Earnings Call Transcript - RGP Q1 2023

Operator, Operator

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 first quarter ended August 27, 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, 2022, 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. I'll now turn the call over to RGP's CEO, Kate Duchene.

Kate Duchene, CEO

Thank you, operator. Good afternoon, everyone, and thanks for being with us. We're pleased to report sustained robust performance in Q1. Specifically, Q1 revenue was 17% higher than the prior year excluding the taskforce business, which we divested at the end of May. Gross margin improved 190 basis points over the prior year to 40.9%. Gross profit improved almost 17% quarter-over-quarter. Adjusted EBITDA margin improved 280 basis points over the prior year to 15%. These results exceeded our guidance as we grew topline, improved pricing, and maintained disciplined cost management. During our prior call, we outlined the strategic objectives for fiscal year ‘23. I will briefly comment on technology and digitalization initiatives as we are progressing on all fronts. We've launched our technology modernization project to support continued topline growth and drive greater operational efficiency. This project will take approximately 24 months to complete globally. To remind you, we are replacing our core ERP system, our core talent acquisition and management system, and implementing a contract management product. These technology modernizations will help us automate and provide collaboration tools for the new ways of working. We believe it will allow us to continue to improve our financial performance as we replace manual processes with technology-enabled workflows. During the quarter, we also advanced the development of our digital engagement platform HUGO by RGP. We have expanded our reach into California and are on track with our strategy. The next regional focus for HUGO will be Texas, which we are planning to launch in the second half of this fiscal year. HUGO enables us to attract finance and accounting talent who are earlier in their careers and want to pursue their work-life through a state-of-the-art professional staffing platform, which allows talent and clients to match skills and opportunities directly. We're pleased with the volume and quality of candidates published on this platform and continue to receive favorable client experience feedback. With respect to our brand development work, and as announced during our Investor Day in April, we launched several initiatives to refresh our brand position, including a new tagline, 'Dare to Work Differently.' This tagline speaks to the business model we pioneered in the late 90s when we were first to market offering expert diverse professionals the ability to control their own career path. It acknowledges and affirms our consultants' decision to work differently and is a rallying cry encouraging our clients to embrace more agility in their human capital strategies. Most importantly, it challenges us to own our position of strength in today's world of work as we amplify our brand. What you can expect to see in the coming months is a refreshed website as well as thought leadership based on RGP-led market research, offering perspectives on how organizations are managing their most mission-critical projects, particularly in the face of challenging economic times, talent shortages, and a hybrid working world. We've also continued to expand our PR program, garnering earned media coverage in Bloomberg markets, Yahoo Finance, Chief Executive, News Nation, and other major outlets, as well as appearances on prominent business podcasts. We will continue our efforts throughout the year to build brand recognition through learning opportunities for our clients and consultants. Our brand work has not come at a better time to align with the prevailing trends in the contingent workforce marketplace. Pandemics reorder society; this one is no different and has radically transformed how work gets done. We have been in this pandemic for over 900 days. There is no doubt new habits have formed. Talent is mobile and empowered with career control like never before, and immigration policy and retirement trends warrant that professional talent shortages aren't going to resolve anytime soon. According to a staffing industry analysts July 2022 report, there are 6.7 million more openings in the job market than unemployed individuals available for full-time work. While the Jobs report just yesterday from the Bureau of Labor Statistics indicated a 5% drop in job openings August over August, these numbers confirm that there remains a wide gap in talent need and talent supply. Therefore, it's no wonder employers are actively rethinking their talent strategy to compete in this new environment. In fact, many companies recognizing these trends as foundational and generational shifts are embracing a more hybrid talent strategy whereby they allocate an increasing number of positions enrolled to contingent rather than traditional permanent workers. According to a recent SIA research report, buyers expect that 22% of their workforce will be contingent by 2024, this is up from 12% in 2009. The trend toward embracing a shift in the workforce model is so pronounced; SIA has finally given the movement the name 'total talent strategy.' According to SIA, because of critical talent shortages, many large organizations are actively accelerating workforce planning innovation. While we remain mindful of current macroeconomic conditions and uncertainty, the trends I've just touched upon present continued opportunities for RGP. Our business model, which prizes mobility, flexibility, and choice aligns strongly to today's reordered world of work. We empower experts, diverse professionals with ultimate career control and work with clients every day to deliver support for mission-critical work and transformation initiatives that continue to progress, even in the face of recessionary pressures. While we read and hear every day about high inflation, increased interest rates, and growing recessionary pressures, we still see capital improvement and other business transformation work moving forward. These kinds of projects were delayed during COVID and are not being decommissioned even given market uncertainty. We believe this supports our point of view that the migration to agile talent models is becoming an increasingly important solution in the evolving world of work. I will close by highlighting an example of culture and innovation at RGP. In the face of two recent disasters, a serious earthquake in Mexico and a devastating Hurricane Ian in Florida, a creative engineering group of cross-functional employees came together to design and implement a new global disaster protocol. The driving force for the work was to ensure we could connect with our people quickly to offer the right level of response and personal support. Using a survey tool in Workday, this group launched an automated standardized process that enables us to check on the safety of our people as quickly as possible and deploy support as needed. The protocol has been incredibly well received by our employees and highlights the power of humanity at work at RGP. I want to recognize and thank this group of self-starters who exemplify the best of RGP, bringing empathy, creativity, and drive to make an impact for each other and the world at large. I'll now turn the call over to Tim for an update on operations.

Tim Brackney, COO

Thank you, Kate, and good afternoon everyone. During the first quarter, we saw strong revenue growth, operational metrics, and margin performance. Pipeline build and close deals were also robust, and the momentum we had noted at the end of the fourth quarter continued in Q1 and through September despite the return of traditional impacts related to summer vacation. Excluding the taskforce, revenue increased by 17% over the prior year quarter on a same-day constant currency basis, and the demand profile for our services demonstrated strength throughout the quarter. Geographic performance in the quarter was solid across our core business with strategic accounts and Asia Pacific, North America, healthcare, Countsy, and Veracity all performing well. Along with some turbulence related to the macro environment, Europe experienced a significant vacation impact as anticipated. While we performed well in the current economic environment and our operational indicators remain strong, we are cognizant of recessionary trends that could impact our customer base. However, as we have said in the past, as companies continue to shift their focus to co-delivery of important initiatives, we have become more embedded in the fabric of the enterprise workforce plan. Also, as we learned during the pandemic, the pace of change at our client base has not abated. We remain cautiously optimistic that despite necessary awareness in our client base related to macroeconomic trends, there remains opportunity for RGP as companies continue to fashion flexible solutions to forge ahead on important projects. One favorable trend that is increasingly prevalent is the importance that clients are placing on value, which has long been our hallmark as RGP provides experts who actually execute the work directly versus leveraging a pyramid structure that is common in big consulting. As an example, a top-tier commercial and investment bank has utilized this consulting over the last couple of years to help them transform. As we evaluated their current and upcoming portfolio of initiatives, two things became increasingly evident: an overreliance on large consulting firms utilizing junior talent for much of the work product and the increasingly prohibitive cost of those relationships, particularly as they shifted in the project execution phase. As a result, our accounts team were given an opportunity to propose on a scope of services and we were successful in shifting several projects to RGP, including work to support a significant divestiture. There is also more opportunity on the horizon to shift work from the wallet share of larger competitors, a process shorthand as ship share. Another example of ship share occurred with a large pharmaceutical client that struggled with the user experience for the Internet offering to their employees. The main charter of the site was to be a place where colleagues could quickly find answers so they could get back to the important work of making breakthroughs that change patients' lives. A larger firm implemented this technology and its takeovers began to use the platform that client realized that it did not provide the ease and utility they were expecting. Instead of turning back to the consultancy they had done with the initial implementation, the client gave Veracity an opportunity to propose an overall assessment, with particular emphasis on user journeys and experience. Veracity won that proposal, and the project has been so well received that we are proposing significant additional work. On the candidate side of our business, the first quarter demonstrated continued strength in our ability to attract and retain premium talent to our platform. RGP is increasingly viewed as an attractive alternative to traditional employment, both in professional services and in industry, with candidates drawn to the flexibility, career ownership, and community that RGP provides. Despite current economic concerns, the labor market continues to be very tight, and our team counts with the attraction, engagement, and deployment of talent on performance with excellence. Attrition has lowered sequentially and strong hiring trends have persisted as we have become the premier destination for professional talent that dares to work differently. This strong trend continues despite some of the hiring freezes and layoffs that, in previous periods of volatility, may have created a sense of anxiety and perhaps reflect traditional employment. In fact, higher increases in reductions in workforce helped to amplify the increasingly small chasm between traditional and agile employment. This realization coupled with a shift in the way people desire to live and work makes RGP a very attractive employment destination. A clear example of this can be seen in the decision of one of our West Coast consultants. Working as an RGP consultant for over a year at a large technology company, he was pursued numerous times for a variety of different job opportunities. He repeatedly declined, noting that he enjoyed the control of his schedule and that he was positioned to help us find success without having the stress of project ownership. He admitted that the current macro environment made a bid for some recent offers harder, but that his desire for flexibility and welcome in the RGP community, alongside headlines about layoffs in other technology companies, cemented his desire to remain as an RGPer. We also continue to see 'boomerangs' return to us after leaving to work on other opportunities. These individuals are crucial to our company as they embody the agility that people seek and the experience we work hard to provide for them. They are excellent ambassadors and can provide cautionary tales while leading our platform. They help us cement the culture and community for new joiners, which is essential, particularly for those trying agile employment for the first time. We also saw pipeline growth fueled by strong overall demand during the quarter. We continue to make progress with respect to pricing, increasing bill rates by 3% on a constant currency basis compared to the prior year quarter. We see pricing leverage as an opportunity across the enterprise even in a potentially more challenging macro environment, as value is paramount to clients. While we are mindful of potentially strong impacts based on economic conditions, early second quarter revenue and operational trends are consistent with Q1 trends. Finally, let me touch on operational leverage. In Q1, we continued to focus on controlling fixed costs and operating efficiency, our adjusted EBITDA margin significantly improved over the prior year quarter. We will remain vigilant about discretionary spending and continue to work diligently to improve operational leverage. I will now turn the call over to Jenn for a more detailed review of our first quarter results.

Jenn Ryu, CFO

Thank you, Kim, and good afternoon, everyone. We achieved another outstanding quarter, one of the best first fiscal quarters in the company's history. Revenue of $204.1 million exceeded the high end of our guidance. On a same-day constant currency basis, and excluding the impact of the cash flow divestiture, we grew revenues 17% year over year and 0.4% sequentially from the fourth quarter despite summer vacation in Q1. In addition to the strong top-line growth, we also expanded our adjusted EBITDA margin by 280 basis points from the prior year quarter to 15%, a record first-quarter margin, and a key GAAP diluted EPS of $0.53 per share for the quarter. Overall, demand remains healthy despite uncertainties in the macro environment. Our strong revenue performance in Q1 was broad-based across all client segments in our core business, including strategic global accounts and regional accounts with 16% growth and 10% growth year-over-year, and was led by solution areas in finance and accounting, technology and digital, and business transformation. Revenue and profit consulting and on-demand talent both grew approximately 12% year-over-year. Geographically, North America and Asia Pacific both performed well with 18% and 20% year-over-year growth on a same-day constant currency basis, while the U.S. declined slightly by 1% as a result of heavy summer vacations as we had anticipated. While we're beginning to see some softness in pockets of the European client base, the growing recession in Europe did not have any material impact on our Q1 performance in the region. Gross margin in the first quarter was 40.9%, up 190 basis points over the same quarter a year ago, primarily driven by improvement in the pay bill ratio of 230 basis points. We raised our average billings to $130 constant currency at $126 in Q1 of fiscal 2022, a 3.2% improvement, while the U.S. average bill rate rose by 5.4%. Average pay rate was also favorable at $62 constant currency compared to $63 in the prior year quarter. Turning to SG&A, we remain disciplined in cost management and investment oversight in the business. Our run rate SG&A expense for this quarter was $53.1 million, or 26% of revenue, a 100 basis point improvement compared to the same period a year ago. As a reminder, run rate SG&A excludes non-cash stock compensation, restructuring charges, continued consideration, and technology transformation costs. The three main levers for SG&A that we continue to focus on are management compensation, occupancy, and business travel expenses. First, in the face of recessionary pressure, we will closely monitor our headcount investments, match the pace of demand and business activities while driving forward our growth strategy in key areas of the business. Second, we will continue to drive reductions in our real estate while benefiting from our previous efforts over the last two years. Occupancy costs in the current full year are expected to be favorable by another $2 million, or 17% over fiscal 2022. Lastly, we will remain disciplined with the level of business travel and expect to sustain the cost reductions achieved in the previous fiscal year. Turning to our liquidity, as expected, we used approximately $5.3 million of cash in operations during the first quarter due to our annual bonus payout in the summer. We repaid $34 million of outstanding debt, lowering our debt leverage ratio from 0.6 to 0.2 and ended the fiscal quarter with $72.6 million of cash and cash equivalents. Now let me address the macroeconomic trends and how they impact our business. First on inflation. Inflation understandably presents cost pressure on our business, primarily in the area of employee compensation. We're focused on providing competitive pay to our employees, while raising bill rates, and have been successful in alleviating margin pressure from wage inflation and we will continue to do so in the future. In a contracting economic environment, we believe our value proposition becomes more appealing compared to our competitors who are often more expensive, and we see ample opportunities to continue driving bill rates upwards. Second on currency, particularly with respect to the strengthening U.S. dollar. While the translation of our operating results is subject to fluctuations in exchange rates of foreign currency, we believe our economic exposure to such fluctuations is not material. Our foreign entities typically transact with clients and consultants in their respective local currencies and generate healthy cash flows to fund their own operations. There are a limited number of circumstances in which we may be asked to transact with our clients in one currency that are obligated to pay off consulting in another currency. Now on interest rates, at the current debt level, we do not expect any material impact from rising interest rates on our ability to grow the business. In the event of higher debt levels, our ability to generate cash will enable us to deleverage quickly. As always, we remain prudent in how we leverage debt to grow the business, whether organically or strategically. I'll close with our second-quarter outlook. Early second quarter, weekly revenue trends have been stable. While there's more caution in general within our client base, critical projects are still being initiated and executed, albeit at a more deliberate pace. More than ever in the face of macro headwinds, our deep relationships with our clients and our expert talent base have positioned us to compete and win opportunities. Our second-quarter revenue is estimated to be in the range of $196 million to $201 million, representing growth over the prior year quarter excluding taskforce. Gross margin in Q2 is expected to be in the range of 40% to 41%, reflecting the impact of the Thanksgiving holidays. Finally, our run-rate SG&A is expected to be in the range of $54 million to $58 million. We continue to make progress in our technology transformation project and expect cash outlays to be in the range of $3 million to $5 million in the second quarter, approximately 55% of which will be capitalized, with the remaining recognized as nonrecurring operating expenses. With that, I will open up the call for Q&A.

Operator, Operator

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

Mark Marcon, Analyst

Good afternoon, and really nice to see the strong first quarter results. I'm wondering, can you talk a little bit about the progress that you're seeing with HUGO? You're expanding that to California and Texas. What have you seen so far in New York in terms of the take-up? And how meaningful is it in terms of revenue and credibility?

Kate Duchene, CEO

Yes. Hi, Mark, and thanks for the question. So we have launched in the Tri-State areas as we talked about just in the last fiscal year and we just launched in California, both Northern California and Southern California. So we're on track with our strategy. We've hired some additional sales personnel to support the platform, and we've been building talent pools in the particular geographies where we're expanding. So as we return to more hybrid or on-site work, we'll have talent available to fill the need. So far, we're on track, but it's early days and the budget for HUGO is not material this year in light of our overall results.

Mark Marcon, Analyst

Okay. But it is meeting expectations in terms of what you were expecting out of the Tri-State area in terms of kind of the initial stages?

Kate Duchene, CEO

Yes, we're on track. We feel good about where we are. I mean, migrating to this alternative channel is something that will take some time, especially as we're targeting more digitally native buyers. And so that takes some time. As we — I think we shared on a previous call, Mark, we had a client who loved the experience, went through the digital engagement but came out the other end saying that still let me lose the connection to my client service personnel as well. So I think we're still going through a stage where we're learning new behaviors and new channels and their efficiency. And as we've said before, this will be a learning year as we bring this platform to life.

Mark Marcon, Analyst

Great. And then the 17% growth that you ended up experiencing on a constant currency basis when we strip out taskforce, that was terrific. I'm wondering how is the growth split between project consulting and managed services versus on-demand talent and professional search?

Kate Duchene, CEO

Yes. Hey, Mark. On-demand talent and project consulting, both segments grew about 12% year-over-year. And when I say 12% there, it's not constant currency and same-day. So I would say that the growth is evenly split between the two segments.

Mark Marcon, Analyst

Okay, great. And then with regards to Europe during the last quarter, obviously, taskforce came out. It still seemed a little bit softer than what we were looking for. I'm wondering was that broad-based across Europe or was it one country or two countries specifically that may have been a little bit softer and any sort of projects that would have been associated with that?

Tim Brackney, COO

Hey, Mark. Well, I'd say it was fairly broad-based, but remember our largest practice in Europe is in the U.K. A lot of the reasons had to do with a full pop on vacation. Some of the loyal end of the market experienced timing issues as well. So, generally, it wasn't solely unexpected. There were some things that occurred, obviously, that were out of our control that were a little bit unexpected. And we had some timing of projects, but it's a smaller European practice than it's been in the past and we're focusing really on large projects at larger clients. So some of the timing of those projects can impact where they hit in the quarter.

Mark Marcon, Analyst

Great. And then the gross margin improvement was impressive. Can you talk a little bit about the sustainability to continue to raise the bill rates in excess of the pay rates and how you're doing that? And are there specific practices where you're seeing a greater ability to do that?

Tim Brackney, COO

Yes. Moving just to bill rates. I think I'll talk about the pay rate for the second because our approach around pay rates hasn't really changed where our purchase bill rates really have over the last few quarters as we've been talking about it. Some of this kind of comes down to — we always talked about having both mindset and mechanics. And I think we've done a pretty good job of shifting people's mindsets, a few new concepts of pricing the value. I mean prior to this year, prior to last year, we haven't really focused — we've been more cost-plus as opposed to pricing the value. So we've made some of those strides. We brought in some assets to help us around key pricing. So we've put focused on training, we tightened up governance. And so that mechanics, those mechanics are helping to force the mindset and the market can take it. And the reality of it is, we have been under market for many years. So our ability to continue to raise pricing I still think there's plenty of upside there. As for pay rates, our pay rates have been fairly consistent, but we price to market; we don't negotiate against our consultants. We want to pay them fairly for every hour that they work. And the result of that is we're in the market a lot for using external surveys and also just in our own experience to make sure that we're paying the right amount for our folks. And the reality of it is that, that muscle in our business is a little further ahead than on the muscle on pricing, and we really look to flex the pricing muscle now.

Kate Duchene, CEO

Yeah. Let me just add something also on the pay rate, which is — in some parts of the business, we are hiring offshore talent. And so that definitely is the favorability that you're seeing this quarter in pay rates, some of it comes from that as well. And that's something that we're going to continue to focus on going forward to expand that offshore.

Mark Marcon, Analyst

That's really helpful and really illuminating. Can you talk a little bit about the 17% constant currency ex-taskforce growth that you ended up seeing? How did that vary over the course of the quarter? And how are you seeing that translate or how are you thinking about that translating into the guidance that you basically provided for the second quarter? What areas might potentially slow down? Obviously, we're all aware of the macro headwinds. And so it's natural to assume that there would be some slowing, but just wondering if you can be specific about where you're seeing it?

Tim Brackney, COO

Yes. First of all, overall, when I think about the velocity of the business, we're actually fairly consistent through the quarter with some — and then the latter part of the quarter with some of the holiday impact in Europe impacting us towards the latter third of the quarter. What we've seen is real consistency and stabilization as we move into the second quarter. I look at both kind of the trends from a velocity standpoint, but then also looking into where our pipeline is and some of our operational metrics. Those are still strong. What we begin to think about is that, things of our — things will get a little bit harder. We know that. But our overall demand profile is still really strong. So sometimes that kind of comes down to how quick — how hard are we willing to grind to get that extra bit of revenue, which I can tell you we're willing to do. The second bit is just understanding that there's getting some things from choppy waters that are outside of our control, and we are putting ourselves in the best position to help our clients and we'll — depending on kind of the awareness or the impact of their feelings when the macro economy will adjust as we move through.

Kate Duchene, CEO

Yes. Mark, I'll just add one thing. I was on the phone today with one of our major market leaders talking about the environment and what he's seeing. One comment he made, which I think has been echoed with a variety of our clients, is that in these economic times, clients don't want to be paying for a lot of advice right now. They really want to be paying those firms that can help them execute the projects that are already on the agenda or underway. That tells me that we are the right solution for today because we are all about locking on with our clients and executing those initiatives, and I think that's really what clients are looking for in today's environment.

Mark Marcon, Analyst

Okay. That makes a lot of sense. One last one for me and then I'll jump into the queue. But with regards to one of the questions that we're getting from investors is this: how companies might end up reacting regarding if the macro environment significantly slows down to what levers you would have in order to reduce expenses if need be. Obviously, you've got a variable cost structure. I'm wondering if you can just discuss that a little bit just in terms of what the game plan would be if things do get a lot choppier over the next three to nine months?

Kate Duchene, CEO

Well, I'll start by saying, you've highlighted that we have a variable cost structure already. It's built into our model, and that makes us more agile than many of our competitors. The other thing I'd say is, with the work we've done internally over the last five years, we do have much greater visibility to our data and to the investments we're making and whether that's paying off and what are the trend lines we see in our client buying behaviors. So we can adjust sales or pull levers more quickly than I think we used to be able to do. Keep in mind the two most fundamental elements of our cost structure, our headcount and real estate, and we'll continue to look very carefully. I mean, Tim is running our operations with a very careful eye on headcount, replacements, or additions, and we will continue to stay very disciplined and Jenn and her group are continuing to look at our real estate needs and continuing to adjust those where appropriate. As a firm, we're still operating largely in a hybrid model that seems to be working for our people. We recognize that in today's environment, we are in a new world of work with new behaviors, and in order to attract the very best to drive growth and profitability, we need to be listening to what talent wants.

Mark Marcon, Analyst

Perfect. Thank you.

Operator, Operator

Thank you. Our next question comes from Marc Riddick with Sidoti. You may proceed.

Marc Riddick, Analyst

Hi, good afternoon.

Kate Duchene, CEO

Hi, Marc.

Marc Riddick, Analyst

So I wanted to follow up on the travel side of things and what you're seeing there. It seems just though you're expecting that to be steady. Are there any particular areas where you're seeing any type of pickup as far as folks looking to — clients looking to engage more face-to-face or any type of visibility that you might have in having that pickup going forward?

Tim Brackney, COO

Hi, Mark. First of all, in terms of face-to-face travel a couple of things. I mean, there are a couple of industries where one of them is financial services, where they express that they prefer to have more face-to-face interactions in terms of our delivery. And also for us, just in terms of normal concentration in terms of how we serve our clients, we are pretty face to face. The other one I would say is energy. Those two industries have really asked for more face-to-face involvement. Almost everybody else, including some of the large technology companies who have sort of said publicly that they want all their employees back in, the reality is that almost everybody is working in a hybrid fashion and the companies who got used to working with excellent talent to help them execute their work and having that work done remotely are willing to give that talent up now. So we haven't seen any major shifts outside of those couple of initiatives that I talked about.

Marc Riddick, Analyst

Okay. Great.

Kate Duchene, CEO

And Marc, we talked about the majority of the travel that we are doing. We are really focused on go-to-market activities and client-facing activities as opposed to internal travel. So typically, we try to keep our travel to 160 basis points of revenue. That's where the target is, which is about half of what — a little less than half of what we used to spend pre-pandemic.

Marc Riddick, Analyst

Great. And then I wanted to shift over to in discussing the branding opportunities and the messaging that you're moving forward with. So I wonder if you could talk a little bit about, I guess, maybe how that might roll out strategically over — from a timing perspective? Are there any sort of things that we should be thinking about as that messaging, or do you wait until after the political season stuff or is that something that ramps up more after the New Year? How should we think about that?

Kate Duchene, CEO

Yes, I think you'll see before the end of Q2, Mark, you'll see us releasing some new positioning and brand language on our website. We're currently refreshing that. As I mentioned in my prepared remarks, we're also engaged currently in a research project, which will help us deliver some thought leadership for our client base and targets around moving to more agile talent models. That will be showcased in Q3, both I think before the holidays and thereafter. We're going to continue to build on that thought leadership. If you really think about RGP as a leader in the field of agile human capital models, we can help clients move more towards agility in their human capital supply chain. You'll see us talking more and more about that and preparing insights and other reports that can help clients along their journey.

Marc Riddick, Analyst

Great. And then the last question for me is, I wonder if you — are there any sort of shifts or changes that you've seen in strategy regarding how your clients are responding, not necessarily from a macro-driven kind of recessionary concern area, but I mean just from a strategic approach. Are there any sort of trends that may be kind of under the radar that you're seeing that you think might emerge and be more of a contributor going forward? Thanks.

Kate Duchene, CEO

Yeah. I think this whole idea of agility and mobility is going to happen with talent pools that are not entirely captive. So coming out of this, we are — in our point of view, we're clearly moving out of the baby boomer paradigm where everyone aspired to a full-time equivalent job where they worked for only one employer at a time, climbed the corporate ladder, worked at a specific location, and under a regular set of hours. That is changing. While we're still in a period I think of flux, what we're going to see through the next 12 to 24 months is how this paradigm is really shifting for the future. That means clients have to prepare for more mobility even in their own captive talent pools, but they also, in order to compete and move faster, must identify the right kind of processes and protocols to in-source talent when they need it for the specialized skillsets they require. That’s really the opportunity for RGP. It's what we do so well, and we believe we can continue to do well into the future as more of our clients move in that direction. There are plenty of leading business minds who have stated that this shift in strategy and how work gets done is coming. I think it is not as widespread as I would have thought it would be right now, but we really feel like that movement is accelerating and that creates opportunity for us. That's really where we're focused on delivering and putting together our platform, which brings the right level of care on the talent side and the client side to be successful in this new way of working.

Marc Riddick, Analyst

Much appreciated. Thank you very much.

Kate Duchene, CEO

You're welcome.

Operator, Operator

Thank you. One moment for questions. Our next question comes from Mark Marcon with Baird. You may proceed.

Mark Marcon, Analyst

I had a follow-up. Regarding the new guidance that you gave us, how would you — which areas would you say would be growing the fastest versus the slowest from a geographic perspective? How should we think about that?

Kate Duchene, CEO

Yes. Mark, I would say that geographically, North America and the U.S. probably is still going to accelerate faster than the other geographies. Europe, given the growing concerns and the growing kind of recessionary pressure and economic turmoil going on in Europe, will be the slower part of the business in the guidance. That's what's stated in the guidance.

Mark Marcon, Analyst

Okay. So Europe a little bit slower and Asia Pac relative to North America?

Kate Duchene, CEO

Asia Pac is performing very steadily.

Mark Marcon, Analyst

How about from a pricing perspective?

Kate Duchene, CEO

In terms of the solution area market, is that what you're inquiring about?

Mark Marcon, Analyst

That's right.

Kate Duchene, CEO

Yes. So Tim, you should answer that one.

Tim Brackney, COO

Yes. First of all, if you could see, coming up last year we had a real boom in finance and accounting, and that continues to be strong. As you see, there's still a lot of transformative even despite a slowdown in M&A. There's still a fair amount of transformation occurring. So I spoke about divestitures we're working on. There are a number of things that we have teed up around digital transformations that are pretty strong in our pipeline. Both in terms of sheer volume and opportunities when you look into finance and accounting, it still continues to be the dominant strength.

Mark Marcon, Analyst

Okay, great. And then regarding looking beyond this self-imposed slowdown that's occurring because of interest rates going up. Once we get to the other side, you've obviously done a great job in terms of improving the margins. You've got these technology initiatives put in place which should increase efficiency. How are you thinking about where the EBITDA margins can go from a long-term perspective, given the mix of business once your digital transformation is completed?

Kate Duchene, CEO

Yes. Well, I think we have our eye on continuing to improve those, not only with the more modern technology platform that we'll put in place and lots of both automated and self-serve possibilities with those state-of-the-art platforms, but also how much of our more on-demand talent we can drive through HUGO, which can improve our efficiency and financial metrics. I mean, we're all about improvement and focused on that. I'm not going to give you a solid number right now. We talked about 15% I think a year and a half ago and we're achieving that. So we're continuing to drive toward improvement. Mark, we will keep you updated. That's an aligned commitment by this executive team and part of it is going to depend on how quickly both clients and talent adapt to some self-serve and automated aspects of our business workflows. We're going to do all we can to continue driving that so we stay as a top performer in our industry group.

Mark Marcon, Analyst

Great. And then just from a shorter-term perspective, how should we think about headcount additions internally over the balance of this year?

Kate Duchene, CEO

Well, from a headcount perspective, as I said in my remarks, we are going to hold headcount steady while closely monitoring the pace of demand and business activity, and we will continue to be cautious. We do want to continue growing key areas of the business that must grow, such as Veracity. But in other areas, we're going to watch it very, very carefully.

Mark Marcon, Analyst

Got it. Thank you.

Operator, Operator

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.

Kate Duchene, CEO

Okay. Thank you, everyone. Thanks again. We look forward to connecting with you after we report our Q2 results. Thanks again.

Operator, Operator

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