Good afternoon and welcome to RGP's fourth quarter fiscal 2026 conference call. Currently, 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 30, 2026. 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 filed today with the SEC. Also during this call, management may make forward-looking statements regarding plans, initiatives, and strategies in the anticipated financial performance of the company. Such statements, our 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 31, 2025 for a discussion of risk, 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 30, 30, 2026, which is expected to be filed on or around July 23, 2026. I will now turn the call over to RGP's CEO, Roger Carlyle.
Thank you and welcome everyone to the call. This is my third time speaking with you about our quarterly financial results. I continue to learn about our markets, clients, employees, and services as I work with our leaders to execute our strategy. I remain optimistic about the future of our business as market conditions appear to be showing some stability, providing a more consistent backdrop for us to continue activating our strategic priorities and related investments. Consistent with the prior quarter, our fourth quarter results were aligned with the outlook we provided for revenue, gross margin, and run rate SG&A expense. You will hear more about this later in the call from our CFO, Jen Rue. for now let me touch on market conditions as we see them results from our recently completed voice of the customer survey and our progress against our strategic priorities from our perspective global market conditions remain broadly consistent to the third quarter with some regions and industry sectors showing more progress than others in the fourth quarter revenue for our north american markets served by our on-demand talent consulting and outsource services segments performed as we expected compared to the outlook we provided. Compared with the third quarter, North America's revenue was flat on a gap basis, but did exhibit a modest decline when adjusting for the number of business days and currency fluctuations. Revenue in our Europe and Asia-Pacific markets was softer this quarter, driven entirely by weakness in Europe. Our Asia Pacific markets performed in line with both our outlook for the quarter and the prior quarter's results the trends we faced in our european markets appear to be non-systemic situations within our specific clients rather than larger economic or geopolitical issues in addition to this operational view of our markets we very recently completed completed a voice of the customer survey in which we surveyed 500 decision makers and buyers from customers who are either currently working with rgp or who have worked with rgp in the past several years We undertook this survey to ensure we anchor our strategy and investments in market reality, moving from assumptions to data-driven decisions that support our strategic priorities to drive growth, client retention, and differentiation. This survey allows us to understand how clients truly perceive RGP in terms of delivering differentiated value, being prepared to meet their stated needs in the areas of finance, technology, and operations, and how we compare to the competitive alternatives. While we've only just begun to analyze this data, some important perspectives are already clear, including RGP being raised stronger head-to-head with other execution and staffing focused competitors, but still having work to do against larger traditional consultancies. The top themes for why clients choose RGP include trusted partnership, speed of execution, flexibility of delivery model, and the quality of our people and services. And while there is a spectrum of data points for us to examine and act upon, we can take pride in having a strong net promoter score with 95% of our customers indicating their intent to increase or maintain their level of engagement with RGP. Given the relative stability in our markets and the early understandings from our customer survey, we continue to focus on our strategic priorities. These priorities are, one, refocusing our on-demand talent segment offerings, two, scaling our consulting segment, three, pursuing AI as both a client service and an internal opportunity, and four, streamlining our operations to align our cost structure with our revenue levels. In the fourth quarter, we made additional focused investments to support these priorities, and we continue to expect these and the investments we made in the third quarter to drive revenue growth as they mature through their anticipated ramp-up period. In terms of refocusing our on-demand talent segment and scaling our consulting segment, we made additional investments during the quarter which we expect to drive future revenue growth. These include adding seven new professionals to our sales team, as well as adding additional senior professionals to our consulting segment. While we will continue to take advantage of opportunities to invest behind these priorities, we have completed the initially planned level of investment to support our business goals for fiscal year 2027. AI remains an important strategic priority for RGP. We see AI fundamentally changing how work gets done across finance, risk, technology, and transformation, creating new opportunities for both our clients and our business. Our approach is practical and disciplined, helping our own teams use AI to improve productivity and accelerate delivery while building AI-enabled solutions, talent, and partnerships that address our clients' highest value business challenges. We believe the greatest value will come from combining AI with deep functional expertise and strong governance, enabling clients to adopt AI responsibly while delivering measurable business outcomes. Regarding our goals of simplifying how we operate and aligning our cost structure to our current revenue levels, those two activities are becoming increasingly intertwined as the simplifications we are implementing increasingly involve both process and technology modifications, which have longer implementation periods. While we have additional cost reduction initiatives planned for the fiscal year 2027, our focus is increasingly shifting towards simplifying how we go to market, how we serve our clients, and how we operate through more streamlined processes and technology. With that, I will now turn the call over to our CFO, Jen Rood.
Thanks, Roger, and good afternoon, everyone. Our performance in the fourth quarter was largely in line with expectations. Consolidated revenue and run rate SG&A expense were both within our outlook ranges, while growth margins beat the high end of the range. Adjusted EBITDA for the quarter was negative $0.6 million. Starting with revenue, consolidated revenue for the quarter was $106.1 million, representing an 18.3% decline on a same-day constant currency basis compared to the prior year quarter. Revenues in the on-demand talent and consulting segment were largely in line with our expectations, however, down from the third quarter on a same-day basis, reflecting timing of project activity within an otherwise stable demand environment in North America. Our focus remains on accelerating the ramp of recently hired go-to-market professionals and strengthening sales execution under our new sales leadership team to improve pipeline generation and conversion. In the Europe and Asia-Pacific segment, the Asia-Pac region delivered solid revenue performance in the quarter, including year-over-year and sequential growth in China and the Philippines, while Europe continued to experience some choppiness in the timing of projects at several large clients, which weighed on segment revenue for the quarter. Our outsourced services segment continued to perform steadily, generating stable year-over-year results and sequential growth. Turning to gross margin, gross margin for the fourth quarter was 37.6% compared to 40.2% in the prior year, primarily reflecting less favorable leverage of indirect cost of services and lower consultant utilization. Enterprise-wide average bill rate was $120 on a constant currency basis compared to $125 a year ago, with results reflecting the geographic mix of revenue during the quarter, including a greater contribution from the Asia-Pacific region. At the segment level, average bill rates in our North America segments remain strong. On-demand Talon's average bill rate grew to $145 from $143 a year ago, while consulting's average bill rate grew to $163 from $159. In Europe and Asia-Pacific, the average bill rate was $57 compared to $64 last year on a constant currency basis, again, largely reflecting a higher proportion of revenue generated in Asia-Pacific relative to Europe. Now on to SG&A. Fourth quarter run rate SG&A expense was $40.5 million, a 12% improvement compared to $46.2 million in the prior year quarter. This year-over-year improvement reflects the benefit of the cost actions we have executed over the past fiscal year. During the quarter, we took additional steps to simplify our business and further reduce cost structure, including the divestiture of Citrix and continued resource alignment to the current revenue level. Non-run rate SG&A expense totaled $14.1 million, of which $6.4 million was non-cash and $7.7 million was cash expenditures related primarily to the Citrix divestiture and employee termination costs, including those related to the COO transition. With significant cost actions now largely complete, we will remain focused on additional opportunities to improve efficiency over time. In addition, we have begun reallocating capital toward targeted investments in go-to-market leadership, sales capacity, and client-facing capabilities that can support stronger revenue generation over time. We will continue to deploy capital with discipline, balancing growth opportunities with cost management. Now turning to segment performance. As a reminder, the fourth quarter of fiscal 26 contained one less week compared to Q4 of fiscal 25. All year-over-year revenue comparisons are adjusted for business days and currency impact, and a segment-adjusted EBITDA excludes certain share corporate costs. On-demand talent revenue was $40.4 million, a decline of 18% from the prior year quarter. Segment-adjusted EBITDA was $3.1 million, or a 7.6% margin compared to $6.4 million, or a 12.1% margin in the prior year quarter. Consulting revenue was $36.6 million, down 23% year-over-year, which continued to pressure utilization and therefore gross margin and segment EBITDA. Segment-adjusted EBITDA was $2.3 million or a 6.3% margin compared to $8.3 million or 16.3% margin in the prior year quarter. Europe and Asia-Pacific revenue was $17.1 million down 14% year-over-year. Segment-adjusted EBITDA was $0.4 million or 2.1% margin compared to 1.9 million or 9% margin in the prior year quarter. Outsourced services revenue was 10.3 million down 1.6% year over year. Segment adjusted EBITDA was 2.1 million or a 20.2% margin compared to 3.1 million or 27.8% in the prior year quarter. Turning to liquidity, our balance sheet remains strong, we ended the quarter with $82.4 million of cash and cash equivalents with no outstanding debt. Quarterly dividend payments totaled $2.3 million, representing a 6% annualized yield based on our stock price at the end of the fourth quarter. Just last week, we replaced our previous credit facility with a new revolving credit facility designed to provide increased flexibility within our covenant structure and better align to our capital needs. With our cash position and available borrowing capacity under our new credit facility, we will continue to take a balanced approach to capital allocation, investing in the business to support long-term growth while returning capital to shareholders through dividends and opportunistic share repurchases. At quarter end, $79.2 million remained available under our share repurchase program. I'll now conclude with our outlook for the first quarter of fiscal 27. We expect first quarter revenue to be relatively consistent with fourth quarter levels, adjusting for normal summer seasonality and the impact of the citric divestiture. As a result, we expect revenue in the range of $97 to $102 million. We expect gross margin to be in between 37% to 38%, also reflecting typical seasonal dynamics in the quarter. Run rate SG&A expense is expected to be in the range of $41 to $43 million, which reflects the targeted reinvestments we've made in the business. Non-run rate and non-cash expense are expected to range from $2 to $3 million and consist primarily of non-cash stock compensation expense and amortization of capitalized system transformation costs. In closing, we made meaningful progress in fiscal 26, aligning our cost structure, strengthening the organization, and investing in key growth priorities. With a strong balance sheet and improving operational foundation, we believe we are well-positioned to execute more consistently and create long-term shareholder value. With that, we'll conclude our prepared remarks and open the call for questions.
Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for questions. Our first question comes from Joe Gomes with Noble Capital. You may proceed.
Good afternoon. Good afternoon.
Good afternoon.
Roger, I was wondering, you know, you got the four priorities that you talked about, you know, you've talked about here for the past couple of quarters. But if you look at them today, you know, how far along would you say or how close to completion are you on each one of the four? What kind of percent done, I guess, for each one of the four are you at?
Yeah, well, thank you for that question. I think, I mean, we're going to – most of those things, frankly, never stop. But in terms of thinking of them as, you know, seasons or innings or something like that, I think I mentioned in my comments at the beginning of the call that for FY27, we are basically complete with those investments. Now we need to see those pay off. We expect that to occur in the latter half of the year. I mean, every day we would hope that it improved, but we think the ramp-up period pushes some of that result to the last half of the year. It doesn't mean that we won't see some opportunistic opportunities to invest in each of those areas as we go along. But in terms of what we were doing to get ready for 27, we are, for the most part, complete with that.
Okay. Thank you for that. And I know you did the survey in its early days there and getting all the data analyzed. But, you know, when you sit here today, I mean, what kind of gives you confidence that, you know, the demand environment has stabilized and, you know, we should hopefully see some improvement here in 27?
Well, I think we're trying to point to that in our commentary. I think operationally, you know, we see that the markets seem to be somewhat stable. I think because you have to look at, you know, everything we look at for the markets. Maybe we're not perfect competitors. We're not in every little sector the way every other competitor is. But when we look at the markets, we see stability there. That makes me feel good. We just look at our own results. I think they're, you know, the last quarter to this quarter fairly stable. Yes, with seasonality, it'll look a little down. But I think the activity seems stable heading into the first quarter of 27. So I think, you know, that stability helps us feel like perhaps we're nearing a bottom of that kind of, you know, market activity-driven downdraft. And then, you know, the survey that we did, our customers, you know, appreciate us, think of us highly, and said they intend to, you know, 95 percent intend to engage with us at the same or higher levels. So that all makes me feel good, and there's only one thing that doesn't, which is that sounds really good, so why aren't we killing it, right? So I think, you know, our expectation is the reason we're not killing it yet is we have a lot of work to do.
We have a lot of investments that we need to start paying off in, you know, later in this year. okay and you one last one for me i'll get back in queue um you talked about some additional cost reductions planned for 27 i don't know maybe give us a little more color on that are you planning on taking some more charges in 27 on the cost out uh jen could probably answer it more clearly on that but i think for the things that i'm speaking about there yes there'll be a little more uh cost take out and charge related that i believe yeah we we joe we we're going to continue to you know we're always right looking at our resources against um capacity and demand in the
business um and you know there's still uh some occupancy costs that we're planning to take out so and as roger mentioned right in his um remarks that the the the size of the cost take out um is going to be less significant than what we've done this fiscal year. And the additional cost takeout will require more work as we're looking at our systems and looking at ways in which AI can help us become more efficient. And so that's going to take a little bit of time. But overall, the one-time charge, we're expecting our non-run rate charges in fiscal 27 to be kind of normalized. And I guided, you know, two to three million of non-run rate, non-tash charge for Q1. So, I expect that we won't deviate too much from that for the rest of the year.
Okay, great. Thanks, Jack. Back in Q. Thanks, Jeff.
Thank you. Our next question comes from Mark Marcon with Baird. You may proceed.
Good afternoon. Thanks for taking my question. So, Jen, just one quick numbers question. On the SG&A of $41 to $43 million, that is exclusive of the $2 to $3 million of non-run rate charges? Yes, that's correct. And what sort of covenants do you have on your new credit facility?
We actually, you know, we entered into this new facility. Really, the goal was to provide us more flexibility with the way we can use our cash, especially with respect to restricted cash payment to, you know, so that's shareholder returns, right, in terms of dividend and share repurchases. So it really, you know, is going to give us a lot more flexibility. And we have, outside of that, we have the typical, you know, covenants, restriction on, you know, investments and loans and indebtedness and so on and so forth. The two main financial covenants were a fixed charge coverage ratio and a minimum liquidity ratio. And the fixed charge coverage ratio is a springing covenant. So, you know, we don't, we actually don't expect that to come into play at all.
Yeah, hopefully. Yeah. Okay, great. And then, Roger, I know it's only, you know, this is only your third conference call, and you're trying to turn things around. I was just wondering, can you talk a little bit about some of the things that you talked about last quarter? So we ended up having, you know, we had Prashant Lamba come in. We had Jessica Block come in. What are you seeing there? What's the progress in terms of the central U.S.? Just in terms of, I mean, you came into a rough situation, so fully recognize that.
We're just wondering, like, on the new changes that you've made, what sort of progress have you seen? yeah well i'll go to the ones you specifically mentioned and then i'll broaden from there a little um i think uh and you probably saw in the in the comments uh you know just a moment ago that we uh spoke maybe more about ai than we have historically i think adding jessica and prashant both of who had worked together and with me in the past and both have all they have differing roles in the firm. They both have backgrounds in AI. Prashant ran the AI labs at his prior employer and worked closely with Jessica. So we see a lot of opportunity for RGPs, you know, both internally and Prashant, more of Prashant's work will probably be working with Jen and others internally in terms of how can we use those, you know, technologies and tools to make things more effective and efficient. And Jessica is doing a lot of things that are both internal and external. So we're doing a lot to, you know, raise the general awareness and knowledge of our employee base regarding AI. Virtually every conversation that we have with our clients, whether it's, you know, our most senior consultants, our sales team, AIs in every conversation. So we're working to ensure that we have, you know, in our on-demand talent team or on-demand, you know, employee base that we have people there that are sophisticated and learning AI and we're infusing AI into all of the things we do with clients. And that's everything from getting their data ready to have AI applied against it, helping with, you know, governance as they put those tools into their systems, helping them decide what systems to do and, you know, and choose and reaching those efficiencies in their business. So I think there's a lot happening in the AI world. And my view has been for, I mean, you hear a lot of in the press, in the market, you know, there's a range of beliefs. There's a number of people that want to paint AI as the death knell for, you know, professional services and consulting and those things. And I don't buy it. I've been through many technological changes. And my experience is generally when the customers are trying to achieve something, there's a level of confusion. It's actually a little boom for consulting. And I think that's what will happen for some time. You know, it may not be forever. things eventually get integrated fully but i think it's going to be a for those firms that prepare themselves and take take advantage of it i think it's going to be useful we do too but we have a lot of work to make that a reality and so that's what we're about so i think a lot that is going on there that's positive um and then just you know all of those investments we've been talking about more last quarter but a little bit in the and you know two quarters back in terms of being sure that our sales team is growing and is skilled in the areas of what we're selling, that we're simplifying our business down to talk to clients about a specific set of things. All of that continues to go on. And that's really what the Voice of Customer Survey was about, was making sure that, one, we know how our customers see us. And secondly, are we focused on the things that they see us as well-positioned to help them address. So maybe I'll stop there, but I think that addresses most of that question.
Yeah, I was just wondering about, like, the central U.S. team and then, like, how long would it take for the seven new salespeople that you hire to get productive?
Okay, I'm sorry. I misunderstood. You're talking about the fact that we hired a new sales leader in the central U.S.
Right. Right.
I took I took the U.S. to be the central part of the question. No, I think that's well, that's the same. I was saying that's that's all progressing well. So the additions of those sales teams, sales team leaders, both in the central U.S. and the Northeast, they're coming up to scale quickly. our leadership team is across the whole U.S. met and making sure that our approaches and processes are consistent and we're driving towards the same results. So I think that's moving along well and they're making a great impact. You know, I think on average, you know, it depends how people want to think about the ramp up period for any professional. I think we think it takes over a year before a person will hit, a sales team member will hit their full year targets or quotas. But it takes anywhere from six to nine months for them to start hitting, you know, a monthly portion of that. So they can get up to sort of their monthly portion by the sixth to ninth month. And then, you know, over the next 12 months, they should be capable of hitting their annual quota.
Okay, great. And then on the consulting side, you mentioned that the utilization rate is lower. Where is that utilization right now?
Yeah. Hi, Mark. We're around in the low 60s right now for our salary consultants. So, there's definitely room for improvement there.
Where would you hope for it to go, and what would it take from a revenue perspective to get it up to a level that would generate a decent EBITDA margin?
Our target utilization for full-time delivery consultants, generally it should be above 75% to 80%, right, probably even above 80%. So, you know, I think with that, I'll just comment on the potential sort of gross margin impact of getting our utilization up in that range would be, you know, I think roughly 200 plus basis points.
Okay, great. Thank you. I'll jump back in the queue. Thanks.
Thank you. And as a reminder, to ask a question, please press star 11 to queue up for a question. Our next question comes from Dylan Bandy with North Coast Research. She may proceed. Hey, thanks for taking the question.
I guess staying on consulting, you know, you guys had a pretty healthy pipeline. What has the conversion timeline kind of looked like lately, and has that changed at all over the past six months?
Yeah, for our consulting pipeline, overall, consulting or on-demand, we're seeing generally pretty healthy activities at the top of the funnel. And we said this, right, consulting deals generally take longer to close. And it depends on complexity, depends on the size of the project. And whereas on-demand is a much quicker turn. And so our conversion, you know, over the last two quarters or plus quarters, and we're definitely seeing, you know, we've commented on a longer sales cycle. And I don't think it's lengthening every quarter, but in general, it has gotten longer, especially as we're now, you know, we've integrated our consulting segments, you know, all of our consulting assets, and we're, you know, we're focused on selling more consulting work, and it's definitely lengthened the sales cycle.
Okay, thanks. And then going back to your cost actions, if you guys are taking further cost actions next year, as your revenue kind of normalizes a little bit, what kind of incremental margins should we be thinking about?
I think we can get to the, you know, the more normalized, I would say, 6% to 8% margin when revenue gets above $500 million.
Thank you. I would now like to turn the call back over to Roger Carlisle for any closing remarks.
Thank you, and thanks, everyone, for joining our call today. We appreciate your interest in RGP, and don't hesitate to reach out with any additional questions. Thank you.
Thank you. This concludes the conference. Thank you for your participation. You may not disconnect.