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 second quarter ended November 25, 2023. 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 are predictions, and actual events or results may differ materially. Please see Risk Factors section in RGP's report on Form 10-K for the year ended May 27, 2023, for a discussion of risks, 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's CEO, Kate Duchene.

Thank you, operator. Good afternoon and Happy New Year. Thank you all for joining us today. In Q2, we delivered solid performance across the enterprise despite a macro environment that continues to be sluggish and uncertain. This quarter can be characterized by green shoots and continued tenacity. Again, we have shown well with respect to engagement extensions and client retention, and our pipeline finished the quarter strong. As we shared last quarter, new project initiation has been slower to materialize and opportunities have pushed to the new calendar year. On revenue, we performed in the stronger half of our guidance range while also continuing to deliver strong cash flow this fiscal year. On SG&A and therefore, adjusted EBITDA, we've well exceeded our expectations as we continue to remain disciplined on cost in this environment. Our balance sheet remains pristine. During Q2, Veracity delivered sequential revenue growth, earning new business from the sustained appetite for digital transformation services and capabilities. We also expanded Veracity's digital presence across the Asia-Pac region through the acquisition of CloudGo, a digital transformation firm and elite ServiceNow partner. We're excited about this acquisition, the exceptional talent this adds to our company and we are already beginning to see synergies between Veracity and CloudGo. The Northern California market, which I had mentioned last quarter, also grew sequentially. And again showing positive movement in the tech sector after more than a year of decline. Regional performance in rest of North America reflected the overall choppy operating environment with clients remaining cautious about new spend until there is greater clarity around interest rates and economic direction. Our Mexico, India, Philippines and Switzerland practices all grew both sequentially and year-over-year as we delivered major projects for large strategic clients. Our pricing initiative in the U.S. is progressing well with a…

Thank you, Kate, and good afternoon, everyone. This quarter, we achieved $163.1 million of revenue, which was in the upper half of our outlook range provided in October. Our run rate SG&A of $47.4 million was significantly better than the favorable end of our run rate SG&A outlook of $53 million to $55 million. Notwithstanding an uncertain macro environment, we produced solid adjusted EBITDA of $16.1 million or 9.8% adjusted EBITDA margin and have delivered $54 million of free cash flow in the last 12 months. On a same-day constant currency basis, revenue declined by 19% year-over-year as our clients continue to be cautious with the pace of spending in the face of the uncertain macro conditions. Regional performance was reflective of the overall environment. In North America, although certain pockets such as Northern California, Atlanta and Veracity have started to show signs of recovery compared to the beginning of the fiscal year. Many major markets were still affected by the broader economic environment. Our Europe and Asia-Pacific regions performed relatively better with more modest declines of 9% and 10% year-over-year on a same-day constant currency basis. Markets such as Switzerland, India and the Philippines grew over the prior year quarter as well as sequentially, primarily attributable to project opportunities with our large strategic clients. Operationally, our growth pipeline remained resilient during the quarter, while the velocity of converting new opportunities in the pipeline to actual engagement remains slow, extensions on existing engagements have been healthy. Our solid pipeline suggests that demand, in fact, exists, and it's a matter of when, not if clients will move forward with the execution of their initiatives. These opportunities represent real upside for our business as macro conditions improve. Gross margin in the quarter was 38.9%, reflecting a heavier mix of business in Europe…

Thank you. [Operator Instructions]. Our first question comes from Stephanie Yee with JPMorgan. You may proceed.

Hi. Good afternoon. Can I ask for the revenue guide that you gave for the third quarter, what's the implied revenue decline on a constant currency same-day basis?

Hi, Stephanie. The full year guidance at the top of the range at $155 million is approximately a 17% year-over-year decline on a same-day constant currency basis.

Okay. Great. And then could you help us understand how much of CloudGo was included in the third quarter outlook. And I guess how much on an annual basis, CloudGo is expected to contribute to RGP.

Yeah. We don’t expect very material immediate impact on our financials from this acquisition. This acquisition is more strategic in nature. We believe that this is going to enhanced our capabilities to serve more clients, and there’s a lot of tremendous amount of synergy to drive future value. So given the size of the acquisition, we’re not disclosing their financials.

Okay. Sounds good. Thank you.

Thank you. One moment for questions. Our next question comes from Mark Marcon with Baird. You may proceed.

Hey. This is Andre Childress on for Mark. I appreciate you taking the questions and Happy New Year, everyone. So Kate, last quarter, you talked about some green shoots and you talked about those same green shoots as well this quarter with regards to the pipeline. As we get to the end of the year, we ended the year, what are you seeing and hearing from your clients with regards to their expectations for calendar 2024, now that budgets are set?

Yeah. I still think that we're seeing more opportunity around digital transformation, as I said in our prepared remarks and continued optimization of cloud ERP opportunity. In fact, today, Andrew -- Andre, I got another request from a client to introduce our services around cloud, ERP, both system selection and implementation services. And there's a lot of wraparound work tied to that, which is around data governance, data cleanup, and process improvement. So that's really where we're still seeing opportunity in our conversations with clients. I do expect in Europe that we might see some uptick around transaction work. especially around decisions to divest business, and we're in conversation with a couple of large clients about how we could support some divestiture strategy.

That makes sense. And last quarter, you also laid out expectations in terms of a softer first half for the calendar 2024 year and then the back half stronger as things have progressed over the past three months, how have those expectations changed or how should we think about that?

Yeah. I think unfortunately, the close of 2023 -- calendar 2023, has still been sluggish. And it's a crystal ball to say exactly when we'll see the shift occur. I think every client is looking for a little more macro certainty and getting more clarity around economic conditions, especially around interest rate decision-making. So that continues to be a little sluggish. As Jen said in her prepared remarks, we believe it's a matter of when, not if. And so we stay very ready to support these initiatives that our clients are talking to us about. It's just getting them to pull the trigger. And that is all business decision-makers getting a little more comfort and a little more optimism about where the economy is headed.

That makes a lot of sense. And then one more for me and then I'll hop back in the queue. Jen, you had some commentary about competitive pricing dynamics. Could you just explain a little bit more about what you're seeing in the market from a pricing perspective, particularly in the U.S.

Yeah. Sure. I mean the pricing environment has gotten tougher as all of the professional services firms are competing for, in general, a smaller pool of work. When we compete against the big four, they'll often have offshore operations and blended teams, and that averages down the rates and making it tougher to win the work. And that is another reason I think Kate alluded to or talked about in her remarks, is this another reason why we're building our offshore talent pool to stay competitive. And on the other side, when we're competing against staffing firms and they've been racing to the bottom on pricing to win work. So that's where kind of the competitive pressure is coming from. With that said, I think new work is getting more challenging on pricing, but we are still working through to catch up on pricing on our existing MSAs. So far, we haven't really had much pushback from our clients with this regard. So I think we've done a really great job over the last multiple quarters, 6 to 8 quarters to raise our pricing, and I think there's still probably some room to go there.

Sorry, just one more follow-up, just given you touched on it. So the center -- the centers of excellence that you're building out internationally. Could you just talk a little bit more about that strategy and how you think about that building out over the next few quarters and integrating that and blending that with your other talent pools as we think about that going forward? Thank you.

Yeah. Andre, I'll jump in here. I talked about it a little bit in my prepared remarks. We, for example, just won a big piece of work with Veracity for a financial services client that's continuing their digital transformation. And the reason we won the work is because we are blending, not only rates but we have tapped into a very strong talent pool in India around ServiceNow capability. So it's not just being able to bring labor arbitrage and the cost of labor down. It's also finding the talent that the world needs today. I mean as I mentioned, our own research and the manpower outlook from December still highlights that finding the right skill sets is one of the biggest challenges as every company is continuing to digitize and introduce more and more technology and AI into what we do. And so it's not just about cost anymore, it's about finding the right talent pools that can offer our clients and especially on these consulting engagements, what they need. So, we’re very excited about what we’re building in India, and we’re doing the same thing around finance talent -- finance and accounting talent in the Philippines. I mean we’re all reading the stories about finance and accounting talent exiting the profession in North America for a variety of reasons. And so needing to find these talent pools that exist in other parts of the world, I think will be increasingly important to remain not only competitive financially, but also competitive in terms of winning the work.

Great. Thank you so much for that color.

You’re welcome. Thank you and Happy New Year.

Thank you. One moment for questions. Our next question comes from Marc Riddick with Sidoti. You may proceed.

Hi. Good evening.

Hi, Marc.

Hi, Marc.

So I wanted to start with -- thanks for all the color that you've already provided. I wanted to start with if you could give some thoughts and commentary around sort of where you finished the quarter on the headcount and kind of where you -- comfort level as to maybe what you're seeing maybe for the next couple of quarters, if you're kind of where you want to be or if you feel as though there are other adjustments that need to be made are some areas that you would -- would need to shore up or how should we think about sort of where we ended the quarter versus where you might want to be six months to 12 months from now?

Marc, are you referring to consultant headcount? I just want to make sure I'm answering...

Yeah.

Yeah. So our consultant headcount at the end of the quarter it didn't really decrease all that much from the end of last year around the same time. One movement is because we added a pool of consultants or talent from CloudGo from this acquisition. And then the other -- you remember the consultant count that you're looking at, at the end of the period is as of one point in time. So it depends on the talent that we're adding to serve or, for example, our large clients in the Philippines, and we had some kind of onetime add there, a group of independent consultants that's working on that. So overall, if you look at the average, our consulting count, I would say, decreased about anywhere between 300 to 400 , if you look at the average year-over-year. Yeah.

Okay. And then I was wondering if you could -- shifting gears. I mean, I appreciate the commentary on CloudGo. I wondering if you could talk a little bit about -- you did briefly touch on uses of cash. And certainly, there's another $5 million or so on share repurchase during the quarter. I wonder if you could talk a little bit about the acquisition pipeline that you're currently seeing, whether that look has changed, evaluation is changed or maybe how you're looking at the current pipeline today versus maybe three months to six months ago?

So let me just comment on M&A and pipeline activity, and then I'll hand it to Jen to talk about our uses of cash and capital structure. But, we continue, as I've talked about, we are building more diversification in our business to follow higher-margin and higher-growth businesses. We see consulting as an opportunity for us to also scale with our Agile business. And the Veracity and CloudGo business is exactly a testament to that strategy. And so as we continue to do that, we're going to look at additional consulting assets that can drive that strategy forward. We're also in the process of analyzing and mapping what our consulting capabilities have been in our PCS business and bringing them closer together with what Veracity does in their strategy practice, especially around user experience. So we bring both user experience and functional expertise closer together. Again, that is a part of strengthening the consulting part of our business and then being able to scale those practices with our agile talent. And M&A will play a role in that. Jen, now I'll hand it to you.

Yeah. So from a capital allocation standpoint, Mark, we have a number of areas in the business as we want to continue to investing to drive long-term growth. So one area, as I said in my remarks, is to complete our digital transformation project. And for the remainder of the year, we’re still looking at about anywhere between $8 million to $10 million of spend in that area. And as I also said, we’re going to – we’re looking at our acquisition pipeline and continue to assess the deals in the pipeline, and that’s an area we could deploy some cash. And just as a reminder, right, on a year-to-date basis, we have spent around $15 million on shareholder return via dividends and share buyback so far. I think given the uncertain environment and just overall lower expected earnings in this fiscal year, we are going to remain prudent on our capital allocation strategy.

Great. And then the last one for me. In your prepared remarks, you mentioned around a couple of client verticals, financial services was mentioned, I believe. You mentioned some of the geographic footprints around some of the Northern Cal and – versus the rest of North America and that kind of thing. So why you could talk a little bit, were there any other sort of areas that might be ventures, things like pharma and health care and anything that kind of stood at any particular either positive or negative as far as recent activity? Thanks.

Yeah. I’d say, and this isn’t new, but I’d say, as we’ve talked about before, the health care industry overall is behind in terms of their digital transformation. And so we continue to see opportunity there, as – and there have been some big transactions in our client base that we’re hoping to get work from in the pharma space. So I see that as some green shoots coming up. Financial services is still around regulatory remediation as there are focus on consent orders and cleaning up, I think, both compliance reporting, but also a lot of data issues in financial services. Especially as you connect the front of the house to the back of the house, and there’s still a lot of work to do because in huge financial banking environment, the systems are often very disparate, and there’s still a lot of work ahead for these organizations to address some of the problems. So we’re staying very close to this client set. And our financial services practice, I’ve been very pleased with their performance, and I see that that’s continuing to strengthen a bit as we move through the rest of the fiscal year.

Thank you very much.

Thank you, Marc.

Thank you. I would now like to turn the call back over to Kate Duchene for any closing remarks.

Well, again, I want to thank everyone for continuing your interest in RGP. We're working hard, and we'll look forward to talking with you after the end of our third quarter. Thank you again, and Happy New Year.

Thank you for your participation. You may now disconnect.