Q3 2025 Resources Connection Inc Earnings Call

Operator: Good afternoon, ladies and gentlemen, and welcome to the Resources Connection, Inc. conference call. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded.

Good afternoon, ladies and gentlemen, and welcome to the Resources Connection Inc. Conference call. Currently all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time as a reminder, this conference call is being recorded at this time I would like to remind everyone that management.

Operator: At this time, I would like to remind everyone that management will be commenting on results for the third quarter, ended February 22, 2025. They will also refer to certain non-GAAP financial measures. An explanation and reconciliation of these measures to the most comparable GAAP financial measures are included in the press release issued today. Today's press release can be viewed in the Investors Relations section of RGP's website and filed today with the SEC.

We'll be commenting on results for the third quarter ended February 22025. They will also refer to certain non-GAAP financial measures an explanation and reconciliation of these measures to the most comparable GAAP financial measures are included in the press release issued today today's press release can be viewed in the investors relations section.

Our G P's website and filed today with the SEC.

Operator: 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 section in RGP's report on Form 10-K for the year ended May 25, 2024. For a discussion of risk, uncertainties, and other factors that may cause the company's results of operation and financial conditions to differ materially from what is expressed or implied by forward-looking statements made during this call.

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 section in our.

<unk> report on Form 10-K for the year ended may 25th 2024 for a discussion of risks uncertainties and other factors that may cause the company's business results of operation and financial condition to differ materially from what is expressed or implied by forward looking statements made during this call.

Kate Duchene: I'll now turn the call over to RGP CEO, Kate Duchene. Thank you, operator. Thank you all for joining us today. In Q3, our results were in line or better than expected. Our total revenue was $129.4 million, consistent with expectations and reflecting macroeconomic uncertainty, client budget constraints, and slower project ramp-up. Our growth margin and SG&A both beat the favorable end of our outlook range. Post-election, the operating environment has remained sluggish this calendar year, given increased uncertainty and decreased consumer confidence in the United States. The news is not all about uncertainty, however. We saw strengthening across our practices in Europe, Japan, and the Philippines in Q3.

Speaker Change: Now I'll turn the call over to our G. P C E O K to shape.

Speaker Change: Thank you operator, and thank you all for joining us today.

Thank you free our results were in line or better than.

Speaker Change: Our total revenue was 129 4 million consistent with expectations and reflecting macroeconomic uncertainty.

Speaker Change: Budget constraints.

Speaker Change: Project ramp.

Speaker Change: Our gross margin and SG&A.

Speaker Change: Horrible end of our outlook range.

Speaker Change: Post election, the operating environment has remained sluggish this calendar year, given the increased uncertainty and decrease.

Speaker Change: In the United States.

Speaker Change: The news is not all about uncertainty however, we saw strengthening across our practices in Europe, Japan, and the Philippines in Q3 European routes that were all key performance indicators, including bill rate increases sizable pipeline expansion and the return of $1.

Kate Duchene: Europe improved with several key performance indicators, including bill rate increases, sizable pipeline expansion, and the return of $1 million-plus project pursuits. Our consulting segment also achieved material double-digit bill rate improvement in Q3. The size of enterprise-wide engagements increased on average by more than 20%, and we improved our win ratio. We doubled the number of 1 million plus engagements we won this quarter over a year ago, and our pipeline of opportunities at the 5 million plus level has grown significantly, reflecting a quality improvement in pipeline over last year. We did not see this size and scope of opportunity a year ago.

Speaker Change: Less project Kirstie.

Speaker Change: Our consulting segment also achieved material double digit bill rate improvement in Q3.

Speaker Change: The size of enterprise wide engagement increased on average by more than 20% and we improved our win ratio.

Speaker Change: We doubled the number of $1 million last engagement, we won this quarter over a year ago and our pipeline of opportunities is it $5 million plus level.

Speaker Change: It's grown significantly reflecting a quality improvement in pipeline over last year we.

Speaker Change: We did not see this size and scope of the opportunity a year ago.

Kate Duchene: These indicators show we're moving in the right direction, but we need to increase volume as we execute our diversified services strategy. In this environment, many clients are moving work to the international stage, and we are strategically located to support them. Here, too, we're focused on increasing scale in our key markets in Southeast Asia and India. Our outsourced services business, Kansi, delivered solid results in the third quarter, and our overall client retention in our top 100 accounts remains solid.

Speaker Change: These indicators show, we're moving in the right direction, but we need to increase volume as we execute our diversified services strategy.

In this environment. Many clients are moving work to the international stage and we are strategically located to support their hair care, we're focused on increasing scale in our key markets in southeast Asia and India.

Speaker Change: Our outsourced services business delivered.

Speaker Change: <unk> delivered solid results in the third quarter and our overall client retention in our top 100 accounts remain.

Kate Duchene: During this relatively slower stretch for our industry, we've accelerated RGP's evolution by focusing on three key initiatives that position us for market share expansion. First, we have enhanced client offerings. We've built a diversified services platform to meet clients where they need us. Whether they require both strategy and execution support or they need our execution specialists working with in-house teams, we deliver both with excellence. Our flexible engagement models are proving an important competitive differentiator as clients seek agility, price to value and blended delivery. It used to be that the traditional consulting firms owned domain expertise and would deploy an army of consultants using their leveraged model.

Gary: Gary relatively slower stretch for our industry is accelerated rtp's evolution by focusing on three key initiatives that position us for.

Gary: For market share expansion.

Gary: First we have enhanced client offerings.

Gary: We built a diversified services platform to meet clients, where they need us.

Gary: Whether they require both strategy and execution support or they need our execution specialists working with in house teams, we deliver both with excellent.

Gary: Our flexible engagement models are proving an important competitive differentiator as clients seek agility price to value and blended delivery team.

Gary: It used to be that the traditional consulting firm owned domain expertise and will deploy an army of consultants using their leverage model.

Kate Duchene: Times have changed, and we believe in RGP's favor. Clients now know and own their strategy and need high-quality, flexible, value-based execution support, a niche that RGP created and which we uniquely provide. We've also focused our services catalog across our diversified offerings in areas where the market has the highest demand. Utilizing our core CFO relationships to expand into new buying centers like the Chief Technology Officer, Chief HR Officer, Chief Procurement Officer, and Senior Supply Chain Leaders. Our core pillars of service capability are CFO services, digital technology and data, and strategy and operational performance. Most of the services are currently delivered to the office of the CFO across these pillars, but the natural extensions are risk and compliance, technology modernization, supply chain optimization, and employee experience.

Gary: We have changed and we believe in <unk> favor.

Gary: We now know and own their strategy and a high quality flexible value based execution support a niche that RTP created and which we uniquely provide.

Gary: We've also focused our services catalog across our diversified offerings in areas, where the market has the highest demand utilizing our core CFO relationships to expand into new buying centers like the Chief Technology Officer, Chief HR Officer, Chief Procurement officer and senior supply.

Gary: Leaders are core pillars of service capability, our CFO services.

Gary: <unk> technology, and data and strategy and operational performance.

Gary: Most of the services are currently delivered to the office of the CFO across these pillars with the natural extensions are in risk and compliance technology modernization supply chain optimization and employee experience we have.

Kate Duchene: We are leveraging the strategy of CFO Plus One to enhance growth and client value creation. As Bhadresh will share, we've experienced positive momentum with cloud migration support for SAP and Oracle Finance transformations, as well as ServiceNow optimization to improve user experience around automation of process workflows in IT, HR, and risk and compliance. While industry-wide M&A and IPO readiness initiatives have been slow to pick up this calendar year, we have the right capability to jump in and respond quickly when this event cycle turns. For example, the reference point acquisition allows us to accelerate and broaden what we can do for clients around M&A integration, operating model assessments and design, data architecture and governance, and application modernization to help clients optimize enterprise performance and enable the adoption of AI.

Gary: Leveraging this strategy of CFO, plus one to enhance growth and client value creation.

Gary: The address will share we've experienced positive momentum with cloud migration Parker.

Gary: And Oracle finance transformation.

Gary: As well as service now optimization to improve user experience around automation of process workflows in the IP HR and risk and compliance.

Gary: While industry wide M&A and IPO readiness initiatives have been slow to pick up this calendar year, we have the right capability to jump in and respond quickly when that cycle turns for example, the reference point acquisition allows us to accelerate and broaden what we can do for clients around M&A.

Gary: The integration operating model assessments and design data architecture, and governance and application modernization to help clients optimize enterprise performance and enable the adoption of AI.

Kate Duchene: We have worked diligently to ensure we have the sales readiness and delivery skills to capitalize as the business environment improves, client budgets strengthen and decision-making accelerates. Last week, we closed a significant project in finance optimization by combining skills and building a delivery team of management consulting and agile execution specialists who know the client's industry.

Gary: We have worked diligently to ensure we have the sales readiness and delivery skills to capitalize as the business environment improves.

Gary: Client budget strengthened and decision making accelerates.

Gary: Last week, we closed a significant project in finance optimization by combining skills in building a delivery team of management consulting and agile execution specialists note the clients industry.

Kate Duchene: Second, we have improved operational efficiency. We've lowered our cost structure, and you can see the progress we've made. We're driving cost savings with optimized headcount, reduced real estate spend, and lower discretionary spending. We've lowered our run rate SG&A by 8% since the first fiscal quarter, and we'll continue to drive efficiencies across the enterprise through technology, AI, and automation.

Gary: Second we have improved operational efficiency, we've lowered our cost structure and you can see the progress. We've made we're driving cost savings with the optimized headcount reduced real estate spend and lower discretionary spending we've lowered our run rate SG&A by 8%.

Gary: The first fiscal quarter and will continue to drive efficiencies across the enterprise through technology, AI and automation Gen.

Kate Duchene: Jen will offer additional commentary on our successful efforts around operating efficiency. Third, we made targeted investments to enhance value creation over the long term. We've made most of the investment needed to replace our technology infrastructure for the North America business. These enhancements allow us to implement AI and automation to our advantage in both client service and talent recruitment and management. This modern technology will allow us to streamline process and accelerate opportunity through our pipeline. We have also enhanced our sales and delivery teams to ensure we have the right approach for both consulting and on-demand solutioning when the buying environment improves.

Gary: <unk> will offer additional commentary on our successful efforts around operating efficiency.

Gary: Third we made targeted investments to enhance value creation over the long term. We've made most of the investment needed to replace our technology infrastructure for the North America business.

Gary: These enhancements allow us to implement AI and automation to our advantage in both client service and talent recruitment and management.

Gary: This modern technology will allow us to streamline process and accelerate opportunities through our pipeline.

Gary: We have also enhanced our sales and delivery teams to ensure we have the right approach for both consulting and on demand solution when the buying environment improves we're.

Kate Duchene: We're proud of the sales team we have and the relationships they nurture in our exceptional client base, and we're adding a new archetype to the team to drive growth. We had some go-to-market team attrition in Q3, much of it planned, which allows us to accelerate certain enhancements. Specifically, we've added consultative sales expertise, especially in the digital and technology areas, and strategy and operations to support growth. For example, a new joiner in our New York practice was a senior finance executive at a top 10 financial services firm who was a key buyer of CFO services across the professional services continuum.

Gary: We're proud of the sales team, we have and the relationships the nurture and our exceptional client base and we're adding a new archetype to the team to drive growth.

Gary: We have some go to market team attrition in Q3 much of that plan, which allows us to accelerate certain enhancements specifically.

Gary: Specifically, we have added consultative sales expertise, especially in the digital and technology areas and strategy and operations to support growth.

Gary: For example, a new joiner in our New York practice was a senior finance executive at a top 10 financial services firm, who was a key buyer of CFO services across the professional services continuum.

Kate Duchene: Another recent senior hire in our New York office brings solution sales experience from a top tier digital consultant. According to Kennedy Research, the two highest growth opportunities for consulting in the next three years will be strategy and operations and digital transformation. Benefiting from our inherent competitive advantages, including strengthened CFO relationships, diversified engagement models, agility, price-to-value, and cross-border collaboration, we are improving our positioning to earn this work as clients increasingly seek value in seamless global delivery areas in which we excel. Finally, I want to highlight the progress we've made this fiscal year in building more delivery capability in India.

Gary: Another recent senior hire in our New York Office branch solution sales experience from a top tier digital consultancy.

Gary: Accordingly, Kennedy research the two highest growth opportunities for consulting in the next three years will be strategy and operations and digital transformation.

Gary: Benefiting from our inherent competitive advantages, including strength as CFO relationship diversified engagement model agility price to value and cross border collaboration we are improving our positioning to earn this work as clients increasingly seek value in a seamless global delivery.

Gary: Areas in which we excel.

Gary: Finally, I want to highlight the progress we've made this fiscal year and building more delivery capability in India, our global delivery centers, they're supporting work for the Cfo's office across risk and compliance finance and accounting and digital development services. This work creates greater stickiness.

Kate Duchene: Our global delivery centers there are supporting work for the CFO's office across risk and compliance, finance and accounting, and digital development services. This work creates greater stickiness, as evidenced by our solid client retention rates, and we're focused on building volume across our Fortune 500 clients. We just closed work in India for a long-time New York-based financial services firm who has previously only engaged with RGP in the U.S. This close also enabled us to expand our buying centers in this climate. We now have strong delivery capability in Mumbai, Bangalore, Pune and Hyderabad.

Gary: Evidence by our solid client retention rate and we're focused on building volume across our fortune 500 clients. We just close work in India for a long time, New York based financial services firm, who has previously only engaged with our GP in the U S.

Gary: This closed also enabled us to expand our buying centers in this economy.

Gary: We now have strong delivery capability in Mumbai, Bangalore, Q&A and Hyderabad.

Kate Duchene: I'll close with this reminder. While we always act with urgency, our pristine balance sheet allows us to take a long-term view of value creation. We're busy laying groundwork for growth and improving profitability when the client buying environment improves. We understand that the near-term outlook across professional services in the U.S. is uncertain and disrupted, but we're resolute in nurturing our key relationships, standing at the ready, and focusing our services so clients know to call us with utmost confidence. Most importantly, we are committed to delivering long-term value for our shareholders, driven by our team's unwavering strategic focus.

Gary: I'll close with this reminder, while we always act with urgency our pristine balance sheet allows us to take a long term view of value creation, we're busy laying groundwork for growth and improving profitability when the clients buying environment improves we understand that the near term outlook across professional services in the U S.

Gary: It's uncertain and disruptive, but we're resolute in nurturing our key relationships standing at the ready and focusing our services to clients notice Cola with utmost confidence.

Gary: Most importantly, we're committed to delivering long term value for our shareholders driven by our team's unwavering strategic focus.

Bhadresh Patel: I'll now turn the call over to Bhadresh for detail on operational trends and key performance indicators. Thank you, Kate, and good afternoon, everyone. I'm excited to share our quarterly update and highlight the progress we continue to make in executing our strategy. As Kate mentioned, our industry is evolving and recent geopolitical events and actions have only served to create greater uncertainty in the market. As a result, our position as a challenger brand is becoming increasingly relevant in reshaping professional services, breaking away from traditional engagement and operating models, and offering clients a differentiated experience. Our strategy is designed to empower clients by offering flexibility in how they engage with us throughout their transformation and operational journey.

Speaker Change: I'll now turn the call over to progress for detail on operational trends and key performance indicators.

progress: Thank you Kate and good afternoon, everyone I'm excited to share our quarterly update and highlight the progress we continue to make in executing our strategy.

Speaker Change: As Keith mentioned, our industry is evolving and recent geopolitical events and actions have only served to create greater uncertainty in the marketplace.

Speaker Change: As a result, our position as a challenger brand is becoming increasingly relevant and reshaping professional services breaking away from traditional engagement and operating models and offering clients a differentiated experience.

Speaker Change: Our strategy is designed to empower clients by offering flexibility in how they engage with us throughout their transformation and operational journey, removing the rigid structures traditional funds imposed we offer our clients the ability to access experts solution teams and core finance and HR outsourcing services in a way that best meets their needs and more client centric flexible.

Bhadresh Patel: Removing the rigid structures traditional firms impose, we offer our clients the ability to access experts, solution teams, and core finance and HR outsourcing services in a way that best meets their needs. A more client-centric, flexible approach our competitors struggle to provide. Our revised approach of offering on-demand consulting and outsourced services under a single umbrella is setting the stage for our business to be more resilient and less cyclical. Our Q3 results show our top-line revenue performance tracking in line with expectations while delivering better-than-expected growth margin and bottom-line results. While overall pipelines softened, we're seeing a positive shift in our win ratio and pipeline of new opportunities moving us up the value chain with our clients, and we know these opportunities take longer to move through the sales cycle, especially given the current instability of the U.S.

Speaker Change: The approach our competitors struggled to provide.

Speaker Change: Our revised approach of offering on demand consulting and outsource services under a single umbrella is setting the stage for our business to be more resilient and less cyclical.

Speaker Change: Our Q3 results show, our topline revenue performance tracking in line with expectations, while delivering better than expected gross margin and bottom line results.

Speaker Change: While overall pipeline softened, we're seeing a positive shift in our win ratio and pipeline of new opportunities moving us up the value chain with our clients and we know these opportunities take longer to move through the sales cycle, especially given the current instability of the U S market.

Bhadresh Patel: market. We are gaining traction with solutions that remain central to our client's transformation agenda. These areas of high client priority, both within the CFO's office and CFO Plus One, align closely with our core capabilities, cross-sell strategy, and market demand. At the same time, we remain focused on maximizing our on-demand professional stacking services in the U.S., where we benefit from long-term, solid client relationships, particularly in the office of the CFO. Once the market dynamics improve, we are well-positioned as we continue refining our operating model and optimizing our sales infrastructure to drive efficiency, break down silos, and better align our solutions with revenue generation.

Speaker Change: We are gaining traction with solutions that remains central to our clients' transformation agendas.

Speaker Change: Areas of high client priorities, both within the Cfo's office and CFO plus one align closely with our core capabilities cross sell strategy and market demand at the same time, we remain focused on maximizing our on demand professional staffing services in the U S, where we benefit from long term solid client relationships, particularly in the office of the CFO.

Speaker Change: Once the market dynamics improve we are well positioned as we continue refining our operating model and optimizing our sales infrastructure to drive efficiency breakdown silos and better align our solutions with revenue generation. This is leading to larger contract sizes with a stronger economic profile driven by our strategic shift in the business now.

Bhadresh Patel: This is leading to larger contract sizes with a stronger economic profile, driven by our strategic shift in the business.

Bhadresh Patel: Now I'll provide an update on our quarterly performance by segment. Our consulting setting performance was slightly down from prior year quarter, but continues to validate our strategy as we're seeing steady bill rate improvements, 13% higher than same quarter last year, and a 4% improvement sequentially. It is worth noting that given recent shifts in the policy landscape, our federal government work represents only 1.5% of our overall revenue. Most importantly, we have nearly doubled the number of $1 million plus opportunities won and doubled the number of opportunities greater than $1 million in our pipeline compared to same quarter last year.

Speaker Change: Now I'll provide an update on our quarterly performance by segment.

Speaker Change: Our consulting segment performance was slightly down from prior year quarter, but continues to validate our strategy.

Speaker Change: Steady bill rate improvement, 13% higher than same quarter last year, and a 4% improvement sequentially.

Speaker Change: It is worth noting that given recent shifts in the policy landscape. Our federal government work represents only one 5% of our overall revenue.

Speaker Change: Most.

Speaker Change: Fortunately, we have nearly doubled the number of $1 billion plus opportunities, one and double the number of opportunities greater than $1 million in our pipeline compared to same quarter last year.

Bhadresh Patel: We are actively pursuing multiple opportunities, each exceeding $5 million in value, driven by the expanded capabilities from our acquisition or reference point, and the increased digital scale gained through Cloud Go, now fully integrated into our consulting segment. This growth was driven by our expansion into new buying centers within existing clients and higher level conversations around client transformation initiatives. Some notable wins include the Australian and Singapore governments. a Fortune 250 integrated healthcare delivery system, a Fortune 200 life sciences company, a large medical device company, and a Fortune 500 bank. Notable large pipeline opportunities include a Fortune 50 financial services company, preferred supplier status for a Fortune 50 financial services client, and a large federal agency.

Speaker Change: We are actively pursuing multiple opportunities each exceeding $5 million in value driven by the expanded capabilities from our acquisition of reference point and the increased digital scale gain through cloud go now fully integrated into our consulting segment.

Speaker Change: This growth was driven by our expansion into new buying centers within existing clients and higher level conversations around client transformation initiatives.

Speaker Change: Some notable wins include the Australia, and Singapore government.

Speaker Change: A fortune 250 integrated healthcare delivery system, a fortune 200 life Sciences company, a large medical device company and a fortune 500 bank. Notable large pipeline opportunities include a fortune 50 financial services company preferred supplier status for a fortune 50 financial services client and a large federal agency.

Bhadresh Patel: I want to emphasize, this time last year, we were not engaged in opportunities of this magnitude in our client. As our strategy continues to show results, we remain focused on building scale through our transformation, recognizing it will take time to expand to drive growth. As I mentioned earlier, and as is typical with solution selling, these opportunities take time to generate and materialize, especially given our current environment and ongoing uncertainties. Turning to on-demand, while revenue was down from the prior year, we're seeing early traction from our cross-selling initiatives benefiting from our long-term, strong client relationships in the office of the CFO and our CFO Plus One strategy.

Speaker Change: Want to emphasize this time last year, we were not engaged and opportunities of this magnitude in our client base.

Speaker Change: As our strategy continues to show results, we remain focused on building scale through our transformation recognizing it will take time to expand to drive growth as I mentioned earlier and as is typical with solution selling these opportunities take time to generate and materialize, especially given our current environment and ongoing uncertainties.

Speaker Change: Turning to on demand while revenue was down from the prior year, we're seeing early traction from our cross selling initiatives benefiting from our long term strong client relationships and the office of the CFO and our CFO plus one strategy.

Bhadresh Patel: While we continue to add new logos, we're also intensely focused on keeping our current experts engaged with clients, making extension management a key priority for our revenue and talent teams, which did increase by 5.4% sequentially. RGP is poised as an attractive option for organizations needing on-demand, specialized support without the need for long-term commitments or additional hires, especially as companies continue to tighten their belt in the current economic landscape and strive to do more with less. While revenue backlog in our Europe and Asia segment was higher sequentially, we did see a slowdown in growth compared to the previous quarter.

Speaker Change: While we continue to add net new logos. We're also intensely focused on keeping our current experts engaged with clients, making extension management, a key priority for our revenue and talent teams, which did increase by five 4% sequentially.

Speaker Change: <unk> is poised as an attractive option for organizations meeting on demand specialized support without the need for long term commitments or additional hires, especially as companies continue to tighten their belt and the current economic landscape and strive to do more with less.

Speaker Change: While revenue backlog in our Europe, and Asia segment was higher sequentially, we did see a slowdown in growth compared to the previous quarter Europe was impacted by a larger than usual consultant holiday, while APAC growth was hindered by ongoing macroeconomic challenges in our China business. However, we remain cautiously optimistic about accelerating growth as project extensions improved for the.

Bhadresh Patel: Europe was impacted by a larger-than-usual consultant holiday, while APAC growth was hindered by ongoing macroeconomic challenges in our China business. However, we remain cautiously optimistic about accelerating growth as project extensions improved for the first time in three quarters. This trend should provide greater stability and a foundation for future growth, particularly in the United Kingdom, Philippines, and Japan, where we are seeing stronger momentum compared to other regions. Our outsourced services segment continues to achieve top-line revenue growth both prior year quarter and sequential quarter, driven by our efforts to acquire new venture-backed clients and expanding our focus on spin-ups.

Speaker Change: First time in three quarters.

Speaker Change: This trend should provide greater stability and a foundation for future growth, particularly in the United Kingdom, Philippines, and Japan, where we are seeing stronger momentum compared to other regions.

We're also services segment continues to achieve topline revenue growth, both prior year quarter and sequential quarter, driven by our efforts to acquire new venture backed clients and expanding our focus on spin outs in.

Bhadresh Patel: In summary, since launching our refreshed brand positioning and service segmentation, client feedback has been overwhelmingly positive. They recognize our capabilities and appreciate the flexibility our various engagement models offer, reinforcing their desire to partner with us. While we all understand the uncertainties in our current environment, we remain excited by the progress we're making in executing our strategy and remaining focused on delivering value to our clients.

Speaker Change: In summary, since launching our refresh brand positioning and service segmentation client feedback has been overwhelmingly positive.

Speaker Change: They recognize our capabilities and appreciate the flexibility our various engagement models offer reinforcing their desire to partner with us while we all understand the uncertainties in our current environment. We remain excited by the progress we're making in executing our strategy and remaining focused on delivering value to our clients.

Jennifer Ryu: I'll now hand the call over to... Thank you, Bhadresh, and good afternoon, everyone. Our third quarter performance was in line or better than our expectations. Revenue of $129.4 million was in the middle of our outlook range, while both growth margin and run rate SG&A expense were better than the favorable end of our outlook range. We delivered adjusted EBITDA of $1.7 million, or a 1.3% adjusted EBITDA margin, reflecting the holiday seasonality during the third fiscal quarter. The year-over-year revenue gap continued to moderate in the third quarter to 11% on a same-day constant currency basis, which is an improvement over last quarter's 13%.

John: I will now hand, the call over to John.

John: Thank you for dress and good afternoon, everyone.

Speaker Change: Our third quarter performance was in line or better than our expectations.

Speaker Change: Revenue of $129 4 million was in the middle of our outlook range, while both gross margin and run rate SG&A expense were better than the favorable end of our outlook range.

Speaker Change: We delivered adjusted EBITDA of $1 7 million.

Speaker Change: Or a one 3% adjusted EBITDA margin, reflecting the holiday seasonality during the third fiscal quarter.

Speaker Change: The year over year revenue gap continued to moderate in the third quarter to 11% on a same day constant currency basis, which is an improvement over last quarter's 13%.

Jennifer Ryu: We are encouraged to see continued stabilization in our Europe and Asia-Pacific segment and a year-over-year growth in our outsourced services segment. Our on-demand and consulting segments, which are both predominantly U.S. based, were impacted by the increased level of uncertainty in a macro environment driven by a number of domestic government policy changes. Gross margin for the quarter was 35.1%, again, better than expected, and off by 190 basis points from the prior year quarter, reflecting unique holiday timing, including Thanksgiving, which is typically in Q2, as well as midweek timing of Christmas and New Year's Day. We're pleased that the pay bill ratio for the third quarter strengthened as a result of a notable improvement in the enterprise average bill rate.

Speaker Change: We're encouraged to see continued stabilization in our Europe, and Asia Pac segment, and a year over year growth in our outsourced services segments.

Speaker Change: Our on demand and consulting segment, which are both predominantly U S. Based were impacted by the increased level of uncertainty in the macro environment driven by a number of domestic government policy changes.

Speaker Change: Gross margin for the quarter was 35, 1% again better than expected and off by 190 basis points from the prior year quarter, reflecting unique holiday timing, including Thanksgiving, which is typically in Q2 as well as the midweek timing of Christmas and New year's day.

Speaker Change: We're pleased that the pay bill ratio for the third quarter strengthened as a result of a notable improvement in the enterprise average bill rates.

Jennifer Ryu: Despite the competitive pricing environment across the globe, we improved enterprise-wide average bill rate to $124 constant currency from $119 a year ago, led by our consulting segment with a 13% increase over the prior year quarter, as well as a 4% sequential increase over the second quarter. Average bill rate in the Europe and Asia-Pacific segments also increased by 5% over the prior year and sequentially on a constant currency basis. The improvements within these segments are the result of our efforts to drive value-based pricing and are reflective of a favorable makeshift we're starting to achieve in winning higher value and larger consulting projects.

Speaker Change: Despite the competitive pricing environment across the globe, we improved enterprise wide average bill rate to $124 constant currency from 119, a year ago led by our consulting statement with a 13% increase over the prior year quarter as well as a 4% sequential increase over the second quarter.

Speaker Change: Average bill rate in the Europe, and Asia Pac segment also increased by 5% over the prior year and sequentially on a constant currency basis.

Speaker Change: The improvements within these segments are the result of our efforts to drive value based pricing and are reflective of our favorable mix shift, we're starting to achieve and winning higher value and larger consulting projects.

Jennifer Ryu: The addition of ReferencePoint's project portfolio and joint projects involving ReferencePoint's solution capabilities also boosted average bill rates. In our on-demand and outsourced services segment, average bill rates were both down slightly from the prior year quarter. Pricing in these segments remains competitive, which requires us to balance between weight and volume to optimize revenue as well as margin. As we strive to drive higher bill rates in all business segments and geographic regions, revenue mix will continue to be reflected in our total company average bill rate, especially as we increasingly leverage our global delivery center for offshore delivery teams. Importantly, while the use of offshore teams will typically blend down our average fill rate, we expect it will enable us to enhance growth margin and to compete more effectively.

Speaker Change: The addition of reference points project portfolio and joint project involving reference point solution capabilities also boosted average bill rates.

Speaker Change: In our on demand and outsource services segment's average bill rates were both down slightly from the prior year quarter.

Speaker Change: <unk> and <unk> segments remain competitive which requires us to balance between rate and volume to optimize revenue as well as margin.

Speaker Change: As we strive to drive higher bill rates in all business segments and geographic regions revenue mix will continue to be reflected in our total company average bill rate, especially as we increasingly leverage our global delivery center for offshore delivery teams importantly.

Speaker Change: Importantly, while the use of offshore teams will typically blend down our average bill rate, we expect it will enable us to enhance gross margin and to compete more effectively.

Jennifer Ryu: Now on to SG&A. Our enterprise run rate SG&A expense for the quarter was $43.7 million, an improvement from $45.2 million a year ago. Primarily driven by lower management compensation expense as a result of actions taken in December to reduce headcounts, as well as an elevated level of attrition in our sales force during the quarter. While we fight to improve top line in a persistently choppy environment, we are working diligently to pull the levers we can control to protect profitability in the near term, but ultimately to create a lighter cost structure for the future. We've been consistently implementing initiatives to reduce fixed costs in areas such as real estate and to increase operating efficiency through our newly implemented technology platform.

Speaker Change: Now onto SG&A, our enterprise run rate SG&A expense for the quarter was $43 7 million an.

Speaker Change: An improvement from $45 2 million a year ago.

Speaker Change: Primarily driven by lower management compensation expense as a result of actions taken in December to reduce head count as well as an elevated level of attrition in our sales force during the quarter.

While we fight to improve topline in a persistently choppy environment. We are working diligently to pull the levers we can control to protect profitability in the near term, but ultimately to create a lighter cost structure for the future.

Speaker Change: We've been consistently implementing initiatives to reduce fixed costs in areas, such as real estate and to increase operating efficiencies through our newly implemented technology platform.

Jennifer Ryu: Next, I'll provide some additional color on segment performance. All year-over-year percentage comparisons for revenue are adjusted for business days and currency impact. And as a reminder, segment-adjusted EBITDA excludes certain share corporate costs. Revenue for our consulting segment was $52.6 million, a decline of 2% from the prior year. Third quarter segment adjusted EBITDA was $5.9 million or an 11% margin compared to $8.8 million or a 16% margin in the prior year quarter. Revenue for our on-demand segment was $47.1 million, a decline of 24% versus prior year. Segment adjusted EBITDA was $2.6 million, or a margin of 5%, compared to $7.3 million, or an 11% margin in a prior year quarter.

Speaker Change: Next I'll provide some additional color on segment performance.

Speaker Change: All year over year percentage comparisons for revenue, our adjusted for business days and currency impact and as a reminder segment adjusted EBITDA excludes certain share corporate cost.

Speaker Change: Revenue for our consulting segment was $52 $6 million of.

Speaker Change: Line of 2% from the prior year.

Speaker Change: Third quarter segment, adjusted EBITDA was $5 $9 million or an 11% margin compared to $8 8 million or 16% margin in the prior year quarter.

Speaker Change: Revenue for our on demand segment was $47 1 million a decline of 24% versus prior year.

Speaker Change: Segment, adjusted EBITDA was $2 $6 million or a margin of 5% compared to $7 3 million or 11% margin in the prior year quarter.

Jennifer Ryu: Adjusted EBITDA margins in both segments reflect negative operating leverage on the softer top line. While our on-demand business has been more impacted by the macroeconomic conditions, we're pleased with the role it has played in supporting the talent needs of our consulting segment. Our strategy is to continue driving opportunities for such blended delivery teams to mitigate utilization exposure.

Speaker Change: Adjusted EBITDA margins in both segments reflect negative operating leverage on the softer top line, while our on demand business has been more impacted by the macroeconomic conditions. We are pleased with the role. It has played in supporting the talent needs of our consulting segment. Our strategy is to continue driving opportunities for such.

Speaker Change: Linda delivery teams to mitigate utilization exposure.

Jennifer Ryu: Turning to our Europe and Asia PAC segment, revenue was $18.6 million, a decline of 2%. segmented just the EBITDA with $0.8 million, or a 5% margin compared to $1.3 million and a 7% margin in the prior year quarter.

Turning to our Europe, and Asia Pac segment revenue was $18 6 million a decline of 2%.

Speaker Change: Segment, adjusted EBITDA was <unk> 8 million.

Speaker Change: Or a 5% margin compared to $1 $3 million and a 7% margin in the prior year quarter.

Jennifer Ryu: Finally, our outsourced services segment revenue was $9.4 million, similar to the prior year quarter, but with an implied growth of 3% on an adjusted basis. Segment adjusted EBITDA was $1.5 million, or a 16% margin, which is approximately the same as a prior year quarter.

Speaker Change: Finally, our outsource services segment revenue was $9.

Speaker Change: $4 million similar to the prior year quarter, but with an implied growth of 3% on an adjusted basis.

Speaker Change: Segment, adjusted EBITDA was $1 5 million or 16% margin, which is approximately the same on the prior year quarter.

Jennifer Ryu: I also want to note we recorded a non-cash goodwill impairment charge of $42 million in the third quarter in response to the continued sluggish demand environment in both our on-demand and consulting segments. $12.4 million was recorded for our on-demand segment, and $29.6 million was recorded for our consulting segment.

Speaker Change: I also want to note, we recorded a noncash goodwill impairment charge of $42 million in the third quarter in response to the continued sluggish demand environment in both our on demand and consulting segments.

Speaker Change: $12 4 million was recorded for our on demand segment and $29 6 million was recorded for our consulting segment.

Jennifer Ryu: Turning to liquidity, our balance sheet remains strong with $73 million of cash and cash equivalents and zero outstanding debt. We distributed $4.6 million worth of dividends in this quarter and repurchased $3 million worth of shares at an average price of $8.46 per share. With our cash on hand, combined with available borrowing capacity under our credit facility, we will continue to take a balanced approach to capital allocation between investing in the business to drive growth and returning cash to shareholders through dividends and opportunistic share repurchases under our share repurchase program, with $79 million remaining at the end of the quarter.

Speaker Change: Turning to liquidity, our balance sheet remains strong with $73 million of cash and cash equivalents and zero outstanding debt, we distributed $4 $6 million worth of dividends in this quarter and repurchased $3 million worth of shares at an average price of $8 46 per share.

Speaker Change: With our cash on hand, combined with available borrowing capacity under our credit facility. We will continue to take a balanced approach to capital allocation between investing in the business to drive growth and returning cash to shareholders through dividends and opportunistic share repurchases under our share repurchase program was $79 million remain.

Speaker Change: <unk> at the end of the quarter.

Jennifer Ryu: I'll now close with our fourth quarter outlook. As mentioned earlier, recent government policies in the U.S. have introduced additional uncertainty as our clients sort through the potential impact on their own business as tariffs and DOJ actions unfold. While we're encouraged to see improving quality in the pipeline with larger deal opportunities, we experienced lighter volume of activities starting in the second half of Q3 and expect delays in client decision making to continue in the near term. As a result, early fourth-quarter weekly revenue run rate has shown some deceleration from the third quarter.

Speaker Change: I will now close with our fourth quarter outlook.

Speaker Change: As mentioned earlier recent government policies in the U S have introduced additional uncertainty as our clients sort through the potential impact on their own business as tariffs and dose actions unfolds.

Speaker Change: While we are encouraged to see improving quality in the pipeline with larger deal opportunities, we experienced lighter volume of activities starting in the second half of Q3 and expect delays in client decision, making to continue in the near term.

Speaker Change: As a result.

Speaker Change: Early fourth quarter weekly revenue run rate has shown some deceleration from the third quarter. Thus our outlook calls for revenue of 132 million to $137 million.

Jennifer Ryu: Thus, our outlook calls for revenue of $132 million to $137 million. On the growth margin front, we anticipate maintaining the improved pay-bill ratio we achieved through Q3. With the holiday season now behind us, we expect a stronger and a more normalized growth margin in the range of 36% to 37%. For SG&A expense, we expect our fourth quarter run rate SG&A to be in a range of $45 to $47 million, reflecting a 14-week quarter as opposed to the typical 13 weeks. Non-run rate and non-cash expenses for the fourth quarter will be around 2 to 3 million dollars, consisting mostly of non-cash stock compensation expense.

Speaker Change: On the gross margin front, we anticipate maintaining the improved pay bill ratio, we achieved through Q3 with the holiday season now behind US, we expect a stronger and a more normalized gross margin in the range of 36% to 37%.

Speaker Change: Our SG&A expense, we expect our fourth quarter run rate SG&A to be in a range of 45% to $47 million, reflecting a 14 week quarter as opposed to the typical 13 weeks.

Speaker Change: Non run rate and noncash expenses for the fourth quarter will be around $2 million to $3 million <unk>.

Speaker Change: Consisting mostly of noncash stock compensation expense.

Jennifer Ryu: In closing, during the current operating environment, we continue to refine our strategy and improve our execution to drive long-term value creation. With improving economic clarity over time, we will be well-positioned for a return to growth.

In closing during the current operating environment, we continue to refine our strategy and improve our execution to drive long term value creation with improving economic clarity over time, we will be well positioned for a return to growth.

Operator: This concludes our prepared remarks, and we will now open the call for Q&A. Thank you.

Speaker Change: This concludes our prepared remarks, and we will now open the call for Q&A.

Speaker Change: Thank you.

Operator: As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced.

Speaker Change: A reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Operator: To withdraw your question, please press star 1 1 again. One moment for questions.

Speaker Change: One moment for questions.

Joseph Gomes: Our first question comes from Joe Gomes with Noble Capital, you may proceed. Good afternoon. Thank you for taking my question. Hi, Joe. Hello, Joe. So I wanted to start out, you know, we talk about, you know, the, the, for the clients, these are high priority. Thank you, but obviously we're seeing the ongoing delay. push out of start date. I mean, how high priority are these? You know, how long, I guess, can the clients go or hold off without, you know, starting some of these activities? Yeah, so I wish I had an answer for you across the board, Joe, I do believe it's one of the reasons Europe has started to bounce back because the pent up demand has started to open up.

Speaker Change: Our first question comes from Joe Gomes with Noble capital you May proceed.

Joe Gomes: Good afternoon, and thank you for taking my questions.

Joe Ledger: Hi, Joe Ledger.

Joe Ledger: So I wanted to start with.

Joe Ledger: We talk about.

Joe Ledger: The for the clients these are high priority.

Joe Ledger: Transformational activities.

Joe Ledger: But obviously, we're seeing the ongoing delays in.

Joe Ledger: Push out of start date.

Ken: How high priority are these how long I guess, Ken the clients go.

Joe Ledger: Hold off without <unk>.

Ken: Starting some of these activities.

Joe Gomes: Yes, so I wish I had an answer for you across the board Joe I do believe it's one of the reasons Europe has started to bounce back because the pent up demand has started to open up.

Kate Duchene: And so we're seeing some of those projects move forward, whether it's M&A activity or technology transformation, like moves to a global payroll system or a cloud migration on ERP. That's one of the reasons you're hitting it that Europe has started to improve. The U.S. is a little bit different story. I mean, it's liberation today, we all hear, and what's happening with the tariffs. I think people are hesitant to make firm, expensive decisions in an uncertain landscape. And that's what we saw happen in the second half of Q3, which guides us to be careful as we think about what's happening in Q4.

Joe Gomes: And so we're seeing some of those projects move forward, whether its M&A activity or <unk>.

Speaker Change: Technology transformation like moves to a global payroll system or a cloud migration on ERP.

Speaker Change: That's one of the reasons youre hitting at that Europe has started to improve.

Speaker Change: The U S is a little bit different story I mean, its liberation today, we all hear of what's happening with the tariffs I think people are.

Speaker Change:

Speaker Change: Hesitant to make firm expensive decisions.

Speaker Change: In an uncertain landscape and that's what we saw happen in the second half of Q3, which guides us to be careful as we think about what's happening in Q4, I mean, if you ask any professional services folks everybody thought M&A would.

Kate Duchene: I mean, if you ask any professional services folks, everybody thought M&A would really open up in the first half of calendar 25. And in fact, the opposite has happened. You can look at a graph of what's happening in the S&P or the Russell and see how negative sentiment has become. And that does cause more conservative decision making. You know, as we look at our reports on opportunities opened in the pipe by week, as we've shared, consulting is really growing, but the time to close is longer and budget constraints are always noted. When we lose work, generally it's been because of budget or delayed decision making.

Speaker Change: Really open up in the first half of calendar 'twenty five and in fact, the opposite has happened you can look at a graph of what's happening in the.

Speaker Change: S&P or the Russell.

Speaker Change: And see how negative sentiment has become and that does cause more conservative decision, making as we look at our reports on opportunities opened in the Pike pipe by week as we shared consulting is really growing but the time to close is longer and.

Speaker Change: Budget constraints are always noted.

Speaker Change: When we lose work generally it's been because of budget or delayed decision making.

Kate Duchene: And that's the reality of the U.S. marketplace right now.

Speaker Change: And that's the reality of the U S marketplace right now.

Joseph Gomes: Okay, thank you for that. And given where the marketplace is...

Speaker Change: Okay. Thank you for that.

Speaker Change: Given where the marketplace is.

Kate Duchene: How is the retention of the consultants or what are you doing? We are working very hard to get consultants in front of prior clients. We are working hard at the right pricing in our on-demand business. You see the progress we've made in our consulting bill rates. and financial metrics, so that we can make some of those investment decisions we need to, to get consultants busy. And we stay close to them, even if they roll off our active roster, we stay engaged through alumni activity. Consultants really feel, I think, the care care and feeding of our talent team.

How is the retention of the consultants or what are you doing to retain the consultants have given me.

Speaker Change: The challenging.

Speaker Change: And getting work.

Speaker Change: So you know that.

Speaker Change: Obviously, one of the most important parts of our business is the care and feeding of great consultants.

Speaker Change: We are working very hard to get consultants in front of prior clients.

Speaker Change: We are working hard at the right pricing in our on demand business you see the progress we've made in our consulting.

Speaker Change: Bill rates.

Speaker Change: <unk> financial.

Speaker Change: Metrics, so that we can make some of those investment decisions, we need to to get consultants busy.

Speaker Change: And we stay close to them, even if they roll off our active roster, we stay engaged through alumni activity.

Karen: Consultants really feel I think the Karen.

Karen: Karen feeding of our talent team and that matters and will matter more as the environment.

Kate Duchene: And that matters and will matter more as the environment turns more positive.

Karen: Turns more positive.

Joseph Gomes: Okay, one more for me if I may. You talked again about looking at ways for efficiency. You know, how much more is there, I guess, available that could be cut before you're starting to really cut into muscle?

Speaker Change: Okay, one more for me if I may.

Speaker Change: You talk again about looking at ways for efficiencies.

Speaker Change: How much more is there I guess available that could be caught before you're starting to really cut into muscle.

Speaker Change: In the business.

Jennifer Ryu: Yeah, hi, Joe. This is Jen. I can answer that question. Yeah, we're looking across the board, within the company, different areas to continue to reduce our fixed costs, but it's not just reducing fixed costs, it's also leveraging the technology that we just implemented in order to, you know, become more efficient, and we have seen some efficiencies from the technology, but I think that's going to take a little bit of time, and, you know, different areas that we're looking at, Kate mentioned, I did too, in our remarks, you know, real estate is another area that we're going to continue to look at to optimize, and then, you know, discretionary spending, I mean, we are getting, you know, tighter and tighter every quarter, so that we can control our costs.

Yes, Hi, Joe This is John I can answer that question yes.

Speaker Change: We're looking across the board.

Speaker Change: The company is in areas to continue to reduce our fixed cost and so it's not just reducing fixed cost is also leveraging the technology that we just implemented in.

Speaker Change: In order to become more efficient and we have seen some efficiencies from the technology, but I think that's going to take a little bit of time.

Speaker Change: And different.

Speaker Change: Different areas that we're looking at heat mentioned I did too.

Speaker Change: Our remarks.

Speaker Change: Estate is another area that we're going to continue to.

Speaker Change: To look at to optimize.

Speaker Change: And then discretionary spending and we are getting tighter.

Speaker Change: Tighter and tighter every quarter.

Speaker Change: So that so that we can control our costs.

Jennifer Ryu: You know, I think for the near term, right, we are doing everything we can to protect our profitability, but we're also obviously, you know, need to manage the business for the long term as well. So as we think about investing in key areas of the business, there's going to be a lot of puts and takes, you know, so that we can retain all of the cost savings that we've already generated.

Speaker Change: Yes, I think I think.

Speaker Change: So the near term around where we are doing everything we can to protect our profitability, but we're also obviously.

Speaker Change: The business for the long term as well so as we think about investing in key areas of the business theres going to be a lot of puts and takes.

Speaker Change: So that so that we can retain all of the cost savings that we've already generated so far.

Joseph Gomes: Thank you for that. I'll get back in queue. Thank you.

Speaker Change: Thank you for that I'll get back in queue.

Joe: Thanks, Joe.

Speaker Change: Thank you.

Mark Marcon: Our next question comes from Mark Marcon with Baird, you may proceed. Good afternoon, and thanks for taking my questions. So. Obviously, it's a tough environment and there is a lot of uncertainty. Can you describe what you've been seeing since the second half of the third quarter? Just in terms of, are the clients characterizing potential projects as things that they have to push back? How much have you seen in terms of cancellations? And it sounds like you're not seeing early terminations of existing projects. So, I want to make sure I heard that correctly as well. Yeah, we aren't, Mark, and in fact, extensions are growing.

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

Mark Marcon: Hey, good afternoon, and thanks for taking my questions.

Speaker Change: So.

Speaker Change: Obviously, it's a tough environment.

Speaker Change: And there is a lot of uncertainty.

Speaker Change: Can you describe.

Speaker Change: What you're actually what you've been seeing since the second half of the third quarter just in terms of.

Speaker Change: Are the clients characterizing.

Speaker Change: Potential projects.

Speaker Change: Things that they have to push back how much have you seen in terms of cancellations.

Speaker Change: And.

Speaker Change: It sounds like Youre, not seeing early terminations of existing projects, so want to make sure I heard that correctly as well.

Speaker Change: Yes, we are March and in fact extensions are growing and it's one of the reasons that Europe has really strengthened too because not only are they adding projects, but they are extending and that's always been a little bit of a balance for them.

Kate Duchene: And it's one of the reasons that Europe is really strengthened, too, because not only are they adding projects, but they're extending. And that's always been a little bit of a balance for them, was on extensions. And we're seeing those extensions pull through, which is a good thing. So, it's not so much project cancellations, although it happens occasionally because of budget approval. But we're just seeing more delay. And I'll give you a real-world example. We were just chosen on a significant RFP to be a preferred provider. Now, that doesn't guarantee us a level of revenue, but it sure guarantees us that we're one of the first to get the opportunity and to grow this account, which is a significant financial services account.

Speaker Change: On extensions and we're seeing those extensions pull through which is a good thing. So it's not so much project cancellations, although it happens occasionally because of budget.

Speaker Change: <unk>, but we're just seeing more delay and I'll give you a real World example, we were just chosen.

Speaker Change: On a significant RFP to be a preferred provider.

Speaker Change: Now that doesn't guarantee us a level of revenue, but it sure guarantees that or one of the first to get the opportunity and to grow this account, which is a significant financial services account, we thought that RFP would be decided early in our Q3 and instead, we just.

Kate Duchene: We thought that RFP would be decided early in our Q3, and instead, we just learned the outcome in Q4. We've had a proposal at a major technology company, one of the top five that we thought would be decided in late October, and we still have not gotten a decision. So it's just delaying. It's not cancellations, but delay. And I think it is really tied to what's happening in government and what will the fallout be. Once we know what the fallout is, then people start making decisions. Can you can you describe a little bit about like how the magnitude of uncertainty that your clients are expressing.

Speaker Change: Learn the outcome in Q4.

Speaker Change: We've had a proposal at a major technology company.

Speaker Change: One of the top five that we thought would be decided in late October.

Speaker Change: And we still have not gotten a decision.

Speaker Change: So it's just delayed.

Speaker Change: It's not cancellations.

Speaker Change: Delay and.

Speaker Change: I think it is really tied to.

Speaker Change: What's happening in government and what what will the fallout be once we know what the fallout is then people start making decisions.

Speaker Change: Can you can you describe a little bit about like how.

Speaker Change: Okay.

Speaker Change: The magnitude of uncertainty that your clients are expressing.

Kate Duchene: How pronounced or how much more pronounced has that become in recent weeks, I'm talking about the last two to three, relative to, you know, towards the back end of the third quarter? I'd say the back end of the third quarter and the most recent weeks have been probably the most disrupted. Bhadresh might want to share another point of view. But, you know, now that we have the announcements from today, I think that will provide some clarity. It's going to create a more expansive business environment for all. I understand he announced that there's virtually a 10% tariff on almost everything and they go up to 30%.

Speaker Change: Ill, how pronounced or how much more pronounced does that become in recent weeks I'm talking about the last two to three relative to.

Speaker Change: Towards the back end of the third quarter.

Speaker Change: I'd say the back ended the third quarter and the most recent weeks has been probably the most disrupted the.

Speaker Change: <unk> mono share.

Speaker Change: Other another point of view, but.

Speaker Change: Now that we have the announcements from today.

Speaker Change: I think that will provide some clarity is going to create a more expensive business environment for all of us.

Speaker Change: I understand he announced that there is virtually a 10% tariff on almost everything and they go up to 30%.

Kate Duchene: We all read the articles about how many cars were purchased over the weekend in anticipation of today. So, people will make plans once they know that the dust has settled a bit and we're all following. I saw a headline that said, has Doge's time come to an end? We need some of that to settle down and move forward because I do believe there's pent-up opportunity. We felt this way coming out of COVID too, that people delayed things for so long that you can't delay any longer. But we're in this, you know, period of being squeezed.

Speaker Change: We all read the articles about how many cars were purchased over the weekend.

Speaker Change: In anticipation of today, so people will make plans once they know.

Speaker Change: That the desk to settles a bit.

Speaker Change: And we're all following I saw a headline that says.

Speaker Change: <unk> time come to an end.

Speaker Change: We need some of that to settle down and moves forward because I do believe there is pent up.

Speaker Change: <unk>.

Speaker Change: Opportunity.

Speaker Change: We felt this way coming out of Covid to that people delayed things for so long that you can't delay any longer.

Speaker Change: We're in this peer.

Mark Marcon: So as we said in our prepared remarks, we've done everything we can to, and we will continue to do, the only thing we haven't done fully is our cost savings. And we continue to look at that hard, whether it's, looking at personnel offshore too. But we have positioned with respect to client offerings, what the marketplace needs in recovery. And I think we've done some really good work internally. Right. And then can you just talk a little bit about what's embedded with regards to the revenue guide for the fourth quarter, just in terms of the split between on-demand versus consulting?

Speaker Change: Period as being squeezed so as we said in our prepared remarks, we've done everything we can to.

Speaker Change: And we will continue to do the only thing we havent done fully as our cost savings and we continue to look at that hard whether it's looking at personnel offshore too.

Speaker Change: But we have positioned with respect to client offerings.

Speaker Change: What the marketplace needs in recovery and I think we've done some really good work internally.

Speaker Change: Alright, and then can you just talk a little bit about what's embedded with regards to.

Speaker Change: The revenue guide for the fourth quarter, just in terms of the split between on demand versus consulting.

Speaker Change: And.

Jennifer Ryu: And I want to make sure I heard things right. Did you mention that the fourth quarter is a 14-week quarter? Yeah. And if so, you know, what is the implication with regards to on a same-day basis? what the revenue decline would end up being for the fourth quarter. Yeah, hi, Mark. So the guide for revenue for the fourth quarter, what we're expecting Europe and Asia pack, as well as outsourced services segments, to stay relatively stable. And I don't think that they're going to create much variability there. The variability is really going to come from North America within the on-demand, as well as consulting segments.

Speaker Change: And.

Speaker Change: Want to make sure I heard things right.

Speaker Change: Did you mention that the fourth quarter is a 14 week quarter.

Speaker Change: Yeah.

Speaker Change: If so.

What is the implication with regards to on a same day basis.

Speaker Change: What the revenue decline.

Speaker Change: I ended up being.

Speaker Change: For the fourth quarter.

Speaker Change: Yes, Hey, Mark.

Speaker Change: So the guide for revenue for the fourth quarter.

Speaker Change: We're expecting Europe, and Asia Pac as well as outsourced services segment to stay relatively stable and I don't think that they're going to create much variability there.

Speaker Change: The.

That variability come from North America, with an on demand as well as consulting.

Jennifer Ryu: And the consulting segments really, as you heard, we're working on a larger deal. And so how fast we can close those deals, as well as how fast we can push the project to start, is going to determine where on the range we fall. Q4 has 69 days, so it is four more business days compared to last year. And so on a year-over-year basis, you're looking at a decline of, comparing Q4 to Q4, you'll see a decline of about 14%. That's helpful. And then lastly, just when we take a look at the cash flow from operations for the first nine months.

Speaker Change: <unk> and our consulting segments really.

Speaker Change: We're looking at larger deals and so.

Speaker Change: How fast and how.

Speaker Change: How is that going to close those deals as well as how how fast we can push the project to start is going to kind of.

Speaker Change: Determined whether we're on the range we fall.

Speaker Change: Q4 has 60 90 days.

Speaker Change: For more business days compared to.

Speaker Change: Compared to last year, and so on a year over year basis, Youre looking at a decline of <unk>.

Speaker Change: Comparing Q4 to Q4, it will mean a decline of about 14%.

Speaker Change: Great. That's helpful. And then lastly, just when we take a look at the cash flow from operations for the first.

Speaker Change: Nine months.

Jennifer Ryu: Can you can you just describe like what were some of the unusual cash outflows so that we can normalize that a little bit? And and while your your balance sheet is is quite strong and pristine, you know, I'm wondering, are there any thoughts with regards to the sustainability of the dividend dividend yields? It's obviously quite high, so I am getting questions with regards to whether or not that might potentially change. Yeah, Mark. So as you know, we've been going through our technology transformation. So the last few years, couple of years, you know, our cash flow really has been, you know, impacted by the amount that we're spending on the implementation.

Speaker Change: <unk>.

Speaker Change: Can you can you just describe what what were some of the unusual cash outflows.

Speaker Change: So that we could normalize that a little bit.

Speaker Change: And while your balance sheet is quite strong and pristine.

Speaker Change: I'm wondering.

Speaker Change: Are there any thoughts with regards to the sustainability of the dividend.

Speaker Change: Dividend yields obviously quite high so I am getting questions with regards to whether or not that might potentially change.

Speaker Change: Yeah.

Mark Marcon: Mark So as you know we've been going through our technology transformation. So the last few years couple of years.

Speaker Change: Cash flow really has been.

Speaker Change: That impacted by the amount that we're spending on the implementation.

Jennifer Ryu: Starting in fiscal, now that we're, you know, the transformation is behind us, starting in fiscal 26, we should, you should see a pickup of about, you know, anywhere between five to $7 million in operating cash flow. You know, the point about dividend, well, dividend is set by the board each quarter. It is our intention to drive down the payout ratio with a higher stock price over time as we begin to benefit from the strategic plan and, you know, especially as the market condition improves, you know, we, we, we know our investors have come to appreciate the consistent dividends, you know, as I mentioned in the prepared remarks, we are taking a measured and balanced approach towards capital allocation, we want to consider what's best for the business long term.

Speaker Change: Starting in fiscal <unk> now.

Speaker Change: The transformation is behind US starting in fiscal 2006, we should you should see a pickup of about anywhere between $5 million to $7 million in operating cash flow.

Speaker Change: The point about dividend or dividend is set by the board each quarter.

Speaker Change: It's our intention to drive down the payout ratio with a higher stock price over time as we begin to benefit from the strategic plan and especially as the market condition improve.

We know our investors have come to appreciate the consistent dividend.

Speaker Change: In the prepared remarks.

Speaker Change: We are taking a measured and balanced approach towards capital allocation, we want to consider what's best for the business long term. So that includes investing in organic growth.

Jennifer Ryu: So that includes investing in organic growth, you know, or dividends and we share repurchases. Right. And then just going back to the cash flow and maybe margins from a sustainable basis, obviously, it's an unusual time period. Things have changed. And I mean, things have been rough for, you know, multiple years. When you think about like, if we ended up having some stability and revenue, potentially a little bit of growth, where would you target, you know, EBITDA margins and operating margins? And what sort of free cash flow conversion would you hope to be able to achieve?

Speaker Change: Or dividends and share repurchases.

Speaker Change: Alright, and then just go.

Speaker Change: Going back to the cash flow and maybe margins from a sustainable basis. Obviously, it's an unusual time period things have changed and I mean things have been rough for for.

Speaker Change: Multiple years, when you think about like if we ended up having some stability in revenue.

Speaker Change: Potentially a little bit of growth.

Speaker Change: Where would you target.

Speaker Change: EBITDA margins and operating margins and what sort of free cash flow conversion would you hope to be able to achieve.

Jennifer Ryu: Yeah, I think, you know, as the broader environment normalizes, you know, you know, we're full year with a full year guidance. Now we're going to be in the, you know, in the high mid to high 500 million, as the broader environment normalizes, you know, as we get back into the 600 million, you know, even get into 700. You know, I do think that given our lower cost structure, now, we should be able to get back into kind of where we used to, which is high single digit. Now, if we go above 700 million, and we can get into the double digit, and I do expect that our cost structure, you know, over time, especially as I mentioned, with the tech investment, you know, we should be able to, you know, realize more efficiency in how we operate.

Speaker Change: Yeah.

Speaker Change: I think as the <unk>.

Speaker Change: <unk> environment normalizes.

Speaker Change: Full year with the full year guidance now we're going to be in that.

Speaker Change: Pi mid to high $500 million as the broader environment normalizes.

Speaker Change: We get back into the $600 million you Didnt get into 700 <unk>.

Speaker Change: Do you think that given our lower cost structure now we should be able to get back into kind of where we used to do which is high single digit now if we go above $700 million and we can get into the double digit and I do expect that our cost structure over time, especially as I mentioned with the type of investments.

Speaker Change: We should be able to realize more efficiency in how we operate.

Jennifer Ryu: And what I'm sorry, what was your other question? The cash flow? Oh, yeah, cash flow, free cash flow conversion. Look, our historical trend has been around 75 to, you know, 85% of free cash flow conversion from EBITDA. So, you know, as we as we recover and improve, I expect that that, you know, obviously, that requires working capital that may be a little bit lower, but I'm not concerned that we're going to be able to get back to I think, normalize, get back to that level of free cash flow conversion. Thank you.

Speaker Change:

Speaker Change: And I'm sorry, what was your other question on the cash flow cash flow free cash flow conversion with our historical trend has been around 75% to 85% of free cash flow conversion from EBITDA.

Speaker Change: No.

Speaker Change: As we as we recover and improve I expect that that obviously that requires working capital that may be a little bit lower but.

Speaker Change: I'm not.

Speaker Change: Concerned that we're going to be able to get back to I think normalized get back to that level of free cash flow conversion.

Speaker Change: Great. Thank you.

Speaker Change: Sure.

Speaker Change: Thank you.

Andrew Steinerman: Our next question comes from Andrew Steinerman with J.P. Morgan, you may proceed.

Speaker Change: Our next question comes from Andrew Steinman with Jpmorgan you May proceed.

Jennifer Ryu: Hi, Jen. I heard your answer before about the 14 percent decline in the fourth quarter revenue guide, and I think that was on a dollar basis adjusted for days. I wasn't sure if that was at the midpoint or not. My question is a little bit different. I would like to know, in the midpoint of the fourth quarter revenue guide, what's the organic constant currency revenue growth on a same-day basis? I ask because I know the reference point acquisition hasn't anniversaried yet. Yeah. At the midpoint, excluding reference point, people will be down 17 percent year-over-year. and that has consequences.

Andrew Steinman: Hi, Jen I heard your answer before about the 14% decline in the fourth quarter revenue guide and I think that was on a dollar basis.

Andrew Steinman: Adjusted for days I wasn't sure if that was at the mid point or not my question's a little bit different.

Andrew Steinman: I'd like to know in the midpoint of the fourth quarter revenue guide, what's the organic constant currency revenue growth on a same day basis I ask because I know the reference point acquisition haven't anniversaried yet yes.

Andrew Steinman: Yes.

Andrew Steinman: At the midpoint.

Andrew Steinman: Excluding reference point people will be down 17% year over year.

Andrew Steinman: And then that's constant currency.

Jennifer Ryu: Um, correct. I mean, look, currency is gonna, you know, it's moving around a lot, Andrew, and especially, right, given all the tariffs, and it's really hard to kind of predict, um, currency, so, um, yeah, I mean, I expect that G-Force currency movement is probably going to be neutral, so that's, this is, you know, on a, on an organic thing day-to-day. Okay, great.

Andrew Steinman: Correct any law currently is smooth.

Andrew Steinman: Moving around a lot, Andrew and especially given all the tariff and it's really hard to kind of predict.

Andrew Steinman: Currency. So yeah, I mean, I expect that <unk> currency movement is probably going to be neutral. So that this is on a on an organic same day basis.

Andrew Steinerman: Let me just ask one more question.

Andrew Steinman: Okay, Great. Let me just ask one more question.

Jennifer Ryu: I haven't heard much about Hugo in a while. I wanted to get a short update there. Like, is there any revenue traction that's moving the total revenue needle for the company or anything that talks about kind of the volume of work that's going on assignment through Hugo? Yeah, so we've seen a pickup of Hugo revenue this year. We've really folded that offering into our on-demand segment, so we won't be reporting it separately. I'll tell you the experience we've learned, Andrew, is that it's been adopted on the talent side and it's really helped us learn some new behaviors on how to operate faster on the on-demand talent side.

Speaker Change: <unk> heard much about Hugo <unk>.

Speaker Change: While I wanted to get a short update there like is there any revenue traction that's moving the total revenue needle for the company or any thing that talks about kind of the volume of work that's going on assignment through Hugo.

Speaker Change: So we've seen a pickup of Hugo revenue. This year, we've really folded that offering into our on demand segment. So we will be reporting it separately I'll tell you. The experience we've learned to Andrew is that it's been adopted on the talent side and it's really helped us learn some new behave.

Speaker Change: Curious on how to operate faster on the on demand talent side, we have not seen clients yet adopt a self served.

Jennifer Ryu: We have not seen clients yet adopt a self-serve environment. So I don't know if you're used to our white glove service at RGP, but we have not seen that adopt yet. So in turn, we've taken some cost out of the Hugo business so that we can make money and we are driving new opportunities in our client base. So this is an offering we're really pushing in our existing client base for the kind of roles that are, as we've said before, accretive to us, a level or two down, and we are driving growth there. Got it.

Speaker Change: Environment. So I don't know if thats I think part of it because they're so used to our white glove service that our GP, but we have not seen that adopt yet so in turn we've taken some cost out of.

Speaker Change: The Hugo business, so that we can make money and we are driving new opportunities in our client base. So this is an offering we are really pushing in our existing client base for the kind of rolls that are as we've said before accretive to us a level or two down.

Speaker Change: And we are driving growth there.

Andrew Steinerman: Yeah, that makes a lot of sense. Thank you. You're welcome.

Speaker Change: Got it yeah that makes a lot sense.

Speaker Change: Youre welcome.

Operator: Thank you.

Kate Duchene: I would now like to turn the call back over to Kate Duchene for any closing remarks. Well, I thank you all for listening in and supporting RGP. We look forward to updating you on our progress after Q4. Thanks very much, everyone. Thank you.

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

Speaker Change: I. Thank you all for listening in and supporting our GP, we look forward to updating you on our progress after Q4, thanks very much everyone.

Operator: This concludes the conference. Thank you for your participation. You may now disconnect. Sorry, Bhadresh, we took...

Speaker Change: Thank you. This concludes the conference. Thank you for your participation you may now disconnect.

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Operator: Thank you for watching!

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