Good day, ladies and gentlemen. And welcome to the Resources Global Professionals’ Q3 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instruction will follow at that time [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Ms. Alice Washington., General Counsel of Resources Connections. Ma’am, you may begin.

Thank you, Operator. Good afternoon, everyone, and thank you, for participating today. Joining me on this call today are, Kate Duchene, our Chief Executive Officer and Herb Mueller, our Chief Financial Officer. During this call, we will be commenting on our results for the third quarter of 2017. By now, you should have a copy of today’s press release. If you need a copy and are unable to access the copy on our Web site, please call Patricia Marquez at 714-430-6314 and she will assist you. Before introducing Kate, I would like to remind you that we may make forward-looking statements during this call. Such statements regarding future events or future financial performance of the Company are just predictions and actual events or results may differ materially. Please see our Form 10-K report for the year-ended May 28, 2016 for a discussion of some of the risks, uncertainties and other factors such as seasonal and economic conditions that may cause our business, results of operations and financial conditions to differ materially from results of operations and financial conditions expressed or implied by forward-looking statements made during the call. I'll now turn the call over to Kate Duchene.

Thank you, Alice. Good afternoon, and welcome to Resource's third quarter conference call for fiscal year 2017. I will start the call with a few introductory remarks and we’ll then give a brief overview of our third quarter operating results. Next, I will outline the strategic initiatives we have launched to improve our profitability and revenue generation. I will close by reflecting on our RGP’s vision and the relevance of our business model in today's economy. I want to begin by noting that our 20th anniversary as a Company happens this month. We are very respectful of the strength of our core business and the exceptional client base we've built over these 20 years. It is a strong Company with great people; we've been profitable every quarter, but one; we have consistently created value for our shareholders. During our 16 years as a public company, we have returned over $645 million to our shareholders through our stock buyback and dividend program. We have a strong base of business and excellent client list and access to powerful decision makers in our clients. We will continue to build on these strengths. Currently, we are facing adverse revenue trends in the financial services and energy verticals. This is impactful because three of our larger geographic practices, Tristate, Chicago and Houston, are down. I will let Herb review the quarter in detail, but I want to acknowledge our performance against three key metrics now; our total revenues for the third quarter of fiscal 2017 were $143.8 million, which is down 2% compared to the third quarter a year ago; second, net income was $2.9 million or $0.09 per diluted share compared to $6 million or $0.16 per diluted share a year ago; third, SG&A was $45.3 million in the third quarter compared to $43.3…

Thank you, Kate and good afternoon everyone. I'll start by giving detail on our fiscal third quarter financial results. Then we’ll discuss the trends we're seeing in Q4. I will also give further detail on the financial impact to the strategic initial line a little earlier. Starting with an overview of our third quarter results, total revenue for the third quarter of fiscal 2017 was $143.8 million, a 2% decrease from the comparable quarter a year ago. Sequentially, revenue was down 2.5%. On a constant currency basis, revenue decreased 1.2% quarter-over-quarter and decreased 1.8% sequentially. Our third quarter gross margin was 36.3%, representing a 110 basis point decrease from the prior year. SG&A expenses were $45.4 million compared to $43.3 million in the third fiscal quarter a year ago. Our net income was $2.9 million or $0.09 per diluted share. In Q3, adjusted EBITDA was $8.4 million or 5.8% of revenue compared to $13.1 million or 8.9% of revenue in the year ago quarter. First -- so next at revenue trends, as we reported in January, weekly revenues during the first five weeks of the third quarter totaled $51.9 million. During this five-week period, weekly revenues averaged $10.4 million. However, two of those weeks were impacted by the holiday season, including Christmas and New Years. Absent those weeks, our average revenue was $12 million. During the final eight weeks of the quarter, average weekly revenues were $11.5 million per week, including Chinese New Years and President’s Day. Without those impacts, the average was $11.9 million. Now, let me discuss some of the highlights of our revenues geographically. As Kate mentioned, we’ve seen some improving trends across our international businesses with revenues in Europe and Asia Pacific increasing during the quarter. However, our U.S. performance continues to be below our expectations…

Thank you, Herb. As set forth in my opening remarks, we are not sitting still. We've embarked on a number of important initiatives that we believe will make the Company more productive and drive more profitable growth in the future. We are extremely focused on driving growth and working hard to accelerate the return on investments we are making in the sales and solutions space. Before opening the call to questions, I will review as is customary, our client continuity statistics. Client continuity remains outstanding. During our third quarter, we served all of our top 50 clients from fiscal 2016, and 48 of the 50 from 2015. In fiscal 2017, we have 253 clients for whom we provide services exceeding $500,000 on a run rate basis and that's up from 239 through the third quarter of fiscal 2016. In addition, our top 50 clients represented 37.3% of total revenue, while 50% of our revenues came from 97 clients. Our largest client for the quarter was approximately 2.2% of revenues. During the third quarter, 94% of our top 50 clients have used more than one practice area and 80% of the top 50 clients have used three or more practice areas. This practice area penetration reflects the diversity of relationships we have within our client organization, and supports the opportunity for growth in other significant clients. As discussed earlier, we believe an enterprise wide aligned sales process and global sales tool and team, will help us improve such results going forward. In closing, as I mentioned on the last call, we are very pleased by the revenue trends related to our key solutions practices; technical accounting, M&A transaction services and data solutions; all of the key initiatives of strong double-digit growth sequentially and compared to prior year; the initiatives are key elements of our strategic plan and priorities for our focus in the near term. That concludes our prepared remarks, and we're happy to answer any questions at this time.

[Operator Instructions] And our first question comes from Kevin McVeigh from Deutsche Bank. Your line is now open.

I wonder if you could just, in terms of the strategic actions you've taken, just wanted to understand, because we thought of Resources as kind of supplemental staff as opposed to doing the implementations and things like that. So are you doing more of a subscripted model and if you're kind of take the lead on the implementations, does that change the type of risk you're willing to incur? And as a result of that do you need to change insurance across the business and things like that? That was my first question.

I think that's a good question Kevin and thank you for that. So, we are changing the business a little bit, but -- and going deeper in some solutions practices where it make sense, both to follow what our clients are asking for from us and also to follow the spending trends in our clients. So, let's talk about data solutions for a minute. The reason we’re so deep in data solutions is because everything tells you that companies are obsessed with moving into the digital world. That’s an opportunity for our classic project support activities, but certain clients, and I think more and more in the middle market, are asking us for some of the strategy and point of view works too. So we can bring a fuller complement of solutions work to that set of clients. And that’s the group of clients that have been largely ignored by our larger competitors. So we’re excited about the opportunities there. We have been careful and certainly working with our general counsel to look at how we contract with these clients and that we appropriately allocate the risk model, especially for the price point we’re charging for these services. And we’ve also been very careful to make sure that our insurance products cover how and where our business is moving.

And I would add that still the very powerful majority of those divisions are still tied to material base. So we will, in some cases had to fix the engagements. But traditionally, it's still been time and materials.

And then in terms of the office closures, I mean -- can you give us a little more context in the Tri-State Chicago and Houston, Tri-State wasn’t one of those three. But are you scaling back those offices just given -- I‘m surprised that the continued weakness given oil has been firm and financials -- the market still is a little bit better. Is there anything or is it just kind of the type of services that were been offered and that’s part of the reason for the kind of part of the strategic shift, or just any context on, again the office closures and then where they kind of reset to smaller scale? And how will those practices -- how do they sit today in terms of percentage of revenue?

So let me uncouple your question a little bit. So, first of all, the office closures were in smaller markets. And I want to be clear that while we’re closing our geographic office, we’re not stopping serving those clients; they’re really more ancillary markets that can served by offices in close geographic proximity, and it's not one of the big tree that I talked about, Tri-State, Chicago or Houston. I think the challenge with those three is that in those markets we had a couple of really large, very deep clients that, for various reasons, stopped spending with consultants. And weren’t the only firm hit, but that can leave a big revenue delta that you have to pick up in other ways. Tri-State, for example in financial services, I don’t think we moved quickly enough into the compliance space. Now, we’re moving very quickly into the data space where we’re seeing a lot of those clients and institution spend money; it's one of the reasons that’s driving that solutions trend for us. So, it's a combination, there is just not one easy answer. And I can tell you, we’re very dedicated to those practices. Those geographies are very important to us. We have outstanding clients in those areas, and we’re making changes. So, we’ve either made some leadership changes or some structure changes in all of those practices in order to drive different results.

And then, if I could one more. Herb, are you comfortable providing any type of range on revenue, because obviously Q4 is always a big quarter. Is there any way to just think about, just directionally, range of revenue we can think about just given you know there is a fair amount of strategic initiatives and you know kind of things going on? Just to kind of help from a modeling perspective.

I think as I said in my comments, we continue -- we’re trending about 2% to 3% below last year that’s what we are seeing in this quarter. And I think that’s going to be a fair range, so things are dynamic. One of the fascinating things that we have in this business, and I had talked three months ago about where we’re seeing some improvements, and we still are. I want to point out that in the past two weeks we’ve seen office record revenue over the history of our Company in three different offices; one in the southeast; one is central geography; and one in the southwest. And in all of these, these are places where we’ve undergone management changes and procedural changes that are paying off. And that’s we’re excited. We’re seeing where we’ve made some important moves in several markets that it's making a difference, and they continue do that across the Board, is going to be really key. But in all of those, it takes time to work through those.

And our next question comes from Andrew Steinerman from J. P. Morgan. Your line is now open.

I wanted to jump further into that question of, are other consultants getting -- expected here in terms of those verticals that you called out. When you think about the big four accounting firms, don’t you think that there continue to grow quickly. I know we always hear their revenue growth once a year. But don’t you think they’d be -- and last we heard they were growing quickly. Don’t you think the big four accounting firms are growing even though they are exposed to banking and energy also?

I think they are. Andrew, I think that’s there. I think their brands are much older and much more powerful, and may have a much larger partner and employee footprint. So they can whether some of these storms, probably easier than we can. But I think the premise of your question is accurate.

Then my other question is, as you get more into the advice business, do you feel like the average number of resources professionals on assignment at a typical client will go up?

Yes, I think that that will happen. I think there are a couple of beneficial things that will happen in our business that will drive long term value for our shareholders; number one, these project team should get bigger; number two, our pricing position with these clients, because we’re delivering higher value work and bringing stock leadership to the work, should remain higher. So we won’t be and subject to some of the commoditization pressures we’ve seen or the BMF pressures we’ve seen in some of our larger clients. So, yes I think both of those points are strong ones Andrew that we take into consideration when we’re setting the future strategy for the business.

And I’d add that one of the key things that we're working on, and especially our larger strategic accounts, is expanding our sales across our service lines. Where, in some cases, we’ve typically been strong in ANF, and that’s been our focus. We've seen great opportunity to bridge over to information management, supply chain. And then in addition to that, having a more global structure, especially in the United States where we can come in and help these very large clients in their remote offices. So we’ve made a conscious effort to come in and drive a leadership by account. And which has also helped us, as I mentioned, the two to three offices that just set record highs were the benefit of that strategy through Fortune 100 Company. We’ve expanded our relationship and drove results in different market. So there is really I think a lot of opportunity for us there to better leverage and elevate the relationships we have with our large clients.

Last question, Herb, again it's about the gross margin and the drop of pricing pressure. Is there actually placing pressure in the marketplace for high end F&A professionals, or is it more that resources has been less disciplined on price as you're trying to get revenues up, you’re kind willing to concede?

The pressures on the low end of the business with the large companies putting in BMF systems, and really pressing that which is again part of our movement towards the higher end; also, what you have on our overall pricing, the impact of the growth that we have in Asia is those resources are lower price point; and then the map that’s just driving our overall business down, but when it come down, I don’t have it right in front of me right now. But the U.S. is solid there. But we are seeing it on the bottom end. What we have is a great value play on those higher services is where we become really attractive where we're competing against the big four versus some of the lower level staffing firms on the bottom end.

[Operator Instructions] And our next question comes from Mark Marcon from Robert W. Baird. Your line is now open.

First, just wanted to understand a little more about the demand environment; outside of the third big offices that you mentioned in the U.S., to what extent, and it sounds like may be some of the smaller offices that are growing, some client specific initiatives. But just from a broad perspective, ex-energy ex-financial services, do you think the economy is better or worse off from a client demand perspective in the U. S.?

I think it’s a little bit better. Right now, we're optimistic. The activity levels are very high. The discussions that we're having, especially in the middle market, we're seeing a lot of potential there as some of the CFOs have adjusted off their project plans and are getting into discussions. There’s still, I’d say optimism, but cautious optimism.

Yes, I would echo that. I would also say that one of the reasons we're very bullish about building a true business development function in the Company is that those folks are the kind of professionals that we’ll call on any type of business leader. So while the historic foundation of RGP has been a lot of finance and accounting professionals who are very comfortable calling in those functional areas in a client, our business development folks are trained and educated to follow the money. And in an improving economy that can have a much more positive impact in our business, and that's why, Mark, we're very excited about adding this element to our management team.

And then can you talk a little bit more about two areas where you’re seeing growth, specifically if we take a look at rev/rec and lease accounting. It seems like we should, particularly on rev/rec, should start picking-in in a more material way. What's the sense, just from a timing perspective in terms of getting in people who are get it implemented?

We're encouraged by I mentioned that we've got 20% sequential quarter-over-quarter growth. So year-over-year for the first three quarters we're up in the 75% to 80% range, so we're certainly doing better. It's not as big of a number as we would like. The proposal activity is significantly higher. I report on some of those numbers last quarter. We're seeing -- continuing to see the interest is there. But we're also seeing two things happen as; one is, in some cases it's been a substitute for other spending. They come in and they realign their outsize spend towards that and then still a lot of companies trying to do it internally, but it's starting to blow up. So I still -- personally, I'm optimistic that that can be a much bigger chunk, it's just move slower than we would have wanted.

And it's currently between rev/rec and lease accounting that's the 5% of the business now?

It's a little bit of other than that, yes, just a little bit under that. And the majority of that's rev/rec lease accounting is starting to kick in, but I'd say 80% of it roughly is on the rev/rec side.

And then with regards to the solutions, how big is that right now?

That is almost about 10% of our business and growing. And we’re excited Tracey Figurelli has done a phenomenal job equipping that, that’s where some of the investment in headcount was over the past year as we brought in the subject matter experts to support that. And we're very excited about the opportunity there.

Then when we think about the flow-through in terms of initiative number one relative to what manned up being absorbed by initiatives two and three. How do we think about the net increase or I mean reduction with regards to annualized spend?

Yes, it's going to vary over the quarters as we have this initial time period. We obviously have the Salesforce.com ongoing license cost, which is under million dollars a year. You've got the consulting related to the implementation that the bulk of that spend will be complete by about half way through Q1 of FY '18. But then you’ve got the additional initiative that we’ve started-on on the sales; planning that is going to probably be between $1.5 million and $2 million. So you’ve got some -- and that will roll out over roughly a 12-month period starting now. And then you may have different phases; other little things that will come and go during that as we see opportunities. But those are the big buckets.

I mean, do you have a sense with regards to like on -- if we were to hold revenue constant and to implement these initiatives, on an annualized basis where the SG&A would end up coming out if we were just to assume constant run rate, obviously with seasonal adjustments?

At this point, that's about as much as I'm going to say on it.

I will say, Mark, we're going to be very careful about spend. I believe we need to invest in certain activities, which we've laid out to make the Company stronger in the future. And I feel very optimistic and very strong and confident about that. But at the same time, and I told the team here, expect me to say no most of the time when you come to me with headcount, because we got to be very careful. We have to make the right investments to make it stronger, and we have to be very careful. So I think, Herb, he doesn't want to overpromise and under-deliver, none of us do. We can tell you, we're going to be extremely cautious. But we also understand that we have to be building this firm for long term value, and we're putting some new strategies in place to do that. We're listening more and more aggressively to what our clients say they want from us. We had a client the other day that said why don't we spend more money with you; this is a huge financial services client, and believe me we're going to solve that question. But what that tells me as the leader of this organization is that our clients that know us, love us. And so we have to listen more to them and be providing what they want to buy, because we really have a unique value proposition in how we serve our clients in the project space; and in particular, how we are very committed to the knowledge transfer back into their environment, so clients are left better off than when we started. That's a pretty remarkable statement and that's a brand promise that we want to make in all of our clients.

But I do want to come back to just understand I mean should we anticipate that there will be some -- of that $7.5 million will at least half of that flow through to the bottom, if we assume revenue stays flattish or…

Yes, I think that's definitely a fair assumption. So, my only hesitancy, Mark is as we work through our sales plans and we're working through the new strategy, try a new side if we have other short term investments that could add that or potentially even some reduction as we find more efficient ways to do, because that's what we're trying to accomplish is are both of those. But we may come into some areas where we realize we've got a shortage of the right talent. So I'll have better clarity on that as we get through probably the next three or four months as we further develop our plans.

And then can you just give some color with regards to the change in the incentive comp in terms of the structure there, because I think that's really important. And then if you have any guidance to as we think about the current quarter in terms of gross margin, SG&A that would be appreciated.

I think on the incentive comp, great question. The way I'll describe that right now is, currently we had a linear line that; you do a little bit better; you make a little bit more; you do a little bit worse; you make a little bit less, on the incentive comp. We're going to be doing more of an S-curve, so it will be a more dramatic follow up as markets -- people start generating double-digit growth, they’re going to be rewarded. At the same time if they're not growing then there's going to be a drop in compensation. So there's going to be more risk but -- and we're really excited about that. We're working through the final phases, so I don't have the exact definition of that. But this is going to impact all levels of the organization.

Then on the gross margin and SG&A for the current quarter…

Gross margin, right now, we expect an uptick there, I'd say in that 38%, 38.5% range. And SG&A, I think we're going to be somewhere in that $45 million to $45.5 million. And then plus on top of that though you still going to have the restructuring charge. And then you'll start seeing the benefit of these reductions and we'll be wrapping up with the consulting spend on the Salesforce.com probably see a little better impact on Q1.

And then I was wondering, question for Kate. What's the communication strategy? What's been communicated to a leadership in terms of various offices so far? And what's the receptivity then to the extent that the message has been fully absorbed?

Thank you, because changed management, it's important to us, it's important to our clients. So part of my taking over the role, I wanted to have a more dedicated communication plan, not only with the management team but with our consultants. And I think we're doing that with the number of different vehicles. We’ve started to roll out this strategy and refine the strategy and change is hard for people, but I think they're very receptive. And we will have a global management meeting in early May where we'll all be together and confirming our commitment to the strategy and moving the Company forward.

And at this time I'm showing no further questions. I would now like to turn the call back over to Kate Duchene for any closing remarks.

Thank you, Operator. And thank you, everyone for listening into our third quarter report. We thank you for your continued support and interest in Resources, and we'll look forward to updating you at the end of our fiscal year in July. Thanks again.