Good afternoon, ladies and gentlemen, and welcome to Resources Connections, 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 third quarter ended February 24, 2024. 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 reviewed in the Investor Relations sections 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 the Risk Factors sections 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 will now turn the call over to RGP's CEO, Kate Duchene.

Thank you, operator. Good afternoon, everyone, and thank you for joining us today. In Q3, we delivered solid performance across the enterprise despite a macro environment that continues to be sluggish and uncertain. In the quarter, client engagement extensions and client retention have been robust, with new project starts still taking longer to convert than previous cycles. On revenue, we performed consistent with expectations, while also continuing to deliver strong cash flow conversion this fiscal year. On SG&A and therefore, adjusted EBITDA, we well exceeded our expectations, remaining disciplined on cost in this environment and driving efficiencies in headcount. Our balance sheet remains pristine. During Q3, we saw a positive momentum in certain regions. Asia Pacific returned to growth from earlier quarters in the fiscal year. Our Mexico, India and Switzerland practices all grew year-over-year as we delivered long-term projects for large strategic clients. North America reflected the overall choppy operating environment as clients want more confidence in lower interest rates and improving economic indicators before moving ahead with many major initiatives. Countsy, which is our business unit delivering outsourced finance and accounting and HR services for startups, scale-ups and spinouts also grew in the quarter. In fact, Countsy is seeing the strongest demand for services since the pandemic. Our pricing initiative in the U.S. has progressed with a 1% increase in bill rate year-over-year. Overall, this quarter reflects success with what we can control, including superb customer service and client retention, improving operating efficiencies and maintaining a very strong balance sheet. This success will allow us to be fast and ready as soon as the broader buying environment improves. Turning to our operational metrics. We're pleased with that our pipeline remained resilient and steady through the quarter. The pipe is not created equal as we see growth in both…

Thank you, Kate, and good afternoon, everyone. This quarter, we achieved $151.3 million of revenue, which was consistent with our outlook range provided in January. Both our gross margin of 37% and our run rate SG&A of $45.2 million were significantly better than the favorable end of the outlook ranges provided. We produced solid adjusted EBITDA of $10.8 million or a 7.1% adjusted EBITDA margin and have delivered $34.9 million of free cash flow in the last 12 months. On a same-day constant currency basis, revenue declined by 20% year-over-year as our clients continue to be cautious with the pace of spending in the face of uncertain macro conditions, particularly in North America and Europe. Our Asia Pacific region performed relatively better with a decline of 4% year-over-year on a same-day constant currency basis. Markets such as India and the Philippines continue to perform well, primarily attributable to project opportunities with our large strategic clients as they continue to shift their spend to lower-cost markets in an effort to advance transformation initiative while containing costs. In addition, Singapore and Australia grew over the prior year from the expansion of our digital business with CloudGo. Operationally, as Kate mentioned, our growth pipeline remained resilient during the quarter. While the velocity of converting new opportunities in the pipeline to actual engagements remain slow, extensions on existing engagements were strong. We also saw an uptick in average deal size on closed deals during the third quarter. While the current economic environment still lacks a bit of direction, we do believe we are starting to see more movement in the sales cycle in recent weeks. Consistent with our survey results that Kate highlighted earlier, conversations with our own clients suggest that budgets do exist, and targeted investments are highly concentrated in technology upgrades and…

[Operator Instructions] It is from Mark Marcon with Baird.

Can you give us a little more detail with regards to Reference Point? Like how large is it? What's the growth rate? How much did you -- are you anticipating spending?

Sure. Mark, I'll start and then Jenn is going to jump in. We did have 1 correction in our prepared earnings script that we want to clarify, which Jenn will do in just a moment. With respect to Reference Point, we're not disclosing the size at this time. It is a boutique consulting firm, and we expect to close this within the next 60 days. What this enables us to really do is bring together their strategic advisory work and then more fulsome execution. They have left opportunity on the table given that they don't have as much execution scale that we do, especially from a global perspective. For example, there's an opportunity that's already in front of us with an existing client actually of both firms. But our competitive bid will be stronger together because we allow Reference Point access to our Center of Excellence talent pool in Mumbai, for example. So we really are excited about bringing our capabilities together very synergistically to serve what you know has been a long-term industry vertical for us, and where we have a very strong sales team.

Is there something that you wanted to correct from the transcript?

Yes. Jenn is trying to jump in. I can't hear you, Jenn

[Operator Instructions].

Okay. I'll jump in and correct this. It was the disclosure we made about APAC being down constant currency, 4% that stat is actually much better, and it's really a 1.8% decline constant currency. So we just want to call that out. It's not, again, a 4% decline, a 1.8%.

Okay. Great. And can you talk a little bit about what you're seeing in North America, both in terms of the ability to close deals. So I'll start there and then I want to ask about pricing and then the markets specifically. But just in terms of like, Kate, you're close to your clients, what exactly do they need to see? Because GDP has been healthy. Employment growth has been healthy. Obviously, interest rates are still high. But what exactly are they waiting for?

I think broadly, they're waiting for the first interest rate decline that is going to show -- it's going to be a firm line in the sand that we're moving in the right direction. So I do think the Fed's decision will unlock more capital. I would say, I characterize my outlook as more bullish on opportunity right now while remaining cautious on timing. . So we are starting to see these green shoots, especially around technology migration. I was just reviewing prior to the call, both are closed one for Q3 and our biggest pipeline opportunities in Q4, most involve technology change, most require project management, change management and then the wraparound services that I already talked about in my prepared remarks. So we are starting to feel more bullish about opportunity. It's really timing. That's the challenge. I'd say the other thing, Mark, about revenue, and we're conservative about that is that we do have a couple of major projects for in the energy sector that will roll or conclude in Q4. And so we've taken that into account. Now we've already identified new opportunities at those clients. But there may be a gap between the prior projects ending and the ramp-up of the new projects that we have to take into consideration.

Really appreciate that. And Kate, can you talk a little bit about like some of your major markets, whether it's the Tri-Cities New York area or if we think about Northern or Southern California or Chicago, what are you seeing in those markets? And I'm just trying to factor in like, okay, you gave us the North America numbers, but like how are those biggest offices doing? And how would you compare and contrast that to some of your not small offices, but smaller offices within the U.S.

Yes. I think the smaller offices would serve more middle market. Clients have been a little bit slower because that buying base has been more conservative. I really look at it not as much territories, Mark, but industries like where are we starting to see momentum in industries. So we talked about financial services. Pipeline is definitely growing in financial services, in health care, our longest-standing client has -- we have 3 big proposals into that client right now. I feel bullish on our opportunities to continue to serve them, but it's just when those projects will start. The next category that we're starting to see spending again is in the retail or consumer goods space. That's particularly true because that's an important concentration of clients in Europe. And then last, I'd say manufacturing is starting to come back a little bit. So that impacts more of the Chicago area, that's central of the country base probably impacts Atlanta a little bit more too. So that's really how we think about how we're gaining momentum. Let me also talk about technology because we mentioned in our earnings call a couple of quarters ago that we were starting to see some movement in technology, which has also been a very strong sector for us. And I'd say that we're seeing kind of fits and starts, we'll see some momentum, then we'll see more layoffs. Then we'll see things get put on hold because nobody wants to start a big project with on-demand talent when they've just done layoffs. So that's been a little bit, I'd say, herky-jerky, but we're starting to see more momentum in the media and entertainment space, which is pretty exciting. And that will have some positive impact in Southern California where we've had some leadership and turnover changes. So we're addressing those actively as we get ready for more opportunity there. So I hope this color has been helpful for you.

Absolutely. And then can you just talk a little bit more about the pricing within North America. What are you seeing from the big 4 and other competitors? We've obviously been reading about some of the things that they've been doing. But just wondering when you're competing with them how does that come through? Would you anticipate that pricing would actually continue to stay up year-over-year in North America? Or how are you thinking about that?

Yes. So, Jenn.

I'm back to you guys. I'm so sorry. I was having some technical difficulties. I think I heard -- Mark, I think I heard Kate correct the one of the stat that I said in Asia Pac, instead of a decline of 4% is actually an increase of 1.8% on a constant currency basis. Yes. So I want to make sure that we clear that up. And then maybe I'll take a stab at the pricing question, Mark. And then Kate, feel free to jump in. I mean, what we're seeing from the big 4, we talked about this in the last call, obviously, the big 4, they deployed bench resources. And when they have some bench resources, they can kind of deploy for free, they're certainly doing that. And they also have deployed offshore resources. Therefore, they can blend the rates down. And there's a lot of competition when we compete with the boutique staffing firms, too. For sure, they tend to want to race to the bottom in terms of pricing. To combat that, I mean we're actively -- we talked about this last quarter, actively building our own kind of offshore talent delivery hubs and then using them as much as we can in order to blend down the rates while protecting our margin. Obviously, we've got to now strike a balance between volume and pricing to maintain our market share. But the good news is, given our predominantly variable cost model, even with lower bill rates, we're still able to maintain our margin. So that's what we're seeing. Hopefully, that helps that, Mark, hopefully, that answers your question.

Yes, I would, Jenn, add that we remain very focused on value-based pricing, Mark. That is not changing. But when you have the big 4 giving their bench resources away for free, it puts your rational pressure in the short term, not the long term.

It comes from the line of Andrew Steinerman with JPMorgan.

Jenn, thanks for the revenue guide for the fourth quarter. Could you just go over what that would be on an organic constant currency basis year-over-year in terms of a percentage change on a same-day basis? And if you could mention if there's a difference in days in this fourth quarter versus the year ago fourth quarter.

Yes. Sure. The full quarter guidance at the top -- at $142 million, which is the top end of the range, it's about a 23% down compared to year-over-year on a same-day constant currency basis. And there is no -- in the U.S., there is no business day difference.

[Operator Instructions] And it comes from the line of Marc Riddick with Sidoti.

So I think you mentioned in your prepared remarks, financial services and health care. I was wondering if you could touch a little bit on those, particularly maybe starting with financial services, what maybe some of those drivers are. Is that a regulatory driver? Are you seeing a little bit of a pickup from improved M&A out there, which seems to be off to a decent start so far this year?

Yes, I'd say primarily, it's tied to regulatory requirements. Some technology investment in change. Financial services that have grown with a lot of consolidation system alignment is something that we're starting to see those large organizations address. And I think there is some activity related to M&A, and we're starting to see an uptick in request for project management type resources, Marc.

Okay. Great. And then it was very encouraging to see the launch in North America around the talent management system. I was wondering if you could -- I think you mentioned in -- Jenn, I think you mentioned in your prepared remarks that the financial system launch. I wasn't sure if you said calendar year or fiscal year. Is there sort of a ballpark time frame we should be thinking about for that?

Yes. Yes. The financial systems will go live later this calendar year.

Calendar year. Okay. Okay. Excellent. And then I was sort of thinking about, I guess, maybe sort of circling back to the M&A question but in a different way. I appreciate the commentary around Reference Point. So there's now been a couple of transactions during the year. Could you maybe sort of give your thoughts and views as to are things getting to be more attractive out there as far as potential acquisition targets and maybe the volume of what's out there, the quality of what's out there and the valuation?

Yes. So we're very much focused on continuing to invest in our digital capabilities and looking at companies that bring, I would say, more forward-looking capabilities to bear because we're so strong in functional expertise here. And so investing in more of the Veracity-type platform is something that we're looking at and looking globally. We did CloudGo, which is now part of the Veracity brand in late calendar '23 and we've been looking to add to that platform as well and valuations are getting more reasonable. So our pipeline of companies that we're looking at has grown. We're also, though, in a very targeted way at capability to add to what we might have. So think about the procurement supply chain space that seems to be gaining some momentum in terms of project retention and budget in our client base, and we'd like to grow our capabilities there.

Okay. Great. And then the last thing, I know you had made commentary around the fits and starts around technology activity. And I was wondering, do you get any sense that some of that is maybe tied to some of the regulatory pressures, whether they be home or abroad or whether or not the customers are more sort of tied to the interest rate discussion that you mentioned earlier.

Yes. I think it's tied to interest rate and I think headcount decisions that those firms are making. I don't know that I would say it's so tied to regulatory. I don't feel qualified Marc, to answer that question fully. But I do think that at our largest account, for example, that is a technology company, we had been worried about some roles that we knew were coming, and those folks have all been extended, and we see now growing opportunity in that account again. So I think it's a matter of those firms tended to over hire more coming out of the pandemic. And now that they're rightsizing or justifying more of that headcount, it's really a matter of timing again more than, I think, opportunity.

And as I see no further questions in the queue. I will turn it back to Kate for final comments.

Thank you, operator. Well, thank you, everyone, for attending the call. We'll look forward to adding Bhadresh to our earnings call following the end of our fiscal year and talking to you all again then. Thank you very much.

And with that, I conclude the conference. Thank you all for participating. You may now disconnect.