Resources Connection, Inc.

Good afternoon and welcome to RGP's fourth quarter fiscal 2026 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 30th, 2026. 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, our 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 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. Such discussion will also be included in the Risk Factor section in RGP's report on Form 10-K for the year ended May 30, 2026, which is expected to be filed on or around July 23, 2026. I will now turn the call over to RGP's CEO, Roger Carlisle.

Thank you and welcome everyone to the call. This is my third time speaking with you about our quarterly financial results. I continue to learn about our markets, clients, employees, and services as I work with our leaders to execute our strategy. I remain optimistic about the future of our business as market conditions appear to be showing some stability, providing a more consistent backdrop for us to continue activating our strategic priorities and related investments. Consistent with the prior quarter, our fourth quarter results were aligned with the outlook we provided for revenue, gross margin, and run rate SG&A expense. You will hear more about this later in the call from our CFO, Jen Ryu. For now, let me touch on market conditions as we see them. Results from our recently completed voice of the customer survey and our progress against our strategic priorities. From our perspective, global market conditions remain broadly consistent to the third quarter with some regions and industry sectors showing more progress than others. In the fourth quarter, revenue for our North American markets served by our on-demand talent, consulting, and outsource services segments performed as we expected compared to the outlook we provided. Compared with the third quarter, North America's revenue was flat on a gap basis, but did exhibit a modest decline when adjusting for the number of business days and currency fluctuations. Revenue in our Europe and Asia-Pacific markets was softer this quarter, driven entirely by weakness in Europe. Our Asia-Pacific markets performed in line with both our outlook for the quarter and the prior quarter's results. The trends we faced in our European markets appear to be non-systemic situations within our specific clients rather than larger economic or geopolitical issues. In addition to this operational view of our markets, we very recently completed a voice of the customer survey in which we surveyed 500 decision makers and buyers from customers who are either currently working with RGP or who have worked with RGP in the past several years. We undertook this survey to ensure we anchor our strategy and investments in market reality, moving from assumptions to data-driven decisions that support our strategic priorities to drive growth, Client Retention, and Differentiation. This survey allows us to understand how clients truly perceive RGP in terms of delivering differentiated value, being prepared to meet their stated needs in the areas of finance, technology, and operations, and how we compare to the competitive alternatives. While we've only just begun to analyze this data, some important perspectives are already clear, including RGP being rated stronger head to head with other execution and staffing focused competitors, but still having work to do against larger traditional consultancies. The top thing for why clients choose RGP include trusted partnership, speed of execution, flexibility of delivery model, and the quality of our people and services. And while there is a spectrum of data points for us to examine and act upon, we can take pride in having a strong net promoter score with 95% of our customers indicating their intent to increase or maintain their level of engagement with RGP. Given the relative stability in our markets and the early understandings from our customer survey, we continue to focus on our strategic priorities. These priorities are, one, refocusing our on-demand talent segment offerings, two, scaling our consulting segment, three, pursuing AI as both a client service and an internal opportunity, and four, streamlining our operations to align our cost structure with our revenue levels. In the fourth quarter, we made additional focused investments to support these priorities and we continue to expect these and the investments we made in the third quarter to drive revenue growth as they mature through their anticipated ramp-up period. In terms of refocusing our on-demand talent segment and scaling our consulting segment, we made additional investments during the quarter which we expect to drive future revenue growth. These include adding seven new professionals to our sales team as well as adding additional senior professionals to our consulting segment. While we will continue to take advantage of opportunities to invest behind these priorities, we have completed the initially planned level of investment to support our business goals for fiscal year 2027. AI remains an important strategic priority for RGP. We see AI fundamentally changing how work gets done across finance, risk, technology, and transformation, creating new opportunities for both our clients and our business. Our approach is practical and disciplined, helping our own teams use AI to improve productivity and accelerate delivery while building AI-enabled solutions, talent, and partnerships that address our clients' highest value business challenges. We believe the greatest value will come from combining AI with deep functional expertise and strong governance, enabling clients to adopt AI responsibly while delivering measurable business outcomes. Regarding our goals of simplifying how we operate and aligning our cost structure to our current revenue levels, those two activities are becoming increasingly intertwined as the simplifications we are implementing increasingly involve both process and technology modifications which have longer implementation periods. While we have additional cost reduction initiatives planned for the fiscal year 2027, our focus is increasingly shifting towards simplifying how we go to market, how we serve our clients, and how we operate through more streamlined processes and technology. With that, I will now turn the call over to our CFO, Jen Ryu.

Thanks, Roger, and good afternoon, everyone. Our performance in the fourth quarter was largely in line with expectations. Consolidated revenue and run rate SG&A expense were both within our outlook ranges, while growth margins beat the high end of the range. Adjusted EBITDA for the quarter was negative $0.6 million. Starting with revenue, consolidated revenue for the quarter was $106.1 million, representing an 18.3% decline on a same-day constant currency basis compared to the prior year quarter. Revenues in the on-demand talent and consulting segment were largely in line with our expectations, however, down from the third quarter on a same-day basis, reflecting timing of project activity within an otherwise stable demand environment in North America. Our focus remains on accelerating the ramp of recently hired go-to-market professionals and strengthening sales execution under our new sales leadership team to improve pipeline generation and conversion. In the Europe and Asia-Pacific segment, the Asia-Pac region delivered solid revenue performance in the quarter, including year-over-year and sequential growth in China and the Philippines, while Europe continued to experience some choppiness in the timing of projects as several large clients, which weighed on segment revenue for the quarter. Our outsource services segment continued to perform steadily, generating stable year-over-year results and sequential growth. Turning to gross margin, gross margin for the fourth quarter was 37.6% compared to 40.2% in the prior year, primarily reflecting less favorable leverage of indirect cost of services and lower consultant utilization. Enterprise-wide average bill rate was $120 on a constant currency basis compared to $125 a year ago, with results reflecting the geographic mix of revenue during the quarter, including a greater contribution from the Asia-Pacific region. At the segment level, average bill rates in our North America segments remain strong. On-demand talent's average bill rate grew to $145 from $143 a year ago, while consulting's average bill rate grew to $163 from $159. In Europe and Asia-Pacific, the average bill rate was $57 compared to $64 last year on a constant currency basis. Again, largely reflecting a higher proportion of revenue generated in Asia Pacific relative to Europe. Now onto SG&A. Fourth quarter run rate SG&A expense was $40.5 million, a 12% improvement compared to $46.2 million in the prior year quarter. This year-over-year improvement reflects the benefit of the cost actions we have executed over the past fiscal year. During the quarter, we took additional steps to simplify our business and further reduce cost structure, including the divestiture of Citrix and continued resource alignment to the current revenue level. Non-run rate SG&A expense totaled $14.1 million, of which $6.4 million was non-cash and $7.7 million was cash expenditures related primarily to the Citrix divestiture and employee termination costs, including those related to the COO transition. With significant cost actions now largely complete, we will remain focused on additional opportunities to improve efficiency over time. In addition, we have begun reallocating capital toward targeted investments in go-to-market leadership, sales capacity, and client-facing capabilities that can support stronger revenue generation over time. We will continue to deploy capital with discipline, balancing growth opportunities with cost management. Now turning to segment performance. As a reminder, the fourth quarter of fiscal 26 contained one less week compared to Q4 of fiscal 25. All year-over-year revenue comparisons are adjusted for business days and currency impact, and a segment-adjusted EBITDA excludes certain share corporate costs. On-demand talent revenue was $40.4 million, a decline of 18% from the prior year quarter. Segment-adjusted EBITDA was $3.1 million or a 7.6% margin compared to $6.4 million or a 12.1% margin in the prior year quarter. Consulting revenue was $36.6 million down 23% year-over-year which continued to pressure utilization and therefore gross margin and segment EBITDA. Segment adjusted EBITDA was $2.3 million or a 6.3% margin compared to $8.3 million or 16.3% margin in the prior year quarter. Europe and Asia Pacific revenue was $17.1 million down 14% year over year. Segment adjusted EBITDA was $0.4 million or 2.1% margin compared to $1.9 million or 9% margin in the prior year quarter. Outsource services revenue was $10.3 million down 1.6% year over year. Segment adjusted EBITDA was $2.1 million or a 20.2% margin compared to $3.1 million or 27.8% in the prior year quarter. Turning to liquidity, our balance sheet remains strong. We ended the quarter with $82.4 million of cash and cash equivalents with no outstanding debt. Quarterly dividend payments totaled $2.3 million, representing a 6% annualized yield based on our stock price at the end of the fourth quarter. Just last week, we replaced our previous credit facility with a new revolving credit facility designed to provide increased flexibility within our covenant structure and better align to our capital needs. With our cash position and available borrowing capacity under our new credit facility, we will continue to take a balanced approach to capital allocation, investing in the business to support long-term growth while returning capital to shareholders through dividends and opportunistic share repurchases. At quarter end, $79.2 million remained available under our share repurchase program. I'll now conclude with our outlook for the first quarter of fiscal 27. We expect first quarter revenue to be relatively consistent with fourth quarter levels, adjusting for normal summer seasonality and the impact of the citric divestiture. As a result, we expect revenue in the range of $97 to $102 million. We expect gross margin to be in between 37% to 38%, also reflecting typical seasonal dynamics in the quarter. Run rate SG&A expense is expected to be in the range of $41 to $43 million, which reflects the targeted reinvestments we've made in the business. Non-run rate and non-cash expense are expected to range from $2 to $3 million and consist primarily of non-cash stock compensation expense. and Amortization of Capitalized System Transformation Costs. In closing, we made meaningful progress in fiscal 26, aligning our cost structure, strengthening the organization and investing in key growth priorities. With a strong balance sheet and improving operational foundation, we believe we are well positioned to execute more consistently and create long-term shareholder value. With that, we'll conclude our prepared remarks and open the call for questions.