Good day, ladies and gentlemen. And welcome to the Resources Global Professionals' Q3 Fiscal Year 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions for how to participate will follow at that time [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Alice Washington, General Counsel of Resources Connection. Ma'am, you may begin.

Thank you, Operator. Good afternoon, everyone, and thank you for participating on this call. Joining me here today are Kate Duchene, our Chief Executive Officer; Herb Mueller, our Chief Financial Officer; and Tim Brackney, our Chief Operating Officer. During this call, we will be commenting on our results for the third quarter of fiscal year 2019. By now you should have a copy of today's press release. If you need a copy and are unable to access it on our Web site, please call Shannon McPhee at 714-430-6363. 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 report on Form 10-K for the year ended May 26, 2018 for a discussion of the risks, uncertainties and other factors such as seasonal and economic conditions. Such factors may cause our business, results of operations and financial conditions, to differ materially from results of operations and financial conditions expressed or implied by the forward-looking statements made during this call. I'll now turn the call over to our CEO, Kate Duchene.

Thank you, Alice. Good afternoon, and welcome to RGP’s third quarter conference call. Here is a quick roadmap for my remarks; I will start with a brief overview of our operating results for the third quarter; second, I will share some color around trends we are seeing in the third quarter, as well as marketplace dynamics; third, I will discuss our progress on bill rate improvement and expanding our mix of business to higher value and more profitable offerings; and fourth, I will share additional detail regarding the appointment of Tim Brackney as our President and Chief Operating Officer, which we announced today. I'm delighted that Tim could join us on this call as we welcome him to this important role for the company. First, operating results. Our total revenues for the third quarter of fiscal '19 were $179.5 million, which represents an increase of 4.1% over the third quarter a year ago. We are pleased with growth in North America and Asia Pacific and our business in Germany. North America grew 6.4%, Asia Pacific grew 4% or 7.5% on constant currency; and taskforce continued to deliver exceptional growth at 48%. For the first time in 12 quarters, Europe faced a decline in revenue. Herb will share additional detail later in the call, but let me say now that Europe’s challenges are a result of three primary factors; first, the expected completion of some large projects; second, a loss of focus on our pipeline development, while we were delivering on those projects; and third, the unstable micro-environment we believe is causing clients to postpone or delay critical decision-making regarding project initiation. This is especially true in the UK with the Brexit uncertainty. With respect to things we can control, we have increased our sense of urgency and focused on business…

Thank you, Kate, and good afternoon, everyone. I will start by giving detail on our fiscal third quarter financial results, and we'll then discuss the trends we're seeing in the fourth quarter. Starting with an overview of the third quarter results, total revenue for the third quarter of fiscal '19 was $179.5 million, a 4.1% increase from the comparable quarter a year-ago. Sequentially, revenue was down 4.9%, a normal trend since this quarter includes the Christmas, New Year's and Chinese New Year's holiday. The fiscal third of the quarter was very strong with some slowing after the holiday break. On a constant currency basis, revenue increased 5.3% year-over-year and decreased 4.8% sequentially. Our third quarter gross margin was 37.8 %, up 150 basis points from the prior year third quarter, primarily the result that impacted internal pricing initiatives, slightly lower payroll taxes and business expenses. SG&A expenses were $55.6 million or 31% of revenue, compared to $55.3 million or 32.1% of revenue in the fiscal third quarter a year-ago. Our net income improved to $5.8 million or $0.18 per diluted share compared to $4.6 million or $0.14 per diluted share in the prior year quarter. GAAP tax rates were 1% in last year's quarter compared to 39.7% this year. Last year, we had a favorable impact from the Tax Cuts and Jobs Act. In Q3, adjusted EBITDA was $13.9 million or 7.8% of revenue compared to $8.7 million or 5% of revenue in the year-ago quarter. Now, let me discuss some of the highlights of our revenues geographically. Our U.S. performance remained solid in the quarter with revenue increasing 6% year-over-year. The East and Central South regions have been especially strong, led by strong double-digit growth in Atlanta, Philadelphia, Cleveland and Dallas. Chicago also continues to perform well. Sequentially, revenue…

Thank you, Herb. Let me also add my things to John, it's a privilege to work side-by-side with you John for the last, almost 19 years. We are really going to miss you. While we look forward to delivering our year-end report on the business in July, but before turning to Q&A, I want to remind our investors about our client continuity statistics for Q3 and year-to-date. We are proud of these statistics and we are proud for a reason, it means our clients are continuing to come back to us as their trusted provider to deliver projects in the blended workforce environment. Our client continuity remained strong. During our third quarter, we searched 49 of our top 50 clients from fiscal 2018 and 45 from 2017. Through Q3, we have 286 clients for whom we provide services at a run rate exceeding 500,000 in fees, and that number is up from 257 in fiscal 2018. In addition, our top 50 clients for the quarter represented 35.2% of total revenues, while 50% of revenues came from 111 clients. Our largest client for the quarter was approximately 2.4% of revenue. At the end of the third quarter, 90% of our top 50 clients have used more than one type of service or functional expertise, and this penetration reflects the diversity of relationships we continue to build within our client's organizations and reinforces the opportunity for growth. So that concludes our prepared remarks, and we are happy to answer any questions. Thank you.

[Operator Instructions] Our first question comes from Andrew Steinerman with JPMorgan. Your line is now open.

I have two questions. The first one might be a simple one. What is the hopeful goal of creating a new COO/President role? Obviously, Kate you had the title President by breaking out President and COO. What does the management team collectively hope to accomplish? And then also I know there was a quick call out to part of Accretive and the growth there. But if you can model we are in the anniversary this just reported third quarter, how did Accretive overall perform in the first year with RGP?

So Andrew, I'll take the first question and then I'll have Herb give us some more color on Accretive overall. So, I think the time is right now to name a COO, and my overall hope is that Tim and I worked very closely together to drive the same growth strategies and the planning process across all of our regions. This year, we have continued to build deeper and bigger client relationships with some of the largest companies in the world, and I think these are -- our largest company is a household named, For Everyone, in the technology space. And I think if we can really cement ourselves as a provider of choice for those global companies, which are actively migrating their workforce strategies that will be a good thing for our business and our investors overall. So, I need a proven leader who can help me in aligning our growth strategies, our investment planning, and our core processes to improve delivery to our clients and improve our consultant experience everywhere we operate. So that's the primary reason for it. Tim has been essentially operating in this role in North America, which is 80% of our business now. So, this is a natural extension for him. He is a very talented guy and we don't want to lose him in the business too.

And then, Andrew, on your second question on Accretive, overall it's exceeded expectations. When we went in, we modeled that we would lose approximately 10% of their revenue through transition. We actually ended up only losing about half of that. So overall from a revenue perspective, it's been very positive. On the downside, we lost a couple of people that were good performers that we would prefer to stay with us, but they decided it was time to take -- look at things outside of the company, but we worked hard to integrate their team within our offices, and it's been an exciting transition and it's helped us a lot, especially in the GRC area where they're very strong. And then of course Countsy, I highlighted as well.

Let me just add something too, Andrew. Post acquisition, our entire goal was to stabilize revenue and to stabilize their good people in our business. I think the opportunity ahead for us in the next 12 to 18 months is to really optimize some of the offerings and bring them together with some of the offerings we have in our solutions business and accelerate growth, so if you think about the GRC space, for example, which is the governance, risk, and compliance, we probably have more capability in starting to build out automation tools that could leverage and grow that business. And so, that's what I mean by optimizing our capabilities together, and I think that's what’s still ahead for us.

Thank you. And our next question comes from Mark Marcon with Baird. Your line is now open.

Just to start, can you talk a little bit about what you're seeing in the Tri-State region? And also, can you describe a little bit with greater depth what you meant in terms of Southern California in terms of what you're seeing there?

I'm going to pass Mark the question to Tim since he's been leading our North America business.

In Tri-State, what we're seeing is we worked out to stabilize our operations, and what we're starting to see is some turn there, a little resurgence in our ability to kind of go-to-market the way that we'd like to. In Southern California, we continue to struggle a little bitwith the transition of that marketplace there from being one that's entertainment dominated and then have lost some large clients to other lower cost markets, so what we've done is try and transition our go-to-market approach to one that can be -- go after more middle market and emerging market practices there. So, we're at the middle of that transition right now.

And Tim, how long do you think before we get back to growth, I mean like meaningful growth in the Tri-State?

Never soon enough, but I feel pretty good about the team that we put in place and who have been together for the last 18 months or so and have worked real hard to transition, sort of move the aircraft carrier. And so, I feel very good about our prospects over the next year or so.

We focused for a long time on Tri-State, because a lot of our financial services business was coming out of Tri-State. But keep in mind that it doesn't live in Tri-State anymore. So we have significant clients that have moved a lot to Charlotte, and are also moving to the Salt Lake City area. As they look for lower costs markets in which to operate some of their shared service and other compliance functions. So, I look at now more how is our East regions performing because many of our client buyers from Tri-State have moved, say into, Charlotte. So, I look at it now more regionally and follow what we're doing in terms of rebuilding our financial services business.

And then can you talk a little bit about some of the initiatives that you've had in place in North America that Tim was already in-charge in North America. So the expansion and the responsibility there is really global. So can you talk a little bit about what would be some of the commonalities or initiatives that you would bring on a global basis?

Mark, one of the biggest things that we will be doing and as we've already started to explore really relate to sales discipline and pipeline management, getting working off of common process and making sure that we can fit that together as part of a global coalition. We transitioned really from being, I think, very tribal in nature and operating very geographically and now we want to be more client-centric to be able to meet our clients where they work. So in order to do that, we need to have more commonalities behind process and approach.

Yes, I'd also say I think one of the things that Tim has led is strong sales force adoption and sales process adoption. And that is not so that we can beat on our sales teams or our client service team. It's really to get them to use the technology that we've provided to make them more efficient and hopefully better engagement in their job. I mean it does also help with sales management. But we need to be using that as actively everywhere we operate and that also gives us visibility across the globe to serve some of our largest clients. We've had great growth in our pharma business. And I'm very bullish about our opportunities in big pharma in China, for example, and it's absolutely critical in delivering there that that we're able to share our client development and client insights with one another.

And then can you give us a little bit more color with regards to what you were seeing on the ground in terms of the post holiday slowdown, both as it relates to what you saw in North America. And then in addition to that, if you could just -- it sounds like Germany was strong at least with the task, and so when we go through and look at. Was it just the UK that really slowed down because of a Brexit? Or was it more dispersed across Europe?

Let me talk about Europe for a minute and then I'll past it either to Tim or Herb, and they can share more color in North America. In the UK, everyone will tell you and I'm sure you've had other clients, Mark, that are talking about the chaos and are getting whipsawed, so it just naturally seizes the marketplace for a while and clients really did get slower in decision making. I would say right now, we're starting to feel some momentum. We're starting to bid on some big projects that we hope to hear soon. So it does sound like clients are starting to pick-up again. In the Netherlands, I'm disappointed in our performance in the Netherlands part of that as a result of some legislative change that has happened with respect to agile business models that we're working through. But that is a function too of migrating our business to higher value work, less commodity oriented work, which I think is important for us in the longer term but has created some short-term challenges. And our leader in Europe right now is very active sitting in the Netherlands market with the team to really drive better performance out of that group. And we started to see some uptick in Sweden, for example, that in some very interesting way just closed some very interesting RPA business there for a large regional client that we think will grow. So, it is some of the natural ebb and flow of our business. But we are doing all we can to control the things we can control and that is our effort and our drive and our commitment. And you can be assured that the three of us at this table are focused on it every day.

And Mark, you asked from a macro perspective. We saw a lot of uncertainty coming out of the holidays, I mean there're lot of things going on, government shutdown, potential trade war and things like that. And what it did is it basically forced our clients to reprioritize. So we saw a lot of delay in strategic decision making, some shrinking of scopes of projects at least in the initial phases. And then to think about as opposed to going big bang thinking about sequencing things appropriately based on strategic priorities. I would say that in the last few weeks, we've seen some fog but there's still some uncertainty out there.

Thank you [Operator Instructions]. And I'm showing no further questions in the queue at this time. I’d like to turn the call back to Kate Duchene, CEO for any closing remarks.

Thank you, Operator. And again, thank you for attending this call and your interest in RGP. We'll look forward to talking with you again at the end of our Q4 and report on full year for fiscal '19. Thanks again, everyone.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude your program, and you may all disconnect. Everyone, have a great day.