Resources Connection, Inc. (RGP) Q4 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Resources Global Professionals Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Alice Washington, General Counsel of Resources Global Professionals. 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 fourth quarter and year ended May 26, 2018. We apologize for the delay in today’s press release. Our news release service had a technical issue and by now you should have a copy. If you need a copy and are unable to access the copy on our website, please call Shannon MacPhee at 714-430-6363 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 27, 2017 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 the results of operations and financial conditions expressed or implied by forward-looking statements made during this call. I will now turn the call over to Kate Duchene.

Thank you, Alice. Good afternoon and welcome to Resource’s 2018 fourth quarter and year end conference call. Here is a quick roadmap for my remarks. I will start with a brief overview of our operating results for the fourth quarter and year end. Second, I will update you on the status of our taskforce and accretive acquisitions. Third, I will discuss the primary growth drivers we have seen in the second half of fiscal ‘18 and how they are progressing into the new fiscal year. Fourth, I will provide a final update on the strategic initiatives we outlined in Q3 of fiscal ‘17 since they are now largely completed. And lastly, I will share some news on the new career site we launched at the start of fiscal ‘19 which will ensure that we remain an employer of choice as the talent market continues to heat up and the economy migrates towards flexibility and agility. First, our operating results. Our total revenues for the fourth quarter of fiscal 2018 were $183.8 million, which represents an increase of 23.7% over the fourth quarter a year ago. Excluding acquisitions, organic revenue increased 8.8%. Net earnings were $4 million or $0.12 per diluted share compared to $4.4 million or $0.15 per diluted share a year ago. Our fourth quarter results were impacted by $0.05 per diluted share related to severance, acquisition and transformation expenses taken during the quarter as well as a higher tax rate. Without such temporary charges, we would have reported net earnings of $0.17 per diluted share. With respect to year-end results, we are pleased to see growth in all regions. Year-over-year, we achieved revenue of $654.1 million, up $70.7 million or 12.1% over fiscal 2017. Over the past fiscal year, we tackled several significant strategic initiatives and grew the business at the same time. We are energized by this accomplishment and confident that these initiatives will create a stronger foundation for continued growth in fiscal ‘19 and beyond. Herb will share further detail in our financial results shortly, but the key takeaway is that we have invested in our growth and it is starting to pay off in every region of our business. Next, I want to share a quick update on the two acquisitions we completed in fiscal ‘18. First, taskforce management on demand, which we completed at the start of the second quarter, has performed very well this fiscal year. Taskforce is the premier C-level interim and project management firm in Germany focused on serving the middle-market. The business exceeded its revenue targets and continues to trend up in Q1 fiscal ‘19. We are driving business referred to us across the taskforce and RGP client base in Germany and around the globe. We also just hired a new revenue leader for RGP business in Germany based in Frankfurt and he will work closely with the taskforce business team. We are confident that taskforce success will continue throughout fiscal ‘19. Accretive Solutions, which we acquired in December has also performed well. And in Q1, we are completing the full integration of this team into the RGP business. As most of you know, Accretive is U.S. based and the team brings strong finance technology and business transformation skills focused on the middle-market. We are completing the integration on time and will achieve the financial synergies we anticipated. In fiscal ‘19 we are operating as one unit except for the Countsy business, which continues to operate as a standalone entity serving the finance and human resources needs of startup, venture-backed entities. Herb will provide further detail on the integrations during his remarks. Now, I will cover the growth drivers in the business for this fiscal year. First, our solutions practices have produced strong results, especially transaction services and technical accounting. As reported by the Institute of Mergers, Acquisitions and Alliances, in 2017, companies announced over 50,000 transactions with a total value of more than $3.5 trillion. This strong M&A environment has provided considerable opportunity for our solutions business in a critical focus area. We have let M&A integrations across various industries with delivery teams ranging from one consultant to more than 20 consultants and we have invested in technical sales support and partner delivery talent to lead transaction services projects throughout our middle-market client base in North America. The Big Four are not focused on the middle-market and this client segment is a perfect fit for our value proposition. The trends in this solution area remain strong as we enter fiscal ’19. Another notable area of strength for our business is technical accounting, where we have experienced very strong growth in demand in fiscal ‘19. Lease accounting standard implementation is especially high. We have also made investments in this area, including in our technical sales team who are subject matter experts as well as delivery partners to support client work. Further, we have invested in and developed partnerships with two of the premier lease accounting software providers, both of which had contributed to a robust sales pipeline. These investments are paying off. We expect to remain busy with work in this area through calendar 2019 given that the window for compliance runs into 2020. Exceptional talent in this area is particularly hard for clients to find on their own. So, we are able to provide a ready and welcome solution. Two additional areas of growth are program, project management and change management, especially within our strategic client program. This client base representing global companies who have many business initiatives underway at the same time requires nimble project and change management support from a quality global provider. I read a recent study published by the World Federation of People Management Association which said that 30 years ago the largest companies typically had only one or two simultaneous enterprise-wide initiatives underway. Today, it is 20 to 25. With its heightened level of disruption in project activity, global companies simply cannot staff enough project, functional and change management support by traditional means. We differentiate ourselves through the level of expertise we bring to our clients around the globe delivered by an integrated dedicated client account team. Next, I will provide a final update on the three strategic initiatives we outlined on our third quarter 2017 earnings call. To remind you, they were sales transformation, operating model evolution, including the development and deployment of targeted solutions practices, and cost containment. Our sales transformation work is largely complete. We have previously provided updates on each step of the process, so I will not repeat each phase of this transformation. During the fourth quarter, we completed three final aspects, additional sales training and sales management coaching, account development training, and the rollout of a new incentive plan for the sales pillar of the organization. We believe this new incentive plan provides meaningful accelerated rewards for outstanding results and will thus drive higher performance in conjunction with our new operating model. Next, our operating model evolution is also largely complete. While there is some work left to do in Europe and Asia-Pac that will be completed in Q1 of the current fiscal year, we have made the necessary investments in business development, talent management and solutions development and deployment to drive future growth. The remaining work ahead will be focused on optimizing the structure and driving return on investment we expect. Finally, I will comment on cost containment and driving more return to the bottom line. We completed a reduction in force at the end of fiscal ‘17 and deployed those savings in fiscal ‘18 to support growth both through our M&A activity and strategic initiatives. We have also made headcount investments in geographies that are growing significantly such as Silicon Valley, Atlanta, Denver, Dallas, London and Dublin. In addition, our SG&A in Q4 and through much of the year included nonrecurring and temporary cost associated with technology upgrades and the integration of taskforce and Accretive. The year ahead will include a focused effort to bring our SG&A down as a percentage of revenue by reducing internal consultant spend, driving leverage in our existing headcount and reducing P&E expenses that rose last year due to transformation, integration and training expenses. Our goal by the end of fiscal ‘19 is to reduce SG&A as a percentage of revenue to less than 31%. This will give us the ability to balance growth investments where we need them and offer return to shareholders. In addition to expense management, we will focus on increasing our bill rates throughout fiscal ‘19. As the talent marketplace heats up, what we must ensure that our bill rates reflect the increasing cost of this talent. We will be especially focused on driving the right return in our solutions practices, where the talent is in high demand and our rates must garner a fair return. Finally, I want to share an exciting initiative we just launched to support talent development within our business. We recently launched a new careers website at careers.rgp.com and I encourage everyone listening to visit our site. We also launched the tagline for our talent brand, [indiscernible], which is a simple, visual and figurative phrase that embodies the ethos of our people. We are energetic practical boots on the ground problem solvers who leave ego and politics at the door to get the work done and done well. This tagline perfectly reflects our engagement model and applies whether we are providing interim support, leading a project team, or implementing a technical accounting solution. We are all about our client success and we want our clients to feel that energy, commitment and hard work. I will now turn the call over to Herb for a more detailed review of our fourth quarter and year end results.

Thank you, Kate and good afternoon everyone. I will start by giving detail on our fiscal fourth quarter financial results and then we will discuss the early trends we are seeing in the first quarter of fiscal 2019. I will also give further detail on the progress of our strategic growth initiatives and the financial impact of our recent acquisitions. Starting with an overview of our fourth quarter results, total revenue for the fourth quarter of fiscal 2018 was $183.8 million, a 23.7% increase from the comparable quarter a year ago, including our acquisitions. Revenue includes approximately $22 million from our recent acquisitions of taskforce and Accretive. Organic revenue increased 8.8% over the prior year fourth quarter, 7.3% in constant currency. Sequentially, revenue was up 6.6%. Our fourth quarter gross margin was 38.3%, down 80 basis points compared to the prior year fourth quarter due to the bill pay ratio. SG&A expenses were $58.9 million or 32% of revenue compared to $48.4 million or 32.6% of revenue in the fiscal fourth quarter a year ago. I will provide more color on SG&A shortly. Our net income was $4 million or $0.12 per diluted share. In Q4, adjusted EBITDA was $13.1 million or 7.1% of revenue compared to $12.5 million or 7.4% of revenue in the year ago quarter. Now, let me discuss some of the highlights of our revenues geographically. As Kate mentioned, we have seen substantial growth across all regions. For the fourth quarter, total revenues internationally were approximately $39.8 million versus $29 million in the fourth quarter a year ago, an increase of 37.2% year-over-year, 27.7% constant currency and an increase of 4.4% sequentially, 4% constant currency. These results were bolstered by our strong performance in both Europe and Asia-Pacific. Europe showed improvement for the tenth successive quarter reporting organic revenue growth of 22.1% year-over-year, 11.1% constant currency. Asia-Pacific reported strong revenue, up 12.8% year-over-year, 8.4% constant currency. Our U.S. performance also strengthened in the quarter, with organic revenue increasing 5.2% year-over-year. These results reflect increased activity overall, higher bill rates in several of the company’s largest markets and also our continued progress on our strategic initiatives and the integration of Accretive. Sequentially, revenue in the U.S. increased approximately 7.6%, including our acquisitions as a result of fewer holidays in the U.S. and some growth. Turning to the early revenue trends for the first quarter of fiscal 2019, weekly revenues in Q1 are trending approximately 24% ahead of last year, including taskforce and Accretive. With the current trend continues, revenue will be in the range of $172 million to $175 million overall compared to $141.2 million a year ago. The high end of the range is based on the current trend. However, August has more variability due to vacation schedules during that month. As I previewed on our last earnings call, now we have completed the integration of Accretive operations, we will no longer breakout the performance of our acquisition from overall RGP results. Turning to gross margins, gross margin for the fourth quarter was 38.3%, down 80 basis points compared the prior year fourth quarter and increasing 200 basis points sequentially. The increase is related primarily to no paid holidays in the fourth quarter, while the third quarter has the Christmas and New Year holidays and decreased payroll taxes in the fourth quarter as the calendar year progresses. Excluding reimbursable expenses, our fourth quarter gross margin was 39% which compares to 39.8% in the fourth quarter a year ago. For the fourth quarter, our gross margin in the U.S. was 39.7% compared to 40.1% in the equivalent period last year and our international gross margin was 33.2% compared to 34.9% a year ago. For the first quarter of 2019, we expect our gross margin to be in the 36.8% to 37.2% range compared to 38% a year ago. The year-over-year decrease is primarily a result of the pressure on pay rates, the growth of our international business as well as the two acquisitions having slightly lower gross margins. The average hourly bill rate for the quarter including acquisitions was approximately $124, which compares to $123 in the third quarter and $120 in the year ago quarter. The average pay rate for the fourth quarter was approximately $64 compared to $63 last quarter and $60 last year. As a reminder, these hourly rates are derived based on prevailing exchange rates during each given period. The total headcount of the company, including Accretive and taskforce, was over 4,100 at quarter end versus 3,300 a year ago. Now, looking at other components of our fourth quarter financial results. SG&A expenses were $58.9 million or 32% of revenue. This compares to SG&A of $48.4 million or 32.6% of revenue in the fourth quarter of fiscal 2017 and $55.3 million or 32.1% of revenue in the third quarter of fiscal 2018. Our SG&A included $3.8 million, approximately $0.05 per diluted share of severance acquisition transformation, integration costs and $7.2 million of Accretive and taskforce SG&A. These costs account for virtually all of the year-over-year increase in SG&A. The prior year fourth quarter included $2.5 million related to severance costs. After adjusting for nonrecurring costs in last year’s fourth quarter and this year’s fourth quarter, SG&A was up just over 7%, whereas revenue was up just under 9%. As we said during our last earnings call, we expect some temporary SG&A costs to continue into the fourth quarter. We view these costs as necessary short-term investments in the growth of the business on our client base. We anticipate that bulk of these integration transformation costs will taper off beginning in fiscal year 2019. In the first quarter of 2019, we expect SG&A to be in the range of $56.5 million to $58 million. We remain committed to the successful integration of our acquisitions and the investments in technology in the business. Results in growth we are currently achieving, supports our decisions to invest. At the end of the fourth quarter, our office count was 74, 48 domestic and 26 international. Turning to the other components of our financial statements, depreciation was just over $1.1 million, slightly up from the third quarter. Amortization expense was just under $1 million as a result of intangibles related to the acquisitions and largely flat compared to the third quarter. Our adjusted EBITDA or cash flow margin, which we define as EBITDA before stock compensation, was 7.1% in the fourth quarter, down slightly from 7.4% a year ago, but up from 5% in the third quarter of fiscal 2018. Our pre-tax income was $8.9 million in the fourth quarter. During the quarter, we reported a provision for income taxes of $4.9 million, representing an effective tax rate of 55% compared to 47% in the prior year period. The increase in tax rate for quarter four was primarily due to $800,000 of tax expense on stock option expirations and $300,000 taxes related to foreign dividend distributions. Also note that our GAAP tax rate for each of the upcoming quarters is difficult to predict and could be volatile as the rate will be dependent on several factors, including the operating results of our U.S. and foreign locations, each of which are tax or benefited 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 37% and we expect that rate to decrease going forward. We do not expect any material charges on our accumulated offshore earnings. Finally, our GAAP net income was approximately $4 million or $0.12 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 $56.5 million, a $13.3 million increase from the third quarter of fiscal 2018. This was primarily a result when quarter end fell relative to our payroll cycle. Receivables at quarter end were approximately $130 million compared to approximately $126 million of the end of the third quarter. The increase reflects the growth in our core business during April and May. Days of revenue outstanding were approximately 63 days compared to 65 days in the third quarter fiscal 2018. Dividends for the quarter totaled approximately $3.8 billion. Capital expenditures were $600,000 during the quarter, net of landlord reimbursements. In the fourth quarter, we did not repurchase any stocks, so our stock buyback program has $120 million remaining. We will continue to return cash to shareholders through our quarterly dividend, while balancing debt repayment, the capital requirements of the growing business organically and inorganically and fiscal prudence. Our shares outstanding at the end of the fourth quarter were approximately $31.6 million. Now, turning to the financial impacts of our Accretive and taskforce acquisitions. As Kate mentioned, the integration of both our taskforce and Accretive acquisitions are substantially complete. The acquisitions are continuing to having a positive impact on the results contributing $22 million to revenue in the quarter. We have already achieved over $4 million of annualized cost savings with Accretive and additional $1.5 million of back office annualized cost was reduced in the beginning of July and an additional $1 million in real estate annual cost will be eliminated this year. We are on track to complete the balance of our cost reductions in the first quarter of FY ‘19. We are decided about our acquisitions of Accretive and taskforce and both businesses are now driving significant new opportunities for revenue growth in their respective markets as well as RGP’s core business with the company’s existing clients. We are also continuing to work to identify additional growth opportunities both inorganic and organic. And finally, I would like to discuss the financial impacts of the strategic initiatives that Kate covered earlier. As a reminder, we first outlined these three initiatives over a year ago with specific goals to reduce cost over time, enhance our revenue and improve our operating model. We said we expected to take 18 months to achieve this and we have been able to accelerate that timeline. Though with that, we increased our costs in the short-term. However, this has allowed us to see the overall benefits earlier than expected. We continue to successfully implement these initiatives and are pleased with the progress we have made in the fourth quarter, in particular with the sales transformation initiative, which is in the final stages. The redesign of our business model in North America has already delivered improved revenue growth as we have shown today with our Q4 performance and the rollout of the model will continue in Europe and Asia-Pacific into fiscal 2019. These efforts have already delivered improved revenue growth and we expect this upward performance trend to continue throughout fiscal year 2019. On the cost containment initiative, I want to reiterate that we remain focused on managing SG&A to drive growth and improve profitability. As I mentioned earlier, we accelerated the timeline of our initiatives, which is increase our costs in the short-term. As Kate discussed earlier, we are very pleased to see our acquisitions and strategic initiatives beginning to bear fruit. We expect the momentum to continue and anticipate seeing improvement throughout fiscal 2019. In summary, we are very excited that our transformation and acquisition initiatives are ahead of schedule and believe we are set for an exciting FY ‘19. Now I would like to turn the call back to Kate for some closing comments.

Thank you, Herb. Looking ahead, we are committed to building on our growth, ensuring that our pricing is fair given the level of talent we are deploying and managing our cost structure following the acquisition and transformation investments we made in fiscal ‘18. We are excited about the work ahead in fiscal ‘19 and look forward to updating you as we progress. Before turning to questions, I will review our client continuity statistics for fiscal ‘18. Client continuity remains strong. During our fourth quarter, we served all our top 50 clients from fiscal ‘17 and 49 of the top 50 from 2016. In fiscal ‘18, we have 267 clients for whom we provide services exceeding 500,000 employees, up from 249 in fiscal 2017. In addition for fiscal 2018, our top 50 clients represented 35% of total revenues, while 50% of our revenues came from 118 clients. Our largest client for the quarter was approximately 2.6% of revenues. Through the fourth quarter, 96% of our top 50 clients have used more than one type of service or functional expertise. This penetration reflects the diversity of relationships we have within our client’s organization and reinforces the opportunity for growth. That concludes our prepared remarks and we are now happy to answer any questions.

Thank you. [Operator Instructions] And your first question comes from the line of Andrew Steinerman with JPMorgan. Your line is now open.

Hi, it’s Andrew. Kate, my question is to ask you to go over a little bit about the incentive comp plan that you just put into place and particularly is the incentive around revenue growth target or does it also include gross margin targets, given all your comments about kind of making sure that your services are priced appropriately?

Yes, thank you Andrew. It does include both measures and metrics to drive the results we want. Primarily it’s focused on revenue growth, but a secondary modifier is on gross margin and delayed improvement.

And is it a commission-based model, just describe what the changes are in terms of the nature of the incentive compensation?

Well, for each role, we have gone through and benchmarked what we think is market compensation levels. It’s not a commission plan. It’s an incentive plan. And it’s built around providing both accelerating and decelerating reward based upon results against target. So, we have set a target number for each kind of role in the sales organization. And if you don’t achieve at least 80% of that target, you will experience a severe decelerator in reward and if you exceed your target, you can really ramp up your reward which we think will drive higher performance, because the plan can be very rich in accelerating for high performers. And that’s what we wanted, because we didn’t have the right connection between impact and reward in our existing plan.

Okay. And last question, Herb, is there a gross margin target since you gave an SG&A percentage target?

Yes. We have got a goal for the year to increase that by 1%. So, we are going to be working through that and really we believe we have got an opportunity there with the tight labor market. And fortunately, I would rate as a C plus and how we have done that over the past quarter with that, but there is definitely an opportunity to get more aggressive in pricing and we are putting a lot of emphasis on that going forward.

Is that 1% by the fourth quarter year-over-year or 1% realized for the whole year?

That’s 1% by the end of the – while we have got a stretched target to do it for the entire year, but I think practically speaking I’d like to see that come up 1% by the fourth quarter.

Great. Thank you for the time. Appreciate it.

Thank you.

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

Alright, good afternoon. I was wondering if you could talk a little bit about the areas of revenue strength that you are seeing or just a little bit more just with regards to, like for example lease accounting you mentioned that, that area is, how big is that now and how much of the increase did you end up seeing from that as it relates to U.S. growth that was organic?

Yes, the lease accounting is running in the $15 million annualized year right now, which is up about almost double. Now, the tricky thing when you start looking at that, Mark, is in some cases it takes away from other areas in the accounting and finance spend, so overall, we are up there, it’s not quite as dramatic users, it’s kind of a back and forth, but certainly in the technical accounting space, rev/rec was even a little bit more than lease accounting. It’s been significant and we are seeing a lot of activity. People are late to the game on that and are driving, but I just always cautioned that it’s also our FP&A work, for example, has dropped off a little bit, which I think is just a direct result of deploying their spend on the technical side.

Okay. And how would you describe the actual organic growth rates between taskforce and Accretive, just how strongly are they performing?

Yes, taskforce is in the high single-digits right now and doing well. It’s kind of consistent with our European business. We are starting to have some really good discussions on leveraging that and expanding it to where we get further gains on both sides of that. The Accretive is a little trickier to say exactly, because we have started blending that in to our offices in the fourth quarter. We were fully merged in the Atlanta office and the Dallas office. So, it’s starting to get less clear, but overall, we are anticipating that we would lose revenue on Accretive with their, own year-over-year results and it appears that we have stayed flat. We have done, I think a pretty good job of not losing any major accounts and working through that. So we are pleased there.

Great. And then how would you describe some of your major markets, Chicago, Houston, New York, tri-cities, in terms of how things are progressing in those markets?

Yes. So Mark, I will start and then Herb can add some more color. So, our strongest marketplace right now is Northern California that is really a booming practice and that also is a practice where we have integrated the Accretive business. So, we bring strength to strength and it’s really going well. Chicago is back to positive growth. We have a new revenue leader in Chicago. We are excited to see her join the team and our Houston and Dallas practices, which were on our watch list a year ago, have turned around nicely and are showing some strong positive growth. Houston is not impacted by Accretive, so that’s all organic growth. Dallas is impacted by Accretive, but again there I think inspiring one another to achieve excellent results, so we are very pleased by that. The two markets that are still on our watch list, tri-state remains on our watch list, I think we have shared previously that we have had a lot of leadership change in tri-state, so in many respects we are in rebuild mode. We have seen with our top 10 clients in tri-state only 3 in the quarter were in financial services. So, we are doing a good job of diversifying out of that a bit, but I was also surprised to see that one of our long-term household name financial services clients is back and is up very significantly. So, we are finally starting to see and sell to different parts of the organization. In this particular client that I am talking about, we are now doing more project management work in their global operations and IT organization, which I think is the kind of pivot we need. We have also hired a very senior person who is an expert in governance, risk and internal audit. She comes to us with more than 25 years of experience. And so I think you will see us build more capability in that arena, which hadn’t been strength of our tri-state practice. And finally, we have invested in former Big Four partners who is bringing in our technical sales group expertise around digitalization initiatives and that’s something that we didn’t really have capability around previously. So bottom line in tri-state, were still in rebuild. I think we are making some good moves in terms of our talent and capabilities to drive growth in fiscal ‘19. The other market that’s on our watch list is Southern California. Southern California is down in fiscal ‘18 primarily because of the move out of the marketplace by some of our very important clients. Generally, we know there has been a migration out of California to Texas. One of our – in fact, our largest client moved to Texas and completed that move in fiscal ‘18 so the revenue there dropped off. Now, they are pivoting too, there is a lot of opportunity in our entertainment client base given the M&A activity and ramp up in entertainment. So, we will be focused there and our new leader of our revenue function in LA has been with the company. So, it’s an internal promotion, but she brings a lot of expertise around project management coming out of large pharmaceutical companies supply chain organization. So, she is really helping us develop strategies to talk to global company procurement group in a way that is new and different for us that I think will have a positive impact. So Herb?

Yes, I would like to add just a couple of points. One is on the tri-state thing one of things that’s interesting there is some of our financial services clients have moved some of their operations out of New York. So, tri-state for us is flat overall and we will look at some of those key accounts, we have actually been rolling those accounts at double-digit rates except the revenues coming from outside of New York in some of the other places. So, it’s really an interesting thing with our strategic client program. We have those identified. So we are negotiating deals there that work is actually being performed in Europe, in Asia, in Latin America or in other parts of the U.S. and we have go to work through to give just a little bit better clarity on that to the street, but it’s not. I just want to emphasize there is good activity there and we are seeing an increase. At the same time in tri-state, there are a lot of middle-market companies that we are now really working on going after and being able to go and that would be more locally driven business. In addition, we have a lot of the offices throughout the U.S. has been – Atlanta has rebounded. It was pretty much flat for most of the year, year year-over-year and now they have really taken off as they have got their team back up to full force. We are seeing great results in Denver and in Phoenix and in Tulsa. So, middle America, a lot of good things are happening there as well.

Great. Well, I mean, it sounds like in the obviously in the majority of the U.S., things are trending in the right direction that this sounds like there is a couple of key offices still need to where we are putting some initiatives in place. Is that correct?

Yes.

That’s correct. And I would yes, sorry go ahead, Mark.

Okay. And then just on the margin side, I apologize but I didn’t catch the SG&A number for the third quarter, I mean for the coming quarter?

We had that was going to be in the range of…

$56.5 million.

$56.5 million to $58 million, right, I just want to make sure you got the exact right numbers.

Alright. And how much of that is would you say is non-recurring or should end up being optimized out?

Yes, there is probably still about $1.5 million. We have got the rest, the Accretive back office that really wrapped up just in the last couple of weeks. So you got some of that expense there that has no gone away. And you have got some of the transition costs that we were dealing with on our org2.0, our redesign of all that. That’s wrapping up. And the last of the integration cost is coming down. So I think we still have another $1.5 million to $2 million that we will be able to take out.

Great. I will follow-up more offline. Thank you very much.

Thank you, Mark.

Thank you. And I am not showing any further questions at this time. I would now like to turn the call back over to Kate Duchene for any further remarks.

Thank you operator. Again, thank you for attending this call and your interest in RGP. We look forward to talking with you again on our next earnings call following our first quarter of 2019.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program and you may all disconnect. Everyone have a wonderful day.