Resources Connection Inc (RGP) Q3 2023 Earnings Call Transcript

Resources Connection Inc (NASDAQ: RGP) Q3 2023 earnings call dated Apr. 04, 2023

Corporate Participants:

Kate Duchene — Chief Executive Officer

Tim Brackney — President and Chief Operating Officer

Jenn Ryu — Chief Financial Officer

Analysts:

Mark Marcon — Robert W. Baird & Co. — Analyst

Stephanie Yee — J.P. Morgan — Analyst

Marc Riddick — Sidoti & Company — Analyst

Presentation:

Operator

Good afternoon, ladies and gentlemen, and welcome to the Resources Connection, Inc. Conference Call. [Operator Instructions] Joining from management are Kate Duchene, Chief Executive Officer; Tim Brackney, President and Chief Operating Officer; and Jennifer Ryu, Chief Financial Officer. As a reminder, today’s 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 ending February 25, 2023. They will also refrain to certain non-GAAP financial measures. An explanation and reconciliation of these measures to the most comparable GAAP financial measures are included in the press release issued today. Today’s press release can be viewed in the Investor Relations section of RGP’s website and also filed today with the SEC.

Also during this call, management may make forward-looking statements regarding plans, initiatives and strategies and the anticipated financial performance of the company. Such statements are predictions, and actual events or results may differ materially. Please see the Risk Factors section in RGP’s report on Form 10-K for the year ended May 28, 2022, for a discussion of risks, uncertainties and other factors that may cause the company’s business, results of operation and financial condition to differ materially from what is expressed or implied by forward-looking statements made during this call.

I will now turn the call over to RGP’s CEO, Kate Duchene.

Kate Duchene — Chief Executive Officer

Thank you, operator. Good afternoon, everyone. Thanks for being with us. We’re pleased to report solid financial performance in Q3, despite the macroenvironment. We exceeded the high-end of our guidance on top-line revenue and gross margin was toward the high-end of our guidance range and at more than a 10-year high for the third quarter. Our SG&A cost-containment efforts, surpassed guidance expectations as well, as we remain focused on delivering value for our shareholders.

Taking a closer look, Q3 revenue was almost $187 million, with our digital consulting business, Veracity delivering year-over-year and sequential growth. Gross margin improved 80 basis points over prior year to 38.3% as we continue to rollout our value-based pricing initiatives. This improvement represents our strongest third quarter performance since 2010. Given that the talent crisis, especially in the professional arena remains acute, we see this pricing initiative as a continuing opportunity to improve both the topline and gross margin.

With respect to run-rate SG&A, we spent less than our guidance anticipated as we remain disciplined on cost control. Adjusted EBITDA margin was nearly 9% this quarter, which is strong performance in the typical seasonally impacted third quarter. As we enter Q4, our revenue pipeline remains sizable. This leading indicator, means that we’ve earned a seat at the table as a valued partner for mission-critical work. We are keenly focused on execution and confident in our relevance and value to the market. We will be all the more ready to execute when the macro-environment strengthens and buyers regain a sense of economic stability.

As we shared on our last call, we are not experiencing project cancellations, but rather project delays. And while the start net-new projects softened somewhat in the quarter, clients are extending current engagements at a record pace. This indicates our consultants are providing exceptional value that clients do not want to lose even when faced with restructurings and layoffs in traditional talent pools within their organizations.

Strategically, we’re confident in the moves we are making to support an economy in transition. In short, we’re focused on the following three areas. Strengthening our core white glove on-demand talent platform, expanding the capability and reach of our digital consulting business, and building more tech-enabled revenue delivery which HUGO and broader technology transformation. I’ll provide further color on each and why they represent growth levers for our business.

First, we continue to build the premier global on-demand talent platform for professionals to engage in operational and transformational work on a project basis. We give professional talent access to on-trend interesting work with top global brands and Fortune 500 clients, as they engage to co-deliver strategic imperatives. Clients are increasingly evolving their workforce strategy to become more agile, project focused, and skill-set oriented. They want a trusted partner to deliver with them as they take that responsibility from traditional professional services firm for strategic execution. As one of our key clients, a global healthcare company recently expressed, they want to engage with the trusted firm that is adjacent to the before [Phonetic] to help them shape the scope and skillsets needed in project execution, that allows them to remain in control.

This type of client knows that in an increasingly disrupted world, they do not need to hand to raise for execution to an outside firm. They also don’t want or need to staff up in a traditional sense to own all the skillset they need to compete and evolve.

As discussed during our last earnings call, our recent in-depth research established that companies are increasing by double-digits their engagement with interim on-demand and agile professional talent to deliver better outcomes and greater efficiency. At its executive forum event in March, staffing industry analysts also shared two important data points regarding growth in the contingent workforce space. In 2021, spend grew 28% and over the next 10 years workforce composition will increase to nearly 30% agile versus 21% today.

Talent is also looking for more modern ways to pursue a career development and work. Gone are the days of the career employee, the global pandemic accelerated the mindset shift away from a single-lens employee for life approach. Today what is emerging is the rise of the portfolio-based professional who is committed to betting on herself and broadening her experience. While this shift first accelerated because of the global pandemic. We believe the recent increase in layoffs will only continue to reinforce this talent trend as traditional employment models no longer equates to greater security.

In fact, in 2022, MBO Partners reported that project-based professionals are happier, healthier and feel more secure than they did in traditional employment model. Second, we are prioritizing our investment in fast-growing opportunities like digital transformation. Veracity is our digital consulting business, delivering employee, client, and workplace transformation. Coming out of the pandemic, remote and hybrid work has forever changed the rules, timing, place, and pace of work. Such shifts require that organizations realign how work is accomplished. Veracity is squarely in the sweet-spot which has allowed us to increase the penetration of such services into our core RGP client base this year. For example, Veracity recently completed a significant project for a Fortune 50 global pharmaceutical company to help connect employees with services, tasks and hyper targeted communication. By harnessing the power of Employee Center Pro and ServiceNow, Veracity delivered a comprehensive set of services, including a first-of-its-kind service delivery, Internet, creating a consumer-grade experience for employees.

Through a new network of connected content under a single taxonomy, employees can now self-serve first, reducing frustration, increasing productivity and giving the call-center a much-needed break. In addition, our subject matter experts within RGP have been working more closely with Veracity to bring deeper functional lens to ServiceNow projects to automate workflows. During the quarter, Veracity launched a Center of Excellence in India to increase offshore talent pools. And our corporate development activities, are focused on building scale and reach for Veracity’s digital consulting platform.

Third, we are continuing to invest in HUGO as a modern digital engagement marketplace for talent and clients to engage directly for finance and accounting needs, that are highly sought after and well-defined. We’ve piloted HUGO in three markets, New York, New Jersey, Southern California and Texas, and are ready to pursue a more aggressive digital marketing plan to accelerate commercialization. We believe that digitalization for flexible placement and well-defined talent pools, will increasingly disrupt the staffing industry and we’re optimistic about our position as a first-mover in this professional category.

SIA recently reported that in 2021, staffing platforms grew more than 5 times faster than traditional staffing firms, at 58% versus 11%. Of note, we are increasingly receiving RFPs for professional staffing services from global Fortune 500 clients. Specifically, attracted to our capabilities and investment plans for self-service digital engagement models. We live in an age of relentless digital disruption and must be prepared to meet the future with investments like HUGO and core business technology transformation.

Turning to our technology transformation project. We are on track to implement a state-of-the art technology stack in fiscal year ’24. Not only will these digital initiatives improve experience for all of our core constituents, consultants, internal employees and clients, but we expect it to drive improved financial metrics through automation, better data analytics and faster global collaboration. Once implemented, we’ll have a global view of the business and can deploy talent more effectively, efficiently and faster on the broader stage.

Seamless execution differentiator as a preferred partner for global transformation project and allows us to build talent delivering with the blended financial model. Many of our largest clients are increasingly moving global services capabilities to developing markets and we will be well-positioned to support them.

Summing up, we are confident that our on-demand talent platform whether delivered traditionally or digitally and our digital consulting capabilities are more relevant than ever in today’s marketplace. We are optimistic about the investments we are making to align with the emerging dominant trends in the world of work and the incoming data supports our thinking.

In the meantime, we have a very resilient and profitable core business with a pristine balance sheet allowing us to continue to strengthen the enterprise with capabilities and innovation that will accelerate growth as the economy recovers.

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

Tim Brackney — President and Chief Operating Officer

Thank you, Kate, and good afternoon, everyone. During the third quarter, we saw solid revenue performance in operational metrics and we’re able to exceed top line expectations. The overall demand profile for the business continued to be healthy, however client uncertainty related to the overall macroenvironment, made it more challenging for new business.

Total pipeline remained strong throughout the quarter, indicating endurance of opportunity, that converting opportunities to project starts was slower related to myriad factors including heightened approval levels and delays in proposed initiatives timeline. These opportunities are intact, but require increased patients and care, and we believe they represent real prospects for growth as clients rapidly adjusted to the new environment.

Regional performance was mixed, reflecting increased vacation impact over prior year and the increased choppiness in client demand. Despite these two factors, Veracity and Countsy in the Central U.S. demonstrated solid growth over the prior year quarter. Additionally, our international business showed resilience as Europe generated sequential growth on a constant-currency basis, and Asia-Pacific posted strong results despite the first fully celebrated Chinese New Year since the outset of the pandemic.

Our strategic client accounts program was also affected by the broader trend but has performed well overall on a year-to-date basis, for an approximately 4% over prior year. Overall, we have performed solidly through the first three quarters of the year, growing by about 6%, exclusive of the divested taskforce business on a same day constant-currency basis. And our growth pipeline continues to be sizable.

Client hesitation requires more patience and persistence with respect to top of the funnel activity as well as extra vigilance communication and consideration while shepherding opportunities through the sales cycle to deal closures. The overall market opportunity remains as companies continue to transform and build workforce plans accounting for a distinct transition that labor force mindset toward flexibility and choice.

The pace of required change and the alteration in employee mentality are really permanent shifts, framing each company’s future workforce plan. A movement toward co-delivering of important initiatives had already begun, and now we’re resetting our plans through the lens of productions in force. We will likely require many to lean-in more to agile partners.

Speed and flexibility are essential in order to rightsize workforce plan, seamlessly run day-to day operations and transform for the future. We know, this provides a runway for opportunity for us once companies re-baseline their plants. We see true upside in the future but timelines are really driven by clients as they carefully rationalize and build for tomorrow.

Here are two examples of work with Fortunate 500 technology clients that help us illustrate the current mixed environment. One of the clients long ago transitioned to a plan centered around a more fluid workforce. They continued to transform during the current environment and have started to rely on us more broadly for support. A leading reason for this reliance is the investment we have made in understanding their business, the organizational structure, and their culture. Key client relationships built over time, coupled with the fast-moving trends, we’re currently seeing, have provided immediate opportunity for us both in on-demand talent and consultants, as our buyers [Phonetic] prioritize value in their purchasing decisions.

In recent weeks, we’ve been invited to bid on several RFPs, in joy of a successful outcome. This represents substantial movement in our ability to win share from larger consultancies within this longtime client and reflects the renewed life to value.

On-demand staffing within the client continues to grow, as stakeholders work hard to fill gaps and to move away from low-staff arrangements with larger firms. In fact, we are directly collaborating with our client’s global procurement team to build resourcing plan for existing and forthcoming initiatives around the world. [Phonetic]

Velocity within this client is growing and we expect to continue to take share, our client trust RGP to help them with their most important initiatives. Other client whose agile workforce plans are less mature will have longer timelines for adjustment. As an example, another one of our Fortunate 500 technology clients have gone through multiple rounds of layoffs during the strategic reorganization. Like many, they over-hired during the tight labor market and are now sorting through where to best utilize the remaining talent.

In these periods of uncertainty, attrition rises and initiatives are paused. As a result, even though some projects that were on, and many in pipeline have been delayed, our stakeholders are extending our existing teams as they do not want to lose approved resources, but they will likely need this plan to solidify.

On the candidate side of our business, in the third quarter, we continued to attract and retain exceptional talent to our platform, which is viewed as an increasingly appealing option because of worker sentiment and economic talent [Phonetic]. As clients announced restructurings and layoffs, more people begin to realize that there is very little difference in stability when comparing agile and traditional employees. In fact, the strength of community and human-first culture, that has always been at the center of RGP’s value proposition, does not wane or flicker during turbulent times, as it does for many traditional employees. We have numerous examples of impacted workers, sticky to work with us, including alumni and a large cadre, new to our platform, bringing new skillsets and experience to our already deed [Phonetic] employee base. The labor market remains tight and project start dates are fluid which impacts engagement timing. An interesting dynamic that our talent team managers are dealing with. Through it all, consultant attrition rate has remained relatively consistent which speak to the actual performance of our team and the strength of our employment ramp. We believe that the unique current conditions will only accelerate recent employment trends and make RGP the premier destination for talent, that is daring to work differently.

In the past, I’ve spoken of boomerangs, alumni who left RGP over time and have returned, realizing that in reality the grass was not greener and the experience of working within our community is hard to replicate. We worked hard to stay very close to our consultant alumni and it is apparent that many people once return after succumbing to the allure of traditional employment.

Some have been impacted by restructuring but many wants tro return because of the experience we provide. That’s just one example. We have three consultants working together on a project for our financial services client, look separately to pursue different traditional opportunities. All three returned during the quarter, largely because of the roles they left, where not as rich in terms of experience and culture and they miss-working with our go-to-market team. All of them reengaged on different projects and are happy to be back with RGP.

Now, let me turn back to our third quarter operations. In addition to growth pipeline remaining at a high-level, we were able to make continued progress in pricing. Excluding divested taskforce operations, bill rates increased by 3.1% on a constant-currency basis compared to prior year quarter. Pricing leverage continues to be an opportunity across the enterprise as clients trust our consultants and trust is at a premium today. While project timing will continue to be a challenge and it is impacting weekly revenue in the early fourth quarter, we believe there is revenue upside based on the deals in the pipeline.

Finally, let me touch on operational leverage. In Q3, we continue to focus on controlling fixed cost and operating efficiently, resulting in strong EBITDA margin, particularly given the economic environment. We will remain especially vigilant about discretionary spend through the fourth quarter and beyond.

I will now turn the call over to Jenn for a more detailed review of our third quarter results.

Jenn Ryu — Chief Financial Officer

Thank you, Tim and good afternoon, everyone. This quarter we achieved revenue performance, exceeding the high-end of our outlook range. We achieved the highest third quarter gross margin in over a decade, and we remain disciplined with our cost performing better than the favorable end of our run rate SG&A outlook range. While we outperformed our top line outlook range provided in January compared to the prior fiscal year which had elevated revenues as clients emerged from the pandemic, revenue of $186.8 million for the third quarter was down 4% year-over-year on a same day constant-currency basis and excluding taskforce. However, year-to-date revenue grew 6% year-over-year on the same basis.

As Tim mentioned, our pipeline remained strong throughout the quarter and we’ve experienced deep cancellations. We continue to make good progress on improving bill rate, to align our pricing with the value we deliver. Our U.S. average bill rate rose 4.7% compared to the third quarter of fiscal 2022 with Europe and Asia-Pac, driving 8.4% and 6.3% improvement on a constant-currency basis.

Regionally on a same day and constant-currency basis, North America revenue decreased 5.7% compared to an extraordinarily strong prior fiscal quarter, while APAC grew 9.8% and Europe excluding taskforce grew by 4.3%. Bright spots in North America, that included Veracity and Countsy both growing year-over-year.

APAC as a region, grew primarily due to strong demand from our strategic client accounts in Southeast Asia, as well as absolute revenue performance in Japan. Europe after experiencing a softer first half of this fiscal year, exhibited better stability following the onset of the Russia-Ukraine conflict, a year ago.

Gross margin in the quarter was 38.3%, an expansion of 80 basis points over the same quarter a year-ago, driven by an improvement in the pay bill ratio of 190 basis points, partially offset by an increase in consultant benefit. Excluding taskforce, enterprise average bill rate for the quarter was $131 constant currency up from $127 a year ago, while average pay rate remained flat at $62.

Turning to SG&A. We remain disciplined with cost management and investment oversight in the business. Our run-rate SG&A expense for the quarter was $55 million, compared to $54.4 million a year ago. Better than the favorable end of our $56 million to $58 million outlook range. As a reminder run rate SG&A excludes non-cash stock-compensation, restructuring charges, contingent consideration, and technology transformation costs. With stronger pricing leverage and disciplined cost management, we delivered a solid 8.9% adjusted EBITDA margin for the quarter.

Turning to liquidity, we continue to demonstrate our ability to generate robust free cash flow. Cash from operations through the first three quarters of the fiscal year was $64 million. Free cash flow conversion was 100% of EBITDA, equating to $63 million. We ended the fiscal quarter with $104 million of cash and cash equivalents after fully paying down $20 million of remaining outstanding debt, distributing $4.7 million of dividends, and spending $5.2 million in share repurchases.

With total available financial liquidity of $278 million, we plan to invest in the most critical areas in the business to drive long-term growth, while continuing to return cash to shareholders through dividends and by opportunistically buying back stocks through our share repurchase program, which had $54.9 million, available at the end of the quarter.

Investment in our multi-year technology transformation project continued to progress and remain on track. We incurred $3.9 million of cost in the quarter, of which $2.2 million was capitalized with the remaining $1.7 million included as non-run rate operating expenses for the quarter. Estimated cash outlay on the transformation project in the fourth quarter is expected to be in the range of $4 million to $6 million, of which approximately $2 million to $3 million would be capitalized

Upon go-live, we anticipate the new technology platform will drive long-term value for the business by elevating our operating efficiency, enabling scale and enhancing the stickiness of our talent platform.

I’ll now close with our fourth quarter outlook. Early fourth quarter revenue trends have been modest compared to Q3. We expect the fourth quarter to be impacted by the general slowdown in the economy and estimate revenue to be in the range of $178 million to $183 million. While clients sort out their own internal initiatives and budget and look for better economic visibility, we will continue to maintain robust sales motion and strengthen our position to close opportunities in the pipeline.

Four quarter gross margin is expected to remain strong in the range of 40% to 41%. On the SG&A front, we expect our run-rate SG&A expense to be in the range of $56 million to $58 million. Non-run rate and non-cash expenses for the fourth quarter will consist of $2 million to $3 million of technology transformation costs and approximately $3 million of stock compensation expense.

As we approach the end of fiscal 2023, we expect our full-year results for the second year in a row to be one of the best years in over a decade, notwithstanding what has been an uncertain and challenging environment. This is a testament to our deep client relationships, our attractive talent platform, and our laser focus on execution. We are excited about our business fundamentals and opportunities ahead. With the resilient variable-cost model, a pristine balance sheet with zero debt, and ample liquidity, we believe we are well-positioned to continue to drive long-term value for our shareholders.

That concludes our prepared remarks and we will now open up the call for Q&A.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Mark Marcon of Baird. Your line is open.

Mark Marcon — Robert W. Baird & Co. — Analyst

Good afternoon. Thanks for all the details on the call today. I’m wondering, can you talk a little bit about what you’re seeing just in terms of the client delays? And to what extent do you feel like they’re either concentrated on the coasts partially due to what we’re seeing on the credit side, wondering if you have any commentary there.

Tim Brackney — President and Chief Operating Officer

Hi, Mark, it’s Tim. Yes. I would say, there’s been some concentration related to delays on the coast, because the coast are our largest businesses generally. Also on the West Coast, where we work with the tech sector. We’ve seen probably more delays there this year than we’ve seen historically. But I would say that just broadly speaking, the delayed projects, there are number of reasons, ones we enumerated in the script are not just in the coast. We’re seeing it more broadly but because of that — like I said, because of the concentration of work that we have on the coasts. We probably do see a little bit heavier concentration there.

Mark Marcon — Robert W. Baird & Co. — Analyst

And Tim, what’s the commentary from the clients, just with regards to there’s uncertainty in terms of financing levels, particularly, I’d be interested just in terms of like what percentage of the business is currently being done with relatively younger tech companies that might have been funded by SVB as an example?

Tim Brackney — President and Chief Operating Officer

Yeah. I mean, most of our business, every concentration of our business is with bigger clients, in the Fortune 500. So what we do, do work with some earlier stages. We didn’t have a lot of impact to delays, were really impacted by SVB, other than I think some periods of uncertainty when everybody was concerned about the broader economy. I think the reason for delays is myriad. But I think I would put it in a couple of different camps.

One is there is just increased scrutiny on all projects right now, generally. And number two, there were a lot of companies who are figuring out their own kind of support their own workforce plans right now. Many of them, I alluded this in the script had over-hired and they are now trying to figure out what they’re going to do with some of their traditional employees who either they have been reorganized or with priorities that have shifted. So that’s really causing a lot of the delay. Not really doesn’t have a lot to do with the credit crisis related to SVB.

Mark Marcon — Robert W. Baird & Co. — Analyst

Really appreciate that color. And in terms of the delays, how long I mean, it’s obviously fluid and hard to stay, but do you think it’s maybe a three- to six-month process in terms of working through those delays? What are you hearing from clients, just in general from that perspective in terms of when they feel like they be confident about proceeding with some of the many useful projects that you could help them with?

Tim Brackney — President and Chief Operating Officer

It’s kind of mixed. And there’s — I think there’s a little bit of just to be honest, some stop and starts relative to approval processes. I would say that the opportunities that kind of stay within our pipeline, we’re really ensuring that these are projects that are going to start, that we think are going to start versus get canceled. And we’ve seen very, very few get canceled at all. I would expect that we’d be able to start in that timeframe that you’re talking about. We don’t have very many that have aged out to the latter end of that range.

Mark Marcon — Robert W. Baird & Co. — Analyst

Great. And then, great job with regards to the bill pay spread. How much more room do you think you have there? It sounds pretty encouraging in terms of thinking about how it could end up being for the fourth quarter, although it I — Jenn did I hear you correctly, 40% to 41% is kind of the guide for the gross margin?

Kate Duchene — Chief Executive Officer

Yeah that’s right. 40% to 41%. Correct.

Mark Marcon — Robert W. Baird & Co. — Analyst

Okay. So maybe slightly down, relative to Q4 of 2022.

Kate Duchene — Chief Executive Officer

Yeah. That’s right. And that’s — look I mean the pay bill spread, we still expect it to be strong in Q4. But compared to last year if you look at our indirect costs just because top-line is down compared to last year, so less just unfavorable leverage there. That’s what’s bringing down the overall gross margin.

Mark Marcon — Robert W. Baird & Co. — Analyst

Got it. The bill rates still expanding at the same rate or higher?

Kate Duchene — Chief Executive Officer

That’s right. Yeah. Correct.

Mark Marcon — Robert W. Baird & Co. — Analyst

Great.

Kate Duchene — Chief Executive Officer

Yeah. I mean, we believe we have more upside on our pricing and bill rate. So, yeah, I expect that our pay bill should be — we should be able to sustain that, not improve it.

Mark Marcon — Robert W. Baird & Co. — Analyst

Terrific. And then. Kate, you spoke about multiple growth levers. Obviously, within the staffing industry, there’s a lot of discussion with regards to these talent platforms and what you’re doing with HUGO within that. Can you give us a little bit of a sense for, like how material you think it could end-up being over the next two to three years in terms of potential revenue? I know it’s early days, but just how are you thinking about it, how is the Board thinking about it in terms of the investment?

Kate Duchene — Chief Executive Officer

Yeah. So, you know, with these platforms, there’s a hockey-stick effect. So if you look at the most successful platform in the marketplace today in staffing is in healthcare staffing and so Aliya [Phonetic] Healthcare is one that we look ahead. Yeah, but if you look at their growth. I mean, they started small and now they’re over $11 billion. So you do see that hockey-stick effect once you get critical mass and you’ve driven behavioral change and that’s what I think is just ahead of us.

So, this next fiscal year will be focused on critical mass, economies of scale, really delivering in the three markets where we’re already focused and that’s important Mark, because we’re all reading about the return to the office for some roles. And we do believe it’s important to have more localized talent pools for some of this work if on site delivery is required. But you know overall, going to your question, what we’re modeling is modest growth in the year ahead. But then continuing to scale, more like a hockey-stick approach, especially as we invest more in digital marketing and sales support.

Mark Marcon — Robert W. Baird & Co. — Analyst

And how many markets, you’re currently in three markets, how many markets, could you be in by the end of the next fiscal year, so fiscal ’24?

Kate Duchene — Chief Executive Officer

Well I really — like I said, I think we’re going to concentrate first on getting to critical mass in the markets we’re operating in now. It takes about three months to build a quality talent pool in a new market. I will share that with you. We’re doing it both with dedicated onshore talent, but also with an offshore partner. So we can scale pretty quickly once we establish that. We’ve achieved critical mass in the markets we’re in right now.

Mark Marcon — Robert W. Baird & Co. — Analyst

Great. And then obviously, there’s all sorts of macro questions that are out there. If we were to go into a mild recession, what do you think the downside would basically be with regards to EBITDA margins? You’ve done a nice job of getting them up over the last couple of years. How should we think about, what your flexibility is from a cost perspective, if things get a little bit worse?

Kate Duchene — Chief Executive Officer

Right. Well I mean our model, that’s what we love about this model in times of transition is that it is very agile. And that 80% of — or 70% of our cost structure, is variable, so keep that in mind. Now, the part that is not variable, we’ll continue to look at very critically, if we see revenue continue to decline or decline more quickly because of a recession. But keep in mind, if you ask me, overall, how I think about the business, I think it’s a matter of timing right now. I think we are so well-positioned with our clients to deliver what they need. It’s a matter of timing because even in a deeper recession and we saw this coming out of past recessions clients cut too deep, and then they need to turn to us before, full recovery in order to get work done, that is non-discretionary. So to me that the challenge the business right now is timing not opportunity.

Mark Marcon — Robert W. Baird & Co. — Analyst

Appreciate that. Thank you.

Kate Duchene — Chief Executive Officer

You’re welcome. Thank you, Mark.

Operator

Thank you. One moment please. Our next question comes from the line of Stephanie Yee of JP Morgan. Your line is open.

Stephanie Yee — J.P. Morgan — Analyst

Hi, good afternoon. I was wondering if you can help us with what the implied revenue decline is in the fourth quarter guide versus the 4.1% decline in the just reported third quarter?

Jenn Ryu — Chief Financial Officer

Yeah, sure. Hi, Stephanie. The fourth quarter at the top end of the guidance range of $183 million [Phonetic], we are looking at about 12% year-over-year decline. And compared to the third quarter, you’re looking at about an 8% decline, but let me just again — right, we’re going to have — if you think back to Q4 of last year, it was an extraordinary quarter. And our revenue cadence over the two fiscal years, it’s flipped a little bit, last year was — we were accelerating throughout the entire year. And but on a year-to-date basis, if you look at where we’re guiding, we’re essentially flat to last year, on a — if you were to exclude taskforce.

Stephanie Yee — J.P. Morgan — Analyst

Okay. Great. That’s super helpful. And I know, Kate you just gave a bunch of color on HUGO. But we were wondering, if you have any preliminary information to share on how many active easier candidates are already on the platform.

Kate Duchene — Chief Executive Officer

Yes. So we have strong adoption from the talent base. We have — we’re not disclosing that level of detail yet Stephanie, because it’s still a growing platform. So I don’t want to set expectations while we’re still learning. But we have captive pools in each of the three markets that I would say, are approaching critical mass. And have proven to be very sticky and our turnaround times are really improving in terms of matching opportunity with talent. So we’ll continue to monitor this, and then as the platform becomes more successful and stable, we’ll be sharing more detail.

Stephanie Yee — J.P. Morgan — Analyst

Okay. Okay. Great. Thank you.

Kate Duchene — Chief Executive Officer

You’re welcome.

Operator

Thank you. One moment please. Our next question comes from the line of Marc Riddick of Sidoti. Mr. Riddick, your line is open.

Marc Riddick — Sidoti & Company — Analyst

Hi, good afternoon. So I was — sort of want to follow-up on that last question around HUGO, as far as you mentioned on some early learnings. So sort of curious as to maybe could you talk a little bit about what some of those learnings are as well as there is much in the way of differentiation between the three markets, is what you’re experiencing in these early days, similar across the board, are you seeing any differences that is somewhat regionally-based or how should we think about that?

Kate Duchene — Chief Executive Officer

Well, I think, we’re really focused on technology targets, say in the tristate area and financial services and private-equity. So the needs from a role and skillset perspective are a little bit different than what we’ll see in Texas for example or Southern California. I can tell you the most sought-after kind of title that we’re seeing on HUGO so far is staff accountant. And one shouldn’t surprise anyone, especially given the fact that, that skillset is in demand in the marketplace. But in New York, for example, we’ve seen a lot more around fund accounting and that’s just a function of financial services and the kind of client we’re targeting there.

I think there’s still in terms of the learnings, Marc. It’s really about tracking usage on the platform, like when are the inflection points for someone might drop-out of engagement and trying to understand, why so we draw them back in. You’ll see us at the start of the calendar year, we’ll be launching some new landing pages that are designed to engage with more information. So we don’t lose people at different stages. These learnings we’ve gotten from clients has been really favorable I would say, very efficient. They like the functionality, they love the 24/7 access to be able to move forward on their project engagement. We’ve gotten some feedback on the scheduling component of the app. I mean, just all sorts of elements of the experience that we’re continuing to improve.

Marc Riddick — Sidoti & Company — Analyst

That’s really helpful. And then I wanted to go back to the prepared remarks, one of the things you’ve made mentioned in the prepared remarks is around having a seat at the table with your customers. And I was sort of curious as to whether or not the feedback and some of the areas of concern that changed much, maybe since the beginning of the year over the last six months or so as far as — we can understand, obviously, the delays and longer cycles and the like. But I was sort of curious as to whether things like the pace of returning to office in-person or anything like that has made them make adjustments to maybe where they thought things would be maybe a few months ago?

Tim Brackney — President and Chief Operating Officer

Hey, Marc. I don’t like — first of all, to talk about the seat at the table, which, Kate alluded to in her remarks. I would say that, what that has meant for us in the places where we have strong relationships across our client place and they know us. We’re actually being able to ladder up for opportunities to be able to do more in the consulting realm, and I talked a little bit about that. In terms of return to work and some of those types of things, I don’t think that’s really impacted the demand environment for us and hasn’t necessarily, that the delays are in certain industries and certain geographies where that’s been more prevalent and we had to react to that. But the kind of the big overwhelming factor that has led to delays and those types of things are positives, have come just from the general uncertainty in the macro. I’d love to do with some of the specific things around, things that came out of COVID.

Marc Riddick — Sidoti & Company — Analyst

Okay. And then last one for me and I know this is a little squishy, so I apologize in advance. We’ve seen various thoughts around the workforce and changes in the workforce over the last couple of years. Have you seen much in the way of changing demographics or changing age ranges or is there anything meaningfully different in sort of bigger-picture demo kind of use with your client pool today than it was maybe a couple of years ago? Thanks.

Kate Duchene — Chief Executive Officer

I would say, let me just offer something that’s different from say the last recession in 2008. We’re seeing I think a younger generation of talent, wanting to work in this project-based or agile model, whereas, you know, 10 or 15 years ago there was too much uncertainty — viewed as too much uncertainty in security and the model, and I think that’s completely changed today. I mean, I shared a little bit of a survey results from MBO Partner in my prepared remarks, but we’re really seeing more of the rise of part-time working and also people who want to work-in a more flexible way. And that’s across all demographics, Marc.

There was a recent article. I think it was just this weekend or maybe Friday in the Wall Street Journal about the rise of part-time work at all levels of professional talent and that matches our experience.

Marc Riddick — Sidoti & Company — Analyst

Excellent. Thank you very much.

Kate Duchene — Chief Executive Officer

You’re welcome, Marc. Thank you.

Operator

Thank you. One moment please. Our next question comes from the line of Mark Marcon RW Baird. Your line is open. One moment please. I’m showing no further questions at this time. Let’s turn the call back over to Kate Duchene for any closing remarks.

Kate Duchene — Chief Executive Officer

Thank you, operator. Thank you everyone for joining us today. We’ll look forward to giving you a further update on the business at the close of Q4. Thank you very much.

Operator

[Operator Closing Remarks]