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Thank you. Good afternoon and welcome to RGP's fourth quarter fiscal 2026 conference call. Currently, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call At this time, I would like to remind everyone that management will be commenting on results for the fourth quarter ended May 30th. They will also refer to certain non-GAAP financial measures. An explanation and reconciliation of these measures to the most comparable GAAP financial measures are included in the press release issued today. Today's press release can be viewed in the investor relations section of RGP's website and filed today with the SEC.

Also during this call, management may make forward-looking statements regarding plans, initiatives, and strategies in the anticipated financial performance of the company. Such statements, our predictions, and actual events or results may differ materially. Please see the risk factors section in our report on form 10 K for the year ended May 31st. 2025 for a discussion of risk uncertainties and other factors that may cause the company's business results of operations and financial condition to. differ materially from what is expressed or implied by forward-looking statements made during this call. Such discussion will also be included in the risk factor section in RGP's report on Form 10-K for the year ended May 30th, 2026, which is expected to be filed on or around July 23rd, 2026. I will now turn the call over to RGP's CEO, Roger Carlisle.

Thank you and welcome everyone to the call. This is my third time speaking with you about our quarterly financial results. I continue to learn about our markets, clients, employees, and services as I work with our leaders to execute our strategy. I remain optimistic about the future of our business as market conditions appear to be showing some stability, providing a more consistent backdrop for us to continue activating our strategic priorities and related investments. Consistent with the prior quarter, our fourth quarter results were aligned with the outlook we provided for revenue, gross margin, and run rate SG&A expense. We will hear more about this later in the call from our CFO, Jen Rue. For now, let me touch on market conditions as we see them.

Results from our recently completed voice of the customer survey and our progress against our strategic priorities. From our perspective, global market conditions remain broadly consistent to the third quarter with some regions and industry sectors showing more progress than others. In the fourth quarter, revenue for our North American markets served by our on-demand talent, consulting and outsource services segments performed as we expected compared to the outlook we provided. Compared with the third quarter, North America's revenue was flat on a gap basis, but did exhibit a modest decline when adjusting for the number of business days and currency fluctuations. Revenue in our Europe and Asia Pacific markets was softer this quarter, driven entirely by weakness in Europe. Asia-Pacific markets performed in line with both our outlook for the quarter and the prior quarter's results. The trends we faced in our European markets appear to be non-systemic situations with our specific clients rather than larger economic or geopolitical issues.

In addition to this operational view of our markets, we very recently completed a voice of the customer survey in which we surveyed 500 decision makers and buyers from customers who are either currently working with RGP or who have worked with RGP in the past several years. We undertook this survey to ensure we anchor our strategy investments in market reality, moving from assumptions to data-driven decisions that support our strategic priorities to drive growth, client retention, and differentiation. This survey allows us to understand how clients truly perceive RGP in terms of delivering differentiated value, being prepared to meet their stated needs in the areas of finance, technology, and operations, and how we compare to the competitive alternatives. While we've only just begun to analyze this data, some important perspectives are already clear, including RGP being rated stronger head to head with other execution and staffing focused competitors, but still having work to do against larger traditional consultancies. Top themes for why clients choose RGP include trusted partnership, speed of execution, flexibility of delivery model, and the quality of our people and services. And while there is a spectrum of data points for us to examine and act upon, we can take pride in having a strong net promoter score with 95% of our customers indicating their intent to increase or maintain their level of engagement with RGP. Given the relative stability in our markets and the early understandings from our customer survey, we continue to focus on our strategic priorities.

These priorities are one, refocusing our on-demand talent segment offerings, two, scaling our consulting segment, three, Three, pursuing AI as both a client service and an internal opportunity. And four, streamlining our operations to align our cost structure with our revenue levels. In the fourth quarter, we made additional focused investments to support these priorities, and we continue to expect these and the investments we made in the third quarter to drive revenue growth as they mature through their anticipated ramp-up period. In terms of refocusing our on-demand talent segment and scaling our consulting segment, we made additional investments during the quarter which we expect to drive future revenue growth. include adding seven new professionals to our sales team as well as adding additional senior professionals to our consulting segment. While we will continue to take advantage of opportunities to invest behind these priorities, we have completed the initially planned level of investment to support our business goals for fiscal year 2027. AI remains an important strategic priority for RGP. We see AI fundamentally changing how work gets done across finance, risk, technology, and transformation, creating new opportunities for both our clients and our business.

Our approach is practical and disciplined, helping our own teams use AI to improve productivity and accelerate delivery, while building AI-enabled solutions, talent, and partnerships that address our clients' highest value business challenges. We believe the greatest value will come from combining AI with deep functional expertise and strong governance, enabling clients to adopt AI responsibly while delivering measurable business outcomes. Regarding our goals of simplifying how we operate and aligning our cost structure to our current revenue levels, those two activities are becoming increasingly intertwined as the simplifications we are implementing increasingly involve both process and technology modifications, which have longer implementation periods. reduction initiatives planned for the fiscal year 2027, our focus is increasingly shifting towards simplifying how we go to market, how we serve our clients, and how we operate through more streamlined processes and technology. With that, I will now turn the call over to our CFO, Jen Rue. Thanks, Roger, and good afternoon, everyone.

Performance in the fourth quarter was largely in line with expectations. Consolidated revenue and run rate SG&A expense were both within our outlook ranges, while growth margins beat the high end of the range. Adjusted EBITDA for the quarter was negative $0.6 million. Starting with revenue, consolidated revenue for the quarter was $106.1 million, representing an 18.3% decline on a same-day constant currency basis compared to the prior year quarter. Revenues in the on-demand talent and consulting segment were largely in line with our expectation, however, down from the third quarter on a same-day basis, reflecting timing and project activity within an otherwise stable demand environment in North America. Our focus remains on accelerating the ramp of recently hired go-to-market professionals and strengthening sales execution under our new sales leadership team to improve pipeline generation and conversion. In the Europe and Asia Pacific segment, the Asia-Pac region delivered solid revenue performance in the quarter, including year-over-year and sequential growth in China and the Philippines, while Europe continued to experience some choppiness in the timing of projects as several large clients, which weighed on segment revenue for the quarter.

Our outsource services segment continue to perform steadily, generating stable year-over-year results and sequential growth. Turning to growth margin, growth margin for the fourth quarter was 37.6% compared to 40.2% in the prior year, primarily reflecting less favorable leverage of indirect cost of services and lower consultant utilization. Enterprise-wide average bill rate was $120 on a constant currency basis compared to $125 a year ago, with results reflecting the geographic mix of revenue during the quarter, including a greater contribution from the Asia-Pacific region. At the segment level, average bill rates in our North America segments remain strong. On-demand talent's average bill rate grew to $145 from $143 a year ago, while consulting's average bill rate grew to $163 from $159. In Europe and Asia Pacific, the average bill rate was $57 compared to $64 last year on a constant currency basis, again, largely reflecting a higher proportion of revenue generated in Asia Pacific relative to Europe. Now, on to SG&A. Fourth quarter run rate SG&A expense was $40.5 million, a 12% improvement compared to $46.2 million in the prior year quarter.

This year-over-year improvement reflects the benefit of the cost actions we have executed over the past fiscal year. During the quarter, we took additional steps to simplify our business and further reduce cost structure, including the divestiture of Citrix and continued resource alignment to the current revenue level. On-run rate SG&A expense totaled $14.1 million, of which $6.4 million was non-cash and $7.7 million was cash expenditures related primarily to the Citrix divestiture and employee termination costs, including those related to the COO transition. With significant cost actions now largely complete, we will remain focused on additional opportunities to improve efficiency over time. In addition, we have begun reallocating capital toward targeted investments in go-to-market leadership, sales capacity, and client-facing capabilities that can support stronger revenue generation over time. We will continue to deploy capital with discipline, balancing growth opportunities with cost management. Now turning to segment performance. As a reminder, the fourth quarter of fiscal 26 contained one less week compared to Q4 of fiscal 25.

All year-over-year revenue comparisons are adjusted for business days and currency impact, and a segment-adjusted EBITDA excludes certain share corporate costs. On-demand talent revenue was $40.4 million, a decline of 18% from the prior year quarter. Segment adjusted EBITDA was $3.1 million, or a 7.6% margin compared to $6.4 million, or a 12.1% margin in the prior year quarter. The resulting revenue was $36.6 million, down 23% year-over-year, which continued to pressure utilization and therefore gross margin and segment EBITDA. Segment adjusted EBITDA was $2.3 million, or a 6.3% margin, compared to $8.3 million, or a 16.3% margin in the prior year quarter. Europe and Asia Pacific revenue was $17.1 million, down 14% year-over-year. Segment-adjusted EBITDA was $0.4 million, or a 2.1% margin, compared to $1.9 million, or a 9% margin, in the prior year quarter.

Outsource services revenue was $10.3 million, down 1.6% year-over-year. adjustment EBITDA was $2.1 million or a 20.2% margin compared to $3.1 million or 27.8% in the prior year quarter. Turning to liquidity, our balance sheet remains strong. We ended the quarter with $82.4 million of cash and cash equivalents with no outstanding debt. Quarterly dividend payments total $2.3 million, representing a 6% annualized yield based on our stock price at the end of the fourth quarter. Just last week, we replaced our previous credit facility with a new revolving credit facility designed to provide increased flexibility within our covenant structure and better align to our capital needs. With our cash position and available borrowing capacity under our new credit facility, we will continue to take a balanced approach to capital allocation investing in the business to support long-term growth while returning capital to shareholders through dividends and opportunistic share repurchases. At quarter end, $79.2 million remained available under our share repurchase program.

I'll now conclude with our outlook for the first quarter of fiscal 27. We have We expect first quarter revenue to be relatively consistent with fourth quarter levels, adjusting for normal summer seasonality and the impact of the citric divestiture. As a result, we expect revenue in the range of $97 to $102 million. We expect gross margin to be in between 37 to 38%, also reflecting typical seasonal dynamics in the quarter. Fund rate SG&A expense is expected to be in the range of $41 to $43 million, which reflects the targeted reinvestments we've made in the business. Non-run rate and non-cash expense are expected to range from $2 to $3 million and consist primarily of non-cash stock compensation expense and amortization of capitalized system transformation costs. In closing, we made meaningful progress in fiscal 26, aligning our cost structure, strengthening the organization, and investing in key growth priorities.

With a strong balance sheet and improving operational foundation, we believe we are well positioned to execute more consistently and create long-term shareholder value. With that, we'll conclude our prepared remarks and open the call for questions.

Thank you. One moment for questions. Our first question comes from Joe Gomes with Noble Capital. You may proceed.

Good afternoon. Good afternoon. Good afternoon. Roger, you got the four priorities that you talked about, you've talked about here for the past couple of quarters. If you look at them today, how far along would you say, or how close to completion are you on each one of the four? What kind of percent done, I guess,.

each one of the four R you add? Yes, well thank you for that question. I think, I mean, we're going to, most of those things frankly never stop. But in terms of thinking of them as, seasons or innings or something like that. I think I mentioned in my comments at the beginning of the call that for FY27, we are basically complete with those investments. Now we need to see those pay off. We expect that to occur in the latter half of the year. Every day we would hope that it improved, but we think the ramp-up period pushes some of that result to the last half of the year.

It doesn't mean that we won't see some opportunistic opportunities to invest in each of those areas as we go along. But in terms of what we were doing to get ready for 27, we are, for the most part, complete with that.

Okay, thank you for that. And I know you did the survey in its early days there and getting all the data analyzed. But when you sit here today, I mean, what kind of gives you confidence that the demand environment has stabilized and we should hopefully see.

some improvement here in 27. Well, I think we're trying to point to that in our commentary. I think operationally, you we see that the markets seem to be somewhat stable. I think because you have to look at, everything we look at for the markets, maybe we're not perfect competitors, we're not in every little sector the way every other competitor is, but when we look at the markets, we see stability there. That makes me feel good. We just look at our own results. I think they're, you know, the last quarter to this quarter fairly stable. Yes, the seasonality, it'll look a little down, but I think the activity seems stable heading into the first quarter of 2021. So I think that stability helps us feel like perhaps we're nearing the end of the a bottom of that kind of market activity driven downdraft.

And then the survey that we did, our customers appreciate us, think of us highly. and said they intend to, 95% intend to engage with us at the same or higher levels. So that all makes me feel good, And there's only one thing it doesn't, which is that sounds really good. So why aren't we killing it? So I think our expectation is the reason we're not killing it yet is we have a lot of work to do. We have a lot of investments that we need to start paying off later in this year.

Okay, and one last one for me, I'll get back in queue. You talked about some additional cost reductions planned for 27. I don't know if you could give us a little more color on that. Are you planning on taking some more charges in 27 on the cost out?.

Jen could probably answer it more clearly on that, but I think for the things that I'm speaking about there, yes, there'll be a little bit more.

cost takeout and charge related that I believe. Yes, we're going to continue to, we're always right looking at our resources against capacity and demand in the business. And there's still some occupancy costs that we're planning to take out. So, and as Roger mentioned, right in his, remarks that the size of the cost takeout is going to be less significant than what we've done this fiscal year. And the additional cost takeout will require more work as we're looking at our systems and looking at ways in which AI can help us. become more efficient. And so that's going to take a little bit of time. But overall, the one-time charge, we're expecting our non-run rate charges in fiscal 27 to be kind of normalized.

I guided two to three million of non-run rate, non-cash charge for Q1. So I expect.

that we won't deviate too much from that for the rest of the year. Okay, great. Thanks, Jack. Thank you.

Thanks, Jeff. Thank you. Thank you. Our next question comes from Mark Marcon with Baird. You may proceed. Proceed.

Good afternoon. Thanks for taking my question. So, Jen, just one quick numbers question. On the SG&A of $41 to $43 million, that is exclusive of the $2 to $3 million of non-run rate charges? Yes, that's correct. And what sort of covenants do you have on your new credit facility?.

We actually, you know, we entered into this new facility, really the goal was to provide us more flexibility with the way we can use our cash, especially with respect to restricted cash payment to, you know, so that's shareholder returns, right, in terms of dividend and share repurchases. So it really is going to give us a lot more flexibility. And we have outside of that, we have the typical, you know, covenants restriction on investments and loans and indebtedness and so on and so forth. The two main financial covenants were a fixed charge coverage ratio and a minimum liquidity ratio and a fixed charge coverage ratio is a springing covenant. So we actually don't expect that to come into play at all.

Yes, hopefully. Yes. Okay, great. And then, Roger, I know it's only, you know, this is only your third conference call, and so you're trying to turn things around. I was just wondering, can you talk a little bit about some of the things that you talked about last quarter so we ended up having, you know, know we had for Sean Lomba come in we had Jessica block come in what are you seeing there what's the what's the what's the progress in terms of the central US just in terms of I mean you came into a rough situation so fully recognize that we're just wondering like on the new changes that you've made what sort of progress have you seen.

Yes, well, I'll go to the ones you specifically mentioned, and then I'll broaden from there a little. I think, and you probably saw in the comments, just a moment ago that we spoke maybe more about AI than we have historically. I think adding Jessica and Prashant, both of who had worked together and with me in the past, and both have, although they have different roles in the firm, they both have backgrounds in AI. Prashant ran the AI labs as prior employer and work closely with Jessica. So we see a lot of opportunity for RGPs, uh, you know, both internally, uh, and Prashant, more of Prashant's work will probably be working with Jen and others internally in terms of how can we use those, you know, technologies and tools to make things, uh, more effective and efficient. Um, and Jessica is doing a lot of things that are, um, both internal and external. So we're doing a lot to, you know, raise the, um, general awareness and knowledge of our employee base regarding AI.

Um, virtually every conversation that we have with our clients, whether it's our most senior consultants, our sales team, AIs in every conversation. So we're working to ensure that we have you know, in our on-demand talent team, or on-demand, you know, employee base that we have, people there that are sophisticated in learning AI, and we're infusing AI into all of the things we do with clients. And that's everything from getting their data ready to have AI applied. Again, it's helping with governance and as they put those tools into their systems, helping them decide what systems to do, and choose and reach those efficiencies in their business. So I think there's a lot happening in the AI world. And my view's been for, I mean, you hear a lot of, in the, in the, the press and the market, there's a range of beliefs. There's a number of people that want to paint as the death knell for professional services and consulting and those things.

And I don't buy it. I've been through many technological changes and my experience is generally when the customers are trying to achieve something, there's a level of confusion, it's actually a little boom for consulting. And I think that's what will happen for some time, you know, it may not be forever, things eventually get integrated fully, but I think it's going to be a, for those firms that prepare themselves and take advantage of it, I think it's going to be useful, and we do too, but we have a lot of work to make that a reality, and so that's what we're about. So I think a lot that is going on there that's positive, And then just, you know, all of those investments that we've been talking about, more last quarter, but a little bit in the, you know, two quarters back in terms of being sure that our sales team is growing and is skilled in the areas of what we're selling, that we're simplifying our business down to talk to clients about a specific set of things. All of that continues to go on. And that's really what the voice of customer survey was about, was making sure that, one, we know how our customers see us. And secondly, are we focused on the things that they see us as well positioned to help.

address. So maybe I'll stop there, but I think that addresses most of your, that question. Yes. I was just wondering about like the central US team and then like, how long would it take for the seven new salespeople that you hired to get productive? Okay. I'm sorry. I misunderstood. You're talking about the fact that we hired a new sales leader in the central US.

U.S. Right. I took the U.S. to be the central part of the question. No, I think that's, well, that's the same thing I was saying. That's all progressing well. So the additions of those sales team leaders both in the sales team and in the sales team. central US and the Northeast. They're coming up to scale quickly. Our leadership team is across the whole US met and making sure that our approaches and processes are consistent and we're driving towards the same results. So I think that's moving along well and they're making a great impact. I think on average, it depends how people want to think about the ramp-up period for any professional.

I think we think it takes over a year before a sales team member will hit their full year mark. targets or quotas, but it takes anywhere from six to nine months for them to start hitting a monthly portion of that. So they can get up to sort of their monthly portion by the sixth to ninth month and And then, you know, over the next 12 months, they should be capable of hitting their annual.

Okay, great. And then on the consulting side, you mentioned that the utilization rate is lower. Where is that utilization rate now?.

Yes, hi, Mark. We're around in the low 60s right now for our, you know, salary consultants. So there's definitely room for improvement there.

Where would you hope for it to go and what would it take from a revenue perspective to get it up to a level that would generate a decent EBITDA margin?.

Yes, our target utilization for full-time delivery consultants, generally it should be above 75 to 80%, right? Probably even above 80. So, you know, I think with that, I'll just comment on the potential sort of gross margin impact of getting our utilization up in that range would be, you know, I think roughly 200 plus basis points.

Okay, great. Thank you. I'll jump back in the queue.

Thank you. And as a reminder, to ask a question, please press star 1 1 to queue up for a question. Our next question comes from Dylan Bandy with North Coast Research. She may proceed.

Hey, thanks for taking the question. I guess staying on consulting, you know, you guys had a pretty healthy pipeline. What has the conversion timeline kind of looked like lately, and has that changed at all over the past six months?.

Yes, for our consulting pipeline, overall consulting or on demand, we're seeing generally pretty healthy activities at the top of the funnel. we've said this, right, consulting deals generally take longer to close. depends on complexity, depends on the size of the project, and whereas on-demand is a much quicker turn. And so our conversion over the last two quarters or plus quarters and we're definitely seeing, you know, we've commented on longer sales cycle and I don't think it's lengthening every quarter, but in general, it has gotten longer, especially as we're now, you know, we've integrated our consulting segments, you know, all of our consulting assets and we're focused on selling more consulting work and it's definitely lengthened.

lengthen the sales cycle. Okay, thanks. And then going back to your cost actions, if you guys are taking further cost actions next year, as your revenue kind of normalizes a little bit, what kind of incremental margins should we be thinking about?.

I think we can get to the more normalized, I would say, 6% to 8% margin when revenue gets above $500 million.

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

Thank you, and thanks everyone for joining our call today. We appreciate your interest in RGP, and don't hesitate to reach out with any additional questions. Thank you.

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

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.