Good afternoon, everyone. It's now 2:30 P.M. here on the East Coast, and we're ready to begin our final session of the day. My name is Mark Riddick. I'm Senior Analyst with Sidoti & Company, and I thank you for joining the Sidoti June Small Cap Virtual Conference these couple of days. Now, presenting with us is Resources Connection, ticker RGP, and joining us is Kate Duchene, Chief Executive Officer, and Chris Meyer, VP of Finance. Now, before we begin, just a quick reminder, on the bottom of your screen is a Q&A button. You can just click on that to submit your questions. You don't need to wait until the end of our allotted time to do so.
Just feel free to submit those at any point, and we will be addressing the time at Q&A at the end of the prepared remarks. With that, I can turn the call over to Kate. Kate, thank you for joining us this afternoon.
Thank you, Mark, and we're glad to be here, so thank you to Sidoti for hosting us. Hello, everyone. I'm happy to present an update on our company. With me is, as Mark said, Chris Meyer, who's our SVP in the finance organization, as our CFO is out of the office this week. So I'm gonna take you through quickly for about 20 minutes, an updated view of our business, and then we can have some Q&A. You see the normal admonition around forward-looking statements, but here we are, RGP in a nutshell. We trade on the Nasdaq under RGP. RGP is a global professional services company. We have a Big Four heritage, but really what is the key differentiator for our business model is that we deploy experienced, highly trained consultants in an agile or a flexible way.
So in the early days, our demographic was largely female. These were talented people who had fallen out of the Big Four, couldn't find their way back in, and frankly, didn't wanna work in that partnership model, but still had exceptional skill sets and a desire to work in professional services. And so we put supply and demand together and created what we call a modern professional services business, which matches talent and client need to deliver both operational project work or transformational work. Fast-forward to what happened coming out of a global pandemic, and we all recognize that talent wants to work in different ways today, whether that's more flexible geographic location or in more flexible employment models, and that's what we're seeing.
We've really seen in the lower right-hand corner, this slide around blended workforce strategies strongly favor our model, and what that means is that some of the world's largest companies are recognizing that you don't need to own full-time all of the talent or skill sets you need. Every company can probably scale down what is their full-time employee base, and then insource the skill sets or the talent they need for certain projects, for certain periods of time, and that's really what we do with our clients. We plug into their project needs. Sometimes we cover role based gaps, and we are also continuing to deliver more and more consulting, which is strategy to execution in focused areas in our client base, and I'll come to that in a moment.
We've been recognized several years in a row as America's Best Management Consulting Firm and also America's Best Midsize Employers . We're proud of that as we talk to clients, but this actually matters the most to our consultant set and the quality of talent that we are attracting to our model. This slide highlights the investment thesis. As I mentioned before, we believe the secular macro trends driving both supply and demand favor our business model and position the company for significant growth as we see the macro environment strengthen a bit. We have a global client base. We serve largely the Fortune 100 and beyond. What differentiates us from the partnership models of the Big Four is that we really can globally work as one team.
We are not a collection of partnerships that have to figure out how to work together. We can build client teams seamlessly and then deliver on client projects, no matter where the work is happening in the world. We have... Our top 20 clients are the same brand names that you would all recognize, and that largely the same client base that the Big Four serves. We've been working, and before we saw this most recent downturn, we've been working hard at gaining foundational operational efficiency.
For many of you who know, we're in the process of a technology transformation project, which is replacing some of our very outdated tech stack and bringing more modern technology to bear, which means that we can continue to look at rationalizing headcount, not adding headcount as we return to growth and really delivering a better experience for our clients and our consultants. We're about two-thirds of the way through that project. It is global in nature and involves the replacement of many of our core systems. But we think it's very important for driving more automation, AI capability in what we do, and reducing speed to market. Speed matters in everything you do in today's business environment.
And, again, as I said before, keeping our productivity up without adding headcount as we return to growth, and, streamlining some of our process. One of the most attractive elements of our business model is that 70% of our cost structure is variable. That means that by and large, our consultants in our on-demand business, if they're not working, they're not paid. We do provide access to employee benefits and a safety net platform for a period of time between engagements. But, having a largely variable cost structure contributes to, our cash flow, our profitability, and, our ability to continue to return shareholder value even in a more challenged macro environment. We do have robust free cash flow generation, and that supports reliable return to shareholders, including an industry-leading dividend yield.
The last point I'd highlight is something that, you know, we've invested in most recently, starting in 2019, and again, this year, is to increase our capability around digital transformation. Almost every business is investing in digital channels, whether that's to engage more successfully with clients or customers, or to engage more successfully with employees. It's especially true given that many employees are working in distributed ways now, whether it's a hybrid environment, whether there's more of a blend of offshore/onshore talent. And so we wanted to add to our capabilities in this area, and you can see what the market opportunity is, which, you know, largely our heritage has come out of working for the CFO. Now we're starting to work for the Chief Technology Officer, the Chief Digital Officer, the Chief Marketing Officer, with many of these digital transformation initiatives.
This area of the consulting industry has strong growth potential as we move into 2030, and we want to be well-positioned for that. As I said before, we're helping clients both with operational needs and transformational needs. We call this enabling the project economy. There's been a lot written about the fact that, again, coming out of a global pandemic, companies realize what they need from a full-time employee base can be smaller than it's been in the past, and that increasingly work is accomplished in these large organizations through project work or the project economy. And we're a perfect solution to partner with organizations to provide that skill set, expertise, and additional bandwidth for project initiatives. So bringing together, again, that supply and demand is something that we are committed to, we're excited about, and we think is continuing to grow.
With respect to our transformational initiatives, they're largely focused on the area of finance, digital, operational excellence, and regulatory and risk transformation. Part of that operational piece is also what technology you bring to bear on what you do, and so we are supporting a number of projects currently that involve cloud migration activity. Many of our clients are operating on two of the largest ERPs, whether that's Oracle or SAP. And as those organizations have stated that they will no longer support on-premise instance of their software, we have a number of clients that are migrating to the cloud and needing to do work around what that means, whether that's business process redesign, data cleansing or testing, project management, and change management. And those are all sweet spots for our business and how we serve our clients.
This is a quick look at our numbers for the last 12 months. We report earnings again for year-end on July seventeenth. Please keep in mind that we are in Q1 of our fiscal 2025. Into this new year, we will start reporting with business segments and business operating segments in mind, to give our investors more clarity around what is in our on-demand talent business, what is in our consulting business, and what are we doing in the outsourced services business to serve these clients? And what are the financial attributes of those different parts of our organization? This is in an effort to give you more transparency and information about what our brand stands for, and the value that we're delivering in this exceptional client base every day.
You know, the strengths really of RGP is our clients and our people. We have the right to do business in a number of clients globally. We serve some of the largest organizations, and why that's important is that they tend to have consecutive significant enterprise projects happening, so we know there's always recurring work in this client base. We're very sticky once we get in those clients. We serve them around the world, and we do it with really qualified and capable people. Very proud of the stats on the right-hand side of this slide in terms of the number of employees or consultants that we have deployed. We're continuing to increase the average retention and tenure of our consultants.
We get a lot of referrals from current employees, which we're proud of, and tells us we're doing something right, and we're bringing a lot of diversity, opportunity, for talent base. 68% of our employees in the United States, for example, are racially or ethnically diverse or female. So we're proud of the kind of broad-based talent set that we bring to solve our clients' problems. We've talked about this for the last couple of sessions, and that is, what have our enterprise growth drivers been? I talked about us transforming digitally with new technology, but that also involves bringing more digital capability into our client base. You know, we bought a business called Veracity in 2019.
They had a different client base than we have served, but we've been continuing to increase the ability to cross-sell in our traditional core RGP client base, to cross-sell their capability. And what we're excited about going forward in fiscal 2025, is really bringing together that digital design customer employee experience work with functional subject matter expertise, so that what you're designing is relevant and desired by, the employee base, that you're serving. And so, that combination of digital experience and functional expertise, we think is differentiated in the marketplace. As I said before, we're continuing to clarify our brand voice and our solution offerings. So in, Q1, you'll see us report a little bit differently and be much clearer about what our brands stand for and why we exist together. We've been operating our...
evolving our operating model to execute this strategy, and we're in place for fiscal 2025 and excited about how we're moving forward. We've also been talking about enhancing pricing. We are a, a value-oriented player, vis-a-vis the competition. You know, on average, our rates are about 30% to 40% lower than the Big Four. We're competing with them every day. We think we offer a differentiated talent. Often, our clients say, "You're a breath of fresh air. We're not paying junior people and teaching them at the same time. Your people are often teaching us." And that's because we look for consultants that are both professionally trained in professional services, but also have worked inside industry, and have the experience and judgment to bring to bear on the projects they're delivering.
We've invested in M&A activity this year, building out some of our digital capability for Veracity in the Southeast Asia region. Also, we announced a signing of a deal to acquire a management consulting business in the financial services space, where we're building more technology and data capability for that client set and marrying our strong client development and client service team focused on financial services with more management consulting capability in order to accelerate growth. Financial services has always been a key client or client segment for us, and tends to spend the most on consulting and professional services, so it's an important category for us. This is a newer slide that I've created, or we've created, that we call the RGP Advantage.
And this is intended to highlight, you know, what we offer and being clear about the differentiated engagement models, whether we're serving a client with on-demand talent, consulting, which means strategy to execution, or outsourced services . And in the outsourced arena, we're serving start-up, scale-up, and divested businesses with outsourced accounting and HR services. We believe this combination of how we work and can engage with talent at a profession- or excuse me, clients at a professional level, is perfectly aligned to where the market is moving and how clients wanna get work done in today's environment, where they're looking for more cost flexibility, but even more importantly, access to the right skill sets they need in order to move their own businesses forward with speed and speed to value. On the right-hand side, you can see who are our core buyers.
We've often talked about, you know, who are the core buyers? Who should know about RGP? What are our core industries? Where are we focused on capability, and where do we operate globally? Our capital allocation framework has been balanced. We generate strong operating cash flow, and we've allocated that capital between organic investments, acquisitions, debt repayment, if we have it, we do not have any debt right now, and direct return to shareholders, whether that's our dividend activity and/or stock repurchase activity. We have done in the past 12 months, assuming we will close this deal we announced in late March, this month we will have done two acquisitions.
So we are active in the market, looking at what assets are available, valuations have gotten a bit more attractive, and what kind of capability do we need to add to our enterprise? This slide just reminds you what we've done over the past five years in terms of share repurchases and dividend yield, what our yield is as a percentage, and the fact that we've had a consistent dividend return for the last 10 years. With that, I think I wanna close, and I see that we have some questions in Q&A, so Mark, I'll leave it there, and we are happy to answer any questions.
Thank you very much. As a reminder, if you would like to submit a question, just feel free to click on the QA button at the bottom of your screen. One of the questions that's in the queue is around, and this is sort of a bigger picture question as well, is talking about sort of the current sales pipeline and maybe opportunities to win new business, as well as maybe some of the potential demand drivers that would lead to that.
Yeah. So, there's no question this has been a challenged year for everyone in professional services and consulting, but we're starting to see more momentum come back into the market. I think what we've all experienced is clients sitting on the sidelines a little bit, or if projects did start, they parsed projects out instead of green-lighting or budgeting the whole project at once, which is normally our experience. So we are seeing top-of-the-funnel pipeline pick up. We're seeing opportunities move more quickly through pipe, which is always some good early indicators that we're getting back to a stronger buying environment, which is what we all want. I think an important statistic to pay attention to is, what are hiring trends expected to be? They were very negative six months ago. They've gotten much more positive with hiring managers.
30% of hiring managers surveyed recently saying that they expect an uptick in hiring, which means talent will start moving around, which often provides opportunity for our on-demand business. So, you know, we are cautiously optimistic that things are improving, and we are positioned to execute on those opportunities. For us, it really is about shifting share in this client base. It's about helping clients understand that we are... we can break through that kind of safe selection decision-making, which is, you don't get fired for hiring IBM. We are a challenger brand. We are a newer brand.
We've been in business for 25 years, but we are still competing with 100-year-old-plus brands, and so breaking through that psyche and saying, "Finally, try something different and shift share," once clients experience how we deliver and the caliber of talent we deliver, they remain sticky with us. So it's, it's getting that first shot. It's, giving our brand a chance, and then experiencing positively what we can do. Again, our model is really differentiated based upon the caliber, the experience, and the judgment that our consultants bring. And we're very proud of that. We also, from a client service perspective, are really committed to owning the client's problem, so it's, it's more about them than it is about us often, and that is not what every professional services business can say with a straight face.
Excellent. Then we do have one of the questions is around the geographic diversification as far as the revenue, and maybe you could talk a little bit about that and the competitive landscape and your geographies?
Yeah, so I used to get the question from investors, "Why don't we just focus on North America?" That's the biggest part of our business, and it's, in the past, had the highest growth. It's been the most challenged this past, you know, nine to 12 months, as we've seen a couple of things happen. We've seen some work move offshore again, and this is not just because of labor arbitrage, it's because of talent. Where are these talent pools that clients—So think about, especially in the digital space or the technology space, we're tapped out of some of this talent in North America, and so needing to go to places like India or Mexico, still North America, but to tap into these talent hubs. For finance and accounting, there's excellent talent in the Philippines.
And so we've been able to build, especially with our outsourced services business, delivery teams there that are exceptional. And so having a geographically diversified business has been a positive for us, not a negative. Now, the bill rates tend to be lower in some of these emerging economies. But we need to be there because that's where our clients are moving, either some of their global business services or what we're starting to see as centers of competence. And we need to be where our clients need us. So we're seeing, you know, Asia Pacific, for example, has performed pretty well this year. Europe has seen some setbacks as there's been a lot of geopolitical conflict, but also just economic worries.
We're starting again to see that come back to life, and our pipeline strengthening in Europe.
Excellent. And then one of the, and actually, before I get to one of these other questions, I did just sort of wanna remind folks, I think you had made mention as far as reporting on July 17th. I just wanna remind the folks that are listening, RGP fiscal year ended at the end of May. And so, they're, they're now on to fiscal 2025, if you're wondering about the timing of that.
Right.
Uh, one of, uh,
Thank you.
One of the questions is around, consulting-
Mm-hmm
... and asking about what you're seeing as far as enterprise spending priorities, what type of shifts you're seeing there, and how, whether that helps or, benefits or hurts RGP?
I think it benefits us, especially as we've moved in the past couple of years to add on-trend capabilities. And again, I'll go back to digital transformation. It seems that almost everything has a technology digital data lens to it. You hear a lot about, I think, Bain reported that they think, you know, 20% to 30% of their revenue will be based on AI going forward. For us, the opportunity is to help companies get their data ready for some of those strategies. So there's a lot of work that has to happen in these large organizations, especially organizations that have been built through acquisition and roll-ups, to get data clean and organized so that you can put some of these AI and automation strategies in place.
I'll just highlight now, investors have asked me, "Are we afraid of AI or automation, because will it displace our own opportunity?" The answer is no. If you look at labor shortage data, especially in this country, we have a real problem to achieve our productivity goals if we don't use technology and AI to supplement the humans in the room. I mean, we don't have enough humans, given retirement rates, lower immigration, and what will be coming in the future, which is much lower birth rates. We are not replacing the human capital that we've had, and we are going to have to embrace technology and automation and AI in order to remain productive, and meet productivity goals for our economic environment and economic health. I'm not worried about this displacing the kind of talent we deliver.
It may mean that our talent is doing some different things, but not being displaced by this. I think that's a really important message for investors to understand. We remain, you know, optimistic about the opportunities as it relates to bringing the digital worker into the environment.
Well, that sounds like a perfect place to conclude our time today. That's a very important point. I do wanna thank everyone for joining us, and thank RGP for presenting, and everybody have a wonderful and productive remainder of the day. Thank you so much.
Thank you very much.
Take care.