Resources Connection, Inc. (RGP) Q2 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Resources Global Professionals Q2 2018 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded for replay purposes. It is now my pleasure to turn the conference over to Ms. Alice Washington, General Counsel of Resources Connection. Ma'am, you may begin.

Thank you, Operator. Good afternoon, everyone, and thank you for participating today. Joining me on this call are Kate Duchene, our Chief Executive Officer; and Herb Mueller, our Chief Financial Officer. During this call, we will be commenting on our results for the second quarter of fiscal year 2018. By now, you should have a copy of today's press release. If you need a copy and are unable to access the copy on our website, please call Shannon MacPhee at 714-430-6363, and she will assist you. Before introducing Kate, I would like to remind you that we may make forward-looking statements during this call. Such statements regarding future events or future financial performance of the company are just predictions, and actual events or results may differ materially. Please see our Form 10-K report for the year ended May 27, 2017, for a discussion of some of the risks, uncertainties and other factors, such as seasonal and economic conditions, that may cause our business, results of operations and financial conditions to differ materially from results of operations and financial conditions expressed or implied by forward-looking statements made during this call. I'll now turn the call over to Kate Duchene.

Thanks, Alice. Happy New Year, and welcome to our second quarter fiscal 2018 earnings call. We hope your holidays were happy and safe, and we thank you for joining us during this first workweek of the new year. Here's a quick overview of what I will cover on our call today. First, I'll start with our second quarter operating results; second, I will preview trends we are seeing in Q3; third, I will comment on our experience welcoming our 2 recent acquisitions, taskforce AG and Accretive Solutions, into RGP and outline further plans for integration; fourth, I will report on our progress against our strategic initiatives. To remind you, there is sales transformation, operating model improvement and cost containment. Finally, I will confirm our priorities for the second half of our current fiscal year. Now to our results. Our total revenues for the second quarter of fiscal 2018 were $156.7 million, which represents an increase of 6.2% compared to the second quarter a year ago, including taskforce. Without taskforce revenue, the increase was 3.7%. On a sequential basis, second quarter revenue, including taskforce, increased by 11% compared to $141.2 million in the first quarter of fiscal '18. Without taskforce revenue, the growth rate was 8.4%, a satisfying result given the significant strategic and operational changes we have been implementing throughout fiscal '18. The revenue increase was achieved by growth in all regions of our business, led by strong growth in Europe of approximately 21% quarter-over-quarter and up 44% including taskforce. We are particularly pleased with these results since Europe has achieved revenue growth for eight successive quarters. In addition, the North America and Asia Pacific businesses made solid contributions to growth in the quarter. Herb will discuss the revenue uplift in greater detail a bit later in this call. Second, net income improved to $8.1 million or $0.27 per diluted share compared to $5.7 million or $0.16 per diluted share a year ago. These results were positively impacted by $0.08 per diluted share related to the reversal of valuation allowances on international deferred tax assets, offset by cost of $0.06 per diluted share related to severance, acquisition, integration and transformation expenses during the quarter. SG&A was $47.5 million in the second quarter or 30.3% of revenue compared to $46.1 million in the second quarter a year ago or 31.2% of revenue. The $4.1 million increase in SG&A year-over-year was the result of expenses related to severance, acquisition, integration and transformation costs. While these investments do delay the positive financial impact of headcount reductions in Q3 of fiscal '17, we believe these investments, as we've discussed previously, are necessary for the longer-term health and growth of the business. We have not lost sight of the need to drive leverage and cost containment in our ordinary operating model, and we will continue to closely monitor SG&A while remaining focused on driving growth. Herb will provide a little bit more color on SG&A later in the call. We believe that our financial performance in Q2 was just the start of a compelling growth story at RGP. We see positive revenue trends in the business, so let me share some highlights. In the first 4 weeks of Q3, we have achieved year-over-year positive revenue results. Even without the impact of the taskforce acquisition, we've achieved our highest weekly revenue results since January 2009. As we look to build on this performance, our global pipeline looks strong for the second half of fiscal '18. In Europe, the U.K. practice has recorded 26 weeks of year-over-year revenue growth as they successfully expand our data and analytics business with key clients. In Asia Pac, we've seen positive revenue trends in Hong Kong, Shanghai and Tokyo. Our Strategic Client Program revenue is up 8% since the beginning of the fiscal year. I share these data points because I believe they signal we are moving in the right direction and our investments are paying off. With respect to investments, we're very pleased with the two acquisitions we've made this fiscal year. taskforce, our first, is the German business. It's an executive-level interim and project management business, which we acquired in September. It is delivering revenue as projected. taskforce has a high quality and well-recognized brand in the German market, so we will continue to conduct business in this segment using the taskforce name and pursuant to their business model. We are working together on two specific growth strategies to expand their client business outside of Germany with the RGP platform as well as expanding our RGP German-based business with inbound referrals from our global Fortune 1000 client network. We will provide more information on these activities as the work progresses over the next 12 months. The Accretive Solutions acquisition that we closed in early December is also very important to our inorganic growth strategy. Accretive offers complementary services to RGP. They're especially strong in the areas of technical accounting, business technology and risk management. They also bring a strong middle-market client base to help drive our growth. Accretive brings added capability through its three national practices, equity administration, PCI compliance and collaboration. And collaboration is an innovative change management and communications practice. Accretive's Countsy is a standalone business offering outsourced finance and human resources services for start-up companies, including fractional CFO expertise. Countsy also provides a means for us to expand our offerings to startups. Currently, we are in the execution phase of our integration plans for most of the Accretive business and working through combined go-to-market strategies under the RGP banner. As stated before, the Countsy business will continue to operate under that distinctive brand and will remain as a standalone business. We are really pleased with the progress we've made to date in integrating the Accretive team, its clients and talent base as well as the synergies we have uncovered to help grow RGP profitably. We are also pleased both companies already have aligned cultures. As we merge, we remain committed to a client-first philosophy and driving outstanding client and consultant experience. Herb will turn the cost synergies and the combination that, that presents later in the call. Now I will provide a short update at our continued progress against the three strategic initiatives that we've discussed over the last several earnings calls. I'll start with sales transformation. We are fully engaged in transforming our sales culture and driving better sales management, goal setting and coaching practices throughout the business. This project started last February, and we're still executing projects related to this transformation. We've developed our go-to-market playbooks, including solutions training and account planning modules, as well as a management playbook. We have further work to do to implement the new behaviors and practices and ensure that individuals understand the role they play in achieving the enterprise growth objective, but we're off to a really strong start. To ensure that the new operating model drives the positive objectives we are targeting, we also launched a new learning and development program during the second quarter. The goal of this group is to drive learning, accountability, goal setting and coaching in all pillars of the organization. Next, our business model structure. In the second quarter, we rolled out the new operating model for sales, talent and integrated solutions within RGP for all of North America. This effort, put simply, is focused on improving our results by driving efficiency, clarity and productivity in all roles. We now have the right people in the right roles with a better understanding of expected performance metrics by function. By aligning around center-led standards of performance, we are clearing the way for high performers to remain focused on activities that move the needle for the company. We also continue to work on our compensation program to ensure that strong performers achieve the reward they deserve and have a clear line of sight connecting effort and return. Moving to cost containment. The third initiative we've laid out last fiscal year was a plan to reduce SG&A through headcount reduction. We stated that our goal was to reduce SG&A by approximately $7 million on an annualized basis. While our progress in this area has been offset by some onetime expenses related to severance, acquisition, integration and sales transformation costs, we have not lost sight of cost-savings goals. Despite the added headcount of taskforce and investments in people we have made to support the growth in Europe and certain markets in the U.S., we are still down double digits in overall management headcount. We will continue to analyze the leverage model in our operations and will seek additional opportunities to reduce our cost structure as we streamline and centralize certain functions through the balance of the calendar year. Please keep in mind, however, and I think I've stated this before, that cost reduction does not follow a straight line. There will be some variations as we finish with these one-timer transitional investments and as we move personnel out and bring new talent onboard to meet the needs of the business. Put another way, these transformation and growth-oriented investments are masking some of the core cost-containment work we've started in fiscal '17 and we will continue to execute in fiscal '18. Driving growth and improving profitability remain our top priorities. Finally, let me confirm our priorities for the second half of fiscal 2018. We've embarked on a number of change initiatives over the past 12 months, some organic and some inorganic. We will now focus the next six months on fully executing these initiatives. We expect to complete the implementation of our sales culture transformation efforts by fiscal year-end. In addition, we expect to complete the operating model improvements in Europe and Asia Pac by fiscal year-end. Third, we will focus on sustaining and growing revenue with our new acquisitions and driving a successful integration program for Accretive. I'll now turn the call over to Herb for a more detailed review of our second quarter results.

Thank you, Kate, and good afternoon, everyone. I'll start by giving detail on our fiscal second quarter financial results and will then discuss the trends we're seeing in the third quarter. I'll also give further detail on the financial impact of the Accretive Solutions acquisitions and other strategic growth initiatives that Kate discussed a little earlier. Starting with an overview of our second quarter results. Total revenue for the second quarter of fiscal 2018 was $156.7 million, a 6.2% increase from the comparable quarter a year ago. Sequentially, revenue was up 11%. On a constant currency basis, revenue increased 5.3% year-over-year and 10.6% sequentially. Our second quarter gross margin was 37.9%, down 40 basis points from the prior year second quarter primarily as a result of the impact of lower gross margins in taskforce, consistent with other European practices. SG&A expenses were $47.5 million or 30.3% of revenue compared to $46.1 million or 31.2% of revenue in the fiscal second quarter a year ago. Our net income improved to $8.1 million or $0.27 per diluted share. In Q2, adjusted EBITDA was $13.4 million or 8.5% of revenue compared to $12.3 million or 8.3% of revenue in the year-ago quarter. Now let me discuss some of the highlights of our revenues geographically. As Kate mentioned, we've seen improving trends across our international business, with revenues in Europe showing improvement for the 8th successive quarter, excluding revenue from our acquisition of taskforce. Europe is benefiting from strength in our U.K., Ireland and Sweden practices. Europe second quarter revenue increased 20.9% year-over-year and 27.3% sequentially, excluding revenue from taskforce. Our U.S. performance strengthened in the quarter with revenue increasing 1.5% year-over-year, reflecting increased activity in bill rates in several of the company's largest markets. Sequentially, revenue in the U.S. increased 5.6%, in part as a result of fewer consultants being on holiday during the second quarter compared to the first quarter, which includes the traditional summer vacation period. For the second quarter, total revenues internationally were $37.3 million versus $29.9 million in the second quarter a year ago, an increase of 24.7% year-over-year, 20.3% constant currency; and an increase of 32.9% sequentially, 30.9% constant currency. These results were largely a result of our strong performance in Europe but also reflecting the rebound in our performance in Asia Pacific. Turning to early revenue trends for the third quarter of fiscal 2018. Weekly revenues in Q3 are trending approximately 4% ahead of last year, excluding taskforce, Accretive acquisition-related revenue. If the current trend continues, revenue would be in the range of $148 million to $151 million, excluding taskforce and Accretive. We expect the two acquisitions will add an additional $20 million to $21 million in Q3. As Kate mentioned, we're seeing some encouraging trends in top line revenue for the quarter ahead. Europe, and in particular the U.K., is performing well. And in Asia Pacific, we are seeing positive revenue trends in Hong Kong, Shanghai and Tokyo. As mentioned above, revenue is trending in the $168 million to $172 million range in the third quarter compared to $143.8 million a year ago. The high end of the range is dependent on achieving the same uptick in the second half of the quarter as we're currently seeing. Turning to gross margins. Gross margin for the second quarter was 37.9%, decreasing 40 basis points from the prior year equivalent period and decreasing 10 basis points sequentially. Both changes are related primarily to the higher sales in Europe, including taskforce, which have lower gross margins compared to our North America business. Remember, Europe typically runs lower gross margins than other geographies. Excluding reimbursable expenses, our second quarter gross margin was 38.6%, which compares to 38.9% in the second quarter a year ago. For the second quarter, our gross margin in U.S. was 39.1%, the same as last year, and our international gross margin was 34% compared to 35% a year ago. In the third quarter, we expect our gross margin to be in the 35.6% to 35.9% range compared to 36.3% a year ago. The drop sequentially is primarily a result of the higher payroll taxes beginning in January. The average hourly bill rate for the quarter was approximately $122, which compares to $121 in the first quarter and $118 in the year-ago quarter. The average pay rate for the second quarter was approximately $61 compared to $59 last year and $60 last quarter. As a reminder, these hourly rates are derived based on prevailing exchange rates during each given period. Now to headcount. Quarter-end consultant headcount was 2,746, including 60 from taskforce, versus 2,649 a year ago. The total headcount of the company, including taskforce, was 3,529 at quarter-end. The Accretive acquisition will add approximately 500 in Q3. Headcount increase is a result of the taskforce acquisition and investment in Europe to support their growth. Now looking at other components of our second quarter financial results. Selling, general and administrative expenses were $47.5 million or 30.3% of revenue. This compares to SG&A of $46.1 million or 31.2% of revenue in the second quarter of fiscal 2017 and $47.4 million or 33.6% of revenue in the first quarter of fiscal 2018. The year-over-year increase of $1.4 million from last year's second quarter relates to charges of approximately $1.4 million of acquisition-related costs in the second quarter, $1.1 million of transformation cost, $800,000 for taskforce offset by $1.1 million less severance expense, $800,000 net SG&A reductions year-over-year. The combined impact of these acquisitions and transformation charges -- acquisition, severance and transformation charges was $0.06 per diluted share on today's results. The additional year-over-year increase of $1.1 million was driven primarily by the transformation expense related to our strategic initiatives as well as several hundred thousands in license fees related to sales force. The transformation expense has now wound down and will be less in Q3. SG&A was up $100,000 sequentially. Severance cost was down $800,000, which was offset by SG&A for taskforce. Acquisition costs were up slightly. Stock compensation expense was $1.5 million or 1% of total revenue. In the third quarter, we expect SG&A to be in the range of $52.5 million and $53.5 million, which will include approximately $2 million of spending for the transformation and integration of the acquisitions. This includes costs for consultants, training and travel for training events. At the end of the second quarter, our office count was 69, 43 domestic and 24 international. Turning to the other components of our -- and I'll back up a minute, that's now 26 international versus 24. Turning to the other components of our financial statements. Depreciation was just under $1 million, about the same as the first quarter. Amortization of intangibles related to taskforce was approximately $300,000 and will continue in future quarters. Our adjusted EBITDA or cash flow margin, which we define as EBITDA before stock compensation, was 8.5% in the second quarter, up from 8.3% a year ago and 5.6% in the first quarter of fiscal 2018. Compared to the first quarter, this is a result of the revenue growth. Our pretax income was $10.3 million in the second quarter. During the quarter, we recorded a provision for income taxes of $2.1 million, representing an effective tax rate of 21%. Our GAAP tax rate for each of the upcoming quarters is difficult to predict and could be volatile as the rate will be dependent on several factors, including the operating results of our U.S. and foreign locations, each of which are taxed or benefited at different statutory rates and the offset of the tax benefit of foreign losses at certain locations by valuation allowances. The drop this quarter was driven by both the acquisition of taskforce as well as our improved European results. The improved profitability in Europe resulted in a reversal of the portion of our valuation allowance against our deferred tax assets in Europe. On a cash basis, our tax rate was about 41%, and we expect that rate to decrease 5% the next couple of quarters. In addition, we may receive a slight non-cash benefit in revaluing our deferred taxes to the new U.S. federal rate. We do not expect any charges on our accumulated offshore earnings. Based on the preliminary analysis of the new tax plan, we would expect our normal statutory rate to drop approximately 10% to 12% next year. Where we would usually expect to be in the lower 40% range, next fiscal year, we expect to be in the lower 30s. We will have a more concise view on our next earnings call. Finally, our GAAP net income was $8.1 million or $0.27 per share during the second quarter. Now let me turn to the balance sheet. Cash and investments at the end of the second quarter were $56.3 million, a $6.7 million increase from the first quarter of fiscal 2018. Receivables at quarter-end were approximately $109 million compared to $99 million at the end of the first quarter. Days of revenue outstanding were approximately 63 days compared to 61 days in the first quarter of fiscal 2018. Dividends for the quarter totaled approximately $3.6 million. Capital expenditures were $401,000 during the quarter, net of landlord reimbursements. In the second quarter, we did not repurchase our stock. We are continually evaluating uses of cash to reduce debt and/or facilitate our growth, both organically and inorganically. Our stock buyback program has $125.1 million remaining. We will continue to return cash to shareholders through our quarterly dividend while balancing debt repayment, the capital requirements of growing our business organically and inorganically, and fiscal prudence. Our shares outstanding at the end of the second quarter were approximately 30.6 million. However, we issued 1,150,000 shares at the beginning of the third quarter related to the Accretive acquisition. Now turning to the financial impact of the acquisition we made at the beginning of our third quarter. On December 4, we closed the acquisition of Accretive Solutions, which will provide RGP with additional middle-market penetration. Accretive is a professional services firm headquartered in Chicago with eight offices across the United States and approximately 500 professional staff. The firm offers strong capabilities in accounting and finance, enterprise governance, business technology and business transformation, in addition to providing a back-office suite of services to start-ups through its Countsy brand. We acquired Accretive for $19.4 million in cash, 1,150,000 shares of Resources Connection in restricted common stock. We expect the transaction to increase RGP's revenue by approximately $65 million to $70 million and EBITDA by $6.5 million to $7.5 million after 9 to 12 months. The upside to EBITDA will largely be driven by $4.5 million to $5.5 million in cost synergies that we expect to achieve by the end of the calendar 2018, resulting from office consolidations, the elimination of redundant back-office functions and other specific cost reductions. Accretive will transition into the RGP brand over the next 6 to 9 months, with the exception of Countsy, which will continue to operate under its own brand. We are excited about our acquisitions of Accretive and taskforce, and we're continuing to work to identify additional growth opportunities both inorganic and organic. Kate?

Thanks, Herb. In closing our prepared remarks, I want to convey our optimism about the business in calendar 2018. I am part of a very committed team here at RGP. I'm proud of my colleagues' energy and commitment to our clients and to each other. We have taken on a number of initiatives these past 12 months to improve the financial performance of the company. Our efforts are paying off. We bring renewed passion to the company every day, and we'll continue to work very hard to deliver improved results. We remain focused on attracting and retaining exceptional talent to help our clients with ever-increasing change in a very disruptive world. This commitment to our clients continues to show through our client continuity data. During the second quarter, we served all of our top 50 clients from fiscal 2017 and 2016. Our top 50 clients represented 39% of total revenues while 50% of our revenues came from nine new clients. Our largest client for the quarter was approximately 2.7% of revenue. With that, this concludes our prepared remarks, and we're now happy to answer any questions. Thanks.

[Operator Instructions]. And our first question will come from the line of Andrew Steinerman with JPMorgan.

This is a little bit of a technical question. You said 3.7% of growth from revenues in the second quarter without taskforce. Was that on a constant currency basis? Or do you have to take out currency to come up with the organic number?

Yes. That's on a constant currency basis right now.

Okay. Fair enough. And when you look sequentially for your third quarter guided versus your second quarter actual without acquisitions, are you anticipating a normal seasonal ramp from here?

Yes. So I mean, right now, you've got -- right now, we've got an ongoing improvement year-over-year. Now what always makes it a little more convoluted in our Q3 is the holiday season. So right now, even as we look at the trends in the first 4 or 5 weeks, it gets a little messy because of what happens on where Christmas and New Year's fall. But overall, we're trending about 4% better year-over-year, and we anticipate that, that can continue to grow.

Right. And lastly, remind me, didn't we say last quarter or maybe it was 2 quarters ago that the long-term sustainable financial goals would be to grow 4% to 5% organic? So my question is, are we essentially there? And is that still the goal?

Yes. Well, that is still the goal. We appear to be there ahead of our schedule. As we talked about even going back six, nine months ago, we really thought it would be Q4 and going into FY '19 before we'd really start to see the organic growth paying off. But we're certainly -- Europe is ahead of schedule, the U.S., where I initially anticipated flat is already up a couple of percent. So I think we're a little bit ahead of our -- what we anticipated.

[Operator Instructions]. And our next questions will come from the line of Mark Marcon with Robert W. Baird.

You obviously have a lot of different things going on. With regards to that growth that you're mentioning with regards to the 4% to 5% that we're currently seeing, what are you seeing in the U.S. at this point? And can you talk a little bit about Houston, Chicago and Tri-State in terms of what you've seen there?

Right. Overall, in the U.S., we're up about 1.5%. And that's a mix. We had -- Houston was up year-over-year. Chicago was slightly up. Tri-State was down directly year-over-year in Q2, though it's showing a positive trend. Remember, really, Tri-State bottomed out in May of last year. And since then we've been kind of reversing that direction, but it's still negative year-over-year. So the good news is, the 1.5% year-over-year growth is including the year-over-year drop in Tri-State.

Got it. As you mentioned, the 4% so far this year, and obviously the weeks are changing, are you seeing a continued improvement across-the-board in the U.S.?

We are continuing to ramp up the Bay Area. Certainly, multiple markets are improving throughout U.S., and the trend is positive.

Great. And then with regards to Europe, obviously, really good growth there even ex taskforce. What do you attribute that to? Is it primarily some of the initiatives that you've put in place and some behavioral changes? Or is there also some better growth that's occurring, generally speaking?

I think it's a combination of those. I think it started by changing our leadership and our management in Europe, and it took some time to take hold. But we have -- Europe has almost been ahead of the U.S. in terms of really focused sales management practices and leading from the center there. So we do have common performance metrics in Europe. We changed our comp plan about two years ago in Europe. I think all of those changes, we're now seeing the benefit. I do not think yet, Mark, that we're seeing the benefit of some of the real structural changes we're making, especially around integrated solutions and how we're focusing our talent pillar to take on more of the talent management to free up our sales team to focus on sales activity. I don't think we've seen the benefit of those structural changes yet. These are good. What we're seeing in Europe is just some really good management happening, some good hires and really committed leaders in those practices. And I think it's helped that the economy and our clients are green-lighting projects again related to transformation and optimization efforts, and we're well positioned to support them.

That's great. And then with regards to some of the initiatives that you outlined, what's the anticipation just in terms of like severance and unusual expenses that we should anticipate over the next couple of quarters? And at what point would those kind of end, where we could really get a sense for the normalized profitability of the organization?

Let me jump in, and then I'm going to turn it to Herb to really answer from a deeper financial perspective. I don't envision right now any big severance. I think we've seen the changes at the top of the house that we needed to make. There will be some changes in personnel that will happen naturally. The expectations we're setting are heightened right now, and so I think we'll see some natural turnover but nothing that would create substantial severance obligations going forward. I'll now turn it to Herb to talk a little bit more on when do these transitional costs start to wind down so that our SG&A normalizes, if you will. Let me just also say that we will have some ongoing technology expenses because we're upgrading some of our systems. And that's a natural part of creating a healthier infrastructure for a stronger, more robust business. And with that, Herb?

Great. A couple of things, one on severance. We actually have about $300,000 charge in this quarter that occurred in December. And at this time, we don't really anticipate any more at this time. I think we're in pretty good shape, but then you never know what will happen, but for the most part that activity's done. With our transformation costs, we'll still see probably approximately $900,000 or so in this next quarter. We're also going to have some integration costs related to what we're working through with Accretive. That will run roughly about $1.5 million in each of the next two quarters, and then that goes away. But part of that is offset on some of the Accretive. On day one of that acquisition on December 4, we made the decision, it was close to $3 million annualized of costs that were eliminated, and then we have close to another $1 million that will end in -- really, in June. We're anticipating the back-office group to help us through to our fiscal year-end basis. And so you'll see the cost still with those. But again, that $1.5 million per quarter is offset roughly by half by the immediate synergy savings.

That's great. I'll follow-up a little bit more offline.

Okay, great. And I want to also clarify one thing, Andrew, on your comment. Actually, the growth that we're seeing in Q3 right now is not on a constant currency, that's just on absolute dollars, but it's very, very close. There's not really that significant of a difference on constant currency.

And our next question will come from the line of Ato Garrett with Deutsche Bank.

Just one quick housekeeping question. Could you run through your guidance really quickly again for the third quarter? I want to make sure I have it all down.

Sure. Pull that back out. Not that easy, sorry. Too much paper right now. So right now, so we're trending -- revenue trends -- is trending about 4% ahead of time. So looking at $148 million to $151 million, excluding taskforce and Accretive, and then an additional $20 million to $21 million for those two entities. That would put total revenue in the $168 million to $172 million range compared to $143.8 million. Gross margin, we're looking at $35.6 million to $35.9 million. Bill rates were up. And then, let's see, my SG&A number was going to be in the range total of $52.5 million to $53.5 million.

Okay, great. And you had some series of comments on tax. You said that they're -- that you're looking about -- it could be coming down 5% on a cash basis. Is that a similar proxy to what we'd expect on effective?

Yes. Well, that will be coming through over the next couple of quarters that we'll recognize for this year. Longer term on statutory and on the cash basis, potentially a 10% to 12% reduction.

There are no further questions in the queue. So now it's my pleasure to hand the conference back over to Ms. Kate Duchene, Chief Executive Officer, for some closing comments and remarks. Ma'am?

Okay. Yes, thank you, operator. Again, we appreciate you attending our call and your interest in RGP. We wish you all a very happy and healthy new year. And we look forward to talking with you about our business again after the end of our third quarter. Thanks.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program, and we may all disconnect. Everybody, have a wonderful day.