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 would now like to turn the call over to your host today, Ms. Lauren Elkerson, General Counsel of Resources Connection. Ms. Elkerson, 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 first quarter ended August 29, 2020. By now you should have a copy of today's press release which is available on our Web site. 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 30, 2020 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, Lauren, and congratulations on your new role as our General Counsel. Welcome to our Q1 fiscal '21 earnings call and thanks for listening today. Let me start with an overview of the first quarter, including the continued impact of COVID on results. I will then comment on industry trends followed by commentary on current RGP opportunities and priorities. Tim will offer deeper operational color, and Jen will dive into specific financial performance and early Q2 financial trends. As expected, our revenue results are still impacted by the global pandemic. Our revenue at 147.3 million was down 14% year-over-year. Gross profit was 57.9 million in the quarter compared to 67.5 million in the prior year quarter. However, our gross margin of 39.3% represents an improvement of 10 basis points from prior year quarter, thanks in part to pricing discipline. In addition, adjusted EBITDA remained steady as a percentage of revenue at 6.9, consistent with prior year quarter which we attribute to focused cost reduction and rationalization initiatives. I'm also proud to share we were able to achieve revenue growth in pockets of the business, despite COVID impact. These bright spots included Veracity, Countsy and our Strategic Client and Key Account Programs. So far in the second quarter, we're starting to see a broader based uplift in both revenue trends and pipeline growth. Average deal size is growing and our add backs are rising with significant improvement in meeting metrics in Asia Pac and North America. We are also continuing to close numerous extensions, especially as many clients tackled year-end mission critical activities. The near-term opportunity areas we continue to pursue aggressively include: rising demand for digital transformation services across all industries, data analytics, clinical trial and revenue cycle opportunities in our healthcare clients segment, and organizational change management needs…

Thank you, Kate, and good afternoon, everyone. In this quarter, we continue to work efficiently in a virtual manner. In fact, the selling and delivery of projects remotely is no longer a novel part of our business, but our de facto operating model, a trend that has been underway for some time. As the economy opens up, our ability to flex seamlessly between traditional, on-premise and virtual models will offer greater optionality in how we deliver projects and our go-to-market motion. Supply and demand alignment is a key operating principle, which can be truly streamlined in a world of borderless talent. Removing the constraint of geo-fencing our consultants based on locality has opened up new avenues of opportunity for both our clients and our talent. As an example, we've virtually on-boarded a multi-country engagement team to help a life sciences client integrate a newly acquired division. This project was sold and is being delivered virtually to the delight of our client. I am really proud of the way we have worked in numerous instances like this to deliver engagements wholly virtually and look forward to seeing our teams combine onsite and virtual capabilities to sell and deliver projects for clients and prospects in a post-COVID world. This enables us to attract and retain talent on a broader geographic basis, allows for wider field of play in terms of prospect cultivation, client engagement and project delivery. We believe that this agile way of working is not a temporary trend, but a meaningful shift in the way we work. We're exceptionally well positioned to handle this change and believe this represents a net benefit to our company and clients. Now, let me turn to our first quarter operations. As noted in our fourth quarter remarks, we saw declining weekly velocity and pipeline…

Thank you, Tim, and good afternoon, everyone. Starting with an overview of our first quarter results, revenue was impacted by the global pandemic this quarter. We sustained gross margin through pricing discipline. While gross profit was down due to the declining revenue, we realized significant cost savings and delivered solid operating profit. Importantly, through effective cost containment efforts and prudent cash flow management, we generated positive cash flow from operations in what is normally a cash outflow quarter. In addition, our balance sheet remains strong with an increase in available liquidity by the end of the quarter. Now, let me provide more color on our operating results starting with revenue. We finished the quarter with 147.3 million of revenue, a 14.4% decrease from the comparable quarter a year ago and a 17.5% decrease sequentially. After adjusting for business day and currency impact, revenue decreased 15.7% year-over-year and 12.1% sequentially. North America's same day constant currency revenue decreased 15.3% compared to Q1 of fiscal '20. Included in North America's revenue this quarter was 5.7 million of revenue from Veracity compared to 1.4 million in the prior year quarter due to the acquisition occurring partway through Q1 of fiscal '20. Europe’s same day constant currency revenue declined by 16.5% compared to Q1 of fiscal '20, of which 8.5% was related to the exit from the Nordics. Sequentially, same day constant currency revenue decreased by 12.5%, 11.9% and 7.3% in North America, Europe and Asia Pac, respectively. As Tim mentioned, we did not experience the full impact of the pandemic on weekly velocity until the latter half of the fourth quarter in both North America and Europe. In addition, Q1 revenues across all geographies also reflected the typical seasonal impact from summer vacation. While the pandemic adversely impacted revenue in most of our…

Thank you, Jen. Before we turn to questions, I'll share data on client continuity for Q1 of fiscal '21. Despite the global pandemic, client continuity remained strong. During the first quarter, we served all of our top 50 clients from fiscal 2020 and 48 of the top 50 from 2019. In addition, our top 50 clients for the quarter represented 44% of total revenues, while 50% of our revenues came from 72 clients. These 72 clients have been clients of our GP on average for over 10 years. While we may not know exactly what specific projects we will work on year-over-year, we have become sticky in this client set because they trust us to deliver the execution element of strategic projects. That concludes our prepared remarks. And we're now happy to answer any questions.

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

Thank you. Good evening, everybody. First question, when we think about the European plan, is that going to involve potentially moving away from any targeted or lower margin revenue or business?

Hi, Josh. It’s Tim. Good evening to you as well. Our plan in Europe is really to focus on our most important core accounts. So we don't have any plans in the short term to fire clients. We will work through our relationships and continue on engagements that we have. In the long term, what we're trying to do is similar to what we're doing in the rest of the world though is to focus on our strategic and our key accounts, and then to develop more premier accounts. So up and balanced. In the short term, the answer is no. In the long term, there probably will be some impact to smaller and less profitable accounts.

Okay, great. And I guess kind of building off of one of your priorities around strengthening the strategic client or the client programs, I’m just curious. What's the margin profile of that client set versus some of your other clients that are not part of the client programs?

Our client program – I think our margins overall have been pretty strong just generally as a company. And there's sort of a normalized standard deviation around that when you think about our client tiers, and I think it's safe to say that the margin profile for our more strategic accounts, the portfolio is generally on the higher end of that closer to the average.

Okay, great. And when we think about digital transformation priorities outside of HuGo, are there other digital offerings that you're exploring that might be added to your platform? Can you extrapolate on that a little bit? Thanks.

Yes. Hi, Josh. It's Kate. I'm going to take this one and then others might want to add color. Not only are we launching HuGo, which is a new kind of digital engagement platform where both clients and talent can come together to make a match, but we're also looking at how do we continue to evolve what we do in our core business to become more digital so that we give consultants a better experience, for example, and I think you'll see us start to talk about how we evolve our GP as a digital business, meaning using more professional development up-skilling tools that could be delivered digitally, giving consultants more transparency around project opportunities so that they can help us get to the close on business faster. And this is particularly important for the initiative around borderless talent that Tim is driving in operations, which says now that we're all working virtually, we don't have to just look at our talent set by geographic market, we can really open up broadly our wonderful talent network to match the opportunity certainly in North America and eventually anywhere in the world.

I appreciate the insight there. And just two more quick ones maybe for Jen. The first one, the deferral on the payroll tax, just curious how much that added to cash flow in the quarter?

Yes, sure. It's roughly 4.5 million of payroll tax deferral.

Okay, great. And I may have missed it in prepared remarks and I think you said the weekly average for the first three weeks of this quarter was 11.6 million. Can you share what the weekly averages were a year ago and in the prior quarter?

Yes, the weekly average was 11.6 million. In fact, we just added another week to this record. So the latest weekly average is – the latest week – we came in at 11.9. So if you take four weeks, we're actually up at 11.8. Last year – Tim, I don't know – I don't have the number right in front of me last year weekly average what that is.

Yes. We were down about I think 12% on average weekly velocity at the same time in prior year quarter. So you'll have to do the math on that one, Josh.

No worries. That's helpful. Thank you very much for taking my questions.

Thank you, Josh.

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

Hi. Good evening. It’s Andrew. I understand that just reported first quarter, the organic constant currency revenue decline for the total company was 15.7%. Could you give us the breakout between the M&A impact and the FX impact? And then I have one more question about September trends.

Yes, sure. It's 15.7% including the M&A impact. If you were to exclude acquisition as well as divestiture on a consolidated basis, same day constant currency revenue decreased by 17.5%.

Okay.

And the current impact – it’s more of the same - impact as opposed to currency impact.

Okay. And then when talking about the September trends being down 12% year-over-year, I assume that on a dollar basis would there be much change if we were talking about organic constant currency?

No, because Q2-to-Q2, you're looking at an apples-to-apples comparison.

Okay. Thanks, Jen.

So they wouldn't be any impact in there.

Okay. Thank you.

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.

Well, I want to thank you all for attending the call today. We look forward to updating you on our business at the end of Q2. Thanks again.

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