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Operator: Welcome to the Dustin Q4 presentation for 2024, 2025. During [Operator Instructions] Now I will hand the conference over to the CEO, Johan Karlsson; and CFO, Julia Lagerqvist. Please go ahead. Johan Karlsson: Thank you, operator, and a warm welcome to this Q4 presentation from Dustin Group. And as you heard, Julia and myself, Johan Karlsson is here to present that to you. If we start with some summary of the Q4 numbers on Slide 2. As in the last quarter, sales was affected by a weak but stabilizing market with continued general cautiousness by the customers mainly in the smaller customer groups. In the quarter, we saw some positive development in LCP, where the market, primarily in the Nordics, is stabilizing. Sales in the quarter was SEK 5.056 billion, representing an organic growth of 3.6%. The organic growth in the SMB segment was negative 6.3%. However, this number in SMB was affected by a retroactive change in accounting treatment. And without the correction, organic growth was negative 2.2%. LCP showed strength and reported an organic growth of 7.0%, mainly driven by the Nordics, where the market has been stronger. In the Benelux region, market continues to be difficult, but due to some large new contracts in Belgium, we saw growth even there. Gross profit ended at SEK 642 million compared to last year's SEK 644 million. Gross margin was at 12.7% compared to last year's 12.9%. Gross margin in the quarter is seasonally low due to high share of public sales in Q4. As market continues to be slow in the Netherlands, the margins have continued to be under pressure also in Q4. Adjusted EBITA came in at SEK 83 million compared to SEK 28 million last year with an EBITA margin of 1.6% compared to last year's 0.6%. And cash flow from operating activities was negative SEK 73 million compared to last year's negative SEK 355 million. Leverage at the end of the quarter was 4.3, which is in line with Q3 and compared to the end of last year was 4.0. If we look at operational highlights for the quarter, we can conclude that the previously announced efficiency measures are fully implemented and that the cost savings from that is around SEK 200 million. We are currently implementing the strategic changes that we announced in Q3 with long-term profitability improvements. And we have updated our sustainability targets and aligned them with the science-based target initiative. If we look at the sales growth a little bit more in detail on Slide 3. As I said before, the market is stabilizing, and we can see some signs of recovery. However, the pattern is not the same as in previous downturns in the market. As you can see in this slide, looking at the solid black and brown curve, the normal pattern is that SMB is coming back to growth earlier than LCP. This time, however, we see the larger customers moving ahead of the small. This is due to the fact that the stabilization and return of the market is fueled by the change of Windows 10 to 11 and not by change in economic or geopolitical sentiment. The trend of exchange of Windows is so far mainly driven by the larger organizations. Further to that, we see that the larger customers are starting to replace old equipment at faster rate than the smaller. All in all, this result in a stronger market for the larger customers than the smaller. With that said, let's move to Slide 4 and a look at the operational efficiency initiatives. Julia? Julia Lagerqvist: Thank you, Johan. Moving to Page 4, and looking at the cost development in the quarter, we see as in previous quarter that the reorganization and our cost efficiency measures have had a clear positive effect in the quarter compared to last year. Overall, SG&A expenses decreased by 6.3% in the quarter. This was positively impacted by ForEx, and excluding this, the cost decreased 4.6%. The effect is slightly less than in previous quarters as we had some positive one-off effects last year, plus that we have in general less consultants and temp staff over summer, so the saving there becomes more. The cost efficiency program is now completed with annual savings of close to SEK 200 million. The main driver is less personnel. Looking at the FTEs, we see that we have reduced FTEs by 225 or 10% versus the same quarter last year. And if we go back 2 years, the total increase is 13%, a solid reduction in workforce. In addition, there has been a reduction in number of consultants and temporary staff, plus reduced number of offices contributes to the savings. Then we move to the overview of the SMB segment on Page 5, where sales landed at SEK 1.2 billion or 7.9% below last year. However, as Johan said, the quarter was affected by the year-to-date retractive change in accounting treatment regarding net revenue recognition related to software and this lower net sales. Excluding this effect and the ForEx effect, the decline in sales was 2.2%. As Johan mentioned, in this quarter, we see some signs of stabilization, but overall, the market remained tentative due to the ongoing economic uncertainty. From a geographic point of view, Sweden and specifically Norway performed well, while Denmark and Netherlands were the main drivers of the decline. Looking at product mix, we saw that the share of software and services sales decreased down to 10.4%, but this was mainly due to the mentioned retractive change in accounting treatment. The increase in the gross margin improved versus both last year and the previous quarter. And the improved cost base from the cost saving program protected the segment result, which increased to SEK 34 million versus SEK 9 million last year despite the lower volumes. And all in all, the segment margin ended at 2.9%, which was an improvement versus last year at 0.7%, obviously coming from a low base. Note that last year was negatively affected by a one-off posting related to COGS on managed services of SEK 13 million. Going to Page 6, we look then at the LCP, the large corporate and public segment. And the sales in LCP was SEK 3.9 billion in the quarter, plus 4.6% versus last year, and organic growth of 7%. So there was a continued large negative ForEx impact from the strengthen segment. Sales were also improved versus previous quarter. Growth was mainly driven by the increased demand in the Nordics stemming from the demand of Windows 11, as Johan was just talking about. The economic uncertainty still impacted the market development, mainly evident in the Netherlands, where we also saw heavy price competition. On the other hand, Belgium showed continued strong growth as in previous quarter due to some large new agreements, and Finland also continued to show solid growth after a tough year. As I said before, we do see a large volatility in sales between quarters in LCP. Gross margin decreased versus previous year. The increased price pressure in the Netherlands on diminishing volume had a negative effect. We also saw continued effects from larger contracts with lower margin. On the opposite, margin in the Nordics was slightly improving helped by country mix. On a global level, there was a negative customer mix with a larger share of public customers versus last year from -- which then have a lower average margin, and this had a negative impact on the margins. We continue to see increase in takeback, which had positive impact on both margin and EBITDA and we also saw positive development in our private label business. The improved cost structure, mainly thanks to the restructuring program had a positive impact on bottom line. And overall, this led to a segment result of SEK 80 million versus SEK 53 million last year, and margin ended at 2.1% versus 1.4% last year. We note that last year was also impacted by a nonrecurring cost of SEK 21 million. Moving then to look at the cash flow and CapEx on Slide 7. We see that the cash flow for the period was minus SEK 1.2 billion. This mainly driven then by the repayment of loans after the rights issue, where the proceeds from the rights issue came in the end of Q3. Looking at details, we see the cash flow from operating activities before change in net working capital was SEK 150 million plus, which was an improvement versus previous year, mainly driven by the improved operational result, but also a better tax position. Cash flow from change in net working capital was minus SEK 188 million, which was still better than last year. We normally have a negative seasonality effect in Q4 with purchases earlier in the quarter and not rollout at the end of August. We look more at net working capital on the next slide. In total, operating cash flow was minus SEK 73 million in the quarter. And the cash flow from financing activities was, as said, impacted by the repayment of loans. Looking at CapEx, we see that the total investment in the quarter was SEK 52 million, of which SEK 36 million affected cash flow. This is mainly linked to IT development investments. Investments intangible assets was SEK 15 million this year, of which only SEK 2 million was affecting cash flow. The noncash items are mainly lease contracts. Investments related to services was SEK 4 million compared to last year at SEK 23 million, and none of it affecting cash flow. Coming then to Page 8, we look at the net working capital development. Net working capital landed at SEK 477 million higher than last year at SEK 170 million and also an increase of the previous quarter. Inventory levels increased versus previous year, now at SEK 1,086 million. This is mainly linked to Benelux and customer-specific inventory but somewhat lower sales than expected. It is slightly below previous quarter, but clearly above our target levels, and we have a clear target to reduce going forward. Accounts receivables increased versus last year, impacted by invoicing the larger contracts in Benelux at the end of the quarter. There is, as said, a normal negative seasonality to accounts receivables and payables in Q4 as we get goods in early in the quarter for configuration, and have large rollout at the end of the quarter. And this was more visible this year with large sales volumes with specific customers. As I said before, we always have some timing effects in the quarters, but our long-term target remains to be around minus SEK 100 million. And with that, I hand back the word to, Johan. Johan Karlsson: Thank you, Julia. And now we're moving to Slide 9 and our plan to sharpen our strategic focus in order to increase profitability. There has been a high pace of change in order to strengthen the efficiency in Dustin during the last year. And there, you can say we have implemented the new organization structure around the value chain with offering sales and delivery and support functions enabling higher pace of execution of the strategy. We have reduced the organization with approximately 200 positions and some office locations, reducing costs by approximately SEK 200 million. We have also continued to transform our business toward more business customer focus, and by that announced that we will close down the consumer business. At the same time, we are focused on our standard services on all our markets. In order to gain scale, we are moving to a European offering in all markets, driving a stronger relationship to partners and vendors. And last but not least, we're continuing to use emerging technologies to drive process efficiency and automation. With that said, we can move to Slide 10, where we go through a little bit of the changes that we have done in the sustainability -- on the sustainability area. On this slide, we have made a summary of updated sustainability targets. So the climate targets have been approved by science-based target initiative. This means that we have climate targets for 2030 and 2050. We have also circularity targets as social impact targets for 2030. For 2030, our targets for climate is to reduce the Scope 1 and 2 emissions by 50%. And for Scope 3, the target is to reduce the CO2 intensity by 51.6%. For circularity, our target is to increase revenue per kilo of new raw material by 20%, and for social impact, the target continues to be the implementation of 100 initiatives across [indiscernible]. And with that said, let's move to Slide 8 and a summary of the quarter. So in summary, Q4 quarter was a quarter where we saw continued market stabilization and where we achieved 3.6% organic growth. Nordics showed the stronger performance in the Benelux and the quarter. Gross margin at 12.7% compared to last year's 12.9%, was affected by higher share of public sales and by the price competition in the Netherlands. Adjusted EBITA margin at 1.6% was up from last year, 0.6%, driven by the finalization of the efficiency program delivering approximately SEK 200 million of savings annually. During the quarter, we concluded the efficiency measures, as mentioned before, saving approximately SEK 200 million on a yearly basis. We also continued the strategic focus announced in Q3 with the closing of the consumer business and the focus on standardized services. Further to that, as we've just heard, we have updated our sustainability targets to align with the market development and customer requirements. And with that, the formal presentation is concluded, and we can move to Q&A. Operator: [Operator Instructions] The next question comes from Jesper Stugemo from Handelsbanken. Jesper Stugemo: So I have a couple here. My first one is related to LCP as the main driver. In this quarter, do you have any feeling from the SMB side where they are in the approach to renew their hardware? Are they looking more to like extend security upgrades for an additional year rather than upgrading to new hardware? Or what is your feeling there? Johan Karlsson: My feeling is that we don't look at additional time from -- having purchasing more time. It's rather -- they are a bit slower out in the process, let's say. So we don't see a lot of purchasing of prolongations. Jesper Stugemo: All right. And with the LCP picking up here, do you see that we will enough volumes from this refresh cycle to increase their refurbishing to actually give some upside on the margin as well already in this new fiscal year? Johan Karlsson: I think we will see that effect during the year because as the renewal starts to kick in, exactly like you say, also, let's say, the takeback will kick in because most of these customers are on that type of contracts. So it is our ambition to continue to increase the takeback in line with the, let's say, new sales of PCs. Jesper Stugemo: All right. And in Finland here, we saw some good sales momentum up year-on-year. What trends do you see in the market? This has been quite slow in the last year? Is this mainly related to the negative trends have bottomed out? Or do you actually see a healthier market that customers are waking up and they're more active or... Johan Karlsson: Yes. I would say that we are seeing customers waking up or getting more money because in Finland, we are relatively high in the public sector sales. So it means that the public budgets are of great importance. And here, you could see that primarily, let's say, police and military have very good budgets at the moment, so they can actually boost purchasing of IT equipment. Jesper Stugemo: All right. So police and military is the main driver here in Finland, I guess. Johan Karlsson: They are for sure, important parts of that. But I would say in Finland, in general, it seems like the public budgets are a bit more generous this year compared to last year, which affects us. Jesper Stugemo: All right. All right. And -- just the last question here on the FTE side, down 10% year-on-year, but do you see a need to recruit more people now when LCP looks to be turning a little bit better? Johan Karlsson: I don't think there is a direct need to recruit people because it -- we also work with, let's say, efficiency on the other side. So our ambition is to more or less remain while the volume is going up, up, of course, there will be areas where we need to strengthen a bit, but it's not a direct relationship between, let's say, volume increase and more people. Operator: The next question comes from Daniel Thorsson from ABG Sundal Collier. Daniel Thorsson: A question on LCP here in Q4. Did you see any larger deliveries in the quarter, especially related to the end-of-life support on Windows 10 that could cause a setback in Q1? Or should we expect these levels to continue recovering in LCP ahead? Johan Karlsson: I don't think we saw kind of one-offs that immediately has a negative effect on Q1. But obviously, we are depending on customer continuing to exchange going forward to maintain the volumes that we have. But nothing on, let's say, a one-off churn in that case. Daniel Thorsson: I see, I see. And then secondly, a more long-term question on your financial targets, you are targeting 6.5% margin in SMB, 4.5% in LCP, which is already next year, which obviously nobody believes in right now. But my question is rather, if those levels are achievable longer term in your view? Or has anything changed structurally in the market over the last 2, 2.5 years, that make those levels harder to get closer longer term in your view? Johan Karlsson: In our view, it has not changed anything. It -- obviously, with a declining market, it's very hard to reach them. But over time, with a more positive market, I don't see any reason why we should not be able to get to these levels going forward. Daniel Thorsson: Okay. I see. That's fine. And then finally, on cash flow, do you expect working capital to recover already in Q1 and be significantly better? Julia Lagerqvist: We do, I mean like I said, we have a clear target to improve on our inventory levels. And we also normally if you look historically, we normally have a better position when it comes to accounts payables and receivables in Q1 versus Q4. Operator: The next question comes from Mikael Laséen from DNB Carnegie. Mikael Laséen: Yes. I have a question about the Netherlands. That country remained challenging. And I was wondering if you could elaborate on the competitive landscape there, the price competition, and -- if you see any signs of improved tender activity or pricing pressure? Johan Karlsson: Yes. Let's start with the competitive landscape. I would say that Netherlands is a country where many of the large European and U.S. resellers exist, let's say, they are in that market -- that was for CDW, that goes from computer center, Bechtle and a few more. There is also a few local players but smaller. So it's -- I would say, like in many areas in the Netherlands, it's a very fierce competition. And that has an impact when the market is slow because then that competition really comes out in price competition. So that's what we have seen lately. Mikael Laséen: Okay. And when it comes to this market situation, then triggering this fierce competition, what -- I mean, the leading indicators are you looking at? And what trends are you seeing there? And how should we think about the coming couple of quarters? Johan Karlsson: I think the -- if you look at the overall underlying market trends that will drive a more positive market, which we talk about is the Windows Exchange. It's the AI PCs, and it's the age of the let's say, PC or IT equipment at our customer site. I think they are the same in the Netherlands as they are in the Nordics. So our expectations is that over time, the market also in the Benelux will come to a situation similar to the ones in the Nordics. And in normal cases, when that happens, that the price competition goes down a bit because volumes are better. And that's our expectation this time as well. Mikael Laséen: Okay. So you're not seeing this Windows 11 Exchange or demand in the Netherlands. Johan Karlsson: We see it, but to a lesser extent and more mix compared to others. Mikael Laséen: Okay. And so what can you do during this time when the market is a bit softer, and like -- to the margins or your market share? Johan Karlsson: I think it's a very good question because that is exactly the question to ask what can you do in the current situation? And what we can do, we can add services, namely takeback and life cycle services to the hardware sales, which will improve the margin. So we can accept maybe a slightly lower margin on the hardware if we can also upsell with product near or life cycle services around the hardware that can help us. We can also add our own private label products in the mix in a tender, for example, which improves the margin. So we need to go back and work on all the basic stuff to improve margins. In parallel, we're trying to win the tenders, which will be won on a slightly lower margin level than before. Mikael Laséen: Okay. Great. And when it comes to this gross margin decline that we saw now in Q4, how much is attributed to Netherlands, specifically? And how much is mix and other things? Johan Karlsson: I think it's a combination of, you could say that a higher share of LCP sales than on an average quarter, and a part coming from directly from the Netherlands competition. If you could say that they are similar in size, I would say. Mikael Laséen: Okay. And in general, can you say something about the difference in gross margin between LCP and SMB, broadly speaking? Johan Karlsson: The difference is you could say that if the average is 15%, then as an example, I would say SMB is a couple of percentage points better, and LCP is a couple of percentage points lower. So it's that magnitude of difference. Mikael Laséen: Okay. Yes, that's helpful. Great. And just wondering here what's happened with the SMB side. It seems, I mean like the Nordic region is stabilizing a bit, I'm not sure what you're seeing there and why you have that weakness of minus 2% underlying growth, excluding reclassification. Johan Karlsson: Well, it's a bit mixed bag there. I think Julia was saying into that in the presentation. You could see that Norway and Sweden is doing relatively okay while Denmark and the Netherlands is poor. So the -- there is a bit of deviation between the countries in the SMB that nets out to the minus 2. So I'm not really sure what drives the Danish numbers to be perfectly honest, it's a market -- how the market -- we don't really have the market data for that, and that's clear, but... Julia Lagerqvist: I think it's related to that. I also see similar price pressure there as we've seen in the Netherlands and Benelux and... Mikael Laséen: Okay. Got it. Just also curious, if you we should think about this reclassification effect continuing in Q1 and Q2 as well? Or if this is behind us now? Julia Lagerqvist: It's the reclassification effect in this quarter was the full year-to-date effect. It was a largely -- it will be very minor in the coming quarters. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Johan Karlsson: Okay. Thank you very much for listening in and asking questions to the Q4 report presentation from Dustin. So thank you very much, and have a nice day.
Operator: Welcome to the Dustin Q4 presentation for 2024, 2025. During [Operator Instructions] Now I will hand the conference over to the CEO, Johan Karlsson; and CFO, Julia Lagerqvist. Please go ahead. Johan Karlsson: Thank you, operator, and a warm welcome to this Q4 presentation from Dustin Group. And as you heard, Julia and myself, Johan Karlsson is here to present that to you. If we start with some summary of the Q4 numbers on Slide 2. As in the last quarter, sales was affected by a weak but stabilizing market with continued general cautiousness by the customers mainly in the smaller customer groups. In the quarter, we saw some positive development in LCP, where the market, primarily in the Nordics, is stabilizing. Sales in the quarter was SEK 5.056 billion, representing an organic growth of 3.6%. The organic growth in the SMB segment was negative 6.3%. However, this number in SMB was affected by a retroactive change in accounting treatment. And without the correction, organic growth was negative 2.2%. LCP showed strength and reported an organic growth of 7.0%, mainly driven by the Nordics, where the market has been stronger. In the Benelux region, market continues to be difficult, but due to some large new contracts in Belgium, we saw growth even there. Gross profit ended at SEK 642 million compared to last year's SEK 644 million. Gross margin was at 12.7% compared to last year's 12.9%. Gross margin in the quarter is seasonally low due to high share of public sales in Q4. As market continues to be slow in the Netherlands, the margins have continued to be under pressure also in Q4. Adjusted EBITA came in at SEK 83 million compared to SEK 28 million last year with an EBITA margin of 1.6% compared to last year's 0.6%. And cash flow from operating activities was negative SEK 73 million compared to last year's negative SEK 355 million. Leverage at the end of the quarter was 4.3, which is in line with Q3 and compared to the end of last year was 4.0. If we look at operational highlights for the quarter, we can conclude that the previously announced efficiency measures are fully implemented and that the cost savings from that is around SEK 200 million. We are currently implementing the strategic changes that we announced in Q3 with long-term profitability improvements. And we have updated our sustainability targets and aligned them with the science-based target initiative. If we look at the sales growth a little bit more in detail on Slide 3. As I said before, the market is stabilizing, and we can see some signs of recovery. However, the pattern is not the same as in previous downturns in the market. As you can see in this slide, looking at the solid black and brown curve, the normal pattern is that SMB is coming back to growth earlier than LCP. This time, however, we see the larger customers moving ahead of the small. This is due to the fact that the stabilization and return of the market is fueled by the change of Windows 10 to 11 and not by change in economic or geopolitical sentiment. The trend of exchange of Windows is so far mainly driven by the larger organizations. Further to that, we see that the larger customers are starting to replace old equipment at faster rate than the smaller. All in all, this result in a stronger market for the larger customers than the smaller. With that said, let's move to Slide 4 and a look at the operational efficiency initiatives. Julia? Julia Lagerqvist: Thank you, Johan. Moving to Page 4, and looking at the cost development in the quarter, we see as in previous quarter that the reorganization and our cost efficiency measures have had a clear positive effect in the quarter compared to last year. Overall, SG&A expenses decreased by 6.3% in the quarter. This was positively impacted by ForEx, and excluding this, the cost decreased 4.6%. The effect is slightly less than in previous quarters as we had some positive one-off effects last year, plus that we have in general less consultants and temp staff over summer, so the saving there becomes more. The cost efficiency program is now completed with annual savings of close to SEK 200 million. The main driver is less personnel. Looking at the FTEs, we see that we have reduced FTEs by 225 or 10% versus the same quarter last year. And if we go back 2 years, the total increase is 13%, a solid reduction in workforce. In addition, there has been a reduction in number of consultants and temporary staff, plus reduced number of offices contributes to the savings. Then we move to the overview of the SMB segment on Page 5, where sales landed at SEK 1.2 billion or 7.9% below last year. However, as Johan said, the quarter was affected by the year-to-date retractive change in accounting treatment regarding net revenue recognition related to software and this lower net sales. Excluding this effect and the ForEx effect, the decline in sales was 2.2%. As Johan mentioned, in this quarter, we see some signs of stabilization, but overall, the market remained tentative due to the ongoing economic uncertainty. From a geographic point of view, Sweden and specifically Norway performed well, while Denmark and Netherlands were the main drivers of the decline. Looking at product mix, we saw that the share of software and services sales decreased down to 10.4%, but this was mainly due to the mentioned retractive change in accounting treatment. The increase in the gross margin improved versus both last year and the previous quarter. And the improved cost base from the cost saving program protected the segment result, which increased to SEK 34 million versus SEK 9 million last year despite the lower volumes. And all in all, the segment margin ended at 2.9%, which was an improvement versus last year at 0.7%, obviously coming from a low base. Note that last year was negatively affected by a one-off posting related to COGS on managed services of SEK 13 million. Going to Page 6, we look then at the LCP, the large corporate and public segment. And the sales in LCP was SEK 3.9 billion in the quarter, plus 4.6% versus last year, and organic growth of 7%. So there was a continued large negative ForEx impact from the strengthen segment. Sales were also improved versus previous quarter. Growth was mainly driven by the increased demand in the Nordics stemming from the demand of Windows 11, as Johan was just talking about. The economic uncertainty still impacted the market development, mainly evident in the Netherlands, where we also saw heavy price competition. On the other hand, Belgium showed continued strong growth as in previous quarter due to some large new agreements, and Finland also continued to show solid growth after a tough year. As I said before, we do see a large volatility in sales between quarters in LCP. Gross margin decreased versus previous year. The increased price pressure in the Netherlands on diminishing volume had a negative effect. We also saw continued effects from larger contracts with lower margin. On the opposite, margin in the Nordics was slightly improving helped by country mix. On a global level, there was a negative customer mix with a larger share of public customers versus last year from -- which then have a lower average margin, and this had a negative impact on the margins. We continue to see increase in takeback, which had positive impact on both margin and EBITDA and we also saw positive development in our private label business. The improved cost structure, mainly thanks to the restructuring program had a positive impact on bottom line. And overall, this led to a segment result of SEK 80 million versus SEK 53 million last year, and margin ended at 2.1% versus 1.4% last year. We note that last year was also impacted by a nonrecurring cost of SEK 21 million. Moving then to look at the cash flow and CapEx on Slide 7. We see that the cash flow for the period was minus SEK 1.2 billion. This mainly driven then by the repayment of loans after the rights issue, where the proceeds from the rights issue came in the end of Q3. Looking at details, we see the cash flow from operating activities before change in net working capital was SEK 150 million plus, which was an improvement versus previous year, mainly driven by the improved operational result, but also a better tax position. Cash flow from change in net working capital was minus SEK 188 million, which was still better than last year. We normally have a negative seasonality effect in Q4 with purchases earlier in the quarter and not rollout at the end of August. We look more at net working capital on the next slide. In total, operating cash flow was minus SEK 73 million in the quarter. And the cash flow from financing activities was, as said, impacted by the repayment of loans. Looking at CapEx, we see that the total investment in the quarter was SEK 52 million, of which SEK 36 million affected cash flow. This is mainly linked to IT development investments. Investments intangible assets was SEK 15 million this year, of which only SEK 2 million was affecting cash flow. The noncash items are mainly lease contracts. Investments related to services was SEK 4 million compared to last year at SEK 23 million, and none of it affecting cash flow. Coming then to Page 8, we look at the net working capital development. Net working capital landed at SEK 477 million higher than last year at SEK 170 million and also an increase of the previous quarter. Inventory levels increased versus previous year, now at SEK 1,086 million. This is mainly linked to Benelux and customer-specific inventory but somewhat lower sales than expected. It is slightly below previous quarter, but clearly above our target levels, and we have a clear target to reduce going forward. Accounts receivables increased versus last year, impacted by invoicing the larger contracts in Benelux at the end of the quarter. There is, as said, a normal negative seasonality to accounts receivables and payables in Q4 as we get goods in early in the quarter for configuration, and have large rollout at the end of the quarter. And this was more visible this year with large sales volumes with specific customers. As I said before, we always have some timing effects in the quarters, but our long-term target remains to be around minus SEK 100 million. And with that, I hand back the word to, Johan. Johan Karlsson: Thank you, Julia. And now we're moving to Slide 9 and our plan to sharpen our strategic focus in order to increase profitability. There has been a high pace of change in order to strengthen the efficiency in Dustin during the last year. And there, you can say we have implemented the new organization structure around the value chain with offering sales and delivery and support functions enabling higher pace of execution of the strategy. We have reduced the organization with approximately 200 positions and some office locations, reducing costs by approximately SEK 200 million. We have also continued to transform our business toward more business customer focus, and by that announced that we will close down the consumer business. At the same time, we are focused on our standard services on all our markets. In order to gain scale, we are moving to a European offering in all markets, driving a stronger relationship to partners and vendors. And last but not least, we're continuing to use emerging technologies to drive process efficiency and automation. With that said, we can move to Slide 10, where we go through a little bit of the changes that we have done in the sustainability -- on the sustainability area. On this slide, we have made a summary of updated sustainability targets. So the climate targets have been approved by science-based target initiative. This means that we have climate targets for 2030 and 2050. We have also circularity targets as social impact targets for 2030. For 2030, our targets for climate is to reduce the Scope 1 and 2 emissions by 50%. And for Scope 3, the target is to reduce the CO2 intensity by 51.6%. For circularity, our target is to increase revenue per kilo of new raw material by 20%, and for social impact, the target continues to be the implementation of 100 initiatives across [indiscernible]. And with that said, let's move to Slide 8 and a summary of the quarter. So in summary, Q4 quarter was a quarter where we saw continued market stabilization and where we achieved 3.6% organic growth. Nordics showed the stronger performance in the Benelux and the quarter. Gross margin at 12.7% compared to last year's 12.9%, was affected by higher share of public sales and by the price competition in the Netherlands. Adjusted EBITA margin at 1.6% was up from last year, 0.6%, driven by the finalization of the efficiency program delivering approximately SEK 200 million of savings annually. During the quarter, we concluded the efficiency measures, as mentioned before, saving approximately SEK 200 million on a yearly basis. We also continued the strategic focus announced in Q3 with the closing of the consumer business and the focus on standardized services. Further to that, as we've just heard, we have updated our sustainability targets to align with the market development and customer requirements. And with that, the formal presentation is concluded, and we can move to Q&A. Operator: [Operator Instructions] The next question comes from Jesper Stugemo from Handelsbanken. Jesper Stugemo: So I have a couple here. My first one is related to LCP as the main driver. In this quarter, do you have any feeling from the SMB side where they are in the approach to renew their hardware? Are they looking more to like extend security upgrades for an additional year rather than upgrading to new hardware? Or what is your feeling there? Johan Karlsson: My feeling is that we don't look at additional time from -- having purchasing more time. It's rather -- they are a bit slower out in the process, let's say. So we don't see a lot of purchasing of prolongations. Jesper Stugemo: All right. And with the LCP picking up here, do you see that we will enough volumes from this refresh cycle to increase their refurbishing to actually give some upside on the margin as well already in this new fiscal year? Johan Karlsson: I think we will see that effect during the year because as the renewal starts to kick in, exactly like you say, also, let's say, the takeback will kick in because most of these customers are on that type of contracts. So it is our ambition to continue to increase the takeback in line with the, let's say, new sales of PCs. Jesper Stugemo: All right. And in Finland here, we saw some good sales momentum up year-on-year. What trends do you see in the market? This has been quite slow in the last year? Is this mainly related to the negative trends have bottomed out? Or do you actually see a healthier market that customers are waking up and they're more active or... Johan Karlsson: Yes. I would say that we are seeing customers waking up or getting more money because in Finland, we are relatively high in the public sector sales. So it means that the public budgets are of great importance. And here, you could see that primarily, let's say, police and military have very good budgets at the moment, so they can actually boost purchasing of IT equipment. Jesper Stugemo: All right. So police and military is the main driver here in Finland, I guess. Johan Karlsson: They are for sure, important parts of that. But I would say in Finland, in general, it seems like the public budgets are a bit more generous this year compared to last year, which affects us. Jesper Stugemo: All right. All right. And -- just the last question here on the FTE side, down 10% year-on-year, but do you see a need to recruit more people now when LCP looks to be turning a little bit better? Johan Karlsson: I don't think there is a direct need to recruit people because it -- we also work with, let's say, efficiency on the other side. So our ambition is to more or less remain while the volume is going up, up, of course, there will be areas where we need to strengthen a bit, but it's not a direct relationship between, let's say, volume increase and more people. Operator: The next question comes from Daniel Thorsson from ABG Sundal Collier. Daniel Thorsson: A question on LCP here in Q4. Did you see any larger deliveries in the quarter, especially related to the end-of-life support on Windows 10 that could cause a setback in Q1? Or should we expect these levels to continue recovering in LCP ahead? Johan Karlsson: I don't think we saw kind of one-offs that immediately has a negative effect on Q1. But obviously, we are depending on customer continuing to exchange going forward to maintain the volumes that we have. But nothing on, let's say, a one-off churn in that case. Daniel Thorsson: I see, I see. And then secondly, a more long-term question on your financial targets, you are targeting 6.5% margin in SMB, 4.5% in LCP, which is already next year, which obviously nobody believes in right now. But my question is rather, if those levels are achievable longer term in your view? Or has anything changed structurally in the market over the last 2, 2.5 years, that make those levels harder to get closer longer term in your view? Johan Karlsson: In our view, it has not changed anything. It -- obviously, with a declining market, it's very hard to reach them. But over time, with a more positive market, I don't see any reason why we should not be able to get to these levels going forward. Daniel Thorsson: Okay. I see. That's fine. And then finally, on cash flow, do you expect working capital to recover already in Q1 and be significantly better? Julia Lagerqvist: We do, I mean like I said, we have a clear target to improve on our inventory levels. And we also normally if you look historically, we normally have a better position when it comes to accounts payables and receivables in Q1 versus Q4. Operator: The next question comes from Mikael Laséen from DNB Carnegie. Mikael Laséen: Yes. I have a question about the Netherlands. That country remained challenging. And I was wondering if you could elaborate on the competitive landscape there, the price competition, and -- if you see any signs of improved tender activity or pricing pressure? Johan Karlsson: Yes. Let's start with the competitive landscape. I would say that Netherlands is a country where many of the large European and U.S. resellers exist, let's say, they are in that market -- that was for CDW, that goes from computer center, Bechtle and a few more. There is also a few local players but smaller. So it's -- I would say, like in many areas in the Netherlands, it's a very fierce competition. And that has an impact when the market is slow because then that competition really comes out in price competition. So that's what we have seen lately. Mikael Laséen: Okay. And when it comes to this market situation, then triggering this fierce competition, what -- I mean, the leading indicators are you looking at? And what trends are you seeing there? And how should we think about the coming couple of quarters? Johan Karlsson: I think the -- if you look at the overall underlying market trends that will drive a more positive market, which we talk about is the Windows Exchange. It's the AI PCs, and it's the age of the let's say, PC or IT equipment at our customer site. I think they are the same in the Netherlands as they are in the Nordics. So our expectations is that over time, the market also in the Benelux will come to a situation similar to the ones in the Nordics. And in normal cases, when that happens, that the price competition goes down a bit because volumes are better. And that's our expectation this time as well. Mikael Laséen: Okay. So you're not seeing this Windows 11 Exchange or demand in the Netherlands. Johan Karlsson: We see it, but to a lesser extent and more mix compared to others. Mikael Laséen: Okay. And so what can you do during this time when the market is a bit softer, and like -- to the margins or your market share? Johan Karlsson: I think it's a very good question because that is exactly the question to ask what can you do in the current situation? And what we can do, we can add services, namely takeback and life cycle services to the hardware sales, which will improve the margin. So we can accept maybe a slightly lower margin on the hardware if we can also upsell with product near or life cycle services around the hardware that can help us. We can also add our own private label products in the mix in a tender, for example, which improves the margin. So we need to go back and work on all the basic stuff to improve margins. In parallel, we're trying to win the tenders, which will be won on a slightly lower margin level than before. Mikael Laséen: Okay. Great. And when it comes to this gross margin decline that we saw now in Q4, how much is attributed to Netherlands, specifically? And how much is mix and other things? Johan Karlsson: I think it's a combination of, you could say that a higher share of LCP sales than on an average quarter, and a part coming from directly from the Netherlands competition. If you could say that they are similar in size, I would say. Mikael Laséen: Okay. And in general, can you say something about the difference in gross margin between LCP and SMB, broadly speaking? Johan Karlsson: The difference is you could say that if the average is 15%, then as an example, I would say SMB is a couple of percentage points better, and LCP is a couple of percentage points lower. So it's that magnitude of difference. Mikael Laséen: Okay. Yes, that's helpful. Great. And just wondering here what's happened with the SMB side. It seems, I mean like the Nordic region is stabilizing a bit, I'm not sure what you're seeing there and why you have that weakness of minus 2% underlying growth, excluding reclassification. Johan Karlsson: Well, it's a bit mixed bag there. I think Julia was saying into that in the presentation. You could see that Norway and Sweden is doing relatively okay while Denmark and the Netherlands is poor. So the -- there is a bit of deviation between the countries in the SMB that nets out to the minus 2. So I'm not really sure what drives the Danish numbers to be perfectly honest, it's a market -- how the market -- we don't really have the market data for that, and that's clear, but... Julia Lagerqvist: I think it's related to that. I also see similar price pressure there as we've seen in the Netherlands and Benelux and... Mikael Laséen: Okay. Got it. Just also curious, if you we should think about this reclassification effect continuing in Q1 and Q2 as well? Or if this is behind us now? Julia Lagerqvist: It's the reclassification effect in this quarter was the full year-to-date effect. It was a largely -- it will be very minor in the coming quarters. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Johan Karlsson: Okay. Thank you very much for listening in and asking questions to the Q4 report presentation from Dustin. So thank you very much, and have a nice day.
Operator: 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. 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. Countsy grew in Q1 and is busy with strong proposal activity in Q2. Bhadresh and Jenn 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 industry, not just consulting and have operated in our clients' 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 H-1B 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 dime. We know that much of that work is being actively disrupted by automation and AI. RGP's 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 have 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 fifth 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 one 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 and 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 Countsy as it fits into our diversification strategy and the CFO and digital agendas. Countsy 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 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 Countsy 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. Countsy 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. Jenn 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. Bhadresh Patel: Thank you, Kate, and good afternoon, everyone. We're pleased to report another quarter of progress in advancing our transformation strategy, positioning RGP at 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 Jenn 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 offerings. Additionally, we saw a meaningful improvement in bill rates and utilization compared to 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 cycles 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 a 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 support and 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 FTSE 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 Rottmann 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 MorganFranklin, 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 bill 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 and 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 engagements. 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 multinational 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-ups and spinouts, we are capitalizing on the broader venture funding environment by targeting venture-backed AI start-ups 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 and 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 Jenn. Jennifer Ryu: 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 Outsourced Services segment with 5% and 4% growth over the prior year quarter. Revenue within the On-Demand and Consulting segments continued 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 meetings, 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 bench consultants utilization. Enterprise-wide average bill 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 of note, we saw an 11% improvement in average bill 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 rates, 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 spend 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 headcount 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 our 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 the 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 a 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 distributions 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 deals, our outlook calls 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 one 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: [Operator Instructions] Our first question comes from Jessica [indiscernible] with Northcoast Research. Unknown Analyst: 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? Bhadresh Patel: Yes. Jessica, 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 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. Unknown Analyst: 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? Bhadresh Patel: 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. Unknown Analyst: Okay. Awesome. I appreciate it. Another congratulations to the company on the great first quarter. Bhadresh Patel: Thank you, Jessica. Operator: [Operator Instructions] Our next question comes from Mark Marcon with Robert W. Baird. Mark Marcon: I was just wondering, with regards to the revenue guide that you gave us, Jenn, can you break that out between the segments? And specifically, what are you seeing for consulting and on-demand talent? Jennifer Ryu: 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 they did in Q1. So we expect continued strength in that. If not, it may -- 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. It 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. Kate Duchene: 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. Mark Marcon: 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? Bhadresh Patel: Yes. I mean we are -- 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. Mark Marcon: Great. And your new leader where is he going to be based. Bhadresh Patel: He's based in Washington, D.C., Northern Virginia, actually. Operator: Our next question comes from Judson Lindley with JPMorgan. Judson Lindley: 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? Jennifer Ryu: Yes. More days impact, business day impact. There's some currency impact, but it's probably about 1/3 of the business day impact. Most of it is, as you know, the first quarter, we have -- I think we had one less day in business days this quarter compared to last year. Judson Lindley: 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? Jennifer Ryu: 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. Judson Lindley: And then for the second quarter, if you could? Jennifer Ryu: 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. Operator: Our next question comes from Joe Gomes with NOBLE Capital. Joseph Gomes: 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? Kate Duchene: 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 Jenn 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 and having the right conversations with clients. Joseph Gomes: Okay. Great. And one follow-up. In the summer, you guys did a Board refresh and added 2 new members to the Board. I 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. Kate Duchene: 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 experience 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. Operator: I would now like to turn the call back over to Kate Duchene for any closing remarks. Kate Duchene: 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. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
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