Resources Connection, Inc. (RGP) Q4 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Resources Global Professionals' Fourth Quarter 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 call is being recorded. I would now like to turn the conference over to Alice Washington., General Counsel. 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 communicating on our results for the fourth quarter of fiscal 2017. By now you should have a copy of today's press release. If you need a copy or are unable to access the copy on our Web site, please call Patricia Marquez at area code 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. 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 condition to differ materially from the results of operations and financial conditions expressed or implied by forward-looking statements made during this call. I'll now turn the call over to Kate Duchene.

Thank you, Alice. Good afternoon, and welcome to Resources' 2017 Fourth Quarter and Year End Conference Call. Here is a quick roadmap for my remarks. First, I will start with an update on our SalesForce implementation. Second, I will give a brief overview of our fourth quarter and year-end operating results. Third, I will report on our progress against the three strategic initiatives we announced at our third quarter earnings call. Fourth, I will outline new actions we have taken to address certain underperforming markets. And fifth, I will close by reflecting on what we're looking forward to in fiscal '18. We are excited about bringing new technology into RGP, both to support our business operations, and our client and consultant experiences. Our first significant move in fiscal '17 to support this priority was the execution of Project Skyrocket, our SalesForce implementation initiative. Project Skyrocket delivered an aligned and defined six-step sales process for use throughout the global organization. It has also driven our global implementation of SalesForce as RGP's customer relationship management tool. I'm pleased to hear today that we have successfully completed our North American implementation on time and on budget, bringing the SalesForce platform to approximately 82% of our operations. By close of business on day one of go live, we had approximately 75% user login and participation in the new system. We are driving a 100% adoption with a disciplined sales management program that will provide greater sales efficiency, accountability, and transparency. Ultimately, this project is all about improving our ability to serve our clients with better information, insights, and ease. We expect to complete the SalesForce implementation across our global business by the end of Q2 fiscal year '18. Now, I will turn to the three key measures in our operating results. Our total revenues for the fourth quarter of fiscal '17 were $148.6 million, which represents a decline of 2.6% compared to the fourth quarter a year ago. The decline was 1.6% on a constant currency basis year-over-year. On a sequential basis, fourth quarter revenue increased by 3.3%, compared to $143.8 million in the third quarter of fiscal '17. The increase was due primarily to the impact of the holidays on our Q3 results, namely the December holiday schedule reduces revenue in Q3, while we had no paid holidays in the U.S. in Q4. Second, net earnings were $4.4 million or $0.15 per diluted share compared to $8.7 million or $0.23 per diluted share a year ago. Our fourth quarter results were impacted by $0.05 per diluted share related to severance and office closure charges taken during the quarter as a result of the reduction in force we completed. Without such one-time charges, we would have reported net earnings of $0.20 per diluted share. Third, SG&A was $48.4 million in the fourth quarter, compared to $44.4 million in the fourth quarter a year ago. Of the $4 million increase in SG&A, $2.4 million was the result of expenses related to the reduction in force. The remaining $1.6 million was primarily related to investments made during the year to transform the company's sales process to drive long-term revenue growth. This financial performance reflects what we have experienced since the start of fiscal '17. While we have continued to see growth in the international markets, with 5.7% growth sequentially, and 8.1% growth quarter-over-quarter on a constant currency basis, our business in North America has declined by approximately 4% this past fiscal year. Primarily, we have struggled in three significant markets, Tri-State, Chicago, and Houston. Herb will discuss our operating performance in further detail later in the call, including a discussion of trends in the first quarter of fiscal '18. I will now provide an update on the three strategic initiatives we laid out during the last call, and what we have accomplished so far. In April, we announced a companywide plan to reduce our SG&A by approximately $7 million on an annualized basis. We completed this cost reduction plan during the fourth quarter. As laid out, we have closed offices and have reduced headcount by approximately 60 people in our field offices and back office to better match the revenue levels of our business. We continue to analyze the leverage model in our operations and we'll seek additional opportunities to reduce our cost structure as we streamline and centralize certain functions. Our second priority initiative focuses on sales transformation. This priority has several facets. One, improved sales culture, management, and accountability; two, the establishment of a strategic client program with dedicated account teams to lift revenue and targeted long-term global clients; three, a revised compensation plan that aligns reward with enterprise growth; four, new process and technology. And five, client segmentation with a strong focus from a centrally managed business development team on net new client acquisition in the middle market and large client segments. As previously outlined, the sales transformation effort is a multi-step process that will take approximately 12 to 18 months to complete fully. But we are well underway. During the past quarter, we have rolled out new management techniques and processes to drive clearer expectations and accountability for all sales roles. Since our last earnings call, we have made leadership changes in five underperforming markets in the United States, including Chicago and Tri-State. We continue to build our playbook and training materials in order drive further productivity and focus around account planning, penetration, and solutions offerings. In the quarter, we fully launched this strategic client program with dedicated account teams, with the goal of lifting revenue in targeted clients who already know and love our business model. While a small set of clients to start, and comprising about 7.3% of our overall revenue in fiscal year '17, this program has double-digit growth goals for fiscal year '18. We have freed up our best client builders to focus on growth within clients who already value our business model. Each account has specific penetration goals with respect to core offerings and geographic reach. These accounts are managed separately to drive maximum potential and consistent client experience. We believe this effort will be significantly enhanced by the implementation of sales force to share information, insights, and service delivery on a global basis. Additionally, we have revised our management incentive program to align reward with the company's enterprise growth goals. A disconnect had developed between bonus award and growth, meaning that reward could be earned without driving growth in a particular market. We have now aligned the enterprise goals and established minimum levels of financial performance before incentive compensation is achieved. In addition, bonus award potential is richer as performance exceeds expectations. The fourth element of sales transformation is process and technology. We expect the process and technology to improve our sales funnel and our penetration in key client segments. Accountability and transparency breed productivity. The platform also provides the ability to identify gaps in the sales process so we can more readily address challenges quickly. Adoption of the tool is critical, and is a key priority at all levels of the organization. Finally, we have filled 90% of the enterprise business development positions in our five major markets. We are still looking to add two key roles in our Tri-State practice. We have revised the reward program for this group and set performance standards and focus across the board. We have conducted training under the new program and are currently finalizing the metrics we will unveil for this group, including net new client acquisition goals, penetration in the middle market client segments, margin focus, and solutions offering penetration. Our third priority initiative is building our Integrated Solutions capabilities with a centralized content team and a transition to a standard deployment model. This will enable us to deliver enhanced offerings to our clients that are multidisciplinary and bring improved structure, tools, points of view, and quality assurance. During this quarter, we have continued to focus on M&A transaction services with a particular emphasis on acquisition integration work, data solutions, including data governance privacy and analytics, and technical accounting services, including lease accounting assessments and implementation plans. We have content development teams in place for each of these and are rolling out standardized training for the sales personnel to improve our technical sales capabilities and ensure consistency. These areas of focus have already contributed strong returns for the company. For example, M&A transaction services and data solutions delivered growth of approximately 20% in fiscal 2017. We experienced nearly a 100% growth year-over-year in our technical accounting solutions practice. We will also drive these solutions through our middle market channels as we are able to bring senior big four level talent and experience to this client segment at unmatched value. Next I want to spend a few minutes outlining actions we have taken to address underperforming markets. Our results were significantly impacted this year by the performance of three large markets in North America: Chicago, Houston, and Tri-State. These markets contributed to the majority of our decline year-over-year. Since our last earnings call, we have changed senior leadership in all three markets specifically we have appointed a new senior sales leader in the Tri-State region and a new sales leader in our Chicago office. Both leaders have significant and relevant experience in delivering strong performance within sales and management. In Houston, we have enhanced our sales capability by relocating the leader of our Latin America practice to that market. The office is at double-digits in the first seven weeks of the current quarter, so the momentum is building and the pipeline is trending up. We are still actively recruiting for a fully dedicated sales leader to reside in Houston. Overall, we believe that the leadership and structural changes that we are making across the business will directly address the internal headwinds we face to date, and we are confident that the path we're on will position the company for a bright future. We expect to see a positive financial impact from all of these initiatives some time later in fiscal '18. Looking ahead, while we were disappointed with our fiscal year '17 financial performance, we are excited and inspired by the agenda underway and the opportunities ahead. As a management team, we are aligned on our enterprise priorities. We have completed objectives and key results for fiscal year '18 as an executive team. During Q1 of fiscal '18, we will ensure everyone at the company knows our objective, how each function fits into the enterprise objectives, and then how role impacts the whole. We strive to ensure that the entire team is aligned and working towards the same clear goals. We believe by creating clarity and alignment, and a sense of urgency, we will drive greater productivity in fiscal '18 to get the company back on a growth trajectory by the second half of fiscal '18. Finally, we are also actively recruiting for a person to lead our newly created corporate development function. This function will report to Herb, and we hope to have this position filled as soon as possible. We continue to be thoughtful about M&A activity, and to review opportunities with the potential to enhance our solutions capabilities and build depth in certain markets. I will now turn the call over to Herb for more detailed review of our fourth quarter results.

Thank you, Kate, and good afternoon everyone. I will start by giving detail on our fiscal fourth quarter financial results, and will then discuss the trends we are seeing in the first quarter of fiscal 2018. I'll also give further detail on the financial impacts of the strategic growth initiatives that Kate discussed a little earlier. Starting with an overview of our fourth quarter results, total revenue for the fourth quarter fiscal 2017 was $148.6 million, a 2.6% decrease from the comparable quarter a year ago. Sequentially, revenue was up 3.3%. On a constant currency basis, revenue decreased 1.6% quarter-over-quarter, but increased 3% sequentially. Our fourth quarter gross margin was 39.1%, representing an 80 basis point decrease from the prior year. SG&A expenses were $48.4 million, compared to $44.4 million in the fiscal fourth quarter a year ago. Our net income was $4.4 million, or $0.15 per diluted share. Please keep in mind that without the [RIP] [ph] expense, this would have been $0.20 per share. In Q4, adjusted EBITDA was $11 million, or 7.4% of revenue compared to $17.8 million, or 11.7% of revenue in the year ago quarter. Now, let me discuss some highlights of our revenues geographically. As Kate mentioned, we've seen some improving trends across our international businesses with revenues in Europe and Asia-Pac increasing during the quarter. However, our U.S. performance continues to be below our expectations due to the ongoing weakness primarily in the Tri-State and Chicago areas. As Kate mentioned, we've made leadership changes to address this, and while we do not expect an immediate turnaround we're confident that new leadership will help drive improvement and performance in these geographies. We have already seen improvement in Chicago as well as Houston in the new fiscal year compared to last year. For the fourth quarter, revenues in the U.S. were $119.6 million, a decrease of 3.8% quarter-over-quarter, and an increase of 2.3% sequentially. For the fourth quarter, total revenues internationally were $29 million versus $28.1 million in the fourth quarter year ago, an increase of 3% quarter-over-quarter, 8.1% constant currency, and an increase of 7.6% sequentially, 5.7% constant currency. International revenue accounted for approximately 19.5% of total revenues for the quarter compared to 18.7% in the third quarter. Europe's fourth quarter revenues increased 4.5% quarter-over-quarter, and 11.5% sequentially, while the Asia-Pac region saw fourth quarter revenues increased 3.6% quarter-over-quarter and 1.4% sequentially. On a quarter-over -quarter basis, the U.S. dollar was stronger against most currencies in Europe and Asia Pacific in countries where we do business. As a result on a constant currency basis Europe's revenue would have increase quarter-over-quarter by 11.7% and Asia-Pac's revenue would have been up 5.6%. Now, turning to early revenue trends for the first quarter of fiscal 2018, weekly revenues continue to trend below a year ago results. We continue to face challenges in Tri-State and Chicago areas, but we've taken proactive steps to address this. So far in fiscal year 2018 Tri-States are challenged. If you eliminated the drop in Tri-State revenue, we would be trending up in quarter one compared to a year ago. We believe we've hit bottom in Tri-State, and we're encouraged by the activity levels we're currently seeing. We continue to make strong gains in both revenue recognition and lease accounting, growing 50% quarter-over-quarter, representing 4.6% of our overall business. During the five non-holiday weeks this period weekly revenues average $11.3 million, weeks of Memorial Day and 4th of July holidays were $9.8 million and $8.7 million. July 4 this year fell on a Tuesday, and many of our clients closed on July 3rd as well. Turning to gross margins; gross margin for the fourth quarter was 39.1%, versus 39.9% year ago, and 36.3% in the third quarter of fiscal 2017. The quarter-over-quarter decrease of 80 basis points results from reduced bill pay spreads and an increase in medical costs of our self-insured program. A sequential increase of 280 basis points results from reduced employer payroll taxes as the calendar year progresses, and no paid holidays in the fourth quarter, as well as reduction in medical cost. Excluding the reimbursable expenses, our fourth quarter gross margin was 39.8%, which compares to 40.6% in the fourth quarter a year ago. For the fourth quarter, our gross margin in U.S. was 40.1%, and our international gross margin was 34.9%. The average bill rate for the quarter was approximately $120, which compares to $118 in the third quarter and $122 in the year ago quarter. The average pay rate for the fourth quarter was approximately $60, which compares to $59 in the third quarter and $61 one year ago. As a reminder, these hourly rates are derived based upon prevailing exchange rates during each given period. About one-half of the bill rate and pay rate changes from year ago are influenced by currency impact. In addition, the average is impacted by the drop in Tri-State revenues, which has higher-than-average bill rates. Now to headcount, for the fourth quarter, the average consultant FTE count was 2,455. This compares to 2,503 in the previous quarter and 2,478 in the year ago quarter. Quarter-end consultant headcount was 2,569 versus 2,511 a year ago. The total headcount of the company was 3,301 at quarter end. Now, looking at other components of the fourth quarter financial results; SG&A expenses were $48.4 million, or 32.6% of revenue. This compares to SG&A of $44.4 million, or 29.1% of revenue in fourth quarter of fiscal 2016. The increase relates to the restructuring charge of $2.4 million, the investments we made in business development professionals and managing consultants and potential growth markets as well as in saleforce.com. We made these investments in dedicated business development professionals and subject matter experts as we focus on building our M&A transaction services, change management, and data solution teams. The investment is delivering clear results. Looking forward to Q1, we expect to see SG&A decrease $2.4 million due to the one-time expansion quarter four, and $1.7 reduction from the cost savings initiatives. We expect some offset from the investment in business development and solutions and traditionally our medical costs have won $5,000 to $600,000 higher during the first fiscal quarter. Taking all these factors into account, we expect our SG&A to be in the $45 million range. However, we've identified additional headcount reductions that will result in a $1.3 million severance charge in the quarter. Stock compensation expense was $1.4 million, or 0.9% of total revenue. At the end of the fourth quarter, our office count was 67; 43 domestic and 24 international. Related to other components of our financial statements, depreciation was 941,000 for the quarter, up slightly from the third quarter as a result of office relocations. Our adjusted EBITDA or cash flow margin, which we define as EBITDA before stock compensation was 7.4% in the fourth quarter, down from a 11.7% a year ago, and up from 5.8% in the third quarter of fiscal 2017. Our pre-tax income was $8.3 million in the fourth quarter. During the quarter, we recorded a provision for income taxes of $3.9 million, representing an effective tax rate of approximately 47%. We expect to stay in the upper 40s in Q1. Our GAAP tax rate for each of the upcoming quarters is difficult to predict, and could be volatiles, the rate will be dependent on several factors including the operating results of our U.S. and foreign locations, each of which are taxed benefited at different statutory rates and the offset of the tax benefit of foreign losses in certain locations by valuation allowances. On a cash basis, our tax rate was about 42%, and we expect that rate to continue over to the next couple of quarters. Our effective tax rate is impacted by our current inability to offset income in tax jurisdictions in which we are profitable with losses and several tax jurisdictions in which we are not profitable. Finally, our GAAP net income was $4.4 million or $0.15 per share during the fourth quarter. Now, let me turn to the balance sheet. Cash and investments at the end of the fourth quarter were $62.3 million, a $17.7 million decrease from the end of the third quarter fiscal 2017. The increase stems primarily from cash provided by operations of $21.3 million in the quarter, about $12.5 million of which is a result of payroll timing. As evidenced here in the quarter, it totaled approximately $3.3 million. Capital expenditures were $0.7 million during the quarter, net of landlord reimbursements. During the quarter, we did not repurchase our stock. We're evaluating uses of cash to reduce debt and/or facilitate our growth both organically and inorganically. Our stock buyback program has approximately $125.1 million remaining. We will continue to return cash to shareholders through our quarterly dividend, while balancing debt repayment. The capital requirements are growing our business organically and inorganically, and fiscal prudence. Our shares outstanding at the end of the fourth quarter were approximately 29.7 million. Receivables at quarter end were approximately $98.2 million compared to $96.9 million at the end of the third quarter. Days of revenue outstanding were approximately 61 days, the same as at the end of the third quarter of fiscal 2017. Now, turning to the financial impact of the strategic initiatives we announced today. As Kate outlined, we provided updates on our three priority initiatives, which we first announce in April, to reduce cost, enhance our revenue, and improve our operating model. On cost reduction, the transaction activities incurred a restructuring charge of approximately $2.4 million, which is fully reflected in our fourth quarter numbers. This includes severance costs as well as leased costs that we do not expect to recover due to closing office. On revenue enhancements, the initiatives we have outlined we believe will put us in a stronger position going forward. Our SG&A will reflect our spend on implementing SalesForce and the costs associated with hiring an independent consulting firm. While making significant changes to the business, and while there may be a transition period, we believe we will see a real benefit to our operational and financial performance. As Kate outlined earlier, we expect to see revenue upside and cost savings begin to have a positive impact on our numbers later in FY '18. Now, I'd like to turn the call back to Kate for some closing comments.

Thank you, Herb. We are excited and focused on our strategic initiatives. We have already made tangible progress since we outlined our plans last quarter, and look forward to continued improvement in our performance. Before turning to questions, I will review our client continuity statistics for fiscal '17. Client continuity remains strong. During our fourth quarter, we served all of our top 50 clients from fiscal 2016, and 49 of the 50 from 2015. In fiscal 2017, we have 249 clients for whom we've provided services exceeding $500,000 in fees, up from 245 in fiscal 2016. In addition, our top 50 clients represented 37.1% of total revenues, while 50% of our revenues came from 99 clients. Our largest client for the quarter was approximately 2.6% of revenue. Through the fourth quarter, 98% of our top 50 clients have used more than one practice area, and 80% of those top 50 clients have used three or more practice areas. This practice area penetration reflects the diversity of relationships we have within our clients' organizations, and supports the opportunity for growth, especially powered by our new SalesForce tool. That concludes our prepared remarks. And we are now happy to answer any questions you may have.

Thank you. [Operator Instructions] Our first question comes from the line of Ato Garrett from Deutsche Bank. Your line is now open.

Good afternoon. Just about your SG&A forecast of $45 million for the first quarter; I want to confirm, is that inclusive of the $1.3 million on severance charges that you also plan to take in the first quarter?

No, that is not inclusive, so in total, yes.

Then with that, looking at the cost saves from the restructuring charge reported in the fourth quarter, it looks like that's – that you're forecasting $1.7 million in the first quarter. Is that going to come in pretty evenly across the remaining quarters or are you going to see some incremental savings from that $1.3 million you're going to take in the first quarter?

No, that's consistent with the future quarters. So as we mentioned, we're still continuing to look at some other cost saving opportunities.

Okay, great. And then finally, just looking at your SalesForce implementation, so that's going to look like it'll be over in the first half of this coming fiscal year, does that -- any incremental expenses related to that whether its hiring the consulting firm or just implementation itself, is that already baked into your SG&A costs or should we think about that ramping up as they [indiscernible]?

Yes, that is baked into the current estimate. So we'll have the opportunity for that to start ramping down in the second half of the year.

Okay, great. Thank you very much.

Thank you.

Thank you. Our next question comes from the line of Andrew Steinerman from J.P. Morgan. Your line is now open.

Hi, this is Michael Chow in for Andrew. Just a couple of quick questions, just in terms of the strategic initiatives, I mean I think you gave some stats on the Strategic Client Program, but I mean that, and even in the mid market opportunity. Is there a way you can help us, I guess, frame the incremental revenue opportunity from those initiatives?

On the Strategic Client Program, we are targeting double-digit growth. As Kate mentioned in the script, that's been running this past year between 7%-7.5% of our revenue. We're targeting that to go up double-digit, so it gives you a rough idea. On the middle market, I don't have that broken out right in front of me right now on what that total amount is; but again it's fairly substantially and probably similar to -- a little bit bigger than the Strategic Client Program, and that we're not projecting double-digit growth there, but we do think we can get mid-to-upper single digits in that area.

Michael, let me just add to that. I think that what we're testing now are some sales practices in this smaller group that we're starting with that should have positive impact as we bring other clients into this program, and learn how to serve these clients consistently across geographies with a lot more information at our fingertips wherever we operate, so I'm optimistic of the impact of this program with the right tools and the right sales discipline can have in the organization. With respect to middle market, that has not been the bulk of our client base, but it's one over the last two years that we've seen positive growth. And I think with some very clear focus and accountability from our newly formed enterprise business development team that we will see continued growth in that marketplace, especially for our solutions practices where we bring a lot of big-four level talent, as I said before, at a price that is unparalleled -- a value that's unparalleled.

Understood, thank you, that's helpful. And then just a quick follow-up on the previous question with the 1.3 in the SG&A charge for first quarter, did you say how much cost savings that that will bring in an ongoing basis or…?

I did not, and we're working through that now.

Okay, got it. Thank you.

Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Mark Marcon with Robert W. Baird. Your line is now open.

Hi. Exclusive of the individual market challenges, how would you characterize just the overall level of demand that's out there within the U.S.? Do you think things are a little bit better than they were, say, three months ago just from an overall demand environment, exclusive of your executional issues in the Tri-State and the couple of other markets?

Yes, Mark, it's Kate. Yes, I think we're more bullish on demand right now. If you look at – disruption is happening everywhere, and transformation is in front of most clients right now, and our business model fits perfectly into that in terms of being able to bring in the right agile talent that clients need for these special projects. We're seeing more and more demand in our very large client base for change management support, which we deliver with excellence, and project management support, which it continues to grow. And as clients -- we're not just focused on the office of the CFO; there's transformation happening in the digital space, transformation happening in the compliance arena, in the HR space, that we're perfectly matched to help our client base with.

Great. And then with regards to just the pricing trend that you're seeing, can you comment a little bit about that, and how we should think about the gross margins going into the current quarter, and how you see that developing over the course of the year?

The pricing trends, overall, I would say are static. The opportunity for us is as we move in to some of the larger client bases, the solutions options that we have, and then rebuilding our Tri-State practice, I think we've had an opportunity there to increase that, because there's pluses and minuses on both sides of it. There's constantly cost pressure on the one hand, but then on the flipside as we move into new clients, we often can do a little bit better job on bill rates.

Great. And then you mentioned the Tri-State. What percentage of U.S. revenue is in the Tri-State region now, and where was it at the peak?

Yes, it's been over 20%. And it's now in roughly -- I'm trying to look at that number right now, but it's been running I think of around the 17% mark. Let me double-check that and get back to you. We got it here somewhere, but it's definitely down, but still substantial part of our business.

Mark, it's also the substantial element of our decline in North America. So I think it's what Herb…

Yes, it's actually -- 16% is the actual number.

Okay, so it's running at 16%. And you mentioned during your prepared remarks that you were seeing a bottoming there, although it sounds like there's still some leadership changes to add to.

Yes.

So, can you just describe the confidence that you have with regards to things bottoming there, or how certain are you of that?

Yes. We feel fairly comfortable, with caveats. There's been straighter focus of attention for a while, and we see some positive signs what's happening there right now. And again, the weekly revenues have leveled off. The activity level is looking better. The initial assessment of our new leadership there has been fairly positive that we really believe we still got some good people. We just got to get the direction shifted on, and really start higher level of accountability on the middle market opportunities that we've got, in the SCP, just really to bring focus, and doing so initially I'll always have some concerns that you could have some drop-off when you're having major leadership change, but we're encouraged right now that I don't think that's going to happen. And it's just a matter of taking the new processes. And we've got a lot that we're at, and they're adopting SalesForce for the first time, we just went live with that, the new sales processes, new level of accountability. So, there's a lot of change going on there. But, again, the positive thing is that we feel like we've got some quality people there.

Great. And then with regards to international, it sounds like things are going better over there. Do you see momentum continuing to build? It certainly sounds like it, but I just wanted to confirm that.

Yes, we do, Mark.

Okay, great. And then lastly, on 606 in lease accounting; you're currently running around 4.7% of revenue. Do you think that that could increase by another 50% over the coming year, or are we kind of getting to the point where 606 is kind of topping out, but lease is still ramping?

Interestingly, we don't see a topping out yet. We're still finding -- in fact, we were having -- our leaders in that areas were having some conversations with one of the big four partners that we work with on some of these. And we're still amazed at how slow the adoption rate has been. And there's still wakeup calls going on out there that, "Wow, we are really behind and we've got to scramble." So I still think there's potential for ongoing growth, certainly on the lease side, there's no question about that. But then our activity levels are still up, the level of proposals that we have are up right now. So I think there's potential for increased growth there continuing.

Great. Thank you.

Thank you. I'm showing no further questions at this time. I would like to turn the conference back over to Kate Duchene, CEO, for closing remarks.

Thank you, Operator. Again, thank you all for attending this call, and for your interest in Resources. We look forward to talking with you once again on our next earnings call following our first fiscal quarter of 2018. Have a good day.