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 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 31, 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 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 and the anticipated financial performance of the company. Such statements or predictions and actual results or events may differ materially. Please see the risk factors section in RGP's report on Form 10-K for the year ended May 31st, 2025 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 CEO, Kate Duchesne.

Thank you, Operator, and welcome everyone to RGP's Q4 Earnings Call. Thank you for joining us. We are pleased with our Q4 results and continued momentum in the firm's evolution. At RGP, we dare to work differently, leveraging a unique model that combines on-demand talent with expert consulting and advisory services to drive transformation from strategy through execution. I'll open today's call by sharing some insights from our recent research on CFO perspectives, risk, growth, and the future of finance. This work is important as it demonstrates how RGP services and solutions are aligned to the key priorities of our primary buyers, CFOs, and provides context around what we are doing to capture more of this expanding opportunity. Our research included insights from approximately 200 CFOs and senior financial decision makers at businesses with over $500 million in annual revenue to help us better understand the top priorities in the finance function. These priorities include strategic growth and resilience, operational efficiency and cost discipline, technology and AI adoption, evolving the CFO leadership role, data governance and analytics, and finally, capital allocation and investment strategy. Across companies and industries, CFOs we surveyed show cautious optimism, anticipating positive performance in their businesses despite ongoing macroeconomic uncertainty. They report that with improving trends, strategic investments will accelerate as increasing competitive pressures drive digital transformation and automation. In the short term, to mitigate risks from tariffs, geopolitical tensions, and trade disruptions, CFOs are actively reshaping supply chains and revisiting vendor relationships. They also remain focused on reducing costs without jeopardizing growth by cutting discretionary spending versus investment in strategic priorities. While there's a clear and growing enthusiasm for AI, execution barriers remain. particularly in data readiness and workforce capabilities. As a result, CFOs are prioritizing technology modernization, automating workflows, and embedding AI and digital tools into financial operations. The role of the CFO is expanded beyond financial stewardship to enterprise leadership, with 70% saying they have increased influence on strategic and technology decisions. CFOs now work more collaboratively with CIOs and CHROs on people strategy, digital initiatives, and transformation. Beyond just the numbers, they are focusing on data quality, analytics, and oversight, requiring investment in integrated data systems and governance frameworks to support responsible decision-making and AI deployment. In summary, our research, which can be found on our website, illustrates a rapidly evolving landscape for CFOs. characterized by a shift from back office efficiency to enterprise-level strategic influence, a delicate balance between growth initiatives and operational rigor, and a growing role as technology champions driving company-wide uptake of data, AI, and broader digital transformation. What we're seeing in the market and what we're hearing in our CFO research dovetails precisely with our GP strategy. As we continue to transform building a flexible and high impact diversified delivery model, we are focused on further refining and growing the core capabilities of CFO advisory and digital transformation. We bring a rich heritage of serving the office of the CFO with a deep bench of experts. We deeply understand the function and how it needs to transform for today and tomorrow. We are evolving our talent across on-demand and consulting to provide the skills needed around finance optimization, process redesign, technology migration, data modernization, and AI readiness. And we embed human-centered design in our CFO consulting work so that employee engagement improves and it's easier for organizations to adapt to new ways of working. Whether it's ERP migration or strategic sourcing, We are known for speed of service, functional depth and expertise, and lean project teams that drive impact. Looking ahead, we're also cautiously optimistic on the professional services marketplace in North America, currently our largest source of revenue. The U.S. consulting services market is rebounding, bolstered by rising demand for digital transformation. Impact-driven engagements, which are RGP specialty, are becoming mainstream with clients focused on agile teams that can collaborate together with their own people. We expect accelerating growth in the professional staffing landscape in the second half of the fiscal year as potentially inflation stabilizes and we see lower interest rates. Professional staffing will benefit when greater confidence returns to the labor market and talent begins to move. We are optimistic in improving operating leverage by integrating AI technologies to source, screen, and engage candidates, boosting efficiency and enabling human recruiters to focus on higher value tasks. We also see strong interest from our clients in skills-first hiring. A recent blog post from Staffing Industry Trends noted that 76% of companies are embracing contingent labor and flexible pay models to remain competitive, and to access skill sets that they could not afford to hire full-time. In sum, despite near-term uncertainty, strong interest remains in corporate transformation and modernization initiatives, which we expect will drive growth for RGP in the next 12 months and beyond. We remain confident that agile firms like ours, which can deliver with fast, efficient, and innovative ways of working, will benefit the most. Against this backdrop, we continue to make progress on our own transformation in Q4. We achieved revenue and gross margin above the high end of our outlook and have improved pricing in our key markets, even in this disruptive macro environment. We achieved the same strong gross margin above 40% as the prior year quarter and improved enterprise run rate SG&A despite the extra week of cost in the fiscal quarter. Our average bill rate improves by 4% year over year. Our diversified services model is allowing us to win work in the most relevant categories for the CFO in the ways the CFO wants to engage. From a solutions perspective in the on-demand segment, digital and technology and supply chain grew nicely in the quarter. Within consulting, digital transformation work grew both sequentially and year-over-year, again aligned directly with the CFO agenda we are focused on serving. Europe and Asia grew in Q4 to the highest revenue level of the now-completed fiscal year. Bill rates improved quarter-over-quarter in the Europe and Asia PAC segment by 7%. Europe was a bright spot in Q4, with quarter-over-quarter constant currency growth of 8%. Most of the momentum in Europe came from the UK, our largest market in the region. We also improved revenue stability in Europe, driven by stickiness in project extensions, which grew to 40% of revenue. Our client retention in Europe remains high at 90% year over year. Asia-Pac improved results as well, despite significant disruption in China related to tariffs and supply chain migration. Asia-Pac revenue growth was 3% sequentially, driven primarily by Japan. In our outsource services segment, County continued to grow sequentially in Q4 and year-over-year through client wins in the startup, scale-up, and divestiture space. Beyond venture capital, County is actively working to build channels and traditional middle market private equity as a solution for divested assets needing stand-up finance and accounting functions quickly and efficiently. Kelsey is also introducing more AI tools on the platform to accelerate client acquisition and service capacity with better cost leverage. As you'll hear from Bidresh, pipeline creation has grown in all regions with a higher volume of larger value deals. While these deals have a longer sales cycle, we believe the trade-off is worth it, as they will position us well over the longer term, providing greater certainty around future revenues and growth. We're evolving to do more for our clients across on-demand consulting and outsource services, and we're getting deeper in our client base. We're pleased by our progress and opportunity pursuits, especially given the current macro environment is still difficult as it relates to the timing of project starts. In closing, I'm also very pleased to welcome two new board members to RGP. Jeff Fox is the CEO and founding partner of Circumference Group, a strategic investment firm and long-term RGP shareholder. He is a former board member of Avis Budget Group and Convergys. Jeff brings critical investor insight and a shareholder-focused lens to the board. His expertise in improving profitability and unlocking shareholder values supports RGP's focus on disciplined capital deployment, sustainable growth, and enhancing ROIC. His appointment strengthens alignment between the board and long-term investors. Philippe today is the former president and CEO of Computer Task Group, where he led a strategic shift from staffing to digital consulting. He brings 30 plus years in global IT services with extensive European leadership. Belief's track record in transforming a traditional staffing firm into a modern digital solutions provider directly supports RGP's strategic evolution. His deep understanding of IT and digital services will help guide the firm's ongoing pivot toward high value consulting and technology enabled offerings that are increasingly relevant to the CFO's agenda. His global leadership experience also reinforces RGP's growth ambitions in international markets and cross-border delivery models. The appointments of Jeff and Philippe are well aligned with RGP's strategic priorities, which include evolving from a staffing-centric model to becoming a value-added consulting and digital solutions firm, enhancing shareholder value through disciplined operations and capital allocation strategies, scaling technology, transformation, and digital capabilities, and expanding our global presence while enhancing international client delivery. I'll now turn the call over to Padresh for an update on operations.

Thank you, Kate, and good afternoon, everyone. As we close out the fiscal year, I want to recognize the leadership and commitment of our RGB team. Their efforts have been instrumental in navigating a dynamic and rapidly evolving market. enabling us to sharpen our value proposition and enhance our relevance in today's changing professional services landscape. As a reminder, RGP operates at the intersection of professional staffing, consulting, and outsource services. Our integrated model breaks away from the rigid structures of traditional firms, offering a more flexible, client-centric experience across both transformation and operational needs. In Q4, we delivered results ahead of expectations on both revenue and gross margin, Driven by disciplined pricing, together with our continued focus on cost efficiency, we delivered improved bottom line performance. Following a holiday impact at Q3, pipeline creation rebounded in Q4 across several core offerings. However, total pipeline contracted during fourth quarter as we sharpened our focus on funnel discipline and enhanced efforts around opportunity qualification and conversion. Encouragingly, Europe also closed more net new business balanced with higher extension rates than previous quarter. reflecting continued strength in attracting new clients and retaining existing business. Now I'll provide an update on our quarterly performance by segment. Our consulting segment revenue was overall down compared to the same quarter last year. However, we're encouraged by several leading indicators that validate our strategy and execution. Bill rates rose meaningfully year over year, reflecting sustained demand for specialized solutions and our continued focus in value-based pricing. offerings in digital transformation, supply chain, project management, and change management all grew in fiscal 25 compared to prior year signaling increased client prioritization of modernization initiatives. It's worth noting that recent changes in federal policy landscape had only a modest impact on our results as federal government work represents just 1.6% of total revenue. Most importantly, we secured multiple new opportunities exceeding $1 million and expanded the number of $1 million-plus projects in our pipeline relative to the same quarter last year. We're also seeing growing momentum and larger opportunities, each exceeding $5 million, driven by the strength of our integrated transformation capabilities, which naturally take longer to close. Notable wins this quarter include finance and tax acquisition integration PMO work streams for a large integrated health system, technology migration for a regional healthcare insurance provider, supply chain category management initiative for a Fortune 500 financial technology company. In addition, we expanded our footprint with new and enhanced preferred supplier relationships with several Fortune 100 clients. These achievements underscore our increasing relevance in complex, high-impact transformation initiatives across industries. Our pipeline is showing steady progress across both public and private sectors, including U.S. and international government agencies. In addition, we're actively pursuing a global digital modernization initiative with a Fortune 100 financial services firm, AI-driven R&D modeling for a Fortune 150 biopharmaceutical company, and an ARP implementation for a leading education technology provider. Many of these new wins and pipeline additions are with existing clients who have historically supported through our on-demand talent solutions, highlighting our ability to now engage in deeper, more strategic transformational initiatives. This marks a clear step change from a year ago, made possible by the deep relationships we've built with clients leveraging on-demand talent, enabling a more strategic and engaged level of partnership than we've had previously. Today, our strategy is successfully elevating RGP's role within our clients' value chain. Increasingly, clients are turning to us for end-to-end support across domain, functional, and technology transformation, tapping into our global delivery centers in India and Philippines to scale efficiently. One last note on consulting. As we continue to deepen our focus on CFO advisory and digital transformation, I'd like to welcome Brett Wells, our new ERP practice leader. He brings deep experience from companies such as Accenture, Infosys, and IBM with a strong track record of building and scaling global ERP practices and driving multimillion-dollar growth through strategic innovation and outcome-focused transformation. Turning to on-demand, while fourth-quarter revenue declined year-over-year, we're seeing signs of stabilization and early momentum driven by improved sale motion. Alongside stabilized volume, average bill rates also improved compared to the same quarter last year. Clients are increasingly valuing the flexibility and specialized expertise of our on-demand talent model, particularly in areas like accounting and financial reporting, as they continue to manage leaner teams and tighter budgets. Pipeline creation in Q4 returned to first half level, signaling renewed client engagement. At the same time, increased funnel movement, both wins and losses, and heightened client caution contributed to a modest sequential decline in total pipelines compared to previous quarter. Building on this momentum, we've increased engagements across our go-to-market teams with a focused effort on pipeline generation and early-stage opportunity development. Extension management remains a top priority across our revenue and talent team, with a focus on maximizing billable utilization and deepening client continuity. Moving on to international, our Europe and APAC segments deliver top-line revenue growth both year-over-year and sequentially, driven by strong performance in UK, Netherlands, and Japan, along with increases in average bill rates across most markets in Europe and APAC. While our China business continues to face macroeconomic headwinds, the broader region's overall performance reflects the strength of our focused execution. We're expanding cross-sell opportunities by focusing on large global clients, particularly in ERP and data, and reinforcing disciplined extension management. Our ability to deliver local talent while scaling teams for our global delivery centers remains a powerful differentiator. Turning to our outdoor services segment, we delivered revenue growth both year-over-year and sequentially, supported by new engagements with AI startup spin-outs and scale-ups. This reflects our ability to meet the needs of fast-growing clients seeking flexible, scalable solutions. In summary, while macroeconomic uncertainty and regional challenges persist, we remain focused on executing our strategy and delivering meaningful value to our clients. Our diversified portfolio, strong client relationships, and consistent execution position us well for continued recovery and growth. Heading into fiscal year 2026, we're operationally prioritizing pipeline generation and conversion, expanding strategic accounts, and optimizing delivery to sustain our momentum. With that, I'll now turn the call over to Jen.