Good day, ladies and gentlemen and welcome to the Resources Global Professionals Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Alice Washington, General Counsel of Resources Global Professionals. Ma’am, you may begin.

Thank you, operator. Good afternoon, everyone and thank you for participating today. Joining me on this call today 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 fourth quarter and year ended May 26, 2018. We apologize for the delay in today’s press release. Our news release service had a technical issue and by now you should have a copy. 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 the results of operations and financial conditions expressed or implied by forward-looking statements made during this call. I will now turn the call over to Kate Duchene.

Thank you, Alice. Good afternoon and welcome to Resource’s 2018 fourth quarter and year end conference call. Here is a quick roadmap for my remarks. I will start with a brief overview of our operating results for the fourth quarter and year end. Second, I will update you on the status of our taskforce and accretive acquisitions. Third, I will discuss the primary growth drivers we have seen in the second half of fiscal ‘18 and how they are progressing into the new fiscal year. Fourth, I will provide a final update on the strategic initiatives we outlined in Q3 of fiscal ‘17 since they are now largely completed. And lastly, I will share some news on the new career site we launched at the start of fiscal ‘19 which will ensure that we remain an employer of choice as the talent market continues to heat up and the economy migrates towards flexibility and agility. First, our operating results. Our total revenues for the fourth quarter of fiscal 2018 were $183.8 million, which represents an increase of 23.7% over the fourth quarter a year ago. Excluding acquisitions, organic revenue increased 8.8%. Net earnings were $4 million or $0.12 per diluted share compared to $4.4 million or $0.15 per diluted share a year ago. Our fourth quarter results were impacted by $0.05 per diluted share related to severance, acquisition and transformation expenses taken during the quarter as well as a higher tax rate. Without such temporary charges, we would have reported net earnings of $0.17 per diluted share. With respect to year-end results, we are pleased to see growth in all regions. Year-over-year, we achieved revenue of $654.1 million, up $70.7 million or 12.1% over fiscal 2017. Over the past fiscal year, we tackled several significant strategic initiatives and grew the…

Thank you, Kate and good afternoon everyone. I will start by giving detail on our fiscal fourth quarter financial results and then we will discuss the early trends we are seeing in the first quarter of fiscal 2019. I will also give further detail on the progress of our strategic growth initiatives and the financial impact of our recent acquisitions. Starting with an overview of our fourth quarter results, total revenue for the fourth quarter of fiscal 2018 was $183.8 million, a 23.7% increase from the comparable quarter a year ago, including our acquisitions. Revenue includes approximately $22 million from our recent acquisitions of taskforce and Accretive. Organic revenue increased 8.8% over the prior year fourth quarter, 7.3% in constant currency. Sequentially, revenue was up 6.6%. Our fourth quarter gross margin was 38.3%, down 80 basis points compared to the prior year fourth quarter due to the bill pay ratio. SG&A expenses were $58.9 million or 32% of revenue compared to $48.4 million or 32.6% of revenue in the fiscal fourth quarter a year ago. I will provide more color on SG&A shortly. Our net income was $4 million or $0.12 per diluted share. In Q4, adjusted EBITDA was $13.1 million or 7.1% of revenue compared to $12.5 million or 7.4% of revenue in the year ago quarter. Now, let me discuss some of the highlights of our revenues geographically. As Kate mentioned, we have seen substantial growth across all regions. For the fourth quarter, total revenues internationally were approximately $39.8 million versus $29 million in the fourth quarter a year ago, an increase of 37.2% year-over-year, 27.7% constant currency and an increase of 4.4% sequentially, 4% constant currency. These results were bolstered by our strong performance in both Europe and Asia-Pacific. Europe showed improvement for the tenth successive quarter…

Thank you, Herb. Looking ahead, we are committed to building on our growth, ensuring that our pricing is fair given the level of talent we are deploying and managing our cost structure following the acquisition and transformation investments we made in fiscal ‘18. We are excited about the work ahead in fiscal ‘19 and look forward to updating you as we progress. Before turning to questions, I will review our client continuity statistics for fiscal ‘18. Client continuity remains strong. During our fourth quarter, we served all our top 50 clients from fiscal ‘17 and 49 of the top 50 from 2016. In fiscal ‘18, we have 267 clients for whom we provide services exceeding 500,000 employees, up from 249 in fiscal 2017. In addition for fiscal 2018, our top 50 clients represented 35% of total revenues, while 50% of our revenues came from 118 clients. Our largest client for the quarter was approximately 2.6% of revenues. Through the fourth quarter, 96% of our top 50 clients have used more than one type of service or functional expertise. This penetration reflects the diversity of relationships we have within our client’s organization and reinforces the opportunity for growth. That concludes our prepared remarks and we are now happy to answer any questions.

Thank you. [Operator Instructions] And your first question comes from the line of Andrew Steinerman with JPMorgan. Your line is now open.

Hi, it’s Andrew. Kate, my question is to ask you to go over a little bit about the incentive comp plan that you just put into place and particularly is the incentive around revenue growth target or does it also include gross margin targets, given all your comments about kind of making sure that your services are priced appropriately?

Yes, thank you Andrew. It does include both measures and metrics to drive the results we want. Primarily it’s focused on revenue growth, but a secondary modifier is on gross margin and delayed improvement.

And is it a commission-based model, just describe what the changes are in terms of the nature of the incentive compensation?

Well, for each role, we have gone through and benchmarked what we think is market compensation levels. It’s not a commission plan. It’s an incentive plan. And it’s built around providing both accelerating and decelerating reward based upon results against target. So, we have set a target number for each kind of role in the sales organization. And if you don’t achieve at least 80% of that target, you will experience a severe decelerator in reward and if you exceed your target, you can really ramp up your reward which we think will drive higher performance, because the plan can be very rich in accelerating for high performers. And that’s what we wanted, because we didn’t have the right connection between impact and reward in our existing plan.

Okay. And last question, Herb, is there a gross margin target since you gave an SG&A percentage target?

Yes. We have got a goal for the year to increase that by 1%. So, we are going to be working through that and really we believe we have got an opportunity there with the tight labor market. And fortunately, I would rate as a C plus and how we have done that over the past quarter with that, but there is definitely an opportunity to get more aggressive in pricing and we are putting a lot of emphasis on that going forward.

Is that 1% by the fourth quarter year-over-year or 1% realized for the whole year?

That’s 1% by the end of the – while we have got a stretched target to do it for the entire year, but I think practically speaking I’d like to see that come up 1% by the fourth quarter.

Great. Thank you for the time. Appreciate it.

Thank you.

Thank you. [Operator Instructions] And our next question comes from the line of Mark Marcon with Robert Baird. Your line is now open.

Alright, good afternoon. I was wondering if you could talk a little bit about the areas of revenue strength that you are seeing or just a little bit more just with regards to, like for example lease accounting you mentioned that, that area is, how big is that now and how much of the increase did you end up seeing from that as it relates to U.S. growth that was organic?

Yes, the lease accounting is running in the $15 million annualized year right now, which is up about almost double. Now, the tricky thing when you start looking at that, Mark, is in some cases it takes away from other areas in the accounting and finance spend, so overall, we are up there, it’s not quite as dramatic users, it’s kind of a back and forth, but certainly in the technical accounting space, rev/rec was even a little bit more than lease accounting. It’s been significant and we are seeing a lot of activity. People are late to the game on that and are driving, but I just always cautioned that it’s also our FP&A work, for example, has dropped off a little bit, which I think is just a direct result of deploying their spend on the technical side.

Okay. And how would you describe the actual organic growth rates between taskforce and Accretive, just how strongly are they performing?

Yes, taskforce is in the high single-digits right now and doing well. It’s kind of consistent with our European business. We are starting to have some really good discussions on leveraging that and expanding it to where we get further gains on both sides of that. The Accretive is a little trickier to say exactly, because we have started blending that in to our offices in the fourth quarter. We were fully merged in the Atlanta office and the Dallas office. So, it’s starting to get less clear, but overall, we are anticipating that we would lose revenue on Accretive with their, own year-over-year results and it appears that we have stayed flat. We have done, I think a pretty good job of not losing any major accounts and working through that. So we are pleased there.

Great. And then how would you describe some of your major markets, Chicago, Houston, New York, tri-cities, in terms of how things are progressing in those markets?

Yes. So Mark, I will start and then Herb can add some more color. So, our strongest marketplace right now is Northern California that is really a booming practice and that also is a practice where we have integrated the Accretive business. So, we bring strength to strength and it’s really going well. Chicago is back to positive growth. We have a new revenue leader in Chicago. We are excited to see her join the team and our Houston and Dallas practices, which were on our watch list a year ago, have turned around nicely and are showing some strong positive growth. Houston is not impacted by Accretive, so that’s all organic growth. Dallas is impacted by Accretive, but again there I think inspiring one another to achieve excellent results, so we are very pleased by that. The two markets that are still on our watch list, tri-state remains on our watch list, I think we have shared previously that we have had a lot of leadership change in tri-state, so in many respects we are in rebuild mode. We have seen with our top 10 clients in tri-state only 3 in the quarter were in financial services. So, we are doing a good job of diversifying out of that a bit, but I was also surprised to see that one of our long-term household name financial services clients is back and is up very significantly. So, we are finally starting to see and sell to different parts of the organization. In this particular client that I am talking about, we are now doing more project management work in their global operations and IT organization, which I think is the kind of pivot we need. We have also hired a very senior person who is an expert in governance, risk…

Yes, I would like to add just a couple of points. One is on the tri-state thing one of things that’s interesting there is some of our financial services clients have moved some of their operations out of New York. So, tri-state for us is flat overall and we will look at some of those key accounts, we have actually been rolling those accounts at double-digit rates except the revenues coming from outside of New York in some of the other places. So, it’s really an interesting thing with our strategic client program. We have those identified. So we are negotiating deals there that work is actually being performed in Europe, in Asia, in Latin America or in other parts of the U.S. and we have go to work through to give just a little bit better clarity on that to the street, but it’s not. I just want to emphasize there is good activity there and we are seeing an increase. At the same time in tri-state, there are a lot of middle-market companies that we are now really working on going after and being able to go and that would be more locally driven business. In addition, we have a lot of the offices throughout the U.S. has been – Atlanta has rebounded. It was pretty much flat for most of the year, year year-over-year and now they have really taken off as they have got their team back up to full force. We are seeing great results in Denver and in Phoenix and in Tulsa. So, middle America, a lot of good things are happening there as well.

Great. Well, I mean, it sounds like in the obviously in the majority of the U.S., things are trending in the right direction that this sounds like there is a couple of key offices still need to where we are putting some initiatives in place. Is that correct?

Yes.

That’s correct. And I would yes, sorry go ahead, Mark.

Okay. And then just on the margin side, I apologize but I didn’t catch the SG&A number for the third quarter, I mean for the coming quarter?

We had that was going to be in the range of…

$56.5 million.

$56.5 million to $58 million, right, I just want to make sure you got the exact right numbers.

Alright. And how much of that is would you say is non-recurring or should end up being optimized out?

Yes, there is probably still about $1.5 million. We have got the rest, the Accretive back office that really wrapped up just in the last couple of weeks. So you got some of that expense there that has no gone away. And you have got some of the transition costs that we were dealing with on our org2.0, our redesign of all that. That’s wrapping up. And the last of the integration cost is coming down. So I think we still have another $1.5 million to $2 million that we will be able to take out.

Great. I will follow-up more offline. Thank you very much.

Thank you, Mark.

Thank you. And I am not showing any further questions at this time. I would now like to turn the call back over to Kate Duchene for any further remarks.

Thank you operator. Again, thank you for attending this call and your interest in RGP. We look forward to talking with you again on our next earnings call following our first quarter of 2019.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program and you may all disconnect. Everyone have a wonderful day.