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. As a reminder, this conference call is being recorded. At this time, I would like to remind everyone that management will be commenting on results for the fourth quarter ended May 28, 2022. They will also refer to certain non-GAAP financial measures. An explanation and reconciliation of these measures to the most comparable GAAP financial measures are included in the press release issued today. Today’s press release can be viewed in the Investor Relations section of RGP's website and also filed today with the SEC. Also during this call, management may make forward-looking statements regarding plans, initiatives and strategies and the anticipated financial performance of the company. Such statements are predictions and actual events or results may differ materially. Please see the Risk Factors section in RGP's report on Form 10-K for the year ended May 28, 2021, for a discussion of risks, uncertainties and other factors that may cause the company's business, results of operations and financial condition to differ materially from what is expressed or implied by forward-looking statements made during this call. Such discussion will also be included in the Risk Factors section in RGP's report on Form 10-K for the year ended May 28, 2022, which will be filed today, July 28, 2022. I'll now turn the call over to RGP's CEO, Kate Duchene.

Thank you, Operator. Good afternoon, everyone, and thanks for being with us. We're very proud of our recent performance, strongly capping off an outstanding year. We delivered exceptional Q4 results with double-digit revenue growth and the highest margin and profitability levels reached in well over a decade. These results all exceeded the high-end of our guidance. Specifically, Q4 revenue was almost 26% higher than prior year. Gross margin improved more than 170 basis points over prior year to 41.3%. Gross profit increased more than 31% quarter-over-quarter and adjusted EBITDA margin improved 340 basis points to 15.4% over prior year. We have communicated throughout the year that we are growing top-line, improving pricing and managing costs. We stated at the beginning of fiscal 2022 that our goal is to deliver mid-teen adjusted EBITDA margins over the long term. In Q4, we exceeded this goal while also investing in the business and kicking off a major technology modernization project. This performance trend reflects the hard work we have put into the business to continue increasing shareholder value. These financial accomplishments also demonstrate that we're on the right path and our strategy are on point. We have successfully built the business model for agile, diverse and expert talent who wants to work and consult in a different way. Leading with agility is more relevant and essential than ever in today's macro environment. We work across five core areas of expertise: finance and accounting, risk and compliance, digital, supply chain and people experience. We are the go-to project execution firm with project management, change management and subject matter expertise for many of the world's most beloved brands as they tackle a myriad of transformation and optimization initiatives. We continue to build deeper and broader client relationships to gain mission-critical status and drive recurring revenue.…

Thank you, Kate, and good afternoon, everyone. During the fourth quarter, we saw continued strong revenue growth, operational metrics and margin performance. In fact, this marks the seventh consecutive quarter of sequential growth. Pipeline and deal flow remains robust, and the momentum we have noted at the end of the third quarter continued throughout the fourth quarter and into June and July. Revenue increased by 27.5% over prior year quarter on a same-day constant currency basis while top-of-the-funnel activity was strong, fortifying the pipeline going into fiscal 2023. Geographic performance in the quarter was consistently strong across our core business with strategic accounts, Asia-Pacific, Europe, North America, Healthcare, Countsy and Veracity all performing well. Despite some of the recessionary worries in the current macro environment, we continue to encounter strong demand profile across our portfolio propelled by tenacious operational focus and the continued shift to co-delivery on important initiatives. We see this continuing in our client base, both with new and existing clients who are undertaking transformational projects at a faster and faster pace. This change and the desire to partner with an agile project execution firm has provided the backdrop for increased opportunities, including expanding work within the same initiatives, winning adjacent work based on delivery talent and being utilized in new ways despite longstanding, albeit previously narrow relationship. In the third quarter, I highlighted a large technology plant undergoing a transformation, which included a carve-out and stand-up of an entity. The initial deployment of the project was to implement an ERP and related applications utilizing a blended team comprised of client and RGP personnel at the functional and technical program level. That work continues, and our footprint has increased to support the documentation and optimization of key global business processes as well as functional execution within the supply…

Thank you, Tim, and good afternoon, everyone. We achieved the best financial performance in over a decade during fourth quarter. Revenue of $217 million exceeded the high-end of our guidance and represented a 28% year-over-year growth after adjusting for currency and business day impact. The sustained top-line growth over the last seven consecutive quarters reflects our ability to execute and the relevance of our agile business model in today's changing workplace and macro environment. In addition to excellent top-line growth, we also successfully expanded our adjusted EBITDA margin by 340 basis points from the prior year quarter to 15.4%, which is also the highest margin in over a decade. We continue to see broad-based growth across our core markets, client segments, solution areas as well as industry. In a persistently tight labor market, we continue to support the needs of our clients in filling both their workforce gaps and co-execution demand. Revenue in on-demand talent, which we formally call professional staffing, increased 37% year-over-year, while project consulting revenue increased by 21%. We continue to drive growth within our strategic client accounts by deepening our relationships to expand our services into more buying centers. Revenue from this client segment increased 17% over the prior year quarter. We saw strong growth across all of our solution offerings. Finance and accounting, risk and compliance and business transformation all grew approximately 30% year-over-year. On the industry front, revenue growth in health care, financial services and technology industries also all well exceeded 30% compared to the prior year quarter. Geographically, our revenue in North America improved 30% year-over-year while Europe and Asia-Pac grew 9% and 29% on a same-day constant currency basis. Gross margin in the fourth quarter was 41.3%, up 170 basis points over the same quarter a year ago. Our ongoing efforts to…

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

Hi, Jenn, you were good to give outlook into the first quarter of the fiscal. I was just wondering if you're expecting to see kind of normal seasonal trends kind of monthly kind of June, July, August, as you think about the quarter as a whole. That’s my first question. And then my second question has to do with HUGO. I was just hoping you could give us any quantitative figures of how the initial HUGO efforts are going within New York City Tri-State market. I'm particularly thinking about kind of the engaged professional side, the talent supply side that is using HUGO. And just remind us if that grouping of HUGO professionals, meaning the talent supply is totally separate from RGP's existing professional database.

Good morning, Andrew. So your first question with respect to summer impact. Yes, we do expect more summer impact this year. Travel overall has picked up, and so we do expect more this summer through June, July as well as August. The second question on HUGO. Yes, we launched -- we launched it in Tri-State back in October 2021. And so far, I think it's too early to share any financial results right now. But what I can share is that talent adoption is up and we've gotten favorable feedback from all of our constituencies. And if we do expect to roll this out in the California and Texas market in fiscal 2023, and so we'll have more share probably later on this year.

Right. And the last part of that question -- yes. Is it totally separate professional database?

Andrew, it's Kate. It is almost 100% separate. So we're building that talent pipeline with the center of excellence in the Philippines as well.

Thank you. [Operator Instructions]. Our next question comes from Mark Marcon with Robert W. Baird. You may proceed.

Hey, good afternoon and congratulations. It's nice to see the progress that you've worked so hard to accomplish and the results coming through. Can you talk a little bit about the bill rates and the gross margin expansion? It was nice to see the bill rates are up 4%. What are you seeing in terms of pay rate inflation? And how are you thinking about both bill rate and pay rate inflation as we go into not just the first quarter but looking a little bit longer term?

Hey, Mark, it's Tim. I'll let Jenn talk a little bit about the pay rate and if you want more quantitatively. But let me add some color to your question. When we look at the bill rate side of our business, and we've said this for many quarters that we believe that there's upside pricing leverage in our business. A lot of that has to do with the way we think about pricing our projects and pricing and value, which we haven’t done as good a job as we like to over the years that have started to make slow progress. In fact, if you look over the last several quarters, we’ve been slowly increasing our average bill rates. And we think there's plenty of -- there's still plenty of feeling and opportunity there. In terms of pay rates, the pay rates have been actually pretty consistent this year. We haven’t seen a significant increase relative either to some of the economic factors or the tight labor market. That could change a little bit as we go into next year. But I would say to you that the people who choose to work with us are taking into account a whole host of factors beyond simply compensation. And so as a result, what we've seen is that they're making a pretty holistic decision in terms of joining us for employment.

And how would you anticipate that the strong gross margins and that bill pay spread are going to evolve as we go through the year. And both in terms of like the progress that you're seeing now and then how that could end up fluctuating depending on what the macro environment is like.

Mark, this is Jenn. I can take this one. I think as Tim said, I mean, we see a lot of upside from a bill rate perspective. And this year, even though there's been a tight labor market and we hadn't really seen pay rate tick up that much. It ticked up a little bit, but essentially, it's pretty flat. So we do expect that this year, the labor market continues to be tight, that pay rate could increase. But we do believe that our bill rate upside is going to outpace pay rate increases. So pay bill ratio should improve over this fiscal year.

Okay. Great. And then I mean the EBITDA margin expansion was impressive. I mean it’s obviously the best in years, how sustainable do you think the type of performance that we ended up seeing in the fourth quarter is how sustainable is that? And was there anything that was kind of a one-time factor that ended up helping to drive that because it was really great.

Yes. I mean Q4 didn't have any holiday. So we're going to go through -- I think in fiscal 2023, we're going to go through a typical seasonality throughout the quarter. And so Q1, you're really looking at -- we're not going to achieve 15% in Q1, just given the holiday as well as the summer vacation impact. On a full-year basis, and we said this during our Investor Day, that this year heading into fiscal 2023, we expect our SG&A to continue to hold at the 27-ish percent, but we're also making some investments this year and back into our business, making investments in digital practice as well as our technology platform project there. So it is going to impact SG&A, if you think about fiscal 2023 as a whole. But overall, as we continue to grow our revenue, our SG&A leverage is going to be -- continue to be favorable.

That's great. And then can you talk a little bit, Tim, you mentioned the pipeline building. Can you talk about what the source of the pipeline build is? How much of that is coming in on-demand versus project consulting? And to what extent do you have exposure to early-stage companies that are going through financings versus some of your more traditional Fortune 2000-type companies?

Yes. I mean, first of all, the composition of our pipeline, if you think about the mix of our business between project consulting and on-demand talent this year, on-demand talent is probably -- was a little hotter this year because of some of the things that are going on with the great resignation and things like that. There are a lot of companies that were -- and are still dealing with gaps in parts of their infrastructure that need to be filled. The pipeline, when I look at it, it kind of mirrors that still going forward. I think there are a lot of companies that are going through important strategic or transformative initiatives. And so we're getting pulled into those but also positively because of some of the tightness in the labor market and it's not bouncing on the professional side. We're seeing our continued strength on the on-demand side as well. With regards to our customer mix, I mean the majority of our mix -- we don't have a lot of exposure to two early-stage companies outside of our Countsy business, which is still really strong because of the way -- of how sticky they are relative to the businesses themselves. They're actually a critical mass. But for the majority of the core business, most of that work and most of the pipeline is being generated from more of the Fortune 1000-type clients that we have.

Great. And then can you just give us an update on the big offices just in terms of how you feel about the leadership across the board? Obviously, it sounds like the leadership in Chicago is really standing out. But just wondering if you could talk about the Tri-State, Southern Cal, Northern Cal, Chicago, Houston.

Yes. I mean I would characterize it as saying that I feel very strong about our leadership there. I think our big muscles are functioning well. I think you're right about Chicago. We have new leadership there and an invigorated team, Northeast and Southeast have strong leadership and have -- Northeast have bounced back, obviously, over the last year and has continued strength and the West Coast continues to be strong. We have some new leadership in Houston, but we've already started to see progress there as well. So I'm as optimistic as I've ever been relative to our prospects because of the leadership that we have.

Terrific. That's great to hear. Thanks for the color.

Got it.

Thank you. One moment for questions. Our next question comes from Marc Riddick with Sidoti. You may proceed.

Hi, good afternoon. I was wondering if you could talk a little bit about maybe some of the differences that you’re seeing as far as activity from your various industry verticals, particularly if there are any -- they have been showing better strength more recently or maybe impacted a little differently on the spending over the last few months given the potential for economic challenges?

Yes. Marc, I'll give some color and then Jenn wants to jump if she can here, but I would tell you that we started really focusing on health care three, four years ago, and we've seen that continually grow and have strength. We saw, especially in this last year, financial services and technology come forward as really strong pieces of our business, and that strength continues relative to the pipeline that we're seeing. We don't have a ton of exposure in retail or in energy sector. And so kind of I would say that the top three industries are the ones that I listed and they've shown continued strength, both going through the year and continuing on into new fiscal.

Yes, Marc, I mean from a growth standpoint, all three industries that can refer to health care, financial services and technology, they're all in the mid-35 -- mid-30 percentage range growth compared to last year.

Great. And then I wanted to just follow-up on -- just from the timeframe of the investment spending for the upcoming years. Wondering if there's any -- [Technical Difficulty]. Hello. Can you hear me?

We lost you for a moment.

Okay. Sorry. I'll repeat that. Can you give us a little bit of an update as to the timeframe of the investment spending that you talked about at your Investor Day and sort of how that might flow out through 2023? Thanks.

Yes. Marc, I think you’re referring to the technology modernization projects and spending there. I mean we're in the final phase of developing a detailed road map, and we should have more clarity at the end of August. The total investment that we planned, as we stated on Investor Day is between $25 million to $30 million. And majority of that will -- well, we're going to start -- the official implementation beginning in September, so it’s going to be Q2. So I expect CapEx will be elevated starting in Q2 of fiscal 2023. You're probably looking at roughly around $3 million to $4 million of CapEx spending on a quarterly basis.

Okay. Great. And then the last one for me. I was wondering, just as far as sort of how the digital transformation picture looks for maybe the scope of the projects that you're seeing, whether that's changed much from the beginning of the year or the focus that you're seeing from customers, whether you've seen any shift as far as their type of focus on projects that they’re engaging in, whether that’s macro-economically driven or otherwise.

Yes. I think we're seeing the same kind of projects come through the pipeline. It's a lot of transformational-type initiatives, mission-critical work, competition, the desire to automate and drive digitization is not changing in our client base. I think we're seeing our projects lengthen a bit and the value of our projects is increasing as well.

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

Hi, Jenn, I just wanted to jump a little bit more into the first quarter of 2023 revenue guide of $195 million to $200 million. If you could just mention how many business days we have in this current quarter, I think a year ago quarter, it was 63. And then also in that $195 million to $200 million, if you could just tell us how much FX headwind you're assuming? And then if you could total it out for us, you can imagine what's the implied organic constant currency same-day basis growth rate at the middle of the range.

Yes, sure. Andrew, it's the same number of business days in Q1 of fiscal 2023 of 63 to 63. So it is on a same-day basis already. So at the top end of the range, mid to top end of the range, you're looking at about a 14% growth year-over-year. And we've already baked in some FX impact into the guidance that we're doing the $195 million to $200 million. And so on a constant currency same-day basis, you're probably looking at a 15- % plus growth year-over-year.

At the top end, right?

Right. 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.

Sure. Thank you, Operator. And thank you all for attending this call. We appreciate your continued interest in RGP, and we look forward to sharing our progress at the end of Q1. Thank you all, and have a good summer.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.