities. The summer quarter, which we're in, is always impacted by seasonality due to holidays and project start dates pushing to September. But we remain cautiously optimistic that the macro buying environment, while still choppy, will improve as we move through the current fiscal year and we'll be ready with capabilities aligned to marketplace needs. For fiscal 25, which launched in June, we prioritized the following strategies to propel us forward as the macro environment improves. First, we have evolved our business into three core engagement models, on-demand talent, consulting, and outsourced services. By offering all three within one enterprise, we can more effectively deliver what clients want today, transparency, value, and integrated service solutions. This year, we will clarify and operationalize these models and unlock the cross-sell of our diversified capabilities throughout our blue-chip, loyal, and longstanding client base. The new structure will enable us to better serve our clients where they need us along their transformation journey with a combination of targeted skill sets, high-value consulting services, and outsourced delivery. We bring flexibility, leverage best-of-breed technology, and combine human-centered design with functional subject matter expertise. We will grow our consulting business by leveraging on-demand talent to help us scale with greater financial flexibility and better skill set alignment. With respect to our outsource services business, we've expanded County's total addressable market beyond the startup ecosystem to now serve the finance, accounting, and HR needs around spin-outs or carve-outs. Reorganizing the business for improved clarity and focus ensures that we're strongly positioned to execute and win as the macro environment recovers. Second, for fiscal Q1, we will launch externally our new enterprise brand to better educate all stakeholders on how our offerings and go-to-market approach differentiates us from the competition. We have a superb value proposition for today's marketplace. We're building new websites to launch this fall to reflect this value so stakeholders understand what we do, who we serve, when to call us, and the impact we deliver. We routinely win against the big four, partly because we are purposely built to deliver differently. We believe we can further increase the win rate by ensuring we're better understood, that we can deliver on our clients' needs with lower cost, faster impact, global reach, and greater flexibility. Furthermore, our growing consulting capability provides us with deeper visibility into our clients' transformation agendas to enable us to be part of a larger ecosystem of execution work. Third, we're building and bringing to market more technology, digital, and data capabilities in all we do across the business units. Specifically, we are adding skilled on-demand and consulting professionals in technology migration, cybersecurity, data modernization, and data privacy, and user experience to proactively meet evolving client needs. This is a growth opportunity if today's CFO is not just about the numbers. She must be a technologist, data expert, change agent, and people manager. The increased adoption of digital tools, remote work styles, Gen AI, and globalization is driving new areas of need in our client base, and we are in a superior position to serve. We have approximately 1,700 master service agreements, and can provide services across the many buying centers within our clients. In June, we convened an in-person fiscal 25 kickoff meeting with go-to-market personnel in North America. We rallied around our GP strategy and focused the team on execution. The team fully embraced the strategy, which is grounded in client feedback, prioritizes attracting and retaining A-plus talent, and building exceptional global delivery. Related to the growth of technology data and digital consulting capabilities. I'm pleased to confirm that we close the reference point acquisition earlier this month. As a reminder, reference point is a management consulting firm focused on helping financial services organizations transform and optimize technology infrastructure manage risk and comply with regulations. The financial services industry, which has the largest consulting services spend, was one of the first sectors we invested in and it's been a top three industry vertical for RGP since inception. This highly strategic acquisition will expand our portfolio of high value on trend advisory services. It also aligns well with our strategic path forward of building consulting capabilities that can scale rapidly with on-demand talent. Reference Point has built its business with this blended bench and agile approach. As we introduce the business to RGP's existing and expansive financial services client base, we are well positioned to deliver more for this important client set across diversified buying centers. Before turning the call to Badrash, I'd like to highlight findings from our recent marketplace research. As I've shared in the past, we regularly conduct original research around the macroeconomic factors and labor market trends that are impacting workforce decisions. In this survey, we sought to determine where finance decision makers will invest over the next 12 months when interest rates decline and investment confidence improves. We had more than 200 US-based director level or above respondents. The four key takeaways are as follows. First, 81% of organizations plan to increase overall investment in workforce development, specifically investing in reskilling and upskilling and engaging outside talent for skill set gaps. Second, 80% of organizations are currently executing digital transformation initiatives and our experience widening skill set gaps, which will require blending in external talent. Third, 47% of respondents said that the growing urgency to better leverage AI and automation will have the biggest impact on their organization's investment in workforce development over the next 12 months. And fourth, with respect to the finance function, Respondents across the board said that they will be using more consulting and on-demand support because of the ongoing accountant shortage. This research informs our strategic moves to deepen RGP's digital and technology capabilities, to provide value with on-demand experts by building blended talent teams with our clients, and to create a differentiated professional home for expert talent, especially finance and accounting professionals who want to work in a more flexible, transparent, and choice-driven model. In addition, the key findings affirm that we're well-positioned to grow as budgets open and clients push go. I'll now turn the call over to Badresh.

Thank you, Kate, and good afternoon, everyone. I'm excited to be speaking with you in my new role as COO. As Kate outlined in her remarks, we have been evolving our organization over the past several months to simplify our operating model and better align our capabilities to marketplace needs. This work will bring greater clarity to our clients, our people, and the market at large and position us to win as our clients' cautious optimism begins to drive more tangible opportunity. Beginning in fiscal year 2025, we've organized our business into three core categories of engagement models, on-demand talent, consulting, and outsource services. Our on-demand talent engagement model will continue to help enterprises thrive by providing global specialized talent and on-demand skill sets to accelerate their transformation, initiatives, and support operational needs. This area of our business is foundational to our heritage, dating back to our spinoff from Deloitte 20-plus years ago. I am excited to welcome Michael Lane as president of our on-demand talent organization. Michael is a business executive with more than 20 years of diverse industry experience. He brings a wealth of knowledge and a proven track record of success in professional services organizations. He joins us from Eliasson Group, where he served as chief revenue officer and played a key role in transforming the sales and delivery organization. In prior roles, Mike led the efforts to grow sales and delivery muscle for both on-demand talent and consulting business models. We're excited that his expertise, leadership, and commitment to excellence will greatly contribute to our future success and growth. Our newly formed consulting services engagement model merges our project consulting services group and our digital consulting services capabilities into a single service offering under the Veracity brand. This unification will allow us to manage this offering with a focus for a consulting business. A combined consulting services offering will operate with a traditional bench model, bringing in depth in methodology, qualifications, case studies, certifications, and repeatability. Additionally, it leverages our on-demand talent business to rapidly scale delivery teams while mitigating financial risk associated with a full bench consulting model. This consolidation better aligns our consulting services with our go-to-market organizations. It also highlights the unique strengths of RGP's on-demand talent services, offering the capabilities and flexible scalability our clients demand. Our consulting service offerings address modern-day problems with the depth in industry and functional expertise, brand experience, and technical skills. We help our clients enhance their engagement with their customers, create operational efficiency to streamline how they serve their customers, and reduce the cost to serve as they become more competitive in their target markets. Our consulting service offerings are focused in the areas of finance and accounting, risk assurance, digital data and AI, supply chain, as well as implementation expertise in SaaS platforms such as ServiceNow, Acumina, Uniform, SAP, Oracle, and Workday. I'm happy to share that John Bowman has been appointed to the new role of President of Veracity. John has spent his entire 28-year career in the consulting space and is ideally suited to lead this business forward. John and I worked in close partnership at Ironworks Consulting before co-founding Veracity nine years ago. His extensive background in management and digital consulting, coupled with change management and transformation, will be invaluable as we scale the core service offerings within our consulting business. Our outsourced services engagement model builds upon the foundation established by our county brand. County is the preferred outsource partner for finance, accounting, and HR solutions for startups, scale-ups, and spin-outs. It is currently experiencing the strongest demand since the pandemic, and we're eager to see County become a more significant contributor to RGP's growth. County will continue to be led by Marcini Nicolau, who was the original founder of the business. Venkat Ramaswamy will continue to lead our international business, including Europe and the Asia-Pacific region, partnering closely with North America teams in selling and delivering our core service offerings, Venkat has been a critical member for the RGP family for nearly 10 years and has served in its leadership role since 2022. I look forward to collaborating with Mike, John, Marcini, and Venkat to develop and implement tailored strategies to grow each business unit. We believe this internal structural enhancement will help drive focus on our core offerings, foster cross-selling, and promote ownership and accountability. The segmentation strategy is also intended to create clarity for both internal and external stakeholders as we execute distinct strategies for each business unit. I'd like to share some recent successful examples of cross-selling that highlight how our organization, with a focus on leveraging our engagement models, is already demonstrating success. For a large-fire pharmaceutical company that has been a client of RTP since the early 2000s, we were able to engage with the new buying center by showcasing our digital and technology capabilities. What began as a request for an on-demand talent resource quickly evolved into an invitation to participate in an RFP for the client's employee internet experience strategy. We were awarded the project, competing successfully against the Big Four and similar-sized firms. Based on our deep functional expertise in HR, user experience capabilities for designing employee experiences, and a strong proficiency in ServiceNow, this win has now positioned us for a significant multi-year implementation to support the client's strategic goals. Another example builds upon a 20-year relationship with a current controller of a $8 billion leading food service provider. RGP was brought on to offer trusted insights into the roadmap for the transformation of a large merger. We provided an integrated solution for the CSO who needed to stand up a finance transformation office with a strong team of experienced consultants to lead the program and its multiple work streams across internal audit, supply chain, and finance and accounting consolidation. The hybrid team of on-demand and consulting services experts we put together allowed us to provide a blended solution with both compelling expertise and the flexibility the client was seeking. As yet another example, leveraging our outsource services engagement model by County, we're actively engaged in discussions with the portfolio company of a private equity firm to support a significant carve-out project. We aim to provide comprehensive outsourcing services for their accounting organization and technology functions. This multi-million dollar deal is a result of our increasing efforts to cross-sell our capabilities to our clients. These three client examples showcase successful cross-selling in action. we recognize that our clients have diverse buying preferences. Our organizational enhancements aim to clarify our capabilities and accommodate our clients' preferred ways of purchasing, while allowing us to better connect the dots internally to ensure we're bringing forth the many capabilities we can offer to our clients. Alongside our work to effectuate these organizational changes, we have continued to invest in technology and digital transformation to create greater efficiency in our processes and provide best-in-class digital experience for our employees. We have completed wave one of our implementation, which included new talent acquisition software, contract management software, and optimization of Salesforce for our go-to-market team. We're on track to deliver a new financial system later this calendar year. Following that, we will migrate our international and other business units onto our new platform. Last, I've spent time getting to know our operational structure and have met many incredible people. I am confident the core foundation of our business is strong. We have talented, highly capable, and committed individuals who share a growth mindset aligned to RTP's culture and values. Our future is bright given our growth strategy, organic and inorganic, the evolution of our operating structure, and an enhanced focus on execution to capitalize on the secular tailwind supporting our business model. I will now turn the call over to Jen.

Thank you, Bidresh, and good afternoon, everyone. During the fourth quarter, we achieved $148.2 million of revenue and a 40.2% growth margin, both considerably above the high end of the outlook ranges provided in April. Our run rate SG&A of $46.5 million was also significantly better than the favorable end of the outlook range provided. As a result, we generated sequentially improved adjusted EBITDA of $13.1 million, or an 8.8% adjusted EBITDA margin during the quarter and delivered $21 million of free cash flow in fiscal 24. Compared to the fourth quarter of the prior fiscal year, revenue declined by 20% on a same-day constant currency basis. Demand in North America and Europe continue to be in a holding pattern as clients await more macroeconomic confidence before re-accelerating staffing and project spending. However, we did see a few bright spots, such as county and veracity. County grew revenue year-over-year, and veracity had the best top-line performance in Q4 since joining RGP in 2019. Similarly, we are pleased to see a steady rebound in our Asia-Pacific region, with 9% growth in revenue year-over-year and 4% growth sequentially from the third quarter 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 multinational clients as they establish global centers of excellence in these regions. Operationally, the growth pipeline as of the fourth quarter softened a bit from earlier in the fiscal year, although we are seeing a rebound in recent weeks. The velocity of converting new opportunities to actual engagements has not changed notably from previous quarters. We continue to drive sales productivity to build our growth pipeline and target solution areas where clients are focusing their spend, including ERP and digital transformation projects, project management, and risk and compliance. In addition, we also remain keenly focused on extensions of existing engagements. Growth margin in the fourth quarter was 40.2%, easily exceeding our 37.5% to 38% outlook range. reflecting a more favorable pay bill ratio and better leverage of our indirect cost of service. Nonetheless, growth margins in the quarter continue to reflect a heavier mix of business in Europe and Asia Pacific compared to a year ago, where we tend to see lower growth margins. The pricing environment across the globe remained competitive in the fourth quarter. Enterprise average bill rate was $120 constant currency, down from $129 a year ago. However, our U.S. standalone average bill rate was up 1% compared to the fourth quarter of fiscal 23. We will continue to optimize our overall operating results by effectively balancing pricing and volume growth. Now onto SG&A. Our run rate SG&A expense for the quarter was $46.5 million, an 11% improvement from Q4 of the prior fiscal year. primarily driven by lower fixed and variable management compensation costs. We have actively managed our costs throughout the fiscal year and will continue to align our cost structure with the demand environment to maximize our financial performance. Turning to liquidity, we continue to generate healthy, free cash flow despite the macro environment. Our balance sheet remains pristine with $109 million of cash and cash equivalents and zero outstanding debt. we distributed $4.7 million worth of dividends in the quarter and repurchased $3 million worth of shares at an average price of $12 per share. With total available financial liquidity of $283 million, 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 $42 million remaining at the end of the fourth quarter. As Bidresh stated earlier, we're in the final stretch of our technology implementation project in North America, currently on track to deliver the new financial systems around the end of the calendar year. At the end of Q4, $16 million related to this project has been capitalized on the balance sheet. On the M&A front, as Kate mentioned, we closed the acquisition of ReferencePoint, a strategic advisory firm serving the financial services industry. The deal was structured with an upfront cash payment and a deferred retention pool expected to be paid in a combination of cash and restricted stock over a period of four years. Total cash purchase price paid upon close was $23.8 million. We're very excited about the opportunities ahead as we join forces with reference points to accelerate growth and better serve our financial services clients. I'll now close with our first quarter outlook. So far in the first quarter, we are seeing the typical summer seasonality as both clients' workforces and our own consultants take holidays. In addition, the operating environment continues to be choppy, impacting project starts on a number of large engagements. As a result, early first quarter weekly revenue run rate has been softer than the end of the fourth quarter. We project full quarter revenue to be in the range of $135 million to $140 million. including around $2.5 million of revenue from reference points since the close of the acquisition on July 1st. Growth margin in Q1 will reflect the expected summer seasonality and similar global revenue mix with a higher proportion of revenue coming from Europe and Asia Pacific. We estimate growth margin in Q1 to be in the range of 37.5% to 38.5%. We expect our first quarter run rate SG&A expense to be in the range of $49 to $51 million, again, including operating expenses from reference point post-close. Non-run rate and non-cash expenses for the first quarter will consist of technology transformation costs and stock compensation expense, totaling approximately $5 million. In closing, fiscal 2024 has undoubtedly been a challenging year given the sluggish macro environment. However, we were able to control the controllables, streamlining our cost structure, maintaining healthy liquidity, investing in technology, pursuing highly strategic acquisitions, and evolving our operating model, all of which has strengthened our readiness for recovery and growth as macro conditions begin to stabilize. As we begin to operate under the new brand and business unit structure in fiscal 25, We are excited about bringing improved clarity around the strength of our business to our clients and shareholders. This concludes our prepared remarks, and we will now open the call for Q&A.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again.

One moment for questions. Our first question comes from Joe Gomes with Noble Capital.

You may proceed.

Good afternoon, and thanks for taking the questions.

Sure. Hi, Joe.

So, one thing I wanted to touch on, you know, last call you mentioned you had launched the talent management and the contract management systems in North America. I'm just wondering how that rollout has gone and do you see it being launched in other geographical areas anytime soon?

Yes, so I'll start and then I'm going to hand it to Badrash who's been co-leading Project Phoenix along with Jen. I would say our launch was outstanding and we've seen a lot of efficiency and I think in our talent acquisition and management function. The team did a great job around change management as well. and the strong utilization of our own consultants to play a role in both the implementation and the rollout. I'll let Bidresh respond to what's our roadmap.

From a roadmap perspective, we are planning to roll it out to international as well as our additional business units as per our Wave 2 plan. We're focused currently on rolling out our financial management system later this year. And in parallel, we're starting to plan the rollout of bringing the other entities onto the amateur platform as well as our CTI platform.

Okay, great. Thanks for that. And I know the summer obviously is historically a little seasonal there. You ended the year with just under 2,600 consultants down you know kind of almost 600 from the end of last year just wanted to kind of get your view or you know how well positioned are you in if we see this upturn sooner than we're expecting?

Yeah, so I think, Joe, there are really two main engines, well, now three main engines in our business. We have revenue as an engine, and that means account development and account pursuit. We have talent, acquisition, and management as an engine. And now as we're really building consulting in the right way, we have delivery as an engine. And all three of those I think are primed to respond as quickly as we need them to. Our talent organization has always been exceptional at both pipelining talent for needs, and we're starting to do a much better job of that with some of our new technology, but also hitting just-in-time recruiting. And remember that a large contingent of our talent gets referred by existing employees. So we're always mining those relationships and our alumni channels to be ready when the faucet turns.

Okay. And one more for me, if I may buy back, you know, 3 million, I think you said you spent on the buyback in the quarter still significant amount available. You've got the cash kind of maybe give us a, what your feelings are about possibly being a little more aggressive on the buybacks.

Yeah. Hi, Joe. This is Jen. Look, we feel that our stock price is very attractive at the current level for buybacks and obviously have ample liquidity to be able to do so. We'll continue to approach buybacks opportunistically, but at the current price, as I said, it's very attractive and we could very well kick up the buyback pace.

Great. Thanks for taking the questions. I'll get back in queue. Thank you.

Thank you, Joe. Thank you, Joe.

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

Two questions. First one's for Jen. My question is a midpoint to the guide. On revenue for first quarter, what's the organic constant currency same day revenue year over year? And my second question is, it seems like the company's waiting for a stronger macro, but really over the last two years, 23 and 24, real GDP in the U.S. has actually been pretty good, you know, in excess of 2%. And it's really the second half of this calendar year that should slow down. From a real GDP standpoint, do you feel like your business is on a different trajectory than U.S. real GDP?

Hi, Andrew. This is Jen. Yeah. I'll address your first question, which is our full quarter guide. At the midpoint of the guide, on a constant currency basis, we're down roughly around 20%. At the high end, at 140, at the high end of the range, we're down about 18% year-over-year on a same-day basis. Got it.

Yeah, and Andrew, I'll take this second question. It's Kate. Thank you for your questions. I don't think. I mean, this has been a very unusual, I think, macro environment with the GDP going one way and the labor market going a different way. And so I think we have really mixed signals out there, and I think clients are experiencing that. In recent discussions with our clients – and remember, we're serving the Fortune 500 and beyond – They're waiting for interest rate decline. That's going to give them more confidence in capital spend. And we've also seen in our client base, because of the uncertainty, and it seems like GDP keeps getting revised upward, but after the fact. So you have to marry what's happening in real time with decision making with then what gets revised afterwards. And those lenses can be very different. I can tell you we're doing everything we can to build pipe right now. We are very focused on execution, getting in front of clients, getting those in-person meetings in order to drive opportunity for the future. I do feel like activity is important. increasing. And I do feel after we get through, you know, we've just gotten through the European elections. We still, there are still clients saying, you know, we want to get through this election cycle. I think if the Fed starts reducing interest rates in the fall, we're going to see a little more confidence and that will serve us well in all parts of our business on demand and consulting.

Sounds good, Kate. Thank you.

You're welcome.

Thank you. And as a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. Our next question comes from Mark Marcon with Baird. You may proceed.

Hey, good afternoon, and thanks for taking my questions. With regards to the outperformance that you had, were there any specific sectors that were that drove the outperformance relative to your guide? And I'm talking about from two components. One would be the revenue side. And then secondly, you know, SG&A was materially better than expected. So wondering, you know, what drove that? Thank you.

Hey, Mark. From a Q4 performance standpoint, North America in Q4 reached a level of stabilization in the second half of the quarter. So it performed better than we had forecasted, particularly in healthcare and financial services sectors. And outside of North America, Asia-Pac also performed a bit better than we expected. And, you know, overall, you know, as I said, I mean, India, Philippines, business is pretty strong there. We're also seeing a little bit of a more stabilization in China as well. And China has, you know, experienced some challenges Since COVID, and we're really starting to see that overall region stabilize because we are tapping into, you know, local businesses to expanding our target client base outside of just, you know, U.S. or multinational clients. So that's really starting to pay dividends. So that's the revenue side, overall performance Q4 compared to what we forecasted. And on the SG&A side, we had, as you know, we're a self-insured medical provider to our employees. And Q4, our experience was more favorable than we had expected. And also, we had some attrition in the business that we are very carefully controlling our costs from a fixed cost standpoint. So that's what's driving the favorability from an SG&A standpoint.

Can you quantify the attrition, Jen?

I mean, I would say we always have natural attrition in the business. And as attrition, you know, happens in Q4, we just didn't. I mean, I probably place it up in a given quarter, probably not with elite material. But that's one of the factors. why we came in more favorable.

Yeah. And Mark, the one thing I'd add, Kate, is that we're looking very carefully at leverage in all of our functions in order to drive the return that we want to deliver for shareholders. So, you know, as Jen talks about attrition, then we're not green lighting the replacement, but really carefully evaluating what capacity we currently have.

And, you know, Mark, also across the board, we're just being very disciplined with our costs and with our spend.

And then just – but it does sound like for the first fiscal quarter, the expectation is $49 to $50 million in SG&A. So what would be the areas where you would increase the spending?

Yeah.

Okay.

Sure, I understand your question. So in Q1's SG&A guide, remember in fiscal 24, because of our lower performance compared to some of our variable compensation targets, we are paying out much less variable compensation as a company. So starting in Q1, there's a reset of that bonus accrual. That's what's really driving the increase in terms of run rate from Q1 if you compare that to Q4. Got it.

Great. And then with regards to, you did make some comments with regards to in recent weeks, there was a little bit of a drop off. And certainly there are all sorts of things that are occurring from a geopolitical perspective that would drive some uncertainty. But were there specific areas or specific sectors that were more impacted than others? And can you talk a little bit more about the pipeline and the realization cadence that you would expect?

Sure. Closed pipe is a bit softer, as I said, at the end of Q3. I mean, I'm sorry, at the end of Q4 compared to you know, last quarter. But, you know, we still feel like pipeline is relatively stable compared to our revenue trend. Top of the funnel activities are still intact. As Kate said, we're trying to, you know, we're driving productivity as much as we can to maintain, if not build, and build our growth pipeline. But the deals, you know, tend to stay in each stage of the pipeline longer until we get to a close. And that trend hasn't really changed notably over the last year, I would say.

I would say something that we've just analyzed, though, Mark, is what leakage have we seen from closed one that is moving from Q1 for us into Q2. And we are seeing that leakage as clients push to start projects in September. You know, our consultants, some of them are on holiday. Clients are on holiday. And I think to get optimum productivity, they're saying, let's just launch in September.

Great. Thank you very much.

You're welcome. Thank you, Mark.

Thank you. I would now like to turn the call back over to Kate Duchesne for any closing remarks.

Well, I'd just like to thank everyone for your attention and covering our company. I can tell you we're working very hard and we look forward to talking to you again after we close Q1 of fiscal 25. Thanks very much and enjoy the summer.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.