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 third quarter, ended February 22, 2025. 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 Investors 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 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 section in RGP's report on Form 10-K for the year ended May 25, 2024. For a discussion of risk, uncertainties, and other factors that may cause the company's business, results of operation, and financial condition to differ materially from what is expressed or implied by forward-looking statements made during this call. I'll now turn the call over to RGP CEO, Kate Duchesne.

Thank you, operator. Thank you all for joining us today. In Q3, our results were in line or better than expected. Our total revenue was $129.4 million, consistent with expectations and reflecting macroeconomic uncertainty, client budget constraints, and slower project ramp-ups. Our gross margin and SG&A both beat the favorable end of our outlook ranges. Post-election, the operating environment has remained sluggish this calendar year, given increased uncertainty and decreased consumer confidence in the United States. The news is not all about uncertainty, however. We saw strengthening across our practices in Europe, Japan, and the Philippines in Q3. Europe improved with several key performance indicators, including bill rate increases, sizable pipeline expansion, and the return of $1 million plus project pursuits. Our consulting segment also achieved material double digit bill rate improvement in Q3. The size of enterprise wide engagements increased on average by more than 20% and we improved our win ratio. We doubled the number of 1 million plus engagements we won this quarter over a year ago And our pipeline of opportunities at the $5 million plus level has grown significantly, reflecting a quality improvement in pipeline over last year. We did not see this size and scope of opportunity a year ago. These indicators show we're moving in the right direction, but we need to increase volume as we execute our diversified services strategy. In this environment, many clients are moving work to the international stage, and we are strategically located to support them. Here, too, we're focused on increasing scale in our key markets in Southeast Asia and India. Our Outsource Services Business County delivered solid results in the third quarter, and our overall client retention in our top 100 accounts remained solid. During this relatively slower stretch for our industry, we've accelerated RGT's evolution by focusing on three key initiatives that position us for market share expansion. First, we have enhanced client offerings. We've built a diversified services platform to meet clients where they need us. Whether they require both strategy and execution support or they need our execution specialists working with in-house teams, we deliver both with excellence. Our flexible engagement models are proving an important competitive differentiator as clients seek agility, price to value, and blended delivery teams. It used to be that the traditional consulting firm owned domain expertise and would deploy an army of consultants using their leveraged model. Times have changed, and we believe in RGC's favor. Clients now know and own their strategy and need high-quality, flexible, value-based execution support, a niche that RGP created and which we uniquely provide. We've also focused our services catalog across our diversified offerings in areas where the market has the highest demand, utilizing our core CFO relationships to expand into new buying centers like the Chief Technology Officer, chief HR officer, chief procurement officer, and senior supply chain leaders. Our core pillars of service capability are CFO services, digital technology and data, and strategy and operational performance. Most of the services are currently delivered to the office of the CFO across these pillars, but the natural extensions are in risk and compliance, technology modernization, supply chain optimization, and employee experience. We are leveraging this strategy of CFO plus one to enhance growth and client value creation. As Bidresh will share, we've experienced positive momentum with cloud migration support for SAP and Oracle finance transformations, as well as ServiceNow optimization to improve user experience around automation of process workflows in IT, HR, and risk and compliance. While industry-wide M&A and IPO readiness initiatives have been slow to pick up this calendar year, we have the right capability to jump in and respond quickly when this event cycle turns. For example, the reference point acquisition allows us to accelerate and broaden what we can do for clients around M&A integration, operating model assessments and design, data architecture and governance, and application modernization to help clients optimize enterprise performance and enable the adoption of AI. We have worked diligently to ensure we have the sales readiness and delivery skills to capitalize as the business environment improves, client budgets strengthen, and decision-making accelerates. Last week we closed a significant project in finance optimization by combining skills and building a delivery team of management consulting and agile execution specialists who know the client's industry. Second, we have improved operational efficiency. We've lowered our cost structure and you can see the progress we've made. We're driving cost savings with optimized headcount, reduced real estate spend, and lower discretionary spending. We've lowered our run rate SG&A by 8% since the first fiscal quarter and will continue to drive efficiencies across the enterprise through technology, AI, and automation. Jen will offer additional commentary on our successful efforts around operating efficiency. Third, we made targeted investments to enhance value creation over the long term. We've made most of the investment needed to replace our technology infrastructure for the North America business. These enhancements allow us to implement AI and automation to our advantage in both client service and talent recruitment and management. This modern technology will allow us to streamline process and accelerate opportunity through our pipeline. We have also enhanced our sales and delivery teams to ensure we have the right approach for both consulting and on-demand solutioning when the buying environment improves. We're proud of the sales team we have and the relationships they nurture in our exceptional client base. And we're adding a new archetype to the team to drive growth. We had some go-to-market team attrition in Q3, much of it planned, which allows us to accelerate certain enhancements. Specifically, we've added consultative sales expertise. especially in the digital and technology areas, and strategy and operations to support growth. For example, a new joiner in our New York practice was a senior finance executive at a top 10 financial services firm who was a key buyer of CFO services across the professional services continuum. Another recent senior hire in our New York office brings solution sales experience from a top tier digital consultancy. According to Kennedy Research, the two highest growth opportunities for consulting in the next three years will be strategy and operations and digital transformation. Benefiting from our inherent competitive advantages, including strength of CFO relationships, diversified engagement models, agility, price to value, and cross-border collaboration, We are improving our positioning to earn this work as clients increasingly seek value in seamless global delivery, areas in which we excel. Finally, I want to highlight the progress we've made this fiscal year in building more delivery capability in India. Our global delivery centers there are supporting work for the CFO's office across risk and compliance, finance and accounting, and digital development services. This work creates greater stickiness as evidenced by our solid client retention rates, and we're focused on building volume across our Fortune 500 clients. We just closed work in India for a longtime New York-based financial services firm who had previously only engaged with our GP in the U.S. This close also enabled us to expand our buying centers in this client. We now have strong delivery capability in Mumbai, Bangalore, Pune, and Hyderabad. I'll close with this reminder. While we always act with urgency, our pristine balance sheet allows us to take a long-term view of value creation. We're busy laying groundwork for growth and improving profitability when the client buying environment improves. We understand that the near-term outlook across professional services in the U.S. is uncertain and disrupted. but we're resolute in nurturing our key relationships, standing at the ready, and focusing our services so clients know to call us with utmost confidence. Most importantly, we are committed to delivering long-term value for our shareholders, driven by our team's unwavering strategic focus. I'll now turn the call over to Padresh for detail on operational trends and key performance indicators.

Thank you, Kate, and good afternoon, everyone. I'm excited to share our quarterly update and highlight the progress we continue to make in executing our strategy. As Kate mentioned, our industry is evolving and recent geopolitical events and actions have only served to create greater uncertainty in the marketplace. As a result, our position as a challenger brand is becoming increasingly relevant in reshaping professional services, breaking away from traditional engagement and operating models, and offering clients a differentiated experience. Our strategy is designed to empower clients by offering flexibility in how they engage with us throughout their transformation and operational journey. Removing the rigid structures traditional firms impose, we offer our clients the ability to access expert solution teams and core finance and HR outsourcing services in a way that best meets their needs. A more client-centric, flexible approach our competitors struggle to provide. Our revised approach of offering on-demand consulting and outsource services under a single umbrella is setting the stage for our business to be more resilient and less cyclical. Our Q3 results show our top line revenue performance tracking in line with expectations while delivering better than expected gross margin and bottom line results. While overall pipeline softened, we're seeing a positive shift in our win ratio and pipeline of new opportunities moving us up the value chain with our clients. And we know these opportunities take longer to move through the sales cycle especially given the current instability of the U.S. market. We are gaining traction with solutions that remain central to our clients' transformation agendas. These areas of high client priority, both within the CFO's office and CFO Plus One, align closely with our core capabilities, cross-sell strategy, and market demand. At the same time, we remain focused on maximizing our on-demand professional staffing services in the U.S., where we benefit from long-term, solid client relationships, particularly in the office of the CFO. Once the market dynamics improve, we are well positioned as we continue refining our operating model and optimizing our sales infrastructure to drive efficiency, break down silos, and better align our solutions with revenue generation. This is leading to larger contract sizes with a stronger economic profile driven by our strategic shift in the business. Now I'll provide an update on our quarterly performance by segment. Our consulting segment performance was slightly down from prior year quarter, but continues to validate our strategy as we're seeing steady bill rate improvements, 13 percent higher than the same quarter last year, and a 4 percent improvement sequentially. It is worth noting that given recent shifts in the policy landscape, our federal government work represents only 1.5 percent of our overall revenue. Most importantly, we have nearly doubled the number of $1 million plus opportunities won and doubled the number of opportunities greater than $1 million in our pipeline compared to the same quarter last year. We are actively pursuing multiple opportunities, each exceeding $5 million in value, driven by the expanded capabilities from our acquisition of ReferencePoint and the increased digital scale gained through CloudGo, now fully integrated into our consulting segment. This growth was driven by our expansion into new buying centers within existing clients and higher-level conversations around client transformation initiatives. Some notable wins include the Australian and Singapore governments, a Fortune 250 integrated healthcare delivery system, a Fortune 200 life sciences company, a large medical device company, and a Fortune 500 bank. Notable large pipeline opportunities include a Fortune 50 financial services company, preferred supplier status for a Fortune 50 financial services client, and a large federal agency. I want to emphasize, this time last year, we were not engaged in opportunities of this magnitude in our client base. As our strategy continues to show results, we remain focused on building scale through our transformation, recognizing it will take time to expand to drive growth. As I mentioned earlier, and as is typical with solution selling, these opportunities take time to generate and materialize, especially given our current environment and ongoing uncertainty. Turning to on-demand, while revenue was down from the prior year, we're seeing early traction from our cross-selling initiatives benefiting from our long-term strong client relationships in the office of the CFO, and our CFO plus one strategy. While we continue to add net new logos, we're also intensely focused on keeping our current experts engaged with clients, making extension management a key priority for our revenue and talent teams, which did increase by 5.4% sequentially. RGP is poised as an attractive option for organizations needing on-demand specialized support without the need for long-term commitments or additional hires, especially as companies continue to tighten their belts in the current economic landscape and strive to do more with less. While revenue backlog in our Europe and Asia segment was higher sequentially, we did see a slowdown in growth compared to the previous quarter. Europe was impacted by a larger than usual consultant holiday, while APAC growth was hindered by ongoing macroeconomic challenges in our China business. However, we remain cautiously optimistic about accelerating growth as project extensions improved for the first time in three quarters. This trend should provide greater stability and a foundation for future growth, particularly in the United Kingdom, Philippines, and Japan. where we are seeing stronger momentum compared to other regions. Our outsource services segment continues to achieve top-line revenue growth both prior year quarter and sequential quarter, driven by our efforts to acquire new venture-backed clients and expanding our focus on spin-outs. In summary, since launching our refreshed brand positioning and service segmentation, client feedback has been overwhelmingly positive. They recognize our capabilities and appreciate the flexibility our various engagement models offer, reinforcing their desire to partner with us. While we all understand the uncertainties in our current environment, we remain excited by the progress we're making in executing our strategy and remaining focused on delivering value to our clients. I'll now hand the call over to Jen.