Resources Connection, Inc. (RGP) Q4 2020 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the Resources Connection, Inc. Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I'd now like to turn the call over to your host for today's Ms. Alice Washington, General Counsel of Resources Connection. Ms. Washington, you may now 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; Tim Brackney, our Chief Operating Officer; and Jennifer Ryu, our Chief Financial Officer. During this call, we will be commenting on our results for the fourth quarter ended May 30, 2020. 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 714-430-6363. During this call, we may make forward-looking statements regarding future events or future financial performance of the company. Such statements are predictions and actual events or results may differ materially. Please see our report on Form 10-K for the year ended May 25, 2019 for a discussion of risks, uncertainties and other factors such as seasonal and economic conditions and epidemic diseases. Such factors may cause our business, results of operations and financial condition to differ materially from 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 our CEO, Kate Duchene.

Thank you, Alice. Welcome to our Q4 fiscal '20 earnings call. We appreciate you listening in today. Let me start with an overview of the fourth quarter and certain highlights. Tim will offer some operational color and then Jen will dive deeper into financial performance. Our operating model proved resilient in the face of unprecedented economic disruption. All revenue at 178.6 million was down 1.4% constant currency. Gross profit was 72.2 million in the quarter, a decline of 1.1% from prior year quarter. Yet our gross margin of 40.4% represents an improvement of 30 basis points from prior year quarter. This is a reflection of a reduction and pass through expense related to delivery. Adjusted EBITDA increased to 18.6 million or 10.4% of revenue up from 9.6% in the prior year quarter. With respect to COVID-19 impact, subsequent to the end of the fourth quarter, we started to see a slight uptick in buying environment in June. But new project signings across the board do remain soft. Our teams have done an exceptional job of managing extensions, but most new projects with new clients or new buyers within our clients environments are still on hold or pushing out. To that point, revenue will continue to be challenged until greater clarity exists in the macro environment. Tim will provide further market trends in Q1 during his remarks. Now let me provide an update on our progress with our digital staffing platform or HuGo, the name we've given this tool. HuGo combines the word Human and the word Go and is a perfect reflection of our brand identity. We are making good progress with our development, process redesign and integration efforts that have been impacted by some COVID-19 related delays. We are fully committed to getting the technology and experience right, so we will not rush to market until we are ready. We will provide a more complete update as we get closer to the launch, which we believe will be prudent to hold until the macro environment gain sustainability, which could be late into the calendar year 2020, or even coming out of winter in 2021. Following up on previous actions, we took in early March to reduce costs. We now think those savings will range from 10 million to 12 million and contribute meaningful impact starting in fiscal '21. We continue to evaluate our real estate strategy with people and technology strategies, and will likely accelerate our real estate contraction activities in view of current trends. With respect to Europe, the next and final phase of our restructuring initiative, our review is ongoing, with the timeline pushing out given COVID-19 and related lockdowns throughout Europe. We will provide an update on our next call. Now, let me discuss three macro shifts that are accelerating because of COVID-19 that we believe could be beneficial to RGP. These include increased use of contingent talent, virtual or remote delivery becoming mainstream and new client attitudes toward borderless talent. Many clients are exploring a shift in workforce strategy toward agile or contingent workers. Staffing Industry analysts for example predicts the use of contingent labor will rise in the next two years by 5%. In a June 2020 Gartner survey of more than 700 HR and finance executives, 32% reported a wider use of contingent labor versus full time equivalents in the post-COVID environment. In addition, clients are more willing to procure talent virtually. For knowledge workers, many clients have realized that on premises is no longer essential to ensure quality delivery and outcomes. Clients like engaging more rapidly with virtual talent through technology and have become more open to working with talent from remote locations. We believe these trends will create additional opportunity for RGP. Keep in mind that more agile ways of working are the core of our business model. The move to virtual and borderless talent helps us manage supply and demand more efficiently, which should result in faster revenue generation and reduce turnover. We've officially entered the now of work and I believe RGP is operating from a position of strength. Finally, I will close my remarks by sharing our focus in three areas for fiscal '21. The first is cost control. While revenue may be murky, we can and will continue to focus on improving our cost structure globally. We are committed to completing projects strengthen Europe to deliver further cost control improvements this year and continue to evaluate all parts of the business and its structure to derive savings without disrupting the client or consultant experience. The second focus areas building the core including this growth of our strategic client and key account programs. We want to build on our Q4 efforts that sauce increased sequential revenue in this core client base by approximately 6% on the same day basis, despite COVID. This important client set has had a CAGR of 7.4% over the past five years, so we know client centricity pays off. In Q4, 300 clients spent more than 125,000 with RGP, up from 278 in Q4 of fiscal '19. We will focus on helping expand our services within these clients at a time when many are looking to leverage down their own professional services costs by moving beyond the Big Four. We also intend to expand to new buyers within these organizations who already trust us, like Chief Digital, Chief People and Chief Marketing Officers. As one client recently shared with me directly, you already have acquired champions here now is your opportunity to expand. For fiscal '20, 98% of our top 50 clients procured more than one type of service or solution set. This percentage is up from 92% in fiscal '19. We're also committed to growing our presence in the healthcare industry. We see robust opportunity in the industry from pharma, to medical device, to payer provider. Much of the work we do for our healthcare clients is mission critical, like revenue cycle optimization, clinical trials, process redesign and optimization and supply chain transformation. These clients needs align well with the capabilities of our dedicated industry group. The third area of focus for fiscal '21 is digital expansion. This effort includes bringing HuGo to market successfully and starting to introduce a new way of engaging with RGP. It also includes expanding the go-to-market penetration for Veracity which to remind you is the digital transformation firm we acquired last year, providing consulting services from strategy and roadmap to technical digital transformation. Digital Transformation agendas will be accelerated post-COVID throughout all of our target industries. Interest is growing and improving employee experiences, advancing digital workflows and automation. That's we will be focused on introducing Veracity more broadly in our client base this year. There is great excitement and energy at RGP as we start this fiscal year. Certainly there remain many challenges, but RGP is a proven leader and having the people, the technology perspective and the fortitude to deliver and provide long-term cost effective solutions for companies. It is not just us saying it; our client retention statistics underscore this point. 82% of the top 100 clients from fiscal '16 are still clients today and have retained us for services each and every fiscal year. Our top 25 clients contribute more than 25% of our global revenue consistently over the past five years. While we may not know exactly how we will be engaged year-after-year, we remain a trusted partner to help clients execute their priority initiatives. Before I conclude, I would like to encourage everyone to take the time to review our new Investor Relations presentation available on the IR page of our main Web Site. We will be posting our earnings script there as well following this call. I'll now turn the call over to Tim to offer a deeper dive into Q4 results and key takeaways.

Thank you, Kate, and good afternoon, everyone. I will highlight operating trends and initiatives that impacted our results and operations for the fourth quarter and discuss early first quarter trends. I am extremely proud of the way our company has responded to a world afflicted by global pandemic. We adjusted quickly to virtual delivery and we're able to preserve a healthy average run rates through the quarter. We continue to engage directly, albeit virtually, with clients and prospects who are now more accustomed to this new way of working. As Kate discussed, our clients embracing a virtual delivery will benefit RGP as it is paved the clear shift in the way we staff engagements and execute on projects. This will enable us to unlock our talent to operate in a more borderless fashion, as proximity has become a less important consideration than in pre-COVID days. This is a meaningful opportunity for our business, as it streamlines the matching of supply and demand, allowing us to attract and retain talent more broadly and provide a larger catalogue of skills and competencies on an agile basis to our clients. It also provides for flexibility and using a more modular approach to complex projects execution. We believe this will be a sustainable trend that will outlive the pandemic and contribute to our business long-term. Now, let me turn to our fourth quarter operations. As noted in our third quarter remarks, we saw strong weekly velocity and pipeline activity at the beginning of the fourth quarter. As we move through the fourth quarter, we were able to maintain positive operational metrics with velocity pipeline and activity holding steady until mid-April when we experienced some degradation in momentum. The tightening environment around new project starts and business development softened our pipeline and sales activity. This decline in run rate and pipeline beginning in the middle of the quarter stabilized by the end of May and into the new fiscal year. The impact has been particularly felt in North America, where the overall business climate continues to be challenged by the persistency of outbreaks and the resulting uncertainty in the marketplace. Despite these headwinds, Citrix, Veracity and Countsy remained steady through Q4. Similarly, Asia Pacific and Europe remained steady in terms of velocity, due principally to the timing of the pandemic and resultant geographic response, Our margins have remained strong through the course of the current quarter and deal pricing remains consistent. That said, we have adopted a more aggressive approach to pricing in response to market conditions and we'll continue to be opportunistic around deal pricing and flexible in our engagement deployment in fiscal '21, as we know our clients and prospects are still engaging in crucial projects and transformation efforts. While we continue to operate in a world of uncertainty, we know our resilience depends on our ability to control what we can. Our teams are committed to redoubling our outreach efforts, in part by exploring new ways to connect, including curating virtual learning and networking environments that allow our clients to directly interface with each other. It also means casting a wider net for talent and staying close to our people in ways we haven't done before that is one upside of operating more virtually. An ancillary benefit has been a decline in operating expense of approximately 3% during the fourth quarter as a result of pandemic induced travel restrictions and social distancing requirements. We continue to optimize our core business platform with a focus on go-to-market productivity, delivery effectiveness, efficient matching of supply and demand and evolving the consultant experience. The North American reorganization efforts, we started in the fourth quarter were driven by these key elements and have started to yield results although the impact of COVID is hard to detach from the operational game. Before I conclude my remarks, I want to provide some insight on early first quarter trends. Q1 is always a big challenge during the summer months, and this year, we must take into account the reduction in pipeline and the velocity experienced at the end of Q4, as well as any added macro impact of the pandemic on our operations, the severity of which is hard to predict. This, again, has been particularly true in North America as I noted above. We [indiscernible] by lifting our healthcare practice, our efforts to match talent in a more borderless fashion and a strong focus on deeper integration with Veracity as our strategic client program and core business. While we are encouraged by these opportunities, we understand there is real uncertainty ahead and will remain focused on a go-to-market productivity and controlling costs, both of which are paramount in the current environment. I will now turn the call over to Jen for a more detailed review of our fourth quarter results.

Thank you, Tim, and good afternoon, everyone. As a reminder, the fourth quarter of fiscal '20 consisted of 14 weeks as compared to our typical 13 week quarters. Starting with an overview of our fourth quarter results, as anticipated, fourth quarter revenue was significantly impacted by the COVID pandemic across most of our market. The adverse impact of the pandemic was mostly offset by the additional week this quarter. Top-line revenue for the fourth quarter of fiscal '20 was 178.6 million a 2% decrease from the comparable quarter a year ago and a 6.3% increase sequentially. On a constant currency basis revenue decreased 1.4% year-over-year and increased 6.7% sequentially. Our fourth quarter gross margin was 40.4% up 30 basis points from the fourth quarter of fiscal '19 and 390 basis points sequentially. SG&A expenses for the quarter, which included a restructuring charge of 5 million, or 62 million or 34.7% of revenue compared to 56.9 million, or 31.2% of revenue last year. Our net income for the fourth quarter was 4.1 million or $0.13 per diluted share, compared to 9.4 million or $0.29 per diluted share in the prior year quarter. The impact of the restructuring charge on diluted EPS in the fourth quarter of fiscal '20 was $0.11 per share. In Q4 adjusted EBITDA, which we defined as EBITDA before stock compensation, contingent consideration adjustments and restructuring charges was 18.6 million or 10.4% of revenue up from 17.5 million, or 9.6% of revenue in the prior year quarter, reflecting the impact of favorable SG&A expenses. Now, let me provide some color around our fourth quarter revenue results. Again, the fourth quarter consisted of 14 weeks. To ensure consistency, comparability and clarity of our results, we compared revenue on a same day basis, calculated by applying the number of business days in the comparable period to the current period daily revenue run rate. Please refer to our press release for additional detail on the number of business days in each comparable period. Consolidated revenue for the fourth quarter included 6.2 million of revenue from Veracity and 2.1 million of lost revenue resulting from exiting the Nordic and Belgian markets. Excluding the impact of these events and on a same day basis, organic revenue decreased by 18 million or a 10% decline, compared to Q4 of fiscal '19. On a constant currency basis, organic same day revenue declined by 9.5% compared to last year. At a geographic level compared to Q4 fiscal '19, organic same day revenue declined by 8.8% in North America, 12.7% in Europe and 19.5% in Asia Pac, or declines of 8.6%, 9.9% and 18.3% respectively on a constant currency basis. Sequentially consolidated same-day revenue including Veracity decreased by 4% from Q3, or 3.6% on a constant currency basis, the declines within each geography was similar ranging between 3% and 4%. While the pandemic adversely impacted revenues in most of our markets, we have bright spots in our Dallas, San Antonio and Seattle market. Our Countsy business also performed well given inherently sticky nature of the managed services model, Revenue from our largest clients continued to show strength and was largely unaffected. Same-day revenue from our SDT clients increased by 9.1% compared to Q4 last year and increased 10.1% sequentially. A final observation despite the pandemic, our revenue from professional staffing remains strong. North American professional staffing revenue actually increased 5.3% compared to Q4 last year and point 0.4% sequentially on a same-day basis. Turning to gross margin, gross margin for the fourth quarter was 40.4% increasing 30 basis points from Q4 of fiscal '19 and 390 basis points sequentially. The year-over-year increase is primarily driven by the U.S. and is attributable to lower pass through revenue from client reimbursement and favorable self insured medical expense contributing approximately 140 basis points of increase partially offset by higher non-billable pay and a slight decline in bill pay ratio aggregating to roughly 100 basis points. This sequential increase in gross margin is attributable to lower pass through revenue from client reimbursement, lower consultant holiday pay and payroll tax expense, favorable self-insured medical expense and a slight improvement in bill pay ratio. The average hourly bill rate for the quarter was approximately 127 compared to 124 in the prior year quarter and 123 sequentially. The average bill rates in the U.S. and Europe include 5.7% and 1.3% compared to the prior year quarter respectively. The gains were partially offset by a decline in average bill rate in Asia Pac. Sequentially average bill rate increased by 2.1% in the U.S. and 4.2% in Asia Pac. The average pay rate for the fourth quarter of fiscal '20 was $63 compared to $62 in the fourth quarter of fiscal '19 and $63 in the third quarter of fiscal '20. As a reminder, these hourly rates are derived based on prevailing exchange rates during each given period. Now looking at other components of our fourth quarter financial results. SG&A expenses were 62 million or 34.7% of revenue, included in the fourth quarter SG&A with 5 million of charges related to restructuring activities and $1.9 million of expense due to changes in earn out estimate relating to the veracity acquisition, excluding these charges, SG&A was 55.1 million or 30.9% of revenue in the fourth quarter. General business expenses were down 1.6 million and 1.3 million compared to last year in sequential quarter respectively, due to reduced travel and other discretionary spend. In addition, we experienced favorable trends in our self-insured medical program as a result of lower usage during the pandemic, resulting in lower incurred claim costs. We executed our restructuring plan in North America by reducing both headcount and real estate footprint. We incurred 3.9 million of employee termination costs and 1.1 million in costs related to lease termination and fixed asset write-off. We expect to realize additional benefit from the headcount reduction beginning in fiscal '21. As we gain more visibility into the full impact of the pandemic on our business, we intend to reinvest a limited portion of these savings over time into digital capability and to drive forward certain growth initiatives in core markets. With respect to the real estate plan, to-date we have either exited or sublet approximately 50% of the plan location. We will continue to execute according to our plan, while exploring the virtual model for additional markets in which we operate. While there are no guarantees we see the potential for meaningful savings over time. Turning to the other components of our financial statement. Income tax provision was 2.9 million for the fourth quarter representing an effective tax rate of 42%. The effective tax rate was mostly impacted by lower pre tax income an increase in valuation allowance. Effective tax rate on a full year basis was 19.7% compared to 34.4% in fiscal '19. The decrease is primarily due to the U.S. tax deduction the company took in Q3 of fiscal '20 related to the worthless stock loss in our investments in foreign entity. Cash tax rate for fiscal '20 was 11% compared to 31% in fiscal '19. Now, let me turn to our balance sheet and liquidity. In addition to cost containment efforts, the other primary area of focus in the fourth quarter was prudent management of our cash flow and liquidity. We ended the fiscal year with cash and cash equivalents of 95.6 million compared to 35.9 million at the end of Q3. We took a proactive measure in March to add substantial liquidity when we borrowed 39 million under our credit facility. We generated an additional 27.9 million of positive cash flow from operations in the fourth quarter. Receivables at quarter end were 125 million compared to 133.3 million at the end of fiscal 19. Days of revenue outstanding were approximately 65 days in Q4, an improvement of two days from prior year and three days from the third quarter of fiscal '20. To-date, we have not experienced much deterioration in our receivables due to COVID-19. We implement a protocol to review and grant credit extension or changes in payment terms. The quality of our receivables remains strong. Nonetheless, as the pandemic continues to persist impacting our clients' liquidity position, we may experience a more adverse impact on the quality of our receivables. Capital expenditures are 2.3 million for the full fiscal year. In order to support the growth of our business and improve our operating leverage, we expect to invest in our system infrastructure in fiscal '21. In order to preserve cash while balancing shareholder returns, we did not make any share repurchases, but the Board of Directors maintained our quarterly dividend in the fourth quarter. In the long-term, we will continue to evaluate our capital allocation strategy and expect to return cash to shareholders through dividends and share repurchases, while balancing debt repayments and the capital requirements of growing our business both organically and strategically. Now turning to our first quarter fiscal '21 trends. We've seen some stabilization at the start of the quarter but still expect year-over-year deterioration in revenue in the first quarter, especially if a resurgence of COVID causes the U.S. economy to shut down once again. Weekly average revenue for the first five non-holiday weeks of the quarter was 11.5 million. Our self-insured medical program could experience an increase in future costs as employees resume doctor visits and procured necessary medical treatment, which could have a material impact on gross margin and operating costs. Consistent with our approach to the fourth quarter of fiscal '20, we will not issue any specific revenue or earnings guidance for the first quarter of fiscal '21 given the ongoing uncertainty as it relates to the pandemic. Before I conclude my remarks, I would like to remind everyone again to view the refreshed Investor Relations presentation we released this quarter. It's available on the Investor Relations page of our main Web site. We will now open the call up for question.

Thank you. [Operator Instructions] Our first question comes from Josh Vogel with Sidoti & Co. You may proceed with your question.

My first question is, talking about how virtual delivery is here to stay. And I was wondering if you could maybe give a sense of how much of the business you think can and will remain virtual long-term?

I'll jump in first, Tim, and then I'll hand it to you and bear with us, because we're all virtual now delivering on this call. Josh, welcome to our call. We appreciate you picking up coverage on the company. I would say and what research is telling us now that probably half of knowledge workers will remain more virtual on the other side of this pandemic and I think that we will expect about the same. We're finding that with tools and technology, it's an a very efficient approach and a cost effective approach for our clients. And now, Tim, I'll turn it to you.

Hey, Josh. Good afternoon. Yes, I agree with that. And I think what would be interesting too, is that the -- some of this will be sort of immediate. And I think that what Kate was talking about in terms of 50% of knowledge workers remaining virtual, seems like the right order of magnitude. But I also think that, as companies start to change their procurement habits and they get used to the idea that they can actually have access to a broader range of talent, they'll start to embrace that more and more over time but even at 50%, that's a dramatic difference, right out of the gate caused by COVID.

Okay, great. And thank you, I do look forward to working with you and the team going forward. Just on that vein, now you're getting a better handle on the necessary real estate footprint. And I think you kind of alluded that there's additional room to pare that down. With that comment with regard to North America only, or were you talking about globally? I know you're still evaluating what to do in Europe and I guess maybe, can you share how many offices you had at year-end and where you may be see that at this time next year?

Yes. So I think we'll continue to pursue a real estate contraction strategy. We will be announcing more around our real estate footprint in Europe on our next call, but we're continuing and actively evaluating what we need both in the U.S. and in Asia Pac. I would say from our experience Asia Pac still has a need for on premises location, simply because the way culturally they work and real estate arrangements with regard to personal choices. So I'm not sure what contract as much in Asia Pac but we sure see the efficiency of doing it and we were very pleased that we had executed put together this plan and executed it largely before the pandemic hit. We were preparing for this anyway. I think COVID accelerated some of our plans, but we have been looking across the board at how do we make the business most efficient and also satisfy the desires of talent. And we all know that the generational shifts are happening in talent, that the millennials will be the majority presence in our workforce. And so we need to prepare for the choices that talent wants to pursue as well. So that's why I talk, it's not just about a real estate strategy. It's about a technology and a human capital strategy that are all converging here. And then Jen, can you answer the question about number of offices?

Yes, sure. We have roughly a little about 70 offices and importance to our plan; we either exit or sublet approximately half of what we had planned in North America. And we do plan to continue to execute against that. Although, we are seeing that in the market right now with the shift of going virtual, we do expect to experience some challenge in trying to sublet the rest of the location.

Sure. Okay. That's helpful. Kate, I believe you said the pre tax savings target is now around 10 million to 12 million. If I recall, I thought it was between 16 million and 19 million before. Can you maybe just bridge that gap for me?

I think part of that is that we're still working on the real estate exit. And so that plan is still underway. So we haven't achieved all of the savings that we hope to. I mean, Jen, and the facilities group here are working on that actively, but we haven't seen all of that pull through yet.

Just to add to that, there's also a little bit of timing too, as far as the termination of employees and the timing of their exit.

Yes, sure. Sorry, Jen, I should have added to that. Some of the folks in the restructuring plan for various business related reasons won't be exiting the business until the end of Q1, for example and that's what Jen's talking about.

Okay, great. And just one last one, I guess just in light of the pandemic and environment general. Just any comments you have on how Veracity has performed relative to your expectations and targets.

Yes. I will start, and then, Jen, I think you can pull in. We are very pleased with Veracity and their addition to our business. I think they too were slightly impacted by COVID, but probably at a lesser degree than RGP's business. We expect growth out of them in this fiscal year. Everything I read and all the research that I'm reading tells me that digital transformation agendas will be accelerated. And if there's one area that businesses want to invest in, it happens to be in their sweet spot. So I'm very pleased that we have them in our arsenal now and that we will -- as I said in my prepared remarks, be very focused on introducing them more broadly to our client base.

All right.

We should pretty much take that as Veracity performed as expected. Yes.

Thank you. Our next question comes from Mark Marcon with Baird. You may proceed with your question.

I've got a couple of questions. One would basically be, can you just talk about the -- what you've seen since quarter end just in terms of how the trends unfolded? You mentioned that $11.5 million on a weekly run rate basis. But do you think things are getting a little bit better and we've seen the bottom or you feel like things are still a little bit on the challenging side or harder to predict?

Yes, I'll jump in. And then, I'm going to really turn this question Mark over to Tim. And so thank you for jumping on our call today. I know we advanced our call by a day. So we appreciate all of you making that work with your calendars. I think as we said, we saw the bottom happened in May for our business and from there, we're starting to see some stabilization and some improvement, but I wouldn't say it's robust yet. And certainly all the news about the reemergence and large markets locking down again creates a lot of uncertainty in the client base. And when clients are uncertain, they get more conservative. So while we've been great at extensions and clients understand the value in the work, we're doing it, it's hard to get that new project win. So that's the color I chair. And then Tim, I'll hand it to you to provide a little more.

Yes. I think that's right. And hi, Mark. I would say we stabilized within the last four or five weeks very stable, I think the difficult part of your question is when to call the bottom. I think in a situation like this, it's virtually impossible to call the bottom because there's so many things that are out of our control. But I think when I look at our in process metrics, obviously, within all of our theatres operation in terms of being close to our clients. It's still a tenuous environment. So we don't take anything for granted. We are stable over the last four, five, six weeks. But again, I would just say, I wouldn't call it a bottom because I feel like the new move things pretty rapidly these days.

That's an understatement. With regards to your international operations, can you just give a little bit more color just in terms of what you're seeing there in terms of the trends, particularly with regards to Asia Pac, given that they're further along in terms of coming out of the downturn, or at least in terms of being impacted by COVID? To what extent are you seeing some sort of stabilization there?

Yes. Tim, do you want to take this one?

Sure. Yes, I mean, I think Asia Pac -- in my remarks I talked about kind of the difference in timing and geographic response. Asia Pac is a really good example of that. I mean, they were kind of the bellwether for the situation. It was the inflection point for what we're dealing with now. And just kind of the way that it was contained in that environment is a good way to think about whether or not, I mean in other words, it's easier for me to say I feel like they've stabilized over a much longer stretch. They were sort of lacked in Q2 stabilized in Q3 and have been pretty stable when I look at velocity and pipeline. And pipeline is challenging this environment generally as buying patterns are a little bit more cautious. But in terms of velocity and looking at the overall business they've been very stable throughout the entire quarter and into the early part of this fiscal year.

Great. And then, with regards to internal headcount, can you kind of give us a feel there you stipulated what the charge was for the quarter, where do we stand in terms of headcount and what percentage of the productive capacity that you maintain?

Jen, do you want to take this?

Yes. So what was in the North America plan that we announced last quarter was roughly about 8% of total headcount. And we still have a number of headcount that is going to exit to Kate's point by the end of Q1.

Mark, I just add to that quickly. Headcount, we all know that in our human capital business, headcount is the largest component of our cost structure. So we're continuing to look at all headcount to make sure that it's producing the right return for the business. I think we're very conservative right now on adding any headcount. You might see us invest say in, our two largest markets in North America, for example, our TriState in Northern California. If there's a market that needs headcount, it may be in TriState, for example. But we will be very conservative on adding headcount and ensuring that the investments we've made in our advisory project services group, which are really our kind of superstar subject matter experts, seller doers, that we're getting the right productivity out of that group because they do have both sales targets and utilization metrics now.

Great, how is the utilization running with regards to that advisory group at this point, obviously it's a depressed environment. But it's curious what you're seeing?

Yes. So Mark, we don't have one set answer for that group, because it's a little bit of a mix. Some have higher sales targets and lower utilization, I'd say across the board. And Tim, you correct me, but we're looking at 50% to 80% utilization depending upon where you might fall in the scale. And I think we're doing a good job of managing that and keeping them busy.

I would agree that I mean, it definitely just when you think about the velocity, the velocity kind of cut across our business. So our utilization was impacted a bit. But what I was alluding to my remarks when I said that we're more flexible and thinking about how we deploy on engagements. Typically in our APS organization, we try to utilize a leverage model where we spread some of our APS resources over multiple engagements. We're much more open to almost having a [second minute] [ph] resources, even within that model now, for especially for some of our high profile clients for and having more dedication of resources to an initiative where we might not have been as open to that before and that's helping a little bit with respect to making sure that we're getting a return on investment from that group.

Great. And then, can you just remind us what percentage exposure you would have to -- some of the Sunbelt markets in California that where the impact of COVID seems to -- has reemerged. And just what are you seeing on the ground real-time now, out of those markets? That's a very short-term question, but just curious.

Yes, I'll jump in and start with that. I mean, I'm in California in the Sunbelt. And what I will tell you is that our California markets, actually, particularly Los Angeles and Southern California and Northern California, where I am today, we've actually we've stabilized kind of earlier and starting to see more opportunity. In fact, our Western region right now when I think about pipeline for Q1 feels like it's one of the stronger parts of our business. Now, as I was saying earlier, that could all change if all of a sudden we have a major shift in ordinances around what we can do and can't do with our clients. But right now, it feels that piece of the Sunbelt feels pretty strong as does Texas, which I will almost give the same commentary to you. California and Texas have been have been strong -- have been stronger as we come out of Q4 into Q1 And then, our Phoenix practice in Arizona is getting hit pretty hard right now, has stayed consistent. So we haven't -- we're not giving back more ground because of these outbreaks right now. But again, that's something that could change.

That's great to hear. And then, can you just talk about what your hopes are for HuGo as we think about '21 and just kind of benchmarking particularly once we go into the new calendar year and, things hopefully will be stable?

Yes. Let me jump in here. So, as I said in my prepared remarks Mark, we have been a little delayed by COVID. And that I think is to be expected but we're working very productively now, remotely. We're now at the stage where we're bringing the product development and really the back office processes and infrastructure together. We expect to launch as I said, sometime this fiscal year and we will start with a dedicated market. And then expand, our plan right now is to move pretty quickly thereafter into two other larger markets and grow from there. But we're not sharing predictions about volume yet, we'd rather see the tool become productive, and then add it to our reporting structure. But we're very bullish on this as a necessary tool to allow clients to engage with us for well defined work that they have in their environment. So, we're all very excited about how this platform can help us grow the business overall.

Thank you. Our next question comes from Andrew Steinerman with JPMorgan. You may proceed with your question.

I have three questions. The first one is, when you talk about the weekly trend to five -- the weekly trend in the quarter so far and it gave us the $11.5 million average for the non-holiday weeks. My question is, could you speak about that on a year-over-year basis? I surely remember in past conference calls, you've spoken about year-over-year trends early in the quarter. That's my first question. My second question is just to verify that we're talking about a 13-week quarter, I think all the quarters of this fiscal year are 13 weeks. But I did want to verify that. And then my third question is, could you also just give us a sense of that July 4 week, we know it's impacted by the holiday, but it would be helpful to have a six week trend if you're willing to give it to us.

Yes. So Andrew, thanks for your questions. And again, thanks for adjusting your schedule to attend. I am going to confirm it's a 13-week quarter and all of ours this year will be 13-week quarters. Jen, I'm going to turn it to you for the year-over-year for the third question.

Yes. So I mean, if you were to project that out through the rest of the quarter with a 15.5 million weekly revenue average compared year-over-year to last year, we're looking at roughly, about a 12%, 13%. Decline?

Okay. And then, Jen about the last question. Jen, only if you're willing, but I'm asking for -- you gave us five weeks of the quarter. We're six weeks in now. Would you just be willing to give us that July 4th week would help for our modeling?

Yes. I mean, July 4th week is from a runway perspective, it's in line with the rest of the non-holiday week.

Oh, so that's also like 11.5, you're saying?

No. Given that we have a holiday, so if you blow that out? Yes. Correct. I mean, if you were to compare on the same day basis, it's roughly 11.5, correct.

Let me just make sure I got it right, Jen. I think you're saying that I have to subtract a day from that week and else wise, it would be on an 11.5 week except minus one day.

Correct.

Yes.

Thank you. And I'm 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.

I just want to again, thank everyone for joining us today. We look forward to talking to next after Q1 of fiscal '21. Everyone stay safe. And thank you again.

Thank you, ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.