Q1 2023 Resources Connection Inc Earnings Call

October 5, 2022

Good afternoon, ladies and gentlemen, and welcome to the Resources Connection Inc. Conference call. At this time 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 run.

At this time I would like to remind everyone that management will be commenting on our results for the first quarter ended August 27, 2022. 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.

Press release can be viewed in the Investor Relations section of <unk> website, and also 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.

Statements are predictions and actual events or results may differ materially.

Please see the risk factors section in <unk> report on Form 10-K for the year ended May 28, 2022 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 <unk> CEO Kate Mcshane.

Thank you operator, and good afternoon, everyone and thanks for being with us.

We're pleased to report.

<unk> performance in Q1, specifically Q1 revenue was 17% higher than prior year, excluding the <unk> business, which we divested at the end.

Gross margin improved 190 basis points over prior year to 49% gross profit improved almost 17% quarter over quarter adjusted EBITDA margin improved 280 basis points over prior year to 15%.

Results exceeded our guidance as we grew top.

Top line improved pricing and maintain disciplined cost management.

During our prior call we outlined the strategic objectives for fiscal year 'twenty, three I will briefly comment on technology and digitalization initiatives.

We are progressing on all fronts.

We've launched our technology modernization project to support continued top line growth and drive greater operational efficiency.

This project will take approximately 24 months to complete globally to remind you we are replacing our core ERP system, our core talent acquisition and management system and implementing a contract management product.

These technology modernization will help us automate and provide collaboration tool for the new ways of working we.

We believe it will allow us to continue to improve our financial performance as we replace manual process with technology enabled workflows.

During the quarter, we also advanced the development of our digital engagement platform Hugo by our GT.

We have expanded our reach into California and are on track with our strategy. The next regional focus will.

It will be Texas, which we are planning to launch in the second half of this fiscal year.

Hugo enables us to attract finance and accounting talent.

Earlier in their careers and want to pursue their work life. Your date of the art professional staffing platform, which allowed talent and clients to match scale and opportunity directly.

We're pleased with the volume and quality of candidates published on this platform and continue to receive favorable client experience and Sac.

With respect to our brand development work and as announced during our Investor Day in April .

We launched several initiatives to refresh our brands position, including a new tagline dare to work differently.

This tagline speaks to the business model, we pioneered in the late <unk>. When we were first to market offering expert diverse professionals the ability to control their own career path.

It acknowledges and affirms our consultants decision to work differently and as a rallying cry encouraging our clients to embrace more agility in their human capital strategy.

Most importantly, it challenges us to own our position of strength in today's world of work as we amplify our brand.

What you can expect to see in the coming months with a refreshed web site as well as thought leadership based on our GP led market research operating perspectives on how organizations are managing their most mission critical projects, particularly in the face of challenging economic time talent shortages and a hybrid working.

World.

We have also continued to expand our PR program, garnering earned media coverage and Bloomberg market, Yahoo, Finance, Chief executive need nation, and other major outlets as well as the Pis on prominent business podcasts.

We'll continue our efforts throughout the year to build brand recognition learning opportunities for our clients and consultants.

Our brand work could not come at a better time to align to the prevailing trends in the contingent workforce marketplace.

Pandemics Reorders Society.

One is no different and as radically transform how work gets done we.

We have been in this pandemic for over 900 days, there is no doubt new habits to forums.

Cowen is mobile and empowered with career control like never before and immigration policy and retirement trend warrant that professional talent shortages arent going to resolve anytime soon.

Turning to our staffing industry Analyst July 2020 to report there are $6 7 million more openings in the job market than unemployed individuals available for full time work.

While the jobs report just yesterday from the Bureau of Labor Statistics indicated a 5% drop in job opening August over August these numbers confirm that there remains a wide gap in talent need and talent supply.

Therefore, it's no wonder employees actively rethinking their talent strategy to compete in this new environment.

Many companies recognizing these trends as foundational and generational shifts are embracing a more hybrid talent strategy, whereby they allocate an increasing number of physicians enrolled to contingent rather than traditional permanent workers.

Turning to our recent FAA research report buyers expect that 22% of their workforce will be contingent by 2024. This is up from 12% in 2009.

The trend toward embracing a shift in workforce models is so pronounced.

Finally, given the movement in total talent strategy.

According to FAA because of critical talent shortages. Many large organizations are actively accelerating workforce planning innovation.

While we remain mindful of current macroeconomic conditions and uncertainty the trends I've just touched upon percent continued opportunity for RG P.

Our business model, which prizes mobility flexibility and choice aligns strongly to today's Reorders world of work, we empower expert diverse professionals with ultimate career control and work with clients every day to deliver support for mission critical work and transformation initiatives that continue to grow.

<unk>, even in the face of recessionary pressures.

While we read and hear everyday that high inflation increased interest rates and growing recessionary pressures, we still see capital improvement another business transformation work moving forward. These.

These kinds of projects were delayed and COVID-19 and are not being decommissioned even given market uncertainty.

We believe this supports our point of view that the migration to agile talent model.

And will be an increasingly important solution in the evolving world of work.

I'll close by highlighting an example of culture and innovation at RGB in the base of two recent disasters are serious earthquake in Mexico, and the devastating hurricanes in Florida.

Creative and peering through a cross functional employees came together to design and implement a new global disaster protocol.

The driving force for the work with to ensure we could connect with our people quickly to offer the right level of response and personal support you.

Using a survey tool in Workday. This group launched an automated standardized new process that enables us to check on the safety of our people as quickly as possible and deploy support as needed.

Protocol has been incredibly well received by our employees and highlights the power of human work at our GP.

I want to recognize and thank the group itself starters, who exemplifies the best of our Gpus, bringing empathy creativity and drive to make an impact for each other and the world at large I will now turn the call over to Tim for an update on operations.

Thank you Jay and good afternoon, everyone.

During the first quarter, we saw strong revenue growth operational metrics and margin performance.

Pipeline Bill and hold the overall home robots and momentum we had noted at the end of the fourth quarter continued in Q1 and through September . Despite the return of traditional impact related to the summer vacation.

When excluding task force revenue increased by 17% over the prior year quarter on a same day constant currency basis, and the demand profile for us services demonstrated strength throughout the quarter.

Geographic performance in the quarter was solid across our core business with strategic accounts Asia Pacific North America, healthcare calculate umbrella to be outperforming well along with some turbulence related to the macro environment Europe experienced significant vacation impact.

Yes.

While we have performed well in the current economic environment and our operational adheres remains strong we are cognizant of recessionary trends.

Our customer base.

However, as we have said in the past our companies continue to shift our focus to cold delivery of important initiatives, we have become more embedded in the fabric of our enterprise plan.

Also as we have long term depends on the pace of change of our client base.

We remain cautiously optimistic about the slide necessary awareness in our client base related to that.

The economic trends there remains opportunity for Argentina, our company.

We continue the fast and flexible solutions to forge ahead on important projects.

One favorable trend.

It's prevalent and important that clients are placing a value which has long been a hallmark as Argentina.

Actually that some people look directly versus leveraging a pyramid structure covenant.

Yes.

As an example, a top tier commercial and investment bank has utilized this evolving over the last couple of years to help them transform.

They evaluated the current and upcoming portfolio of initiatives two things became increasingly evident.

And overall as a large consulting firm utilizing junior talent for much of the work product and we.

Increasingly part of the cost of those relationships, particularly if it shifted in the project execution phase.

As a result, our calcium is given an opportunity to propose on a global services and we were successful in shifting several projects RVP, including work to support a significant divestiture.

There is also more opportunity on the horizon from a wallet share of larger competitors are processing shorthand a ship share.

Another example share kind of a large pharmaceutical clients are struggling with the user experience for internet offering to their employees.

And then charter with wise with the Eagle Ford is recall it quickly find the absolute so they could get back to the important work of taking.

Breakthroughs that change patients' lives.

The larger private implemented these new.

Technology, and our stakeholders began to use a platform the client realizes not provide news and utility than expected.

Turning back to a consultancy that double initial implementation the client be more apt to be an opportunity to propose on an overall assessment with particular emphasis on user journeys and experienced.

We're absolutely Walnut proposal and the project has been well received that we're proposing on significant additional work.

On the catalyst side of our business. The first quarter demonstrated continued strength in our ability to attract and retain premium talent to our platform.

<unk> is increasingly viewed over the top of alternative to traditional employment.

Professional services and an industry that talbott mudra flexibility career ownership and community that RTP provides.

<unk> current economic concerns where labor market continues to be very tight and our team passed with the attraction engagement and deployment of talent with Apple.

Attrition is lower for coal fleet and strong hiring trends that persisted as we become the premier destination for professional calibrated daring to work differently.

This strong trend continues despite some of the hiring freezes and layoffs, but in previous periods of volatility may have created a settlement value.

And perhaps the flex of traditional employment.

In fact, hiring freezes and reductions in workforce, helping amplify the increasingly small capital between traditional and agile employment.

This realization coupled with the shift in the way people desire to live and work makes Argentina very attractive employment destination.

A clear example of this would you feel the decision of one of our West Coast consultants.

<unk> is an RGB consultant over a year and a large technology company. He was approached numerous times through a variety of different job opportunities.

We have repeatedly declined noting that we enjoyed the controlling yellow reschedule.

We are positioned to help with slightly successful without having to scrap the project ownership.

He admitted that the current macro environment and a big part of our recent offer but that his desire for flexibility and loved the Argentine community along with headlines about layoffs and other technology companies. Some method of desire to remain in margins here.

We also continue to Boomerang, Rolanda, who return to us after leading to work on other opportunities.

Individuals are so important to our company as our living embodiment of the agility that people keep and the experience that we work hard to provide for them.

<unk> and to provide cautionary tale about leaving our platform to help us domestic culture and community in cohort with new joiner, which is very important particularly for those who are triathlon employment for the first time.

Our recent rumor and shared that she missed the culture and family environment in Argentina, and what message with Suntrust.

Appreciate what you have.

It is true we are committed to continuing development environment that is hard to leave at all.

Now, let me turn vascular per quarter operation.

During the quarter, we saw pipeline growth fueled by strong overall demand we continue to make progress with respect to pricing increases over 3% on a constant currency basis compared to prior year quarter.

We see pricing leverage and opportunity across the enterprise, even in a potentially more challenging macro environment as value is paramount to clients.

While we are mindful of potential Robert impacts based on economic conditions early second quarter revenue and operational trends are in line with Q1 trends.

Finally, let me touch on operational leverage in Q1, we continue to focus on controlling fixed costs and operating efficiently.

Adjusted EBITDA margin improved significantly over prior year quarter.

We will remain vigilant about discretionary spend and work diligently to continue to improve operating leverage I will now turn the call over to Ken for a more detailed review of our first quarter results.

Thank you Ken and good afternoon, everyone.

Achieved another outstanding quarter, one of the best first fiscal quarters in our company's history.

We had $204 1 million exceeded the high end of our guidance on.

On a same day constant currency basis, and excluding the impact of the task Force divestiture, we grew revenue, 17% year over year and 4% sequentially from the fourth quarter. Despite summer vacation in Q1.

In addition to the strong top line growth. We also expanded our adjusted EBIT margin by 280 basis points from the prior year quarter.

15% is that this first quarter margin and achieved GAAP diluted EPS of <unk> 53 per share for the quarter.

Overall demand remains healthy despite uncertainties in the macro environment. Our strong revenue performance in Q1 was broad based across all client segments.

Yes.

Including strategic global accounts, and regional accounts with 15% growth on 10% growth year over year.

It was led by solution areas in finance, and accounting technology, and digital and business transformation.

Revenue from it consulting and on demand tally all grew approximately 12% year over year.

Geographically North America, and Asia to support both performed well with 18% and 20% year over year growth.

Jim day constant currency basis, while Europe declined slightly by 1% as a result of heavy summer vacation as we head into the data.

Well, we're beginning to see some softness in pockets of the European client base, the growth, especially in Europe , and now having a material impact on our Q1 performance in the region.

Gross margin in the first quarter with 49% up 190 basis points over the same quarter a year ago.

Primarily driven by an improvement in the pay bill ratio of 230 basis points.

We raised our average billings to $130 constant currency of $1 25 in Q1 of fiscal 'twenty Q3, 2% improvement while U S average bill rate rose by five 4%.

Average pay rate was also favorable at $62 constant currency 2063 in the prior year quarter.

Turning to SG&A, we remain disciplined cost management and investment oversight in the business.

SG&A expense for this quarter was $53 1 million or 26% of revenue a 100 basis point improvement compared to the same period a year ago.

As a reminder, run rate SG&A excludes noncash stock compensation restructuring charges contingent consideration and technology transformation costs.

The three main levers for SG&A that we continue to focus on our management compensation occupancy and business travel expenses.

In the case of recessionary pressure, we will closely monitor our head count investments match, the pace of demand and business activities, while driving forward our growth strategy and key areas of the business.

Second we will continue to drive reduction in our real estate, while reaping benefits from our previous efforts over the last two years.

Occupancy costs in the current fiscal year is expected to be favorable by another $2 million or 17% over fiscal 'twenty two.

Lastly, we will remain disciplined with the level of business travel and expect to sustain the cost reduction achieved in the previous fiscal year.

Turning to our liquidity.

We used approximately $5 3 million of cash in operations during the first quarter due to our annual bonus payout and the format, we repaid $34 million of outstanding debt lowering our debt leverage ratio from <unk> to <unk> and ended the fiscal quarter with $72 6 million of cash and cash equivalents.

Now, let me address the macroeconomic trends and how they impact our business.

First of all inflation sharp inflation understandably patient cost pressure on our business primarily in the area of employee consultant raising compensation given that's the most significant costs in the business.

We are focused on providing competitive pay to our employees, while we visibility and have been successful in alleviating the margin pressure from wage inflation.

Continue to do so in the future in a contracting economic environment, we believe our value proposition becomes more appealing to hit towards competitive for optimal prices leading to ample opportunities to continue driving <unk> uplift.

Second on currency, particularly with respect to the strengthening U S dollar.

While the transition of our operating results is subject to fluctuations in the exchange rates. The foreign currency, we believe our economic exposure to such fluctuations is not material.

Foreign entities, typically transact with clients and consultants in their respective local currencies and generate healthy cash flow to fund their own operations.

Limited number of circumstances, where we may be asked to transact with our client in one currency, but are obligated to pay off in Bolton in another currency.

Milestone interest rates at the current debt level, we do not expect any material impact from rising interest rates, nor our ability to service such that.

In the event of higher debt levels, our ability to generate cash will enable us to deleverage quickly as always.

Included in how we leverage that to grow the business whether organically or strategically.

I'll close with our second quarter outlook early second quarter with the revenue trends have been stable.

There is more caution in general within our client base critical projects are still being initiated and executed, albeit at a more deliberate pace.

More than ever in the face of macro headwinds our deep relationship with our clients and our expert talent base has positioned us to compete and win opportunities.

Our second quarter revenue is estimated to medium range of $196 million to $201 million representing growth over the prior year quarter, excluding tax reform.

Gross margin in Q2, we expect it to be in the range of 40% to 41%, reflecting the impact from Thanksgiving holidays.

Finally, our run rate SG&A is expected to be in the range of 54 to 58 million.

We continue to make progress in our technology transformation project and expect the cash outlay to be in the range of $3 million to $5 million in the second quarter of which approximately 55% will be capitalized with the remaining to be recognized as non recurring operating expenses.

That I will open up the call for Q&A.

Thank you as a reminder to ask a question you will need to press star one on your telephone please standby with compile the Q&A roster.

Okay.

Our first question comes from Mark Marcon with Baird You May proceed.

Hi, good afternoon.

Really nice to see the strong first quarter results wondering can you talk a little bit about.

The progress that Youre seeing with Hugo.

Youre expanding that.

California and in Texas, what have you seen so far in New York in terms of the take up and.

And how meaningful is it.

In terms of revenue and profitability.

Yeah.

Hi, Mark and thanks for the question. So we have launched in the Tri State area as we've talked about.

In the last fiscal year, and we've just launched in California, both Northern California, and Southern California. So we're on track with our strategy. We've hired some additional sales personnel to support the platform and we've been building talent pools in their particular geographies, where we're expanding.

<unk>.

So as we return.

More hybrid or onsite work will have talent available to fill the need.

So far we're on track, but it is early days and the budget for Hugo is not material. This year in light of our overall results.

Okay.

But it is meeting expectations in terms of.

What you were expecting out of the Tri state area in terms of the kind of the initial phases.

Yes, we're on track we feel good about where we are I mean.

Migrating to this alternative channel is something that will take some time, especially as we're targeting more digitally native buyers.

And so that takes some time.

We shared on our previous call Mark we we had a client who loved the experience when through the digital engagement, but came out the other end things that don't let me lose that connection to my to my client service personnel as well. So I think we're still going through a stage, where we're learning new behaviors and new channels and the efficiency of it.

And as we've said before this will be a learning year as we bring this platform to life.

Great and then the 17% growth that you ended up experiencing on a constant currency basis, when we strip out task force.

That was that was.

Terrific Im wondering how how how is the growth split between.

Project consulting and managed services versus on demand talented professional search.

Yeah Mark.

On demand talent and project consulting drove both segment grew by 12% year over year, and when I say, 12% there.

It's not constant currency and same day. So yes, so I would say that the growth was evenly split between the two segments.

Okay great.

And then.

With regards to Europe during the last quarter, obviously task force came out.

Yes.

It's still seemed a little bit.

Softer than what we were looking for I'm wondering was that broad based across Europe or was it one country or two countries, specifically that may have been a little bit softer than any sort of projects that would have been associated with.

Hey, Mark.

Well I would say it was fairly broad based and remember our largest practice.

In Europe is in the release yet.

A lot of arena has to do with.

A full complement of vacation.

Some of oil into the market and then there's all kinds of things will happen.

Queen and other things there so.

Generally.

I don't think it was wholly unexpected.

That occurred obviously that were on our controlled on a little bit unexpected.

And we had some timing of projects number with us it's a smaller.

Small European process independent of apps, and we're focusing really on large projects at larger clients. So.

Some of the timing of those projects.

Ken impact where they are.

<unk>.

Alright, and then the gross margin improvement was impressive.

Can you talk a little bit about.

The sustained ability to continue.

To raise the bill rates in excess of the pay rates.

And how you're doing that.

Is are there specific practices, where youre seeing a greater ability to do that.

Yeah.

We adjust the bill rates.

And I'll talk about the pay rates.

Second because of our approach around pay rates haven't really changed our approach to bill rates really have over the last few quarters that we've been talking about it.

Some of those kind of comes down to we always talk about having booked mindset and mechanics.

We have.

We've got a pretty good job of shifting People's mindset to the concept of pricing to value. Let me prior to this year part of last year.

We haven't really focus has been more of a cost plus as opposed to pricing the value. So we've made some of those drivers we brought in.

Some some assets to help us around strategic pricing.

Through training, we've tightened up the governance.

So that mechanic, both mechanics are helping with that and the market can take it I mean, the reality of it is that we've been under market for for many years, so our ability to continue to operate pricing.

Still think theres plenty of upside there so with respect with respect to pay rates.

Early consistent but we price to market, we don't negotiate against our consultants, we want to pay them.

We will pay them, a fair wage to come and work for us and paid for every hour that they work at.

We hope that as we are in the market a lot of offer using external surveys are also just in our experience to make sure that we're paying.

We'll take the right amount to our folks and.

So the reality of it is is that that that muscle of our business is a little further ahead than our muscle loan pipeline will really look to flex the pricing muscle now.

Yes, let me just add something also on pay rate.

Which is.

In some parts of the business. We are we are hiring offshore talents and so that definitely is the favorability that we're seeing in this quarter.

And pay rates are going to come from that as well and that's something that we're going to continue to continue to focus on going forward to expand that offshore.

That's really helpful and really illuminating.

Can you talk a little bit about.

The 17% constant currency ex task force growth that you ended up seeing how does that vary over the course of the quarter and.

How are you seeing that.

Translate or how are you thinking about that translating into.

The guidance that you basically provided for the second quarter what areas.

Potentially slowdown obviously, we're all aware of the macro headwinds.

And so it's natural to assume that there would be some some slowing but just wondering if you can be specific about where youre seeing it.

Yes.

First of all overall, when I think about the velocity of the business were actually fairly consistent through the quarter with some in the latter part of the quarter with the holiday impact in Europe impacting us towards the latter the latter third of the number.

For the quarter and what we've seen is real consistency and stabilization that we've moved into.

We ended the second quarter so.

Look at kind of the the.

The trends from a velocity standpoint, but then also looking into where our pipeline is in some of our operational metrics are still strong, but you will begin to think about is that things are good.

We will get a little bit harder, we know that but our overall demand profile is still really strong.

To come back to you.

How quick how are we willing to Brian to get back to get that extra bit of revenue, which I can tell you that.

We're willing to do that.

The second is <unk>.

Understanding that there may be some things some choppy waters that are outside of our control.

We are putting ourselves in the best position to help our clients.

And we will.

Depending on kind of the.

Wariness or the impact that they're feeling from the macro macro economy will adjust.

We lived through.

Yeah, Mark I'll, just add one thing I was on the phone today with one of our major market leader talking about the environment and what he's seen and one comment you made which I think has been echoed in and with a variety of our clients is a nice economic time, they don't want clients don't want to be.

Paying for a lot of advice right now they really want to be paying those firms that can help them execute the projects that are already on the agenda are underway and that tells me that we are at the right solution for today, because we are all about locking arms with their clients and executing those initiatives.

And I think Thats really what clients are looking for in today's environment.

Great that makes a lot of sense.

And last one for me and then I'll jump into the queue, but with regards to <unk>.

One of the questions.

We're getting.

From investors is just.

How companies might end up reacting with regards to the macro environment significantly slows down.

To what levers you would have in order to reduce expenses if need be obviously, you've got a variable cost structure, but I'm wondering if you could just.

Discuss that a little bit just in terms of like what the game plan would be if things do get a lot chop your.

Over the next.

Three to nine months.

Alright, well ill start by saying.

<unk> highlighted that we have a variable cost structure already built into our model and that makes us more agile than many of our competitors.

The other thing I'd say is with the work we've done internally over the last five years, we do have much greater visibility to our data.

And to the investments, we're making and whether that's paying off and what the trend line.

And our client buying behaviors. So we can adjust sales or pull levers more quickly than I think we used to be able to do.

Keep in mind, the two <unk>.

Most fundamental elements of our cost structure, our head count and real estate and we will continue to look very carefully I mean, Tim is running our operations.

With a very careful eye on head count replacement or additions and we will continue to stay very disciplined.

And Jan and her group are continuing to look at our real estate needs and continuing to swim knows where appropriate as a firm we're still operating largely in a hybrid model that seems to be working for our people.

Recognize that in today's environment, we are in a new world of work with new behaviors and in order to attract the very best that can drive growth and profitability.

Need to be listening to what talent launch.

Perfect. Thank you.

Thank you and as a reminder to US a question you will need to press star one on your telephone.

Our next question comes from Marc Riddick with Sidoti You May proceed.

Hi, good afternoon.

Hi, Mark so.

I wanted to follow up on.

The travel side of the business travel side of things.

Seeing there it seems as though.

Youre expecting that to be steady or are there any particular areas, where youre seeing any any type of pick up as far as this folks looking to.

Clients looking to engage more face to face or any type of visibility that you might have.

And having that.

Pick up going forward.

Hi, Mark first of all in terms of peso based travel.

A couple of things I mean, there are a couple of industries, where one of his financial services where the.

Express that they prefer to have more face to face in terms of our delivery.

Also for US just in terms of the global concentration in terms of the hour.

All of our clients that.

We are pretty safe to say and the other one I would say is energy. Both two industries have really asked for more cases, almost everybody else, including some of the large technology companies who are.

<unk> said publicly that they want all their employees back in.

Reality of it is is that almost everybody is working in a hybrid fashion.

Companies, who have gotten used to working with excellent talent to help them execute their work.

Got work done remotely.

I alluded to give that talent up now so we haven't seen.

The major shifts.

I'll start with a couple of industries that I talked about.

And okay, great and to that which is.

Majority of the travel that we are doing and we are really focused on go to market activity.

<unk> facing activities at both the internal.

Internal travel so typically we try to keep our.

Our travel to no more than 60 basis points of our revenue that's kind of where the target is which is about half of what.

Less than half of what we used to spend pre pandemic.

Great and then I wanted to shift over to <unk>.

Discussing the branding opportunities and the messaging that Youre youre moving forward with I was wanted to talk a little bit about.

Yes.

I guess, maybe how that might rollout strategically or from a timing perspective are there any sort of things that we should be thinking about as to sort of messaging or.

Wait until after the political season and stuff or is that something that ramps up more after the new year, how should we think about that.

Yes, I think youll see before the end of Q2, Mark you'll see us re.

Leasing the new positioning and brand language on our website, where currently refreshing that as I mentioned in my prepared remarks. We're also engaged currently in a research project, which will be help us deliver some thought leadership for our client base and <unk>.

It's around moving to more agile talent model.

And that will be.

<unk> seen in Q3, both I think before the holidays and then thereafter and we're going to continue to build on that thought leadership. If you really think about <unk> as a leader in the field of agile human capital models, and how we can help clue.

Ryan move more toward agility in their human capital supply chain.

Youll see us talking more and more about that and preparing insights and other reports that can help clients along their journey.

Great and then the last question from me I was wondering if you could are there any sort of.

Shifts or changes that you've seen and strategy when it comes to sort of how your client service one of the things not necessarily from a specifically from a macro.

Driven kind of recessionary concern area, but I mean, just from a strategic.

Approach are the are there any sort of trends that maybe you're kind of under the radar that youre that youre seeing that you think might emerge and be more of a more of a contributor going forward. Thanks.

Yes, I think this whole idea of agility in mobility, it's going to happen with.

Talent pools that are not entirely captives, so coming out we are.

In our point of view, we're clearly moving out of the baby Boomer paradigm there.

Everyone really inspired to a full time equivalent job, where he worked for only one employer at a time you climbed to the corporate ladder worked at a specific location and you worked under a regular set of ours.

That is changing and while we're still in a period I think it reflects what we're going to see through the next 12 to 24 months is how is that paradigm really shifting for the future and that means clients have to prepare for more mobility, even in their own captive talent pools, but they.

Also in order to compete and move faster or have to identify the right kind of process and protocol to in source talent when they need it for the specialized skills that they need and that's really the opportunity for our GP. It's what we do so well and what we think we can continue to.

Do well into the future with more and more clients as they move in that direction. I mean, there are plenty of really leading business people that it said this kind of shift in strategy and how work gets done is coming I think it's not as widespread as I would have thought it would be right now that we really.

Feel like that movement is accelerating and that creates opportunity for us.

And that's really where we're focused on delivering and putting together.

Our platform, which brings the right level.

Care on the talent side and the client side to really be successful in this new way of working.

Much appreciate it thank you very much.

Youre welcome.

Thank you one moment for questions.

Our next question comes from Mark Marcon with Baird You May proceed.

Hi, I had a follow up.

With regard.

New guidance that you gave us.

How would you use which areas would you say would be growing the fastest versus the slowest from a geographic perspective.

How should we think about that.

Yes, Mark I would say.

Geographically North America, and the U S probably is still going to accelerate.

Faster than the other geographies Europe , given that the growing concerns in the growing vendor recessionary pressure.

And economic turmoil going on in Europe .

It will it will be the slower part of the business.

And the guidance that was baked into the guidance.

Okay, So Europe , a little bit slower.

Asia Pac relative to North America.

And if I could is performing very steadily.

Mhm.

Okay.

Yes.

How about from a product.

Thanks.

In terms of evolutionary market that what you are enquiring about.

That's right.

Yeah, So Tim you should answer that one.

Yes.

I'll provide a few comments kind of coming out of the coming out of last year, we had a real boom in finance.

Finance and accounting and that continues to be strong.

What we see is that there is still a lot of transformative.

Even despite the.

The slowdown in M&A Theres still a lot of there's still a fair amount of transformation that is occurring.

I talked about in my script.

Stitcher.

Rest assured that we're working on.

There are a number of things that we teed up around digital transformation that are pretty strong and our pipeline.

Both in terms of kind of sheer volume and also in terms of awkward where there is opportunity when you look into the pipeline up to the comments, we will continue to be the dollar strength.

Okay, Great and then with regards to looking beyond.

This.

Self.

Self imposed slowdown that's occurring because of interest rates going up once we get to the other side, you've obviously done a great job in terms of improving the margins you've got these technology initiatives put in place, which should increase the efficiency. How are you thinking about like.

Where the EBITDA margins can go from a long term perspective, given the mix of business. Once once your digital transformation is completed.

Yes, well I think we have our eye on continuing to improve those not only with that with the more modern technology platform that will put in place in <unk>.

And lots of both automated and self serve possibilities with those state of the art platforms.

Also how much of our more on demand talent, we can drive through Hugo, which can improve our efficiency and our financial metrics. So I mean, we're all about improvement and focused on that I'm not going to give you a solid number right now we've talked about 15.

I think a year and a half ago and we're achieving that so we're continuing to drive toward improvement.

Mark and we'll keep you updated.

That's an aligned commitment by this executive team and part of it is going to depend on how quickly.

Both clients and talent adapt to.

Some self serve and automated.

Aspects of our business workflows, and we're going to do all we can to continue driving that shall we say.

As a top performer in our industry group.

Great and then just from a shorter term perspective.

Should we think about head count additions internally over the balance of this this year.

Well from a head count perspective.

As I said in my in my remarks that we are going to hold head count steady and obviously looking at the pace of demand in the hope of business activity and Thats definitely going to be.

Closely monitored although we do continue.

We continue to grow in key areas of the business that has to go in velocity. So areas of key investments, where we need to invest not only to we're going to move forward, but in other areas, where we want to watch it very very cautiously.

Got it thank you.

Thank you and I'm not showing any further questions.

At this time I would now like to turn the call back over to Keith you Shannon for any further remarks.

Okay. Thank you everyone. Thanks again.

Look forward to connecting with you. After we report our Q2 results. Thanks again.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

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Commenting on results for the first quarter ended August 27 2022.

We'll 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 <unk> website, and also 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.

I'll now turn the call over to <unk> CEO Keith Duchenne.

Thank you operator, and good afternoon, everyone and thanks for being with US. We're pleased to report sustained robust performance in Q1.

Typically Q1 revenue was 17% higher than prior year, excluding the task force business, which we divested at the end of May.

Gross margin improved 190 basis points over prior year to 49%.

Profit improved almost 17% quarter over quarter, adjusted EBITDA margin improved 280 basis points over prior year to 15% each.

These results exceeded our guidance as we grew top line improved pricing and maintained disciplined cost management.

During our prior call we outlined the strategic objectives for fiscal year 'twenty three I will briefly comment on technology and digitalization initiatives as we are progressing on all fronts.

We've launched our technology modernization project to support continued top line growth and drive greater operational efficiency.

These technology modernization will help us automate and provide collaboration tools for the new ways of working.

We believe it will allow us to continue to improve our financial performance as we replace manual process with technology enabled workflows.

During the quarter, we also advanced the development of our digital engagement platform Hugo by our GP, we have expanded our reach into California and are on track with our strategy. The next regional focus for Hugo will be Texas, which we are planning to launch in the second half of this fiscal year.

Hugo enables us to attract finance and accounting talent you are earlier in their careers and want to pursue their work lives through a state of the art professional staffing platform, which allow talent and clients to match skills and opportunity directly.

We're pleased with the volume and quality of candidates published on this platform and continue to receive favorable client experience feedback.

With respect to our brand development work and as announced during our Investor Day in April .

We launched several initiatives to refresh our brands position, including a new tagline dare to work differently.

Tagline speaks to the business model, we pioneered in the late Ninety's. When we were first to market offering expert diverse professionals the ability to control their own career path is.

It acknowledges and affirms our consultants decision to work differently and as a rallying cry encouraging our clients to embrace more agility in their human capital strategy.

Most importantly, it challenges us to own our position of strength in today's world of work as we amplify our brand.

What you can expect to see in the coming months with a refreshed web site as well as thought leadership based on our GP led market research offering perspectives on how organizations are managing their most mission critical projects, particularly in the face of challenging economic time talent shortages and a hybrid working.

World.

We'll continue our efforts throughout the year to build brand recognition for learning opportunities for our clients and consultants.

Our brand work could not come at a better time to align to the prevailing trends in the contingent workforce marketplace.

Pandemics Reorders Society. This one is no different and as radically transform how work gets done.

We have been in this pandemic for over 900 days.

There is no doubt new habits to forms.

Cowen is mobile and empowered with career control like never before and immigration policy and retirement trends warrant that professional talent shortages arent going to resolve anytime soon.

According to its Daffing industry analysts July 2020 to report there are $6 7 million more openings in the job market than unemployed individuals available for full time work.

While the jobs report just yesterday from the Bureau of Labor Statistics indicated a 5% drop in job openings August over August these numbers confirm that there remains a wide gap and talent need and talent supply there.

Therefore, it's no wonder employees actively rethinking their talent strategy to compete in this new environment.

In fact, many companies recognizing these trends as foundational and generational shifts are embracing a more hybrid talent strategy, whereby they allocate an increasing number of physicians enrolled to contingent rather than traditional permanent workers.

According to a recent FAA research report by.

<unk> expect that 22% of their workforce will be contingent by 2024. This is up from 12% in 2009.

The trend toward embracing the shift in workforce models is so pronounced.

Finally, given the movement in England total talent strategy. According to FIA because of critical talent shortages. Many large organizations are actively accelerating workforce planning innovation.

While we remain mindful of current macroeconomic conditions and uncertainty the trends I've just touched upon percent continued opportunity for our GP or.

Even in the face of recessionary pressures.

While we read and hear everyday about high inflation increased interest rates and growing recessionary pressures, we still see capital improvement and other business transformation work moving forward <unk>.

These kinds of projects were delayed and COVID-19 and are not being decommissioned even given market uncertainty.

We believe this supports our point of view that the migration to agile talent model is real and will be an increasingly important solution in the evolving world of work.

I'll close by highlighting an example of culture and innovation at our GP in the base of two recent disasters are serious earthquake in Mexico, and the devastating hurricanes and in Florida.

Creative and hearing group of cross functional employees came together to design and implement a new global disaster protocol.

The driving force for the work with to ensure we could connect with our people quickly to offer the right level of response and personal support you.

Using a survey tool in Workday. This group launched an automated standardized new process that enables us to check on the safety of our people as quickly as possible and deploy support as needed.

The protocol has been incredibly well received by our employees and highlights the power of human work at our GP.

I want to recognize and thank the group itself starters, who exemplifies the best of our GP, bringing empathy creativity and drive to make an impact for each other and the world at large I will now turn the call over to Tim for an update on operations.

Thank you Kate and good afternoon, everyone.

During the first quarter, we saw strong revenue growth operational metrics and Martin performance pipeline built and you were also robust and momentum. We had noted at the end of the fourth quarter continued in Q1 and through September Despite a return with traditional impact related to the summer vacation.

But excluding task force revenue increased by 17% over the prior year quarter on a same day constant currency basis, and the demand profile for our services demonstrated strength throughout the quarter.

Geographic performance in the quarter was solid across our core business with strategic accounts Asia Pacific North America, healthcare calculate and breadth to be outperforming well along with some turbulence related to the macro environment Europe experienced significant vacation impact.

Yes.

While we have performed well in the current economic environment and our operational adherent remains strong we are cognizant of recessionary trends that could impact our customer base.

However, as we have said in the past our companies continue to shift our focus to cut delivery of important initiatives, we have become more embedded in the fabric of our enterprise plan.

Also as we have long term depend on the pace of change of our client base has not abated.

We remain cautiously optimistic about the slide necessary awareness in our client base related to macroeconomic trends there remains opportunity for RVP, coupled with continued a fast and flexible solutions to forge ahead on important projects.

One favorable trend.

Using the prevalent and important that clients are placing a value which has long been a hallmark as Argentine provides versus actually people work directly versus leveraging a pyramid structure covenant big components.

As an example, a top tier commercial and investment bank has utilized this evolving over the last couple of years to help them transform.

As they evaluated their current and upcoming portfolio of initiatives two things became increasingly evident.

And overall as a large consulting firm.

Utilizing junior talent for much of the work product and we increasingly aggressive cost of those relationships, particularly if it shifted in the project execution phase.

As a result, our Calvin given an opportunity to propose on a global services and we looked a couple of shipping several projects RVP, including work to support a significant divestiture.

There's also more opportunity on the horizon to shift work from a wallet share of larger competitors are processed in shorthand as ship share.

Another example share kind of a large pharmaceutical clients are struggling with the user experience for internet offering to their employees.

Maine charter of the slide illustrates recall it quickly find afterwards, so they could get back to the important work of making breakthroughs that change patients' lives.

The larger private implemented these new technologies and our stakeholders began to use a platform the client realizes and optimize use and utility of the expected instead.

Instead of turning backlog consultancy double initial implementation the client <unk> will be an opportunity to propose on an overall assessment with particular emphasis on user journeys and experience.

Perhaps the Walnut proposal and the project has been so well received that we're proposing on significant additional work.

On the carrier side of our business. The first quarter demonstrated continued strength in our ability to attract and retain premium talent to our platform.

<unk> is increasingly viewed as an attractive alternative to traditional employment growth in professional services and an industry at Talbot more drawn to the flexibility career ownership and community that our GP provides.

Slight current economic concerns the labor market continues to be very tight and our team tasked with the attraction engagement and deployment of talent are performing with Apple.

Attrition is lower.

Our strong hiring trends that persisted as we become the premier destination for professional calibrated daring to work differently with.

Strong trend continues despite some of the hiring freezes and layoffs, but in previous periods of volatility may have created a settlement value and perhaps traditional employment.

In fact, hiring freezes and reductions in workforce, helping amplify that increasingly small capital between traditional and agile employment.

This realization coupled with a shift in the way people desire to live and work makes Argentina very attractive employment destination.

A clear example of this can be seen in the decision of one of our West Coast consultants.

Mortgages and arguably would result in over a year and a large technology company. He was approached numerous times for a variety of different job opportunities.

We have repeatedly decline doesn't that have enjoyed the control, yes, reschedule and not in a position to help with quietly successful without having to scrap the project that ownership.

He admitted that the current macro environment made a big part of our recent offer with that.

This desire for flexibility and love of the Argentine community, along with headlines about layoffs and other technology companies. Some method is desire to remain a market leader.

We also continue to see lower Angolan value return to us after leading to work on other opportunities.

These individuals are so important to our company as they are living environments of the agility that people.

And the experience that we work hard to provide for them. They are excellent ambassador and to provide cautionary tale about using our platform to help us domestic culture and community in cohort with new joiner, which is very important particularly for those who are trying out of unemployment for the first time publicly.

<unk> shared that she missed the culture and family environment, and RGB and one message with Suntrust.

Appreciate what you have.

It's true we are committed to continuous development environment that it's hard to leave at all.

Now, let me turn back to a reporter operation during.

During the quarter, we saw pipeline growth fueled by strong overall demand with <unk>.

Figure to make progress with respect to pricing increases over 3% on a constant currency basis compared to prior year quarter.

We see pricing leverage and opportunity across the enterprise, even in a potentially more challenging macro environment as value is paramount to clients.

While we are mindful of potential with Robert impacts based on economic conditions early second quarter revenue and operational trends are in line with Q1 trial.

Finally, let me touch on operational leverage in Q1, we continue to focus on controlling costs and operating efficiently.

Adjusted EBITDA margin improved significantly over prior year quarter.

Thank you Ken and good afternoon, everyone.

She has another outstanding quarter, one of the first fiscal quarter in our company's history.

With $204 1 million exceeded the high end of our guidance on.

In addition to the strong top line growth. We also expanded our adjusted EBIT margin by 280 basis points from the prior year quarter.

15% of record first quarter margin and achieved GAAP diluted EPS of <unk> 53 per share for the quarter.

Overall demand remains healthy despite uncertainties in the macro environment. Our strong revenue performance in Q1 was broad based across all client segments.

Yes.

Including strategic global accounts, and regional accounts with 15% growth on 10% growth year over year and was led by solution areas, and finance and accounting technology and digital and business transformation.

Revenue.

<unk> and on demand colleagues, both grew approximately 12% year over year.

Geographically North America, and Asia to support both performed well with 18% and 20% year over year growth.

Jim day constant currency basis, while Europe declined slightly by 1% as a result of having some of the occasion as we had anticipated.

Well, we're beginning to see some softness in pockets of the European client base, the growth, especially in Europe , and now having a material impact on our Q1 performance in the region.

Gross margin in the first quarter was 49% up 190 basis points over the same quarter a year ago.

Primarily driven by an improvement in the pay bill ratio of 230 basis points.

We raised our average billings to $130 constant currency from $1 25 in Q1 of fiscal 'twenty Q at three 2% improvement while U S average bill rate rose by five 4%.

Average pay rate was also favorable at $52 constant currency compared to 63 in the prior year quarter.

Turning to SG&A, we remain disciplined with cost management and investment oversight in the business.

SG&A expense for this quarter was $53 1 million or 26% of revenue a 100 basis point improvement compared to the same period a year ago.

As a reminder, run rate SG&A excludes noncash stock compensation restructuring charges contingent consideration and technology transformation costs.

The three main levers for SG&A that we continue to focus on our management compensation.

Can it be and business travel expenses.

Second we will continue to drive reduction in our real estate, while reaping the benefits from our previous efforts over the last two years occupancy costs in the current fiscal year is expected to be favorable by another $2 million or 17% over fiscal 'twenty two.

Lastly, we will remain disciplined with the level of business travel and expect to sustain the cost reduction achieved in the previous fiscal year.

Turning to our liquidity as expected we used approximately $5 3 million of tax in operation during the first quarter due to our annual bonus payout and the former we repaid $34 million outstanding debt lowering our debt leverage ratio from here to there.

<unk> and ended the fiscal quarter with $72 6 million of cash and cash equivalents.

Now, let me address the macroeconomic trends and how they impact our business.

First one on inflation sharp inflation understandably places cause pressure on our business primarily in the area of employee consultant raising compensation did invest the most significant costs in the business.

We are focused on providing competitive pay to our employees, while raising bill rates and have been successful in alleviating the margin pressure from wage inflation.

Continue to do so in future in a contracting economic environment, we believe our value proposition becomes more appealing compared to our competitors for optimal prices leading to ample opportunities to continue driving <unk> uplift.

Second on currency, particularly with respect to the strengthening U S dollar.

While the transition of our operating results are subject to fluctuations in the exchange rates upon currency, we believe our economic exposure to such fluctuations is not material.

Foreign entities, typically transact with clients and consultants in our respective local currencies and generate healthy cash flow to fund their own operations.

Limited number of circumstances, where we may be asked to transact with our clients and one currently but are obligated to pay off in Bolton in another currency.

Milestone interest rates at the current debt level, we do not expect any material impact from rising interest rates, nor our ability to service such that.

In the event of higher debt levels, our ability to generate cash will enable us to deleverage quickly as always we will remain prudent in how we leverage that to grow the business whether organically or strategically.

I'll close with our second quarter outlook early second quarter. We grew revenue trends have been stable. While there is more caution in general within our client base critical projects are still being initiated and executed, albeit at a more deliberate pace.

More than ever in the face of macro headwinds, our deep relationships with our clients and our expert talent base has positioned us to compete and win opportunities.

Our second quarter revenue is estimated to be in the range of $196 million to $201 million representing growth over the prior year quarter, excluding tax reform.

Margin in Q2, we expect it to be in the range of 40 to 40.

1%, reflecting the impact from Thanksgiving holidays.

Finally, our run rate SG&A is expected to be in the range of 54 to 58 million.

We continue to make progress in our technology transformation project and expect the cash outlay to be in the range of $3 million to $5 million in the second quarter of which approximately 55% will be capitalized with a remaining to be recognized as non recurring operating expenses.

That I will open up the call for Q&A.

Thank you as a reminder to ask a question you will need to press star one on your telephone please standby with compile the Q&A roster.

Okay.

Our first question comes from Mark Marcon with Baird You May proceed.

Hi, good afternoon.

Really nice to see the strong first quarter results wondering can you talk a little bit about.

The progress that Youre seeing with Hugo.

Youre expanding that.

California and in Texas, what have you seen so far in New York in terms of the take up and.

And how meaningful is it.

In terms of revenue and profitability.

Yeah.

Hi, Mark and thanks for the question. So we have launched in the Tri State area as we've talked about.

Yes.

Last fiscal year, and we've just launched in California, both Northern California, and Southern California. So we're on track with our strategy. We have hired some additional sales personnel to to support the platform and we've been building talent pools in the particular geographies, where we're expanding.

So as we return.

More hybrid or onsite work will have talent available to fill the need.

So far we're on track, but it is early days and the budget for Hugo is not material. This year in light of our overall results.

Okay.

But it is meeting expectations in terms of.

What you were expecting out of the Tri state area in terms of the kind of the initial stages.

Yes, we're on track we feel good about where we are.

Migrating to this alternative channel is something that will take some time, especially as we're targeting more digitally native buyers.

And so that takes some time.

We shared on our previous call Mark we we had a client who loved the experience when through the digital engagement that came out the other end things that don't let me lose that connection to my to my client service personnel as well. So I think we're still going through a stage, where we're learning new behaviors and new channels and the efficiency of it.

And as we've said before this will be a learning year as we bring this platform to life.

Great and then the 17% growth that you ended up experiencing on a constant currency basis, when we strip out task force.

That was that was.

Terrific Im wondering how how how is the growth split between.

Project consulting and managed services versus on demand talented professional search.

Yes, Mark.

On demand talent and project consulting both both segment grew by 12% year over year, and when I say, 12% there.

It's not constant currency and same day. So yes, so I would say that the growth is evenly split between the two segments.

Okay great.

And then.

With regards to Europe during the last quarter, obviously task force came out.

Okay.

It's still seemed a little bit.

Softer than what we were looking for I'm wondering was that broad based across Europe or was it one country or two countries specifically that may have been.

A little bit softer than any sort of projects that that would have been associated with.

Hey, Mark.

Well I would say it was fairly broad based and remember our largest practice.

In Europe isn't there isn't there yet.

<unk>.

A lot of everything that had to do with.

A full complement of vacation.

Some of oil into the market and then we will continue to happen.

And other things there so.

Generally.

I don't think it was totally unexpected.

Some things that occurred obviously that were out of our control and a little bit unexpected.

And we had some timing of projects, but it's a smaller.

Smaller European process, given the vast and we're focusing really on large projects at larger clients. So.

Some of the timing of those projects can be.

Impact where they are.

Quarter.

Alright, and then the gross margin improvement was impressive.

Can you talk a little bit about.

The sustained ability to continue to.

To raise the bill rates in excess of the pay rates and.

And how you're doing that.

Are there specific practices, where youre seeing a greater ability to do that.

Yeah.

Adjusted Bill rates I think.

I'll talk about the pay rate for the second because our approach around pay rates haven't really changed we're approachable rates really have over the last few quarters that we've been talking about it.

Some of those kind of comes down to we always talk about having booked mindset and mechanics.

We have.

So a pretty good job of shifting People's mindset to the concept of pricing to value. Let me prior to this year part of last year.

We haven't really focus a bit more of a cost plus as opposed to pricing the value. So we've met with us drive brought in.

Some some assets to help us around strategic pricing, so folks and training, we tightened up the governance.

So that mechanic, both mechanics or helping them in the market can take it I mean the.

Reality is that we've been under market for for many years, so our ability to continue to answer raise pricing.

I still think theres plenty of upside there so with respect with respect to pay rate.

Early consistent but we price to market, we don't negotiate against our consultants, we want to pay them.

We will pay them a fair wage to come and work for US David for every hour that they work.

We hope that as we are in the market a lot of offer using external services will also just in our experience to make sure that we're paying.

We will take the right amount to our folks.

So the reality of it is is that that that muscle of our business is a little further ahead on our muscle loan pipeline will really look to flex the pricing muscle now.

Yes, let me just add something also on pay rate.

Which is.

In some parts of the business. We are we are hiring offshore talents and so that definitely is the favorability that youre seeing this quarter.

And pay rates are they come from that as well and that's something that we're going to continue to continue to focus on going forward to expand that offshore.

That's really helpful and really illuminating.

Can you talk a little bit about the <unk>.

17% constant currency ex task force growth that you ended up seeing how does that vary over the course of the quarter and.

How are you seeing that.

Translate or how are you thinking about that translating into.

The guidance that you basically provided for the second quarter.

What areas.

Might potentially slowdown obviously, we're all aware of the macro headwinds.

And so it's natural to assume that there would be some some slowing but just wondering if you can be specific about where youre seeing it.

Yes.

First of all overall.

Think about the velocity of the business were actually fairly consistent through the quarter with some latter part of the quarter.

The holiday impact in Europe impacting us towards the latter the latter third of the book.

For the quarter and what we've seen is real consistency and stabilization that we've moved into.

Although the second quarter so.

I look at kind of the.

The trends from a velocity standpoint, but then also looking into where our pipeline is and some of the operational metrics that were still strong but you will begin to think about is that things are good.

We will get a little bit harder, we know that.

Our overall demand profile is still really strong so hopefully that kind of come down for you.

How quick how are we willing to Brian to get back to get that extra bit of revenue, which I can tell you that.

We're willing to do that.

And the second is just.

Understanding that there may be some things some choppy waters that are outside of our control.

We are putting ourselves in the best position to help our clients and will dependent.

Depending on kind of the.

Wariness or the impact that they're feeling from the macro macro economy will adjust.

We lived through.

Yeah, Mark I'll, just add one thing I was on the phone today with one of our major market leaders talking about the environment and what he has seen in one comment you made which I think has been echoed in and with a variety of our clients is a nice economic time, they don't want clients don't want to be.

And I think Thats really what clients are looking for in today's environment.

Great that makes a lot of sense one last one for me and then I'll jump into the queue, but.

With regards to <unk>.

One of the questions.

We're getting.

From investors is just how companies might end up reacting with regards to the macro environment significantly slows down.

To what levers you would have in order to reduce expenses if need be obviously, you've got a variable cost structure, but I'm wondering if you could just disc.

<unk> discussed that a little bit just in terms of like what the game plan would be if things do get a lot chop your.

Over the next.

Three to nine months.

Alright.

Well I'll start by saying.

You've highlighted that we have a variable cost structure already built into our model and that makes us more agile than many of our competitors.

The other thing I'd say is with the work we've done internally over the last five years, we do have much greater visibility to our data.

And to the investments, we're making and whether that's paying off and what the trend lines, we see and our client buying behaviors. So we can adjust sales or pull levers more quickly than I think we used to be able to do.

Keep in mind, the two <unk>.

Most fundamental elements of our cost structure, our head count and real estate and we will continue to look very carefully I mean, Tim is running our operations.

With a very careful eye on head count replacement or additions and we will continue to stay very disciplined.

And Jan and her group are continuing to look at our real estate needs and continuing to swim knows where appropriate as a <unk>.

Firm, we're still operating largely in a hybrid model that seems to be working for our people.

We recognize that in today's environment, we are in a new world of work with new behaviors and in order to attract the very best that can drive growth and profitability.

Need to be listening to what talent launch.

Perfect. Thank you.

Thank you and as a reminder to ask a question you will need to press star one on your telephone.

Our next question comes from Marc Riddick with Sidoti You May proceed.

Hi, good afternoon.

Hi, Mark so.

I wanted to follow up on.

The travel side of the business travel side of things.

Seeing there it seems as though.

Youre expecting that to be steady or are there any particular areas, where youre seeing any any type of pick up as far as this folks looking to.

Clients looking to engage more face to face or any type of visibility that you might have and.

And having that.

Pick up going forward.

First of all in terms of faith based travel.

A couple of things I mean, there are a couple of industries, where all of the.

Financial services related.

Express that did preferred out more face to face in terms of our delivery.

And also for US just in terms of the global concentration in terms of how we serve our clients now.

We are pretty safe to date and the other one I would say is energy both two industries have really ask for more.

Almost everybody else, including some of the large technology companies, who have sort of said publicly that they want all their employees back in the reality of it is is that almost everybody is working in a hybrid fashion.

Companies, who have gotten used to working with excellent talent to help them execute their work.

Having that work done remotely.

Ill move to give that talent up now so we haven't seen.

We haven't seen any major shifts.

Outside of those couple of issues that I talked about.

And okay, great for that which is.

Majority of the travel that we are doing I mean, we are really focused on go to market activities.

<unk> activities at both the internal internal travel so typically we try to keep our.

Our travel to no more than 60 basis points of our revenue that's kind of where the target is which is about half of what a little less than half of what we used to think.

Pre pandemic.

Great and then I wanted to shift over to <unk>.

Discussing the branding opportunities and the messaging that you're moving forward with I was wanted to talk a little bit about.

Yeah.

I guess, maybe how that might rollout strategically or from a timing perspective are there any sort of things that we should be thinking about as to sort of bet that messaging or do you wait until after the political season and stuff.

Or is that something that ramps up more after the new year, how should we think about that.

Yes, I think youll see before the end of Q2, Mark Youll see.

Re leasing the new positioning and brand language on our website, where currently refreshing that as I mentioned in my prepared remarks. We're also engaged currently in a research project, which will be help us deliver some thought leadership for our client base.

Targets around moving to more agile talent model.

And that will be.

Showcasing in Q3, both I think before the holidays and then thereafter and we're going to continue to build on that thought leadership. If you really think about our GP is.

As a leader in the field of agile human capital models, and how we can help clients move more toward agility in their human capital supply chain.

Youll see us talking more and more about that and preparing insights and other reports that can help clients along their journey.

Great and then the last question from me I was wondering if you could are there any sort of.

Shifts or changes that <unk> seen and strategy when it comes to sort of how your client service one of the things necessarily Fuller specifically from a macro.

Driven kind of recessionary concern area, but I mean, just from a strategic.

Approach are there any sort of trends that maybe you're kind of under the radar that youre that youre seeing that you think might emerge and be more of a more of a contributor going forward. Thanks.

Yes, I think this whole idea of agility in mobility, it's going to happen there.

Talent pool that are not entirely captives, so coming out we are.

In our point of view, we're clearly moving out of the baby Boomer paradigm there.

Everyone really aspired to a full time equivalent job, where he worked for only one employer at a time you climbed to the corporate ladder worked at a specific location and you work under a regular set of ours.

That is changing and.

While we're still in a period I think the blocks that were going to see through the next 12 to 24 months is how is that paradigm really shifting for the future and that means clients have to prepare for more mobility, even in their own captive talent pool.

They also in order to compete and move faster or have to identify the right kind of process and protocol to in source talent when they need it for the specialized skills that they need and that's really the opportunity for our GP. It's what we do so well and what we think we can continue.

To do well into the future with more and more clients as they move in that direction. I mean, there are plenty of really leading business people that its add this kind of shift in strategy and how work gets done is coming.

It's not as widespread as I would've thought it would be right now that we really feel like that movement is accelerating and that creates opportunity for us.

And that's really where we're focused on delivering and putting together.

Our platform, which brings the right level of <unk>.

Here on the talent side and the client side to really be successful in this new way of working.

Much appreciate it thank you very much.

Youre welcome.

Thank you one moment for questions.

Our next question comes from Mark Marcon with Baird You May proceed.

Hi, I had a follow up.

With regard of the new guidance that you gave us.

How would you.

Areas would you say would be growing the fastest versus the slowest from a geographic perspective.

How should we think about that.

Yes, Mark I would say.

Geographically North America, and the U S, probably still going to accelerate.

Faster than the other geography, Europe , given that the growing concerns in the growing vendor recessionary pressure.

And economic turmoil going on in Europe .

It will it will be the slower part.

As the business.

And the guidance, that's what's baked into the guidance.

Okay, So Europe , a little bit slower.

Asia Pac relative to North America.

And if I could is performing very steadily.

Mhm.

Okay.

But.

How about from a product.

Okay.

In terms of evolutionary them market that was your enquiring about.

That's right.

Yeah, So Tim you should answer that one.

Yes.

I'll provide a few comments kind of coming out of the coming out of last year, we had a real boom in finance.

Finance and accounting and that continues to be strong.

What we see is that there is still a lot of transformative.

Even despite the.

Have a slowdown in M&A theres still a lot of there's still a fair amount of transformation at the time.

I talked about in my script.

That picture.

I'm sure that we're working on.

There are a number of things that we have teed up around digital transformation that are pretty strong and our pipeline. Both in terms of kind of sheer volume and also in terms of op, where there aren't where there is opportunity. When you look at the pipeline and that economy will continue to be the dollar strength.

Okay, Great and then with regards to looking beyond.

This.

So.

Where the EBITDA margins can go from a long term perspective, given the mix of business. Once once your digital transformation is completed.

Yes, well I think we have our eye on continuing to improve that was not only with the with the more modern technology platform that will put in place.

And lots of both automated and self serve possibilities with those state of the art platform also how much of our more on demand talent, we can drive through Hugo, which can improve our efficiency and our financial metrics. So I mean, we're all.

All about improvement and focused on that I'm not going to give you a solid number right now we've talked about 15% I think a year and a half ago and we're achieving that so we're continuing to drive toward improvement.

And Mark and we'll keep you updated.

That's it.

And aligned commitment by this executive team and part of it is going to depend on how quickly.

Both clients and talent adapt too soon.

<unk> self serve and automated.

Yeah.

Aspects of our business workflows, and we're going to do all we can to continue driving that shall we say.

As a top performer in our industry group.

Great and then just from a shorter term perspective, how should we think about head count additions internally over the balance of this this year.

Well from a head count perspective.

As I said in my in my remarks that we are going to hold head count steady and obviously.

Looking at the pace of demand in the hope of business activity and that's definitely going to be.

Closely monitored although we do continue.

Continue to grow in key areas of the business that has to go in velocity. So areas of key investments, where we need to invest to we're going to move forward, but in other areas, we're really going to watch it very very cautiously.

Got it thank you.

Thank you and I'm not showing any further questions.

At this time I would now like to turn the call back over to Keith you Shannon for any further remarks.

Okay. Thank you everyone. Thanks again.

We look forward to connecting with you. After we report our Q2 results. Thanks again.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

Q1 2023 Resources Connection Inc Earnings Call

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