Resources Connection, Inc. Aktie

Good afternoon, ladies and gentlemen, and welcome to the RGP conference call. [Operator Instructions] 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 third quarter ended February 28, 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 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 31, 2025. 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, Roger Carlile.

Thank you, and welcome, everyone, to the RGP Fiscal Year 2026 Q3 Earnings Call. I have just completed my fifth month as Chief Executive Officer of RGP and and my optimism regarding the future of our business continues to grow. I have now spent time speaking with many of our employees and shareholders as well as having participated in several client pitches and related discussions. These interactions further convinced me that my first impressions regarding the quality of our employees, the strength of our client relationships and the relevancy of our service offerings to clients' needs were accurate.

Furthermore, they indicate our strategy of meeting our clients in terms of what they need us for and in the manner in which they need us, that is 1 or more of our 3 service delivery modes of on-demand talent consulting and managed services is a competitive differentiator. As I said previously, these elements provide RGP with a competitive right to win in the market, and we expect to do so through focused execution on our strategic priorities.

Our third quarter results were in line with the outlook we previously provided for revenue and gross margin, and our run rate SG&A expenses were better than the outlook. You will hear more about this later in the call from our CFO, Jenn Ryu. For now, let me touch on the progress against our strategic priorities. You'll recall our 4 strategic priorities are: one, refocusing our on-demand talent segment; two, scaling our consulting segment; three, simplifying how we operate; and four, aligning our cost structure with our current revenue levels. I will touch briefly on each of these areas.

In the third quarter, we made focused hires in our on-demand talent and Consulting segments, which we expect to drive revenue growth as they ramp up. I invite you to read our recent press release for more information on these impressive hires. Additionally, we added 2 key leaders to our executive leadership team in the hires of Jessica Block as our Chief Artificial Intelligence Officer, and Prashant Lamba as our new Chief Information Officer.

Jessica's professional background sits at the intersection of professional services, operational transformation and emerging technology as she joins RGP to focus on building real AI capability across the firm. In simple terms, she will help RGP as an organization, RGP's client service professionals and our clients learn, integrate and expand the use of AI in each of their processes and objectives.

Prashant joins RGP with a mandate that extends beyond just traditional IT and focuses on simplifying how our employees engage with technology to strengthen operational performance, which will enable them to provide more efficient service to our clients. His leadership will help the firm unlock the full value of advanced technologies, including AI and intelligent automation. Both Jessica and Prashant have extensive experience working in a tech-enabled professional service firms and have been leaders in driving AI development and implementation in these organizations.

Equally important to me is that I have personally witnessed Jessica and Prashant succeed at other professional service firms, which gives me confidence that they will hit the ground running at RGP and accelerate our strategies regarding AI enhancement and operational simplification. Regarding our priority to refocus our on-demand talent segment, in the quarter, we added new sales team leadership in our Central U.S. and Northeastern U.S. regions. These new leaders join our already high-performing sales leadership and team members in our Western U.S. region and will help us to enhance our strategic focus on serving existing and new clients as well as offering the new skills and roles they demand. We anticipate adding additional new leadership in our Southeastern U.S. and Mexico regions.

In addition to this new sales leadership, we are also growing our sales team across North America with the addition of new sales team professionals. With respect to refocusing the skills offered through our on-demand talent segment, we continue adding on-demand team members in the areas of ERP finance transformation, data, supply chain and AI.

As for scaling our Consulting segment, we have completed a significant organizational and operational aspects of integrating our legacy consulting units into 1 cohesive Consulting segment led by Scott Rodman. Those of you who have followed RGP over the past 3 years will know that we previously operated through 3 distinct consulting practices represented by the legacy RGP project consulting capabilities and the veracity and reference point acquisitions. The result of our integration, which will be completed by the end of our fiscal year in May, is a simplified and unified consulting business with new senior leadership driving our go-to-market service strategy, which is focused on client needs arising at the intersection of the modern CFO and CIO.

Regarding our simplification strategy, I've already mentioned 2 key aspects of this effort. The addition of Prashant Lamba, who is focused on simplifying our technology processes to unlock more efficiency in selling work and serving clients and the integration of our consulting business, which streamlines our go-to-market efforts around a key set of services. In addition to these, we also signed a binding agreement to dispose of the Citrix crisis communications business to simplify our business portfolio and allow for greater focus on the clients and services where we have a competitive right to win.

In addition, we made further progress during the quarter in reducing our cost structure to align more closely with our current revenue levels. And you will hear more about this shortly from Jenn Ryu. It is important to know that to spur further growth we are reinvesting some of these savings into the areas discussed earlier. We are confident that our continued focus on these 4 priorities will deliver future revenue growth and our strong balance sheet allows us to make these strategic decisions and the related investments to support this growth in a reasoned and consistent manner.

Finally, in terms of the market for our services, the environment has not changed a great deal from our perspective in the prior quarter. Clients are still seeking to activate their key goals in ways that are both cost-effective and value accretive and RGP fits squarely within that framework. My conversations with our go-to-market professionals lead me to believe that clients were feeling a bit more confident in the quarter regarding their plans. However, it is a little too early to assess where the Iran conflict will affect clients' attitudes and plans.

As for AI, it remains a prominent topic in the market, and we continue to work with our clients to size the opportunity for RGP. The addition of Jessica Block to our leadership team will be of significant benefit in this regard.

With that, I will now turn the call over to our CFO, Jenn Ryu.

Thanks, Roger, and good afternoon, everyone. As Roger outlined, the third quarter was about execution against our strategic priorities delivering results within our outlook while continuing to reshape the business for a return to growth over time.

I'll take you through our consolidated performance, cost actions, segment results and then close with our outlook. For the third quarter, our performance was largely in line with expectations. Consolidated revenue and gross margin were both within our outlook ranges, while run rate SG&A was better than expected. Adjusted EBITDA for the quarter was negative $1.4 million. From a demand perspective, our experience during the quarter was, as Roger described. client decision-making remains deliberate, particularly for larger and more complex work, but we saw an uptick in the volume of closed contracts during the quarter. While this has not yet translated into revenue growth, it reinforces our view that demand conditions are steady and our services are relevant in the marketplace.

On a segment basis, we saw continued signs of revenue stabilization in on-demand talent with a moderating year-over-year decline. Our focus remains on improving sales execution and investing in leadership and sales capacity in key markets. In consulting, longer sales cycles continue to weigh on top line results. However, progress on integration and onboarding of new leadership contributed to early improvement in the coordination across the consulting team. cross-selling with our on-demand business and overall client engagement around CFO and CIO led transformation needs.

In the Europe and Asia Pacific segment, our go-to-market activities remain healthy across multinational and local clients. For multinational clients, in particular, demand for our global delivery center offerings continue to resonate as organizations look to outsource and scale critical processes in a cost-effective manner. While revenue for the quarter was impacted by the timing of project starts on a handful of clients, Japan, India and the Netherlands, all delivered solid year-over-year revenue growth.

Our Outsourced Services segment once again performed consistently with both stable year-over-year results and sequential growth. Across the enterprise, average bill rates increased year-over-year and sequentially in most segments, reflecting our continued focus on disciplined pricing, higher-value consulting projects and more specialized on-demand talent skill sets.

Turning to the financial detail. Consolidated revenue for the quarter was $107.9 million, representing a 19.6% decline on a same-day constant currency basis compared to the prior year. Gross margin was 35.7%, up 60 basis points compared to 35.1% in the prior year quarter. The improvement was driven by modest enhancement in paid to bill ratio along with favorable consultant benefit costs related to lower health care expenses and fewer holidays during the quarter. Primarily reflecting a revenue mix shift towards the Asia Pacific region, enterprise-wide average bill rate was $120 on a constant currency basis compared to $123 a year ago. On a segment basis, on-demand talent average fill rate grew to $146 from $140 a year ago.

Consulting's average bill rate grew to $162 from $159. And in Europe and Asia Pacific, the average bill rate was $57 constant currency compared to $59 last year, reflecting the revenue mix shift to Asia.

Now turning to SG&A expenses. As discussed last quarter, we launched a comprehensive organization-wide review with the objective of simplifying the business and better aligning costs with current revenue levels. As part of this effort, we implemented an additional reduction in force in January. Combined with prior actions in the current fiscal year, we expect total annualized cost savings of approximately $12 million to $14 million. With a portion of those savings being selectively reinvested to support growth in fiscal 2027. For the third quarter, enterprise run rate SG&A expenses were $39.4 million, representing a 10% improvement compared to $43.7 million in the prior year quarter. Approximately $2 million of this improvement came from lower management compensation expense, reflecting structural headcount reductions implemented during calendar 2025 and the partial impact of the January 26 action.

The remaining improvement came from disciplined spending across travel, occupancy and professional services.

Turning now to segment performance. As always, all year-over-year revenue comparisons are adjusted for business days and currency impact and segment adjusted EBITDA excludes certain shared corporate costs. On-demand talent revenue was $40.9 million, a decline of 16.3% from the prior year quarter. Despite the lower top line, segment adjusted EBITDA increased to $2.9 million or a 7% margin compared to $2.6 million or a 5.5% margin in the prior year quarter. This improvement was driven by higher gross margins, supported by improved average bill rate, lower sales and talent headcount and continued cost discipline. Consulting revenue was $36.9 million, down 32.5% year-over-year, which continued to pressure utilization, therefore, gross margin and segment EBITDA.

Segment adjusted EBITDA was $1.7 million or 4.6% margin compared to $5.9 million or 11.2% margin in the prior year quarter. Despite this, we expect the completion of our integration work and leadership onboarding to begin driving more consistent conversion and improved utilization as through fiscal 2027. Europe and Asia Pacific revenue was $18.1 million compared to $18.6 million a year ago, a decline of 5.8% on a same-day constant currency basis.

Segment adjusted EBITDA was $0.8 million in both periods, representing margins of 4.3% this quarter and 4.5% in the prior year. Outsourced services revenue was $9.5 million, down 1.7% on a same-day basis from the prior year quarter. Segment adjusted EBITDA was $1.4 million or a 15.1% margin compared to $1.5 million or 15.9% in the prior year quarter.

Turning to liquidity. Our balance sheet remains strong. We ended the quarter with $82.8 million of cash and cash equivalents and no outstanding debt. Quarterly dividend payments totaled $2.3 million representing a 7.4% annualized yield based on our stock price at the end of the third quarter. With our cash position and available borrowing capacity under our 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 potential share buybacks.

At quarter end, $79 million remained available under our share repurchase program. I'll now close with our outlook for the fourth quarter. Early fourth quarter weekly revenue trends are tracking below third quarter levels. Based on current visibility, we expect fourth quarter revenue in the range of $104 million to $109 million. We expect gross margin in the fourth quarter to be between 36.5% and 37.5% reflecting a more normalized number of business days. Total business days in the foot quarter for the U.S. will be 64 days versus 69 days in the prior year fourth quarter and 61 days in the third quarter. Run rate SG&A expenses for the fourth quarter are expected to be in the range of $39 million to $41 million, reflecting further realization of cost savings from the January actions largely offset by reinvestment. These reinvestments remain targeted, primarily focused on key leadership roles, revenue-producing capacity and client-facing capabilities.

Importantly, they do not change our medium-term goal of improving operating leverage as revenue recovers. Nonrun rate and noncash expenses are expected to be in the range of $13 million to $15 million and consist primarily of charges associated with the Citrix disposition, which is expected to be closed before fiscal year-end. Separation costs related to the COO departure and noncash stock compensation expense.

In closing, as Roger discussed, we made solid progress against our key priorities this quarter. We strengthened leadership, meaningfully reduced our cost structure, took steps to simplify our business portfolio and began reinvesting selectively to support future growth. While we are not yet seeing a broad-based acceleration in revenue, we believe the actions we've taken have improved our operating foundation and position us to execute more consistently and deliver increased value to our clients and shareholders over time.

With that, we will conclude our prepared remarks and open the call for questions.

[Operator Instructions]

Our first question comes from Andrew Steinerman with JPMorgan.

Yes. This is Alex Hess on for Andrew. Just to confirm, there was no M&A revenue in the quarter, correct? And Jenn, can you elaborate on what the guide calls for on a constant currency same-day organic basis for an order.

Yes. Alex, yes. There's no M&A revenue in the quarter. So Q4 has got at the top of the range is about a 16% year-over-year decline on an organic constant currency same-day basis.

Got it. And then just thinking big picture. Last quarter, you guys spoke to trying to tease out the impact that automation and AI might be having on some work streams for you guys. Obviously, there's been a lot of press releases and a lot of senior leadership turnover and trying to just understand when it comes to visibility that you have into the long-run return to growth of the business, -- how much do you guys think you have the muscle in place right now to make that forecast? And when do you think there might be a -- we might be in for a pivot?

This is Roger Carlile excuse me for my voice. I think, as I said in the comment in the press release, we're we're confident that we're going to grow the business. And so at the moment, I mean under the conditions we see right now and the investments we've made and the conversations we're having with clients I'm confident that year 2027 will be growth over fiscal year 2026 when we wrap up the year.

So now you may ask where is that going to be? I think it's going to -- obviously, you've got a lot of investments that are coming to fruition. So I think you're going to see that growth more prevalent in the latter half of the year, the first half of the fiscal year. But at the moment, that's what I believe. I think you're going to see growth in the top line for RGP in fiscal year 2027.

Our next question comes from Joe Gomes with Noble Capital.

Pete, you guys mentioned you've had a lot of new hires or promotions. You've done a lot of press releases on that. And in your comments today, you talk about they should help drive revenue growth through an anticipated ramp-up period. Maybe you can give us a little idea of what that timing of that ramp-up period is? Are we talking 1 quarter, 2 quarters? Where does that stand?

Well, I mean it varies in my experience. from person to person and from type of service. But generally speaking, I think we expect those things to have maturation periods of between 6 and 9 months, sometimes you're lucky, and they're shorter. Perhaps in the AI space, for example, we're having a lot of conversations and Jessica joining immediately. -- we're seeing already impact there. I think that might be shorter. But in other things, it could be longer.

So I think with nothing more than just my own instinct from being in the business for a long time, I would say I'm looking at 6 to 9-month period of time, which is why I'm comfortable that we'll start to see revenue growth in fiscal year 2027, but it will probably come in the latter 2 quarters of that fiscal year.

Roger, thanks for that. So just kind of going on that, you're confident you'll see revenue growth in '27. What needs to happen? Do we need to see an upswing in the overall market. We just need to see RGP start to take more share of wallet from existing customers? I mean, what are you kind of counting on when you're saying you're confident we'll see revenue growth in 2017 over 26%.

Yes. Good question. I think, first of all, we don't I don't need the market to change dramatically worse, right? I mean I just need it to be -- nor do I need it to be, in my mind, dramatically better. I just needed to be sort of in its current condition throughout that maturation period. And then I think it's mostly in our hands, whether we are ultimately taking market share, I mean, probably any time we win something if someone doesn't that you could say it's moving some share, but I don't know if it's significant enough to say you're moving total market share.

But we need to continue with the people that we're adding, the new salespeople, the new consulting leaders, the new leaders like Jessica and others we need to keep having the conversations we're having at the pace we're having them. And frankly, if we just keep winning at the current pace.

I mean I think we'll win more. But if we pace we're having more of those conversations, more opportunities coming to the top of the pipeline, I think we'll see that we're starting to grow the revenue. essentially, we're going -- we're having -- we have more people, we're having more and better conversations, and I think that's going to result in revenue growth.

Okay. And then 1 more for me, if I may. I mean given where the the stock is these days and given the cash and the authorized buyback. I mean kind of what's your thought process on when you would look to step into the market and maybe repurchase some shares here?

Yes. Joe, this is Jenn. Yes, I mean, as you know, we've been working on taking out costs and also been reassessing strategic priorities, and we started reinvesting into the business. So given all the the moving pieces, we're still assessing just an impact holistically including from a liquidity standpoint. But yes, I mean, no doubt, we think our shares are very attractive, and we'll look to begin executing on buybacks when we are ready.

Great. I'll get back in queue.

[Operator Instructions]

Our next question comes from Kartik Mena with Northcoast Research.

Roger, the previous earnings call, you talked about AI displacing some lower-level opportunities but also creating opportunities. And I'm wondering, as you look over the next 12 to 24 months and maybe as you look at the pipeline. Is AI tailwind for you, a headwind for you or neutral at this point in time?

At this point in time, it's a I mean I think it's going to be a tailwind for a lot of professional services companies, notwithstanding what the popular media was saying, as long as they're diligently doing something about it and executing.

I mean, if you said by, you do nothing, then the world will pass you by. But in the short run, there's internally just using the tools for ourselves and making ourselves more efficient. -- can be a tailwind on our cost structure and the kinds of conversations we're having with clients that range all the way from helping them get their data prepared to apply AI tools against it up through helping them that make sort of by build decisions and implementing that. Those are all services that we provide to clients.

And so I think those are going to also be tailwinds for us. And Jenn, I know you guys are investing in the business. You've hired salespeople. Obviously, you've hired leaders for the business. And as you look at your SG&A, are we at a trough or kind of at a stability level for SG&A?

Yes. I mean, I would say, yes, we are hearing the stability level for SG&A. As you know, I mean, we are going -- we started reinvesting this quarter in Q3. So over the next couple of quarters, you'll see the full impact of those reinvestments come in. But offsetting that, we will also be realizing the benefits from the cost actions that we've taken. So those 2 things will have some offset. But timing-wise, it's not going to line up perfectly. I would say that given the reinvestment, starting in Q1 of fiscal '27, we will see a slight kind of elevation of our SG&A expenses. But like Roger said, -- we're also expecting that investment to pay off in the latter half of fiscal.

And just 1 last question, Roger. Any other portfolio actions you anticipate over the next 12 to 24 months?

Well, nothing that I have in process at the moment. So I can't comment a bit more by portfolio, maybe you mean service areas or business units. But we're constantly -- I think we mentioned, right, Simplification is 1 of our focal points. And that -- but that includes a number of things, the processes that we do, the services we offer and and where we offer those services. So we're constantly looking at that, that will be continuing.

Our next question comes from Alexander Sinatra with Baird.

This is Alex on for Mark Marcon. I was just wondering, you mentioned in the press release that there's been some reduced demand in traditional finance rules related to the adoption of AI and automation. And this is something you mentioned last quarter, too. So just kind of wondering if you could give a little bit more detail on that, what kind of negative impact you're seeing?

Yes. Well, I think what we mentioned this quarter is really just consistent with what we were seeing last quarter. I don't think there's been any acceleration on that. I think the comments I made about the overall market for our services, it was it was pretty consistent with what we saw in the pro -- so I mean there are certainly some kinds of roles that as clients install AI tools that are then less in demand. And some of the ones that we saw that in were the operational accounting those types of skills.

But nothing accelerating on that. I think it's sort of a steady state on that right now.

Great. Super helpful. And then in terms of the sale of Citrix, I was just kind of wondering how much do you expect to net some of that, not just the revenue but like on a margin perspective, how that's expected to impact you?

Sure. Yes. So the Citrix disposition, Citrix has been around $9-ish million on an annual basis from a revenue standpoint, and this will actually be from a profitability standpoint, it's not going to have any material impact on the business.

I would now like to turn the call back over to Roger Carlile for any closing remarks.

Thank you, operator, and thanks, everyone, for joining our call today. As I said last time, 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 now disconnect.

Good afternoon, ladies and gentlemen, and welcome to the Resources Connection, Inc. conference call. [Operator Instructions] 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 second quarter ended November 29, 2025. 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 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 31, 2025. 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, Roger Carlile.

Thank you, and welcome, everyone, to Resources Connection Q2 earnings call. Before we get into the quarterly earnings discussion, I want to thank our leadership and employees for welcoming me as the company's newly appointed CEO and for supporting a smooth transition. I also want to recognize our teams for maintaining a strong focus on our clients and our business during this time.

I mentioned both our clients and our business as local points because we have employees who serve our clients' needs as well as employees who support the needs of our client service professionals and our business. Both employee groups are critical to our success. For those of you on today's call with whom I have not yet had an opportunity to speak, I look forward to doing so in the near future. I recognize that you have invested time understanding the company, its services and markets, and we appreciate your interest and effort.

Regarding our business, let me start by saying my enthusiasm for the company's future has grown since stepping into this role in November. The deeper I get into our business, the more impressed I am with the talent and capabilities here, but even more so with the commitment, enthusiasm, I find when talking with our people. The quality of our people is reflected in the caliber of long-standing and newly activated clients who trust us to assist them with issues they view as important to their success.

I also want to say that while the market for our services has been more challenging and uncertain to late for a variety of reasons, I believe there is a sufficiently large market of client needs for which RGP is positioned to serve that will allow us to grow our business and financial results. However, doing so requires that we focus on what gives us a competitive right to win.

That is providing relevant skills and solutions to our clients, which satisfy their needs at a price that brings them better overall value than other providers in the marketplace. Our balance sheet and liquidity are strong, which is a testament to the resilience of our people and client relationships as well as the flexibility of our business model.

However, our quarterly earnings results also reflect a continued lack of positive momentum for our consolidated revenue and adjusted EBITDA. These results underscore the need to take decisive actions to better align our cost structure with our current revenue levels, refocus our on-demand offerings to address the evolving needs of our clients and scale our consulting business to deliver high-value solutions to both existing and new clients.

These 3 points will form the basis of our strategy going forward. We have already made progress this quarter in reducing our cost structure to better align it with our current revenue levels, and we will continue this work in the third quarter. Improving our financial results in the on-demand segment requires that we better understand our clients' current needs and adjust our ability to provide consultants that fit those needs.

Scaling our consulting business requires identifying and hiring experienced consulting professionals to grow our ability to deliver value-added solutions to our clients. In the evolving consulting marketplace, we are finding that these types of professionals understand and are excited about the competitive nature of RGP's service offering model and value proposition it offers to clients. We believe this will make us a strong employer choice for such professionals going forward.

We also believe that RGP's ability to provide in-demand finance, risk, operational performance and technology solutions and 3 different delivery models that is on-demand, consulting and outsourced services at a price point that is competitive to other traditional professional service firms gives us an opportunity to be uniquely successful in winning and serving clients' needs in the changing landscape for such services. Lastly, no professional services firm can succeed in the present and future market without understanding how artificial intelligence, automation and other technologies are impacting their clients' businesses and how it impacts the professional services they seek and procure.

This is no different for RGP, and we are actively working to understand how our clients' needs are impacted by their own AI and automation strategies. Likewise, at RGP, we are continuing to implement additional AI and automation tools across our business processes to enhance the cost effectiveness of our client service delivery and internal business support functions. The work we have discussed so far today and the achievement of the expected results will certainly require time and disciplined execution.

But the path forward is clear, and we are confident these actions will strengthen our business and create long-term value for our clients and shareholders. With that, let me turn the call over to Bhadresh.

Thank you, Roger, and good afternoon, everyone. Before I begin, I want to welcome Roger as our new Chief Executive Officer. With Roger's leadership and fresh perspective, we are well positioned to strengthen execution, accelerate our strategic priorities and drive operational discipline across the organization, capitalizing on our inherent strength. In the second quarter, we exceeded expectations in adjusted EBITDA despite revenue coming in below consensus, reflecting disciplined cost management and execution.

In North America, expanded go-to-market initiatives across our on-demand and Consulting segments, along with stronger cross-practice collaboration drove improved pipeline activity. Our Europe and Asia Pac segment delivered both year-over-year and sequential growth. While outsourced services revenue remained essentially flat versus the prior year, we achieved meaningful improvement in gross margins. Overall, we remain focused on value-based pricing, targeted investments in leadership and service capabilities to drive momentum and cost discipline.

Jenn will provide additional details on our performance and efficiency initiatives shortly. With that, let me turn to our performance by segment. While Consulting segment revenue declined year-over-year, we delivered essentially flat sequential revenue with growth in select areas of CFO advisory and digital transformation. Bill rates continue to improve both sequentially and year-over-year with higher increases on new projects, reflecting the strong demand for our specialized services.

We're also moving up the value chain with existing clients, for example, highlighted in Q2 by a large technology company selecting RGP as a global preferred consulting provider expanding our role from on-demand talent into advisory services on mission-critical work streams. As part of our strategy to grow the consulting segment, we'll complete the integration of reference point by the end of the fiscal year. Combining reference points capabilities with our consulting platform and leadership will enhance collaboration, streamline go-to-market execution and strengthen our focus on CFO advisory and digital transformation.

This positions us to deepen relationships with existing on-demand clients while also expanding our reach to new clients. Finally, on consulting, I want to thank John Bohman as he begins a well-earned retirement. His vision and commitment to both clients and employee value leave a lasting impact on RGP. I'm pleased to announce Scott Rotman, who joined RGP in August, will succeed John as President of Consulting Services, leading our CFO advisory and digital transformation offerings. Under Scott's leadership, we will strengthen our integrated consulting segment and deliver client value across strategy, transformation and on-demand talent.

Turning to On-Demand. Revenue declined year-over-year, but continues to show signs of sequential stabilization, supported by higher average bill rates compared to both the same period last year and the prior quarter. We remain focused on execution of disciplined pipeline management with emphasis on skills for ERP, finance transformation, data and supply chain. Across North America, several markets delivered sequential revenue growth and in markets that are lagging, we're in the process of bringing in new leadership.

Turning to international. Our Europe and Asia Pac segment delivered both year-over-year and sequential revenue growth in the second quarter, supported by higher weekly revenue run rates and improved bill rates versus the prior year while maintaining stable gross margins. Performance was led by Europe, Japan, India and the Philippines, underscoring the strength of our client relationships and the effectiveness of our regional strategy.

We are committed to deepening multinational client relationships, along with expanding our local client base, differentiating through a combination of local delivery and scalable global delivery centers and maintaining disciplined cost management. Lastly, in outsourced services. Revenue remained steady year-over-year and gross margins improved versus the prior year. We continue to add new clients to our platform while also exhibiting strong retention and bottom line performance benefited from both operating leverage and efficiency measures. To conclude, we remain focused on disciplined execution in delivering meaningful value to clients across all segments while continuing to see our strategy take shape and position RGP for sustained growth, profitability and value creation over time. With that, I'll now turn the call over to Jenn.

Thank you, Bhadresh. Good afternoon, and Happy New Year, everyone. Consolidated revenue for the second quarter was around the midpoint of our outlook range, $117.7 million. While gross margin of 37.1% was below the outlook, run rate SG&A expense of $39.7 million was significantly more favorable enabling us to deliver adjusted EBITDA of $4 million in the second quarter or a 3.4% adjusted EBITDA margin. We incurred $11.9 million of onetime expenses in the quarter in connection with the CEO transition and a reduction in force, contributing to a GAAP net loss of $12.7 million. .

I'll now provide some additional color on our revenue, gross margin and run rate SG&A expense. Consolidated revenue declined 18.4% on a same-day constant currency basis from the prior year quarter. While on-demand and Consulting segment revenues remain soft, we are encouraged by the steady year-over-year growth in the Europe and Asia Pac and Outsourced Services segment. We continue to focus on improving sales execution as well as aligning both our consulting solutions and on-demand talent pool to client demand to drive more pipeline growth and faster revenue conversion.

Gross margin for the quarter was 37.1% compared to 38.5% in the prior year quarter. We drove a 97 basis point improvement in pay bill ratio. However, leverage on indirect cost of service was unfavorable, notably related to health care costs and paid time off, including higher holiday pay due to Thanksgiving coming in the second quarter this year. Enterprise-wide average bill rate was $121 constant currency versus $123 a year ago, driven mostly by revenue mix shift toward the Asia Pacific region. On an individual segment basis, we saw a 6.4% improvement in consulting and a 2.4% improvement in both on-demand and Europe and Asia Pac segments.

As we continue to execute our pricing strategy and scale the consulting business to deliver higher value, larger scale engagement, we expect to gain more upside in bill rate. Now on to our SG&A and cost structure. While we have been on a continuous journey to reduce costs over the last few years, we are conducting an even deeper assessment across the entire organization to streamline organizational structure, simplify processes and adopt automation and AI to ensure our cost structure is adequately sized to the current revenue levels.

The assessment is near completion, and we expect to implement the cost actions over a 12-month period. In October, we executed a reduction in force, the first in a series of actions to come in 2026. The risk impacted 5% of our management and administrative head count and is expected to yield annual savings of $6 million to $8 million. Back to our improved SG&A performance for the second quarter, enterprise run rate SG&A expense for the quarter was $39.7 million, a 15% improvement from $46.5 million a year ago.

Management compensation expense improved significantly by $3 million as a result of the reduction in force we executed this quarter and at the end of fiscal '25. The remainder of the year-over-year improvement in SG&A is attributable to lower variable compensation and reduced SG&A spend, including travel, occupancy and professional services. Next, I'll provide some additional color on segment performance. All year-over-year percentage comparisons for revenue are adjusted for business days and currency impact.

And as a reminder, segment adjusted EBITDA excludes certain shared corporate costs. Revenue for our on Demand segment was $43 million, a decline of 18.4% versus prior year quarter. Segment adjusted EBITDA was $4.1 million or a margin of 9.5% relative to $5.6 million or a 10.5% margin in Q2 of fiscal '25. Revenue for our Consulting segment was $42.6 million, a decline of 28.8% from the prior year quarter. Segment adjusted EBITDA was $4.5 million or a 10.4% margin compared to $9.7 million or 16% margin in Q2 of fiscal '25.

Turning to our Europe and Asia Pac segment. Revenue was $20.1 million or 0.6% growth from the prior year quarter. Segment adjusted EBITDA was $1.5 million in both years, representing a 7.4% margin in Q2 fiscal '26 and a 7.5% margin in Q2 fiscal '25. Finally, our outdoor services segment revenue was $9.4 million, up 0.8% compared to the prior year quarter. Segment adjusted EBITDA was $1.7 million or an 18.4% margin, up from $1.5 million or 16.4% margin.

Turning to liquidity. Our balance sheet remains strong with $89.8 million of cash and cash equivalents and 0 outstanding debt. Quarterly dividend distribution totaled $2.3 million with cash on hand, combined with available borrowing capacity under our credit facility, we will continue to take a balanced approach to grow allocation between investing in the business to drive growth, and returning cash to shareholders through dividends and opportunistic share buybacks under our repurchase program, which had $79 million remaining at the end of the quarter.

I'll now close with our third quarter outlook. Early third quarter nonholiday weekly revenue run rate has been largely consistent with the second quarter. As expected, due to the midweek timing of Christmas and New Year's Day, revenues from those 2 holiday weeks were much softer. Taking into account the seasonality and based on our current revenue backlog and expectations on late-stage pipeline deals, our outlook calls for revenues of $105 million to $110 million in the third quarter. On the gross margin front, with the same seasonality impacting utilization and holiday pay for agile consultants as well as employer payroll tax reset at the start of a new calendar year, we expect a gross margin of 35% to 36% in the third quarter.

Now on to SG&A, reflecting realized benefits from our cost reduction efforts, offset by higher employer payroll taxes run rate SG&A expense in the third quarter is expected to be in the range of $40 million to $42 million. non-run rate and noncash expenses will be in the range of $6 million to $7 million, consisting of noncash stock compensation and restructuring costs. In closing, reiterating what Roger stated earlier, our strategy and our path forward are clear. We will continue to focus on improving our sales execution, optimizing our talent and consulting solutions to serve the needs of our clients, driving an efficient cost structure to strengthen our business and deliver more value for our clients and shareholders. This concludes our prepared remarks, and we will now open the call for Q&A.

[Operator Instructions] Our first question comes from Mark Marcon with Robert W. Baird.

And nice to talk to you, Roger, and welcome to the company. I'm wondering, can you talk a little bit about or elaborate a little bit on the specific areas where you're seeing AI leading to some disintermediation with regards to finance and accounting rules. I'm specifically interested in terms of how widespread is it at this point, how do you expect it to continue what specific rules and how you're adjusting to that? .

Sure. Good to meet you. And I'll let Bhadresh add, you've been here longer dealing with it than me. But I think we're seeing, for example, in operational accounting roles, things that -- or you can imagine through AI or automation are easiest to replicate and replace. And so that would be some of the roles that we see as most impacted by our clients' efforts in that regard in the AI and automation world. In terms of how widespread that is, I mean, I think it's -- my sense, again, I'll ask Bhadresh to add it as well. My sense would be that it's -- like most of the things we hear about AI, there's a lot of activity going on.

Those things that are internal like those processes are where AI and automation are having the earliest impacts but there's still a lot of spending and still a lot of activity that's not being realized -- benefits not been realized by clients. So I think it remains to be seen how pervasive and how rapidly that occurs, but we are seeing that. And Bhadresh add, if you think there's something...

Thank you, Roger, and I think you're spot on. What we're seeing with clients and everyone is what I would say is experimenting with AI to seeing how the leverage they can get in the organization, especially in finance. As Roger said, the operational accounting rules, what I would call more transactional repeatable roles are getting replaced. However, what we're finding is that is that getting clients access to data quickly and rigor the data quickly and informing their ability to get their business more efficient, but that is requiring more work, right, to go execute.

So we're not seeing that big windfall that everyone is expecting that AI is going to replace so many jobs. It is accelerating the ability for our financial organization and client financial organizations to provide insights to their segments in terms of performance, predictability, future trends and things like that, so people can take action on it. Our clients are also seeing that. I think a lot of them have continued to invest, some feel like they're overinvesting and not realizing the benefits. So we feel like, obviously, time will tell where this will land, but it's still in the early stages in to -- in the early days of digital cancelation where everyone is overspending until they normalize it.

The second part of this is, as clients are understanding how to leverage AI for their organization, it's just not that AI is replacing jobs. It's also changing processes and how companies operate. So it's becoming a transformation initiative that should drive our ability to provide more services requiring higher talented people that can understand what the impact of AI is, what I can do and then how that business operates and changes the way they work, not only within the function, but the interactions with other functions.

Thanks, Bhadresh. I just want to add 1 thing. I think the second part of your question was what are we doing about it -- in our comments that our talent teams and our on-demand teams are working with clients to understand what skills they need in that environment. As Bhadresh said, there's certain skills and projects that are caused because of that work. And there are certain skills that are needed because of the technology being a major driver of that.

So as we mentioned in our script, ERP skills and other kinds of technology skills. So we're looking to shift our skill base towards the things that clients most need in this environment.

Yes. And Roger, to add to that, I think what's becoming inherently clear is that the higher level skills that we are staffing in the on-demand business, what clients are seeking is that they are also becoming AI experts or AI knowledgeable for that particular function or particular role, and that's becoming critical. I think on the consulting side, what we're seeing is that as clients are taking on to the initiatives data authenticity and accuracy is becoming a bigger issue, right, as is leading to bigger data projects with data cleanup and data tagging and things like that. So that's where a lot of focus is coming up in order for them to realize the pure benefits of AI as they look at end-to-end implementation of it.

Just to elaborate a little bit. Can you just like you have a fairly broad swath of the Fortune 500 that you serve. How widespread is what you're currently seeing? And then can you be a little bit more precise with regards to the types of rules? Are we talking about just accounts receivables and payables, reconciliations, data entry? Or historically, you've also supplied people that were providing some analytical capabilities as well. And so I'm trying to understand to what extent are these lower level roles rather than also impacting higher level roles. .

Yes. I mean the lower level roles are definitely getting impacted, right, because AI is able to do those analysis and things like that as you leverage your learning models to do that. In the higher level roles, we don't see it as an impact. What we're seeing is a still a reconciliation is with a wholesaler skill evolution, and as we're providing, for example, a controller or anything like that or in a senior financial analyst in these types of roles.

They are looking for those that actually understand AI, you know how to use AI and know how to implement AI to leverage it more. And that's, I think, the distinction we're seeing in reconciliation receivables, all those types of things are the evolution of RPA into AI. But FP&A is becoming a big area where clients are starting to use AI to really start to look at how do they accelerate what we've historically done in Excel spreadsheets to drive those types of analytics and data. So that's where we really think that it then should.

Great. And then, Roger, you mentioned scaling up in consulting, and you mentioned incremental hiring there. Can you talk a little bit about the practices and the areas that you want to focus in within consulting?

Yes. I think it's the issues that are still remain in high demand in Corporate America for example. So financial, -- financial transformation, financial technologies, technology generally, data analytics risk, all those kinds of things, tax that get towards the ability to -- in some cases, both for the clients to do more with less for the clients to have a better view of their own organizations. All of those things and drive value. So all of those things, I think, are still in high demand.

Clients may be a little more cautious in taking the time to assess what they're doing, but those are still in high demand services. And so we're looking to add our capabilities in those regards -- those areas.

Great. And then, Jenn, just a clarification. With regards to the SG&A, you mentioned $40 million to $42 million, and then you mentioned $6 million to $7 million in terms of stock comp and restructuring. Is the $40 million to $42 million inclusive or exclusive of that $6 million to $7 million in stock comp and restructuring?

Yes. The $40 million to $42 million is exclusive. So $6 million to $7 million of noncash and non-run rate restructuring costs on top of the $40 million to $42 million and the reason why it's comparable essentially to our third quarter SG&A is because while we're realizing the benefits and the latest reduction in force we did in October, from a seasonality standpoint, we have the payroll tax reset and also when we did the risk in October, essentially, Q2 already kind of has almost a full quarter of benefit already in there. So -- but to answer your question, the $6 million to $7 million of non-run rate is in addition to -- not a part of $40 million to $42 million.

And then how much of an impact was the higher health care costs? And are you doing anything in terms of plan design changes with regards to what you offer to your employees to ameliorate that.

Yes. The health care, this quarter is about $1 million plus impact compared to Q2. So it is significant. It impacted both our SG&A and probably lesser impact on SG&A, but a lot of impact on gross margin. Yes, we do take an annual assessment of our plan design, and we also kind of look at the cost ratio sharing between employer and employees.

I would say that this quarter, this is an anomaly. We got a lot of unfavorable claims experience in October, specifically. So I don't expect that this or at least I would think that this is an anomaly. So I think that this should normalize. Again, we don't have control over our claims experience. But we do take a pretty deep look each on an annual basis on our plan design.

Okay. Great. And then, Roger, I didn't want to focus on the micro questions initially. But I'd love to come back to just kind of broader strategic framework. It sounded like you're basically going to be looking at things over the next 12 months. I'm wondering if you can just talk a little bit about what you're going to really focus on and what your vision is, and it's probably going to end up changing as you learn more about the company.

But what your vision is for what investors should expect 12 to 24 months from now?

Well, I'm not sure the strategy itself changes at a high level. I mean we're going to be focused on our on-demand services and our consulting services. And those -- that's the 2 biggest things we do, and it's where we can drive a lot of value for our clients. So I think it's why we said the 3 focal points for our strategy in the near term, 12 months or longer if it takes, is right, get the costs structure aligned with our revenue so that we're profitable on that basis, for lack of a better word, fix our on-demand.

What I mean by that is what we've talked about, which is be sure we're getting our -- in front of our clients with our sales team and really understanding what the clients need. And then working with our talent team to be sure that we are sourcing and have that kind of talent to offer them so that we can bring that kind of value to clients and do that in a focused and system. And then thirdly, grow the consulting segment that we can deliver those services.

We do that now, but we're not particularly scaled in those capabilities that we talked about earlier. And so we want to add those and I think we can grow. I think we have a real right to win in this space because of our ability to deliver in those 3 different modes that we spoke about earlier. And to do so at a price point that creates, I think, a better overall value than some of the other competitors in the marketplace.

But all of that requires that we were focused on what we do and then we have the right talent in place to do it. And so there's some work in that. And that's really -- for me, that's the main thing. Those items we just spoke about are the main thing we're focused on over the next 12 months. I can't tell you when I think exactly we'll see the results of that. I'd like to think you will start seeing it won't be 3 quarters of nothing and at all in 1 quarter. So I'd like to think you'll start to see some incremental improvement as quarters go on.

But I don't think that's going to be in the next quarter. I think there's a lot of work that we have to do.

[Operator Instructions] Our next question comes from Kartik Mehta with Northcoast Research.

Roger, I know you started talking about AI, and I'm wondering, is that causing any of your clients to maybe take a step back as they try to figure out how they want to implement AI, what roles they might want?

Is that causing any delays from a decision standpoint.

Yes. I don't know if that itself is causing any decision delay. I think there are things that happen in the market where there's some level of uncertainty that would contribute to decision delays by clients. I think in the case of AI and automation, clients -- first of all, I think by and large, like you read in a number of places, resources, I think there's more interest and effort to implement if there is more impact and value yet from any clients.

So -- but so I think it fits and starts, right? Like if you start the investment you might have told whoever was authorized that investment that we're not going to need quite so much human capital to do these process, you don't hire as much and then later, you find out you do need it. So there can be some sort of starts and stops. But I think it's really more about what roles will AI sort of successfully make less necessary.

And then as Bhadresh said earlier, what roles will AI enhance the capability of and actually make those roles more necessary or more efficient or successful in what they do. So there is some learning, I think it's going with clients, but I don't know that, that's particularly contributing to decision delay. I don't know Bhadresh you have a view on that?

Yes, 1 thing I would add, Roger, is that what clients are getting bombarded with is spot technologies for a particular process or a spot process that AI can automate. And it's conflicting potentially with their enterprise applications and those vendors are also SaaS-based products, which are saying they have AI in their products. And so no one's really matured full AI into all of their products, right? So the clients are wrestling with does my ERP system now and can leverage it? Or do I need a spot technology to fill a gap and then integrate that with my ERP technology to do that.

So we're seeing that type of confusion right now, right? We're finding some clients that are very forward thinking, willing to experiment and go aggressive and understand that they may have to do some things, and we always have laggard clients that are asking a lot of questions and want to kind of dip their toes in, but hesitant to do it. So we're seeing all sorts of spectrums around this. I don't think we're seeing delayed decisions, right, in purchasing, but what clients are inquiring more about is what can we do with AI with what we have and what can we do with AI that what we don't have. And that's the bigger debate with clients than it is a slowdown in decision-making.

And Jenn, just on the gross margins. I know -- we talked about the health care costs, obviously impacting both gross margin and SG&A, and then there's the extra holiday. If you try to take those out kind of normalized gross margin, where do you think gross margins would have been for this quarter -- for the quarter to quarter, I apologize.

Yes. This quarter in Q2, the impact of health care is almost 100 basis points. So without the additional sort of the abnormal health care costs, we probably would have reached 38% and then Q3, typically, that's our seasonality, right, because we have a lot of holidays in there. So how we -- so there's definitely seasonality, health care, a lot of noise. But if you look at our pay bill ratio. It has steadily improved over the last -- probably last full 3, 4 probably plus quarters. .

And of course, Kartik, I mean, the impact of all of these indirect costs on gross margin also has to do with our revenue level, too, and that leverage. So I think the main thing that we really focus on is things that we can control. which is the average bill rate and continue to improve that. And also on the consulting side to improve our utilization, which I think we've made pretty good progress in the last couple of quarters.

I would now like to turn the call back over to Roger Carlile for any closing remarks. .

Thank you, operator, and thanks, everyone, for joining our call today. As I said earlier, we appreciate your interest in RGP. And as I mentioned, I look forward to speaking with many of you in the coming months. don't hesitate to reach out with any additional questions. I hope everyone has a Happy New Year. Thank you again.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Good afternoon, ladies and gentlemen, and welcome to the Resources Connection, Inc. conference call. [Operator Instructions] 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 30, 2025.

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 that 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 31, 2025. 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.

Thank you, operator, and welcome, everyone, to RGP's Q1 earnings call. We continue to make progress in evolving the company to become more integrated, diversified and resilient. While the global macro environment remains uncertain, disrupted and slow moving for professional services, we are working aggressively to evolve the business to be well positioned for the upturn. Our activities are producing meaningful progress, which I'll highlight. In Q1, we delivered results better than our outlook for all measures. Revenue was above our outlook range. Gross margin was significantly better and SG&A also came in better than our outlook. As a result, we achieved more profit than expected by a significant amount. .

While we have more work to do, we have a clear plan to delivery and enhanced value creation. Several parts of the business are growing, and I want to highlight those. Europe and Asia Pac achieved a solid quarter, delivering 5% growth and have built a strong pipeline for Q2. Japan and India delivered growth in Q1, again, with solid momentum moving into Q2. Revenue from our top 10 clients also grew year-over-year, reflecting the global transformation and transaction work happening in the very large company client segment.

[indiscernible] grew in Q1 and is busy with strong proposal activity in Q2. Bhadresh and Jen will share more details about our progress, especially around double-digit bill rate improvements in our Consulting segment, increasing deal size and pipeline momentum. These are the indicators that we closely monitor to track our continued progress against our strategic goals. We are engaged in our transformation to deliver more for our clients and colleagues while improving return for our shareholders. We are transforming purposefully to increase our addressable market while becoming known for a focused set of solutions. We've taken the company from a professional staffing organization to a diversified platform combining on-demand talent with consulting and outsourced services.

We are focused on 2 critical solution areas across all delivery models, CFO advisory and digital transformation. These services are relevant to every business today, large and small. In these areas, we help our clients drive transformation from strategy through to execution by providing heightened value and impact. Our unique value proposition is built on 5 key differentiators. First, we bring agility, expertise and experience. Unlike big 4 and large consultancies, we deploy skilled analytical consultants paired with highly experienced professionals who can plug into client teams quickly without the heavy overhead long time lines or rigid methodologies.

Clients value this model when they need execution and results fast, not just advisory. Also, our global talent network is unmatched. Our experienced professionals tend to be mid- to senior-level practitioners with 10 to 20-plus years of experience, who have worked in the industry, not just consulting and have operated in our client seats. This makes them credible to client teams immediately. Second, our diversified services model is a strength. We serve clients across consulting, professional staffing and managed solutions or outsourcing, giving clients flexibility in how they engage. Few firms combine all 3 effectively, especially on a global stage like ours.

Clients increasingly want more choice, including blended delivery teams that can operate around the world. In addition, with the U.S. changing the H1B availability and cost model, our global delivery centers in India and Asia Pac allow us to quickly access outstanding global talent without extra complexity or cost. Third, our focus on CFO advisory and digital transformation is right on target for the next several years. We specialize in the high-demand areas of finance transformation, including AI and data risk and compliance, transaction integration, supply chain optimization, digital and cloud transformation. This is a sweet spot where clients need both deep functional expertise and execution support. Our pipeline of opportunities is growing in the digital finance, ERP and data space, and we expect that to continue.

We have accordingly upskilled our talent communities to deliver the specialized skills clients need today. Fourth, our diversified model is scalable. Our clients can flex our team up or down depending on project demand. This gives clients more control over cost and outcomes compared with traditional consulting engagements. In today's macro environment, cost efficiency and flexibility are critical considerations for clients in making procurement decisions. The models of yesterday with large layered teams or inflexible playbook delivery are declining. This shift will play in our favor because we don't deliver services with layers of inexperienced generalists or juniors, often learning skills on the client's time. We know that much of that work is being actively disrupted by automation and AI. Our GP sweet spot is in the delivery of consulting and on-demand specialized talent that embraces AI and automation to streamline, enhance and cost optimize the delivery of complex change and transformation work.

We take pride knowing that when our clients demand teams and talent that have been in their shoes and had experienced the problems they face, we can quickly provide that solution anywhere in the world. In digital finance work, for example, our consultants work collaboratively with modern tools for automating, processing and analyzing allowing focus to shift to capturing insights and designing innovative new processes and technical architectures that enable the use of these tools at scale. As the on-demand environment improves and clients are reintroduced to the capabilities of RGP today, we believe the market opportunity ahead is significant.

The bit differentiator is our client-centric approach. We partner to truly integrate with client teams. We do not engage as an external firm dictating solutions. Our model is designed to be collaborative, outcome-oriented and more cost-effective than large consultancies. As one client buyer from a $6 billion enterprise undergoing finance transformation recently shared. RGP is positively unique because you deliver strategy when I need it and specialized talent when I need it. You are a trusted partner for both types of services, providing greater control and efficiency as every day brings something new.

Next, I want to comment on the qualitative aspects of our transformation as they are important to unlocking cross-sell and upsell opportunities in our exceptional client base. We are working more collaboratively across the enterprise as 1 RGP and are accelerating the integration of our consulting capabilities. The mindset and attitude of our organization has significantly changed to understand the importance of sales, delivery and talent working together. This mindset shift and accompanying behavioral changes are beginning to produce the right results. In sum, we're transforming to build a more stable and profitable business. The past 3 years have been volatile and disrupted, especially in the staffing market. During this time, we have been building our talent base in solutions to bring to market a new model of consulting that is more affordable, more flexible and more impactful. Larger consulting projects are already beginning to help us create stickier business and higher level client relationships.

This new playing field and approach will pay dividends quickly in an improving global environment. We're also building more outsourced services capabilities with [indiscernible] as it fits into our diversification strategy and the CFO and digital agendas. [indiscernible] is an outsourced finance and accounting service combining automation, AI and highly specialized fractional CFO talent to serve startups, scale-ups and divested assets of the larger enterprises and private equity firms. We are currently expanding our offerings to incorporate more AI and automation in these outsourced services, in turn, driving growth and longer-term revenue opportunity.

We believe we will increase the market opportunity for [indiscernible] in 2 ways: one, adding clients that are divested assets of larger enterprises or private equity portfolios, and two, by maintaining clients longer as they mature. Countsy is not just a solution for the start-up and scale-up stage, but a long-term solution for finance and accounting services for a broader range of clients. For example, Countsy's newest client base is AI technology and fintech who want F&A as an outsourced solution long term. County also delivers RGP's strongest operating margins, which will continue to benefit our consolidated results and drive shareholder value.

Finally, I want to share an update on our cost structure, which we are actively redesigning to fit the current size and scale of the business, our current technology platform and our diversified services strategy. We are streamlining organizational structure, simplifying processes, embracing automation and AI and evaluating all functions to ensure they are strategically aligned to what we need today and where we're headed. We've made good progress in reducing our run rate SG&A, and we'll continue to do so at a meaningful level from a holistic point of view. We will report continued progress throughout the fiscal year as we fully optimize our technology investments to simplify process and drive efficiency. Jan will share more on our cost structure improvements in a moment.

In closing, we have a clear strategy we are executing to allow us to rebound quickly as the demand environment improves. We believe the improvements we are making in the business today will enable us to return to double-digit profitability. Our strengths, including our brand, people, client base, technology and flexible solutions will allow us to capitalize on the opportunities ahead, driving long-term shareholder value.

With that, I'll turn it over to Bhadresh.

Thank you, Kate, and good afternoon, everyone. We're pleased to report another quarter of progress in advancing our transformation strategy. Positioning RGP as the intersection of professional staffing, consulting and outsourced services. Our flexible client-centric offerings continue to resonate with clients, supporting both their transformation and operational priorities. In the first quarter, we delivered results ahead of expectations on both revenue and gross margin. This performance reflects the ongoing stabilization of our operating model, stronger cross-practice collaboration, continued focus on value-based pricing within consulting and disciplined cost management. Together, these actions are driving stronger bottom line performance, which Jen will cover in more detail shortly.

Despite the still choppy demand environment that Kate referred to, our pipeline returned to growth during the quarter. demand is strengthening across CFO advisory and digital transformation directly aligned to client priorities around cost efficiency and process automation. This demand underscores the alignment between our sales organization and practice leaders and our positioning at the intersection of staffing, consulting and outsourced services. Europe and Asia Pac as well as outsourced services continue to deliver year-over-year growth. On-demand is stabilizing and consulting is building pipeline while achieving higher bill rates. We are making targeted investments in leadership and services to further accelerate this momentum.

With that, let me turn to our performance by segment. Our Consulting segment revenue declined year-over-year, but we did achieve revenue growth in a few areas, including ServiceNow, project and change management and our federal digital offering. Additionally, we saw a meaningful improvement in bill rates and utilization compared to the same quarter last year. And importantly, we're achieving notably higher bill rate increases on new projects. This validates client demand for our specialized solutions, supports our value-based pricing initiative and contributed to the gross margin improvement year-over-year. In addition, stronger collaboration between our sales and consulting teams is expanding the pipeline with larger, more strategic transformation opportunities particularly in our focus areas of CFO advisory and digital transformation, as Kate mentioned.

These areas remain directly relevant to client priorities, but the longer sales cycle and slower project starts in the current environment often translates into elongated revenue conversion. While this impacts near-term quarterly revenue, we believe these engagements represent durable demand that over time will translate into meaningful opportunity at increasingly higher margins. Notable wins this quarter include execution of a technology strategy across multiple work streams for our Fortune 500 financial services company, a master data management implementation for a multibillion-dollar food processing company and employee experience modernization for a large multinational technology company. On the pipeline side, we added several significant opportunities, including global program management support for a Fortune 500 energy company's finance transformation, stabilization pods for cutover supported data validation for a complex best-in-breed ERP and data platform deployment for a large energy distributor and transformation advisory and implementation support of the source-to-pay function for an independent business unit of a [indiscernible] 100 global consumer goods company.

Many of these wins and pipeline additions are with clients we have historically served through our on-demand talent channel, which is a testament to our unwavering focus on the value of our integrated go-to-market strategy. Finally, on consulting, as announced in August, I'd like to welcome Scott Rotman as our new leader for CFO Advisory. Scott will oversee finance transformation, risk assurance, tax and treasury and M&A offerings. He brings deep expertise from the Big 4 and Morgan Franklin a boutique transformation-focused consultancy with a proven track record of building practices and trusted teams and helping clients navigate complex transformation agendas.

Turning to on demand. Revenue declined year-over-year, but is showing signs of stabilization over the first quarter with improved gross margins supported by moderate fill rate increases. After the expected seasonality of summer, the pipeline returned to growth in the quarter, driven by more net new opportunities and continued focus on extension management, pivoting away from operational accounting as these roles will continue to be replaced by AI and automation. We remain disciplined in pipeline management qualification with a particular focus in the areas of ERP, finance transformation, data and supply chain, which are more relevant in today's marketplace. In addition, as we continue to build leadership and capabilities in consulting, we're increasingly positioning on-demand talent alongside consulting opportunities and engagement. This integrated approach not only strengthens client impact, but also creates revenue growth across our service lines.

Moving to International. Our Europe and Asia Pac segment delivered solid first quarter year-over-year revenue growth. Europe and Asia led the way with revenue gains, higher run rates and stronger bill rates versus last year underscoring the strength of client relationships and the effectiveness of our regional strategy. Growth in Europe and Asia Pac has been driven by a dual focus on deepening multilateral client relationships and expanding our local client base. Demand for our CFO advisory and digital transformation offerings remain strong and our ability to combine local delivery with scalable global delivery centers continues to differentiate us. Together with SG&A management and ongoing optimization initiatives, these actions position us to maintain margins and sustain growth despite longer sales cycles and competitive dynamics.

Lastly, on outsourced services, we delivered year-over-year revenue growth with continued gross margin expansion. We added new clients to our platform while also exhibiting strong retention, while bottom line performance benefited from both operating leverage and disciplined cost management. While our outsourced services focus continues to be on start-up, scale-up and spinouts, we are capitalizing on the broader venture funding environment by targeting venture-backed startups where demand is increasingly robust. At the same time, we are advancing our AI strategy to support a rapidly expanding client base with scalable technology-enabled solutions. This includes enhancing internal tools, evolving our go-to-market approach and exploring new delivery models such as AI-enabled accounting agents and innovative pricing structures.

To conclude, we remain focused on disciplined execution in delivering meaningful value for our clients as we wait for the demand environment to turn with a diversified portfolio, strong client relationships and a winning strategy we are positioning RGP for sustained long-term growth and profitability.

With that, I'll now turn the call over to Jen.

Thank you, Bhadresh, and good afternoon, everyone. We delivered strong performance this quarter against our expectations. Revenue of $120.2 million, gross margin of 39.5% and SG&A expense of $44.5 million, all beat the favorable end of our outlook ranges. We also delivered improved adjusted EBITDA of $3.1 million or a 2.5% adjusted EBITDA margin. We're pleased to see the return to growth in revenue for both our Europe and Asia Pac segment and outsource services segment with 5% and 4% growth over the prior year quarter. Revenue within the on-demand and Consulting segments continue to be soft as the operating environment in the U.S. remains choppy. This quarter, our continued focus on the number and quality of client outreaches and meeting, pipeline management and cross-sell collaboration have yielded growth in the pipeline. .

Importantly, we believe the positive progress in our key operating metrics will lead to tangible improvement in revenue over time. Turning to profitability metrics. We achieved strong gross margin for the quarter at 39.5%, 300 basis points higher than the prior year quarter and significantly better than the high end of our outlook range. Contributing to the strong gross margin are: one, continued improvement in our average bill rate and expansion of the pay bill spread; two, significant reduction in employee benefit costs, including health care costs holiday and paid time off; and three, strategic management of our [indiscernible] consultants utilization.

Enterprise-wide average fill rate increased to $120 constant currency from $118 a year ago. The improvement came despite the revenue mix weighing more towards the Asia Pac region, and as noted, we saw an 11% improvement in average fill rate in consulting from $144 to $160. As we continue to execute our pricing strategy and move up the value chain to deliver higher value, larger-scale engagements, we expect more upside in bill rate, especially in the consulting business.

Now on to SG&A. Our enterprise run rate SG&A expense for the quarter was $44.5 million, a 7% improvement from $47.7 million a year ago, primarily driven by lower management compensation expense and reductions in other G&A expense such as travel and occupancy. Subsequent to the quarter, at the beginning of October, we further streamlined our organizational structure to rightsize leadership layers and head count through a reduction in force. We expect approximately $6 million to $8 million of annual cost savings associated with this effort. Going forward, we will continue to pull the cost levers within our control to improve operating leverage.

Next, I'll provide some additional color on segment performance. All year-over-year percentage comparisons for revenue are adjusted for business days and currency impact. And as a reminder, segment adjusted EBITDA excludes certain shared corporate costs. Revenue for on demand segment was $44.4 million, a decline of 16% versus prior year. However, segment adjusted EBITDA improved to $4.4 million or a margin of 10% from $2.6 million or a 4.9% margin in the prior year quarter. The notable improvement is primarily driven by our cost reduction effort in this segment. Revenue for our consulting segment was $43.6 million, a decline of 22% from the prior year.

First quarter segment adjusted EBITDA was $5 million or an 11.6% margin compared to $7.8 million or a 14.1% margin in the prior year quarter. Turning to our Europe and Asia Pac segment. Revenue was $19.9 million, a 5% growth from our prior year quarter. Segment adjusted EBITDA was $0.8 million or a 4.2% margin, both up from $0.2 million and a 1.3% margin in the prior year.

Finally, our Outsourced Services segment revenue was $10 million, up 4% compared to the prior year quarter. Segment adjusted EBITDA was $2.3 million or 23.3% margin, up from $1.4 million or a 14.7% margin driven by significant improvement in its gross margin as a result of more effective management of consultant utilization.

Turning to liquidity. Our balance sheet remains pristine with $77.5 million of cash and cash equivalents and 0 outstanding debt. Quarterly dividend distribution totaled $2.3 million. With cash on hand, combined with available borrowing capacity under our credit facility, we will continue to take a balanced approach to capital allocation between investing in the business to drive growth and returning cash to shareholders through dividends and opportunistic share buybacks under our repurchase program, which had $79 million remaining at the end of the quarter.

I'll now close with our second quarter outlook. Early second quarter weekly revenue run rate has been largely stable compared to the first quarter. We expect to maintain revenue stability through the second quarter while continuing to push forward the momentum in the sales pipeline. I'll also note that while we have very limited U.S. government exposure and therefore are not materially impacted directly by our clients in the sector, the current government shutdown could lead to additional disruption in the operating environment. With that in mind, and based on our current revenue backlog and expectations on late-stage pipeline yields, our outlook cost for revenue of $115 million to $120 million for the second quarter.

On the gross margin front, we also expect similar trends to the first quarter with an outlook range of 38% to 39%, with Thanksgiving adding 1 additional holiday in the U.S. compared to Q1. Second quarter run rate SG&A expense is expected to be in a range of $43 million to $45 million, reflecting the benefit from our cost reduction efforts. Non-run rate and noncash expenses will be around $5 million, consisting primarily of noncash stock compensation and approximately $2 million of restructuring expense associated with the reduction in force.

In closing, we continue to be laser-focused on improving our sales execution as well as driving an efficient cost structure to deliver more value even in this operating environment. As better economic clarity emerges, for our customers and new business prospects, we will be well positioned for a return to consolidated growth accompanied by even stronger profitability. This concludes our prepared remarks, and we will now open the call for Q&A.

[Operator Instructions] Our first question comes from Jessica [indiscernible] with Northcoast Research.

First, I would like to congratulate you on such a positive first quarter, amazing results. And second, I have a question for you and then one brief follow-up. To start, what would you say regarding the trend in pricing? Are you seeing pricing pressure in any particular business? .

This is Bhadresh. From a trending perspective on our staffing business, we have been able to keep our rates pretty steady. However, on the consulting side, while we do see pricing pressures, the value we're bringing is warranting for us -- for us to be able to increase our rates, especially on net new projects that we're selling to our clients, which ultimately is bringing a different value to our clients than what we have historically from a professional staffing perspective because we're bringing thought leadership to those projects. So there are pricing pressures for sure. Roles like operational accounting and things like that face a lot more pricing pressures from our space, but we're also pivoting away from those roles as AI and automation is taking over and we're focused on more high-value roles, especially around ERP, data, supply chain, digital transformation really aligned to the strategy that we've laid forth for our business.

All right. Perfect. That's very helpful. And then as for the follow-up question, I know that you guys are having success with cross-selling. Looking at your pipeline now, how much of the pipeline would you attribute to cross-selling? .

I mean we're still building that pipeline, but the good news is that we continue to increase million-plus deals into our pipeline. And we anticipate that with the motions we're playing across both our sales teams and our practice leaders and consulting that that pipeline to increase. And then for us to see the conversion as it relates to that increase.

Okay. Awesome. I appreciate it. Another congratulations to the company on the great first quarter. .

Thank you, Jessica.

[Operator Instructions] Our next question comes from Mark Marcon with Robert W. Baird.

I was just wondering, with regards to the revenue guide that you gave us, Jen, can you break that out between the segments? And specifically, what are you seeing for more on-demand talent?

Yes. Mark, sure. The revenue guide for Q2, we're expecting across our business units, our Europe and Asia Pac region will continue to show strength as it did in Q1. So we expect continued strength in that, if not, it might even get better than Q1. And in the other 2 segments, on-demand and consulting, the trend is going to be more or less the same and really it depends on especially on the consulting side, some of the deals in the pipeline in late stage and the timing of conversion of that. So I would say across all of our business units performance in Q2 will be somewhat consistent with what you're seeing in Q1.

Yes, Mark, it's Kate. Can I just add, I think it really depends on how quickly we can get some of this pipeline, especially the improving pipeline in CFO advisory we do have, as Bhadresh shared a new leader who is very dynamic and has a very clear plan to improve our performance there. So he has shared that there's a lot of momentum right now. It just depends on how quickly I think we can move that through the pipeline.

Great. And then just with regards to on-demand and consulting within the U.S., any regional differences that you're seeing, either from your West Coast operations or Chicago or the Tri-State area? .

Yes. I mean we are seeing a lot of demand in the West Coast and the Southeast as well. And I think it's really attributed to the teams and the tenure of the teams there. Overall, in the market, we're seeing consistent kind of demand across our core offerings. We've aligned in CFO advisory and digital transformation for a reason because those are the 2 agendas that are moving in client spaces. And we're balancing this across the tenure and the leadership that we have in other markets and really building pipeline and work across those markets as well.

Great. And your new leader where is he going to be based.

He is based in Washington, D.C., Northern Virginia, actually.

Our next question comes from Judson Lindley with JPMorgan. .

Maybe just the first one on this quarter's revenue. I know same-day constant currency revenues were down 13.9%. So could you maybe break out for me the delta between same-day constant currency and reported revenue growth -- how much of that was from FX and how much was the days impact.

Yes. More days impact, business day impact. There's some currency impact, but it's probably about 1/3 of the business impact. Most of it is, as you know, -- the first quarter, we have -- I think we had 1 less day in business days this quarter compared to last year. .

Okay. Great. And then maybe as a follow-up, if there was any acquired revenue in the quarter? And if you could, maybe those same 3 components for the second quarter guide.

Yes. In the first quarter year-over-year, there's very little acquired. As you know, we acquired reference point last year in the first quarter, a month into the first quarter last year. So the inorganic piece is minimal. .

And then for the second quarter, if you could?

Yes. For the second quarter, comparing year-over-year at the top end of the guidance range, it's a 16% decline on a same-day constant currency basis.

Our next question comes from Joe Gomes with Noble Capital.

Just a quick question. When you talk to clients or potential clients what are they saying in terms of their general appetite to move forward and spend? And how has that changed over the past year if it's changed?

I would say it hasn't changed much, Joe. I think we're still in a choppy environment. As we've said before, I expect there's probably more of the same for the next couple of quarters. Every time I think people feel like we're getting more stability and the foundation is getting stable, then it seems like something else happens. As Jen said, we don't have a lot of exposure to federal government or federal work, but it feels destabilizing when there's that level of uncertainty. And so we've reflected that in our outlook because we're just uncertain.

As I said before, there is work that's progressing I mean there's some really interesting work we're talking to clients about right now. It just depends on how quickly we can progress that work through our pipeline. I'm very impressed with some of the new talent we've brought into the organization, especially around whether you call it Finance 4.0, which includes ERP, cloud migration, digital finance, automation, AI, data work, everything that's happening there. That work is progressing. I mean, it's happening in our client base right now. So again, I think a lot of it is timing and making sure we're positioned in having the right conversations with clients.

Okay. Great. And one follow-up. In the summer, you guys did a board refresh and added 2 new members to the Board was wondering what, if anything, they've brought to the Board here that is kind of new or different ways of thinking or different approaches that would be attributable to them.

Yes. So let me speak to that. We have welcomed, I think, 2 strong Board members. One brings more of a I would say, private equity lens, if you will, to what we're doing, especially as we look at optimizing our bottom line performance. Given that we all recognize the macro environment is difficult and difficult really across professional services. So that has been, I think, instructive for us to look at things with a fresh set of eyes. Our other Board member brings a lot of operating experience and operating through transformation. And I think what we're learning from his experience is the importance of the behavioral changes that I've talked about, making sure that we're getting incentive comp right, making sure that we are creating collaborative teams to hunt and farm together and not creating silos or competitive mindset. .

So competitive by that, I mean against each other, not competitive to the broader marketplace. So I think they're both good adds to our Board and the work that we're undertaking right now.

I would now like to turn the call back over to Kate Duchene for any closing remarks.

Yes. Thank you. Thank you, everyone, for joining us today. I want to highlight that we will be participating in the Noble Capital Markets Emerging Growth Virtual Equity Conference tomorrow. So we hope to engage further with investors then. We'll also look forward to updating you on our strategic progress and results following Q2 in early January. Thanks again, everyone. Good night.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Good afternoon, ladies and gentlemen, and welcome to the Resources Connection, Inc. conference call. [Operator Instructions] As a reminder, this 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 31, 2025. 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 and the anticipated financial performance of the company. Such statements are predictions and actual results or events 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 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 will now turn the call over to RGP's CEO, Kate Duchene.

Thank you, operator, and welcome, everyone, to RGP's Q4 earnings call. Thank you for joining us. We are pleased with our Q4 results and continued momentum in the firm's evolution. At RGP, we dare to work differently, leveraging a unique model that combines On-Demand Talent with expert consulting and advisory services to drive transformation from strategy through execution.

I'll open today's call by sharing some insights from our recent research on CFO perspectives, risk, growth and the future of finance. This work is important as it demonstrates how RGP's services and solutions are aligned to the key priorities of our primary buyers, CFOs, and provide context around what we are doing to capture more of this expanding opportunity. Our research included insights from approximately 200 CFOs and senior financial decision-makers at businesses with over $500 million in annual revenue to help us better understand the top priorities in the finance function.

These priorities include strategic growth and resilience, operational efficiency and cost discipline, technology and AI adoption, evolving the CFO leadership role, data governance and analytics, and finally, capital allocation and investment strategy. Across companies and industries, CFOs we surveyed show cautious optimism, anticipating positive performance in their businesses despite ongoing macroeconomic uncertainty. They report that with improving trends, strategic investments will accelerate as increasing competitive pressures drive digital transformation and automation.

In the short term, to mitigate risk from tariffs, geopolitical tensions and trade disruptions, CFOs are actively reshaping supply chains and revisiting vendor relationships. They also remain focused on reducing costs without jeopardizing growth by cutting discretionary spending versus investment in strategic priorities.

While there's a clear and growing enthusiasm for AI, execution barriers remain, particularly in data readiness and workforce capabilities. As a result, CFOs are prioritizing technology modernization, automating workflows, and embedding AI and digital tools into financial operations. The role of the CFO has expanded beyond financial stewardship to enterprise leadership, with 70% saying they have increased influence on strategic and technology decisions.

CFOs now work more collaboratively with CIOs and CHROs on people strategy, digital initiatives and transformation. Beyond just the numbers, they are focusing on data quality, analytics and oversight, requiring investment in integrated data systems and governance frameworks to support responsible decision-making and AI deployment.

In summary, our research which can be found on our website, illustrates the rapidly evolving landscape for CFOs, characterized by a shift from back-office efficiency to enterprise-level strategic influence, a delicate balance between growth initiatives and operational rigor and a growing role as technology champions driving company-wide uptake of data, AI and broader digital transformation.

What we're seeing in the market and what we're hearing in our CFO research dovetails precisely with RGP's strategy. As we continue to transform building a flexible and high-impact diversified delivery model, we are focused on further refining and growing the core capabilities of CFO advisory and digital transformation. We bring a rich heritage of serving the office of the CFO with a deep bench of experts. We deeply understand the function and how it needs to transform for today and tomorrow.

We are evolving our talent across On-Demand and Consulting to provide the skills needed around finance optimization, process redesign, technology migration, data modernization and AI readiness. And we embed human-centered design in our CFO consulting work so that employee engagement improves and it's easier for organizations to adapt to new ways of working. Whether it's ERP migration or strategic sourcing, we are known for speed of service, functional depth and expertise and lean project teams that drive impact.

Looking ahead, we're also cautiously optimistic on the professional services marketplace in North America, currently our largest source of revenue. The U.S. consulting services market is rebounding, bolstered by rising demand for digital transformation. Impact-driven engagements, which are RGP's specialty, are becoming mainstream with clients focused on agile teams that can collaborate together with their own people. We expect accelerating growth in the professional staffing landscape in the second half of the fiscal year as potentially inflation stabilizes and we see lower interest rates.

Professional staffing will benefit when greater confidence returns to the labor market and talent begins to move. We are optimistic in improving operating leverage by integrating AI technologies to source, screen and engage candidates, boosting efficiency and enabling human recruiters to focus on higher-value tasks. We also see strong interest from our clients in skills-first hiring. A recent blog post from Staffing Industry Trends noted that 76% of companies are embracing contingent labor and flexible pay modes to remain competitive and to access skill sets that they could not afford to hire full-time.

In sum, despite near-term uncertainties, strong interest remains in corporate transformation and modernization initiatives, which we expect will drive growth for RGP in the next 12 months and beyond. We remain confident that agile firms like ours, which can deliver with fast, efficient and innovative ways of working will benefit the most.

Against this backdrop, we continue to make progress on our own transformation in Q4. We achieved revenue and gross margin above the high end of our outlook and have improved pricing in our key markets even in this disruptive macro environment. We achieved the same strong gross margin, above 40% as the prior year quarter and improved enterprise run rate SG&A despite the extra week of cost in the fiscal quarter. Our average bill rate improved by 4% year-over-year. Our diversified services model is allowing us to win work in the most relevant categories for the CFO in the way the CFO wants to engage.

From a solutions perspective in the On-Demand segment, digital and technology and supply chain grew nicely in the quarter. Within Consulting, digital transformation work grew both sequentially and year-over-year, again aligned directly with the CFO agenda we are focused on serving. Europe and Asia grew in Q4 to the highest revenue level of the now completed fiscal year. Bill rates improved quarter-over-quarter in the Europe and Asia Pac segment by 7%.

Europe was a bright spot in Q4 with quarter-over-quarter constant currency growth of 8%. Most of the momentum in Europe came from the U.K., our largest market in the region. We also improved revenue stability in Europe, driven by stickiness in project extensions, which grew to 40% of revenue. Our client retention in Europe remains high at 90% year-over-year. Asia Pac improved results as well despite significant disruption in China related to tariffs and supply chain migration. Asia Pac revenue growth was 3% sequentially, driven primarily by Japan.

In our Outsourced Services segment, Countsy continued to grow sequentially in Q4 and year-over-year through client wins in the startup, scale-up and divestiture space. Beyond venture capital, Countsy is actively working to build channels and traditional middle market private equity as a solution for divested assets needing standup finance and accounting functions quickly and efficiently. Countsy is also introducing more AI tools on the platform to accelerate client acquisition and service capacity with better cost leverage.

As you'll hear from Bhadresh, pipeline creation has grown in all regions with a higher volume of larger value deals. While these deals have a longer sales cycle, we believe the trade-off is worth it as they will position us well over the longer term, providing greater certainty around future revenues and growth. We're evolving to do more for our clients across On-Demand, Consulting, and Outsourced Services, and we're getting deeper in our client base. We're pleased by our progress and opportunity pursuits, especially given the current macro environment is still difficult as it relates to the timing of project starts.

In closing, I'm also very pleased to welcome 2 new Board members to RGP. Jeff Fox is the CEO and founding partner of Circumference Group, a strategic investment firm and long-term RGP shareholder. He is a former Board member of Avis Budget Group and Convergys. Jeff brings critical investor insight and a shareholder-focused lens to the Board. His expertise in improving profitability and unlocking shareholder value supports RGP's focus on disciplined capital deployment, sustainable growth and enhancing ROIC. His appointment strengthens alignment between the Board and long-term investors.

Filip Gydé is the former President and CEO of Computer Task Group, where he led a strategic shift from staffing to digital consulting. He brings 30-plus years in global IT services with extensive European leadership. Filip's track record in transforming a traditional staffing firm into a modern digital solutions provider directly supports RGP's strategic evolution. His deep understanding of IT and digital services will help guide the firm's ongoing pivot toward high-value consulting and technology-enabled offerings that are increasingly relevant to the CFO's agenda. His global leadership experience also reinforces RGP's growth ambitions in international markets and cross-border delivery models.

The appointment of Jeff and Filip are well aligned with RGP's strategic priorities, which include evolving from a staffing-centric model to becoming a value-added consulting and digital solutions firm, enhancing shareholder value through disciplined operations and capital allocation strategies, scaling technology transformation and digital capabilities and expanding our global presence while enhancing international client delivery. I'll now turn the call over to Bhadresh for an update on operations.

Thank you, Kate, and good afternoon, everyone. As we close out the fiscal year, I want to recognize the leadership and commitment of our RGP team. Their efforts have been instrumental in navigating a dynamic and rapidly evolving market, enabling us to sharpen our value proposition and enhance our relevance in today's changing professional services landscape.

As a reminder, RGP operates at the intersection of professional staffing, consulting and outsourced services. Our integrated model breaks away from the rigid structures of traditional firms, offering a more flexible client-centric experience across both transformation and operational needs. In Q4, we delivered results ahead of expectations on both revenue and gross margin, driven by disciplined pricing. Together with our continued focus on cost efficiency, we delivered improved bottom line performance.

Following the holiday impact of Q3, pipeline creation rebounded in Q4 across several core offerings. However, total pipeline contracted during the fourth quarter as we sharpened our focus on funnel discipline and enhanced efforts around opportunity qualification and conversion. Encouragingly, Europe also closed more net new business balanced with higher extension rates than previous quarter, reflecting continued strength in attracting new clients and retaining existing business.

Now I'll provide an update on our quarterly performance by segment. Our Consulting segment revenue was overall down compared to same quarter last year. However, we're encouraged by several leading indicators that validate our strategy and execution. Bill rates rose meaningfully year-over-year, reflecting sustained demand for specialized solutions and our continued focus on value-based pricing. Offerings in digital transformation, supply chain, project management and change management all grew in fiscal '25 compared to prior year, signaling increased client prioritization of modernization initiatives.

It's worth noting that recent changes in federal policy landscape had only a modest impact on our results as federal government work represents just 1.6% of total revenue. Most importantly, we secured multiple new opportunities exceeding $1 million and expanded the number of $1 million-plus projects in our pipeline relative to same quarter last year. We're also seeing growing momentum in larger opportunities each exceeding $5 million, driven by the strength of our integrated transformation capabilities, which naturally take longer to close.

Notable wins this quarter include finance and tax acquisition integration PMO work streams for a large integrated health system, technology migration for a regional health care insurance provider, supply chain category management initiative for a Fortune 500 financial technology company. In addition, we expanded our footprint with new and enhanced preferred supplier relationships with several Fortune 100 clients. These achievements underscore our increasing relevance in complex high-impact transformation initiatives across industries.

Our pipeline is showing steady progress across both public and private sectors, including U.S. and international government agencies. In addition, we're actively pursuing a global digital modernization initiative with a Fortune 100 financial services firm, AI-driven R&D modeling for a Fortune 150 biopharmaceutical company and an ERP implementation for a leading education technology provider. Many of these new wins and pipeline additions are with existing clients historically supported through our On-Demand Talent solutions, highlighting our ability to now engage in deeper, more strategic transformational initiatives.

This marks a clear step change from a year ago made possible by the deep relationships we've built with clients leveraging On-Demand Talent, enabling a more strategic and engaged level of partnership than we've had previously. Today, our strategy is successfully elevating RGP's role within our clients' value chain. Increasingly, clients are turning to us for end-to-end support across domain, functional and technology transformation, tapping into our global delivery centers in India and the Philippines to scale efficiently.

One last note on Consulting. As we continue to deepen our focus on CFO advisory and digital transformation, I'd like to welcome Brett Wells, our new ERP practice leader. He brings deep experience from companies such as Accenture, Infosys, and IBM with a strong track record of building and scaling global ERP practices and driving multimillion-dollar growth through strategic innovation and outcome-focused transformation.

Turning to On-Demand. While fourth quarter revenue declined year-over-year, we're seeing signs of stabilization and early momentum driven by improved sale motions. Alongside stabilized volume, average bill rates also improved compared to the same quarter last year. Clients are increasingly valuing the flexibility and specialized expertise of our On-Demand Talent model, particularly in areas like accounting and financial reporting as they continue to manage leaner teams and tighter budgets.

Pipeline creation in Q4 returned to first half levels, signaling renewed client engagement. At the same time, increased funnel movement, both wins and losses, and heightened client caution contributed to a modest sequential decline in total pipeline compared to previous quarter. Building on this momentum, we've increased engagements across our go-to-market teams with a focused effort on pipeline generation and early-stage opportunity development. Extension management remains a top priority across our revenue and talent team, with a focus on maximizing billable utilization and deepening client continuity.

Moving on to international. Our Europe and APAC segment delivered top line revenue growth both year-over-year and sequentially, driven by strong performance in U.K., Netherlands, and Japan along with increases in average bill rates across most markets in Europe and APAC. While our China business continues to face macroeconomic headwinds, the broader region's overall performance reflects the strength of our focused execution. We're expanding cross-sell opportunities by focusing on large global clients, particularly in ERP and data and reinforcing disciplined extension management. Our ability to deliver local talent while scaling teams of our global delivery centers remain a powerful differentiator.

Turning to our Outsourced Services segment. We delivered revenue growth both year-over-year and sequentially, supported by new engagements with AI starts, spin-outs and scale-ups. This reflects our ability to meet the needs of fast-growing clients taking flexible, scalable solutions.

In summary, while macroeconomic uncertainty and regional challenges persist, we remain focused on executing our strategy and delivering meaningful value to our plans. Our diversified portfolio, strong client relationships and consistent execution position us well for continued recovery and growth. Heading into fiscal year 2026, we are operationally prioritizing pipeline generation and conversion, expanding strategic accounts and optimizing delivery to sustain our momentum. With that, I'll now turn the call over to Jen.

Thank you, Bhadresh, and good afternoon, everyone. In the fourth quarter, we delivered strong performance against our expectations. Revenue of $139.3 million and gross margin of 40.2% were both well above the high end of our outlook range, while run rate SG&A expense was within the range. We delivered adjusted EBITDA of $9.8 million or 7.1% adjusted EBITDA margin, which is our strongest quarterly performance in fiscal '25.

We are encouraged to see continued recovery in our Europe and Asia Pac segment with a 5% sequential growth over the third quarter on a same-day constant currency basis. Our Outsourced Services segment continued to demonstrate the strength of its execution and business model with a 4% growth year-over-year and a 3.5% sequential growth over Q3, both on a same-day basis. Relatively, the On-Demand and Consulting segments, which are both predominantly U.S.-based, continue to be soft, given the uncertain macro environment as domestic economic policies continue to evolve.

With that said, despite the uncertainty, as a result of our focus on sales execution, the On-Demand segment demonstrated more stability in Q4 with moderating year-over-year decline compared to previous fiscal quarters. We achieved strong gross margin for the quarter at 40.2%, better than the high end of our outlook range. We're pleased that pay/bill ratio continued to strengthen throughout fiscal '25 due to improvement in the enterprise average bill rate for the last 3 consecutive quarters.

Enterprise-wide average bill rate increased to $125 constant currency from $120 a year ago, led by our Consulting segment with a 13% increase. Average bill rate in the Europe and Asia Pac segment increased by 7% on a constant currency basis over both the prior year and sequential quarter. In our On-Demand segment, average bill rate also increased both year-over-year and sequentially. These improvements reflect the impact of our disciplined value-based pricing strategy, our continued shift toward in-demand consulting skill sets and a favorable mix shift toward higher-value larger-scale engagements.

As we strive to drive higher bill rates in all business segments and across all geographic regions, revenue mix will continue to be reflected in our total company average bill rate, especially as we increasingly leverage our global delivery center for offshore delivery team. Importantly, while the use of offshore teams will typically blend down the average bill rate, it will allow us to enhance gross margin and overall profitability while also helping us compete more effectively.

Now on to SG&A expense. Our enterprise run rate SG&A expense for the quarter was $46.2 million, an improvement from $46.5 million a year ago, especially after giving effect to a 14-week quarter in the current fiscal year. The improvement in SG&A was primarily driven by lower management compensation expense. We will continue to pull the cost levers within our control to improve operating leverage.

Next, I'll provide some additional color on segment performance. All year-over-year percentage comparisons for revenue are adjusted for business days and currency impact. And as a reminder, segment-adjusted EBITDA excludes certain shared corporate costs. Revenue for our Consulting segment was $51 million, a decline of 14% from prior year. Fourth quarter segment adjusted EBITDA was $8.3 million or a 16% margin compared to $10.2 million or an 18% margin in the prior year quarter.

Revenue for our On-Demand segment was $53 million, a decline of 16% versus prior year. Segment adjusted EBITDA was $6.4 million or a margin of 12% compared to $7.1 million, also a 12% margin in the prior year quarter.

Turning to our Europe and Asia Pac segment, revenue was $21.3 million, flat to the prior year quarter. Segment adjusted EBITDA was $1.9 million or a 9% margin, both up from $0.5 million and a 3% margin in the prior year. Finally, our Outsourced Services segment revenue was $11.3 million, up 4% compared to the prior year. Segment adjusted EBITDA was $3.1 million or a 28% margin, up from $2.7 million or 27% margin.

I also want to note we recorded a noncash goodwill impairment charge of $69 million in our Consulting segment during the fourth quarter in response to business performance and the reduction in our market capitalization.

Turning to liquidity. Our balance sheet remains pristine with $86 million of cash and cash equivalents and 0 outstanding debt. We distributed $4.6 million worth of dividends in the quarter. With cash on hand combined with available borrowing capacity under our credit facility, we will continue to take a balanced approach to capital allocation between investing in the business to drive growth and returning cash to shareholders through dividends and opportunistic share buybacks under our share repurchase program, which had $79 million remaining at the end of the quarter.

I'll now close with our first quarter outlook. As I mentioned earlier, the macro conditions remain choppy especially in the U.S., given ongoing policy uncertainty. While we're pleased to see improving quality in the pipeline with larger deal opportunities, the sales cycle remains elongated. The exact timing for a more normalized cycle remains unpredictable.

In the meantime, as Bhadresh mentioned, we will continue to focus on pipeline generation to drive additional project wins. Early first quarter weekly revenue run rate has shown the typical summary impact as consultants take holidays. Also, we are seeing some additional softness compared to the fourth quarter as a result of delayed project starts, both of which will impact the run rate for the remainder of the quarter. Taking all this into account, our outlook calls for revenue of $115 million to $120 million.

On the gross margin front, we expect a typical summer impact to affect utilization of our consultants. And as such, we estimate gross margin to be in the range of 36% to 37%, which is in line with the prior year's first quarter. First quarter run rate SG&A expense is expected to be in the range of $46 million to $48 million. Non-run rate and noncash expenses will be around $3 million to $4 million, consisting mostly of noncash stock compensation and ERP amortization expense.

In closing, in the current operating environment, we continue to be laser-focused on improving our execution even further to drive long-term value creation. As better economic clarity emerges for our customers and new business prospects, we will be well positioned for a return to growth accompanied by stronger profitability. That concludes our prepared remarks and we will now open the call for Q&A.

[Operator Instructions] Our first question comes from Joe Gomes with Noble Capital.

Congrats on the quarter.

Thanks, Joe.

Thanks, Joe.

So nice on the gross margin beat. Just wondering if you could give us even a little bit more color on what was driving the GM versus where you originally had expected it to be.

Yes, Joe, this is Jen. Yes, so we are very pleased that we beat our gross margin pretty well above our gross margin guidance. The main driving factor is improvement in our average bill rate. We -- as you know, we've been working on our pricing strategy for some time now. This quarter, in particular, as we continue to win, as I said, larger and more complex deals, higher value deals, we were able to command higher bill rates.

So if you were to take a look at all of the new projects that started in Q4 compared to existing projects going in, we are seeing a double-digit increase in our average bill rate. So that's what's driving the favorability in our gross margin compared to the guide.

And Joe, let me just add, it's Kate. I really want to thank our management team because they're really stepping up to have very careful conversations with our clients about the caliber and quality of our people and why we're worth it. And when you think about our model versus some of the more traditional partnership models where we bring experienced, really, experts to execute, they create faster impact and it's really helping our clients understand that. And while the rates may be a little higher, the outcomes they'll achieve are stronger.

And let me just add 1 more thing, Joe. So from an indirect cost standpoint, we did also experience more favorable claims this quarter, too. So that's sitting on top of the favorable trend that we're seeing in average bill rate. So that's also another contributing factor.

Okay. And I think one of the goals you guys have out there for the cross-selling. And I was just wondering maybe you could talk a little bit more how that is going. Are you really seeing significant cross-selling benefits? Are they starting to generate even more? Any more color you can provide in that would be great.

Joe, this is Bhadresh. Yes, the sort of the responses we are seeing a good uplift in our existing clients where we have traditionally been serving them with On-Demand Talent, where we're able to bring in our deeper capabilities in Consulting and able to cross-sell there. And that's even for our future, that's our upside, right, because we have so many existing clients [indiscernible] so we have to do more cross-sell into these clients, and we're going to continue pushing that as we move forward over the quarters.

Great. And 1 more, if I may. Jen, correct me if I didn't hear you, the guide for revenue for the first quarter is $115 million to $120 million?

Yes, that is correct. And Joe, I had this in my prepared remarks. We -- as you know, Q1 typically is slower than Q4 because of summer. So we are experiencing typical summer impact, but it was also driving the revenue run rate is also the fact that we've had a few large deals, very specific deals that were delayed in terms of project start decision. A few of them, we thought that we were going to get the decision in second half of Q4, but we won the project and got to the final decision just about a week ago. And so that is pushing out the revenue into Q2. So that's another factor that's impacting Q1's revenue guide.

Okay. And then also in your release, you talk about some involuntary attrition on the sales team. What kind of impact, if you can kind of quantify somewhat, is that having, if any, on your outlook for Q1?

Joe, this is Bhadresh. We have been ramping up new salespeople into our organization, especially with the archetype of the evolving market. So there's a little bit of impact there as they're ramping up, but all of them are ramping up really well against our targets and goals. So there's some impact there, but I think we are starting to see more traction as we continue to move forward with the new people we brought on board as well.

Yes, Joe, I would say that the sales attrition, that disruption impacted our Q4. But going into Q1, I would say, as Bhadresh said, we are definitely stabilizing to a certain , we are still ramping up some new sales team members. But I would say the Q1 to Q4 comparison, the trend isn't because of the sales attrition.

Our next question comes from Mark Marcon with Baird.

I was wondering if you could give a little bit more color with regards to what the expected trends would be both on the Consulting as well as the On-Demand Talent. Because it sounds like Europe and Asia are relatively stable and doing well. So when I take a look at the overall guide, I'm trying to see what that implies for On-Demand as well as Consulting.

Yes. Mark, you're exactly right. Europe and Asia Pac, we are expecting stability. With normal summer impact, the softness is really sitting in the U.S. and On-Demand and Consulting. On-Demand, I expect that it's going to be -- it's still going to maintain the stability that we've seen in Q4. The Consulting side is impacted more and this goes back to the project delays that I referred to. But I think overall, I would say that in the On-Demand business, we are seeing stability in Q4, and we expect that stability to continue into Q1.

Mark, it's Kate. I think just to be really, really clear, On-Demand just gets hit because people take vacations and they generally negotiate that with clients directly, so we don't have clarity about when that's happening. I think the second thing, the 2 largest deals in our pipe, as Jen said that we thought would close late April, we did win those so I want to be clear. We successfully closed-won those, but they're not starting until Q2. And we have those in the pipe sooner and so we're reflecting that in the guidance.

Got it. And then just to be clear, with regards to On-Demand and that being stable, does that mean stable with the constant currency, same business day trend that we ended up seeing during the last quarter?

Yes, that's correct.

Great. And then can you -- Bhadresh, you talked a little bit about the pipeline. Can you talk a little bit more about -- if I heard you correctly and I'm not sure if I did so forgive me if I didn't. But did you say the pipeline shrank a little bit? And I'm just wondering what drove the shrinkage in that if that's correct. And then what are the efforts to kind of rebuild the pipeline? And when do you see the sales cycle actually, the closings actually and the project starts reaccelerating?

Of course. I think the biggest thing to kind of break the pipeline down, I think we should look at it, where we're hyperfocused right now is pipeline creation, which we back to first half levels where we're highly focused on putting more into the pipeline. In the same vein, what we're seeing is between closed-won and closed-lost opportunities as we're doing better funnel management. That's where we're seeing the pipeline kind of decreasing as when we lose work.

But our focus is highly on pipeline generation, getting into the right areas, cross-selling into our accounts and building the pipeline. I think the second piece of this also is that we've seen a little bit more of a trend, especially in On-Demand where deals get into our pipeline, and then clients are actually either stopping the need or using their own resources to staff the need. So we'll see more what we call abandoned deals into our pipeline than we have sequential quarter.

And the third piece of this is on the Consulting side, we continue to add larger deals as we're moving up the value chain for our clients. But some of the discretionary, as the clients look at it going is strategic to the organization or is it discretionary, they're putting some of these initiatives on hold. So we're kind of putting those out of our pipeline as well. So none of it is we're hyperfocused on pipeline generation and creation, hyperfocused on funnel management, right, and having the discipline that we need so we can continue scaling our pipeline and making sure we're bringing the right type of deals into the pipeline.

[Operator Instructions] Our next question comes from Andrew Steinerman with JPMorgan.

This is Judson Lindley on for Andrew Steinerman. I was just wondering if you guys could maybe help us bridge from your dollar revenue guidance for 1Q to an organic constant currency growth rate, if you could provide the components for M&A impact, FX and days adjustment.

Judson, our revenue guide at the top end of the guidance at $120 million, it's a 14% decline from Q1 of last year on a same-day basis. Currency impact is not significant. And it is mostly organic because we acquired -- we closed the Reference Point acquisition last year at the beginning of July. So the 14% is your apples-to-apples comparison, yes.

Okay. Great, great. And then, I guess sort of a similar question for the current quarter, could you just maybe help me confirm what the Reference Point impact was and if there was any impact from FX?

Yes. Q4, right, you're talking about Q4 to last year's Q4?

Yes, Q4.

Same-day constant currency comparisons is down 11%.

Thank you. I would now like to turn the call back over to Kate Duchene for any closing remarks.

I just want to thank everyone for joining us. We look forward to talking to you at the end of Q1. And enjoy a productive and healthy summer. Thank you.

This concludes the conference. Thank you for your participation. You may now disconnect.