Resources Connection, inc (RGP) Q1 2022 Earnings Call Transcript | The Motley Fool

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Resources Connection, inc (NASDAQ:RGP)
Q1 2022 Earnings Call
Oct 6, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

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’ll conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded. At this time, I’d like to remind everyone that management will be commenting on results for the first quarter ended August 2021. They will also refer to certain non-GAAP financial measures. An explanation and reconciliation of these measures to the most comparable GAAP financial measures is included in the press release issued today. Today’s press release can be viewed in the Investor Relations section of RGP’s website and was 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. Predictions and actual events or results may differ materially. Please see the Risk Factors section in the 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.

I’ll now turn the call over to RGP’s CEO.

Kate DucheneChief Executive Officer

Thank you, operator. Welcome to our Q1 earnings call and thank you for joining us today. I’ll cover three topics, starting with a quick review of our strong first quarter performance. I’ll then discuss progress against our digital agenda followed by comments relevant to macro trends and original research we just completed within our current and target client base.

On our Q4 call, we previewed stronger growth coming in Q1 and it did. Revenue was the highest achieved in over 10 years during the fiscal first quarter and at a $183.1 million exceeded our guidance and represented 25% growth year-over-year. We also grew sequentially by 8.5%. We’re pleased by the strength across many markets and industry verticals, driven by sustained improvement in operational execution and delivery, and macro trends such as workforce agility and digital transformation. Revenue in every major market was up double-digits and our strategic client accounts delivered 26% growth. Disciplined account planning and client centricity are paying dividends.

Adjusted EBITDA performance is a further highlight from Q1 results. As we expected, adjusted EBITDA margin improved to 12.2%, up 530 basis points from first quarter last year. This accomplishment is a result of operating with an improved fixed cost structure and strong gross margin performance. We’ve worked hard to increase the profitability of the business by achieving top line growth, lowering headcount and real estate expense and driving efficiency with technology and digital tools. We’ll continue to do so.

We’re also focused on pricing the value and increasing bill rates appropriately. Consistent with our fiscal-year goal, this is the second quarter in a row, we’ve achieved 12% plus adjusted EBITDA margin. The management team set this trajectory when we began working together three years ago. While COVID sidetracked our progress as clients put new projects on hold for a time, we have more than fully recovered to exceed Q1 fiscal ’19 levels and remain optimistic about to pass forward.

This optimism is fueled by two fundamental macro trends. The first centers on digital transformation, both internally and throughout our client base. The second is a tangible and meaningful shift toward organizational agility and specifically how work gets done. This trend equally impacts client strategy and talent preference. As I’ve shared many times, RGP’s digital transformation is both internal and external. First, we are transforming how we deliver our services to clients and our gig opportunities to consultants through digital transformation initiatives. The best current example of this effort is HUGO, our soon to be launched digital engagement platform to allow clients and talent to interact through a self-service marketplace for finance and accounting talent.

Our differentiator is launching a technology platform with the trust, quality and high-touch experience of RGP and safety net of employment benefits in community, which we believe professional talent wants. As evidenced by discussion and research shared at the SIA Conference on collaboration in the gig economy. Platforms are coming to all corners of this industry. While we’ve seen such marketplaces like Aya Healthcare, Upwork and JobStack for nursing creative coding light industrial and hospitality gig work. We’ve not seen a dominant player in the professional gig arena. We intend to be the dominant player for knowledge workers engaging with enterprise business.

I’m very pleased to share that HUGO will go live the week of October 18th in the Tri-State market of New York, New Jersey and Connecticut. We’re launching with a pilot for a designated set of clients and finance and accounting rules. The team is ready, the product is ready for MVP launch and we believe the macro environment is now conducive. Following our launch in Tri-State, we will extend the capabilities to the Dallas market and in Northern California within the next fiscal year.

We’d hope to share more about the functionality of the product during an in-person Investor Day at Nasdaq on October 13th. However, given continued restrictions at NASDAQ due to the COVID delta variant, we’ve decided to move the Investor Day to April 12, 2022. We look forward to engaging in person in sharing client experience with HUGO at that time.

Externally, the trend toward digital transformation in our client base continues to accelerate. We added Veracity’s capabilities to our suite of services at just the right time two years ago. Clients continue to fund the projects to digitize core processes for automation and collaboration and create digital tools to drive growth, the need to expand our client base from healthcare providers to technology to big pharma. We know this concrete shifting corporate priorities is real as Veracity grew by an impressive 45% year-over-year with nice growth in revenue and pipeline coming from RGP’s core client base. Please review our updated investor deck for new case studies and further color around Veracity’s project work.

As an important tailwind for our business, the macro trends creating today’s opportunity-rich environment come from both the demand and supply side. These trends have been confirmed by original research we recently gathered from our current and target client base. We will be releasing the human agility research this month prominently on our website as it confirms how post pandemic behaviors favorable to our business model are here to stay. On the demand side, clients are committed to operating in a different paradigm with agility at the core. This means companies are building more distributed leadership, nimble finances and new workforce strategy centered on agile talent.

We’re increasingly engaged with clients who want RGP formally on the org chart as a talent provider to match critical project based skill set to business imperatives. Decisions can then be made throughout the business to achieve speed and resiliency. On the talent side, our research confirms that control, choice and diversity of experience matter more in a changed world. Where to work, when to work and on what to work are increasingly vital considerations for professionals. Talent also wants to align with organization on shared values, empathy and flexibility. Our business model beautifully meets the preferences of today’s modern professional. While other firms are facing the harsh realities of the great resignation, we are increasingly an employer of choice.

In closing, I want to express my enthusiasm about a new executive appointment we announced this week. Bhadresh Patel, has been named, our new Chief Digital Officer effective immediately. As the CEO of Veracity, Bhadresh has been consulting on our digital and technology transformation efforts informally. We’re now ready to formalize his role and remit. During the next year, he will stay close to Veracity sales and strategy, while developing his leadership role of our enterprise digital roadmap, priorities and alignment. We’re delighted to welcome him into the C-suite and further bond Veracity and RGP as we pursue digital transformation work in all corners of the business.

I’ll now turn the call over to Tim for an update on operations.

Tim BrackneyPresident and Chief Operating Officer

Thank you, Kate and good afternoon, everyone. During the first quarter, we saw continued strong progress in our revenue and operating metrics despite pandemic flare ups and vacation effect, typical of the summer months. Larger deal size and longer project durations exemplified the commercial environment as clients continue to take on significant and transformational initiatives. The momentum noted at the end of Q4 relative to revenue and pipeline continue. Enterprise revenue increased by 25% over prior year quarter and 8.5% sequentially, while top of the funnel activity was strong, leading to increases in qualified opportunity and ultimately to the highest level of closed deals since 2019.

Revenue growth and pipeline strength was consistent across our core business in Asia Pacific, Europe, North America, [Indecipherable]. Operational effectiveness, strengthening economy and macroeconomic trends favoring co-delivery provide a powerful combination for growth. As Kate noted, our first…

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