Resources Connection Inc (RGP) 2017 Q1 法說會逐字稿

Welcome to the Resources Global Professionals Q1 2017 earnings conference call.

(Operator Instructions)

As a reminder, today's conference is being recorded. I'd now like to introduce your host for today's conference, Ms. Kate Duchene, Chief Legal Officer. Ma'am, please go ahead.

Thank you, operator. Good afternoon, everyone. Thank you for participating today. Joining me on the call are Tony Cherbak, our Chief Executive Officer; and Herb Mueller, our Chief Financial Officer. During this call, we may -- we will be providing you with comments on our results for the first quarter of FY17.

By now, you should have a copy of today's press release. If you need a copy and are unable to access the copy on our website, please call Patricia Marquez at 714-430-6314 and she will be happy to fax or e-mail a copy to you.

Before introducing Tony, I would like to read an important announcement about certain statements that we may make during this call. Specifically, we may make forward-looking statements, in other words, statements regarding future events or future financial performance of the Company. We wish to caution you that such statements are just predictions, and actual events or results may differ materially.

We refer you to our Form 10-K report for the year ended May 28, 2016, for a discussion of some of the risks, uncertainties, and other factors, such as seasonal and economic conditions that may cause our business, results of operations, and financial condition to differ materially from results of operations and financial conditions expressed or implied by forward-looking statements made during this call. I'll now turn the call over to Tony Cherbak.

Thanks, Kate. Good afternoon and welcome to Resources' first quarter conference call. As you have likely read in our press release, as a result of recent health issues, I have decided to resign my position as Chief Executive Officer, effective October 7. I will, however, remain a member of the Company's Board of Directors. I remain deeply committed to this Company and its future, but I can't serve as the -- in the CEO role given the health issues that I need to address.

Kate Duchene, who has served as our Chief Legal Officer and Executive Vice President, will take over as interim CEO. Kate has been appointed as a part of the Company's previously established emergency succession plan. Since the year 2000, Kate has been part of the executive team and has served the Company in many functions, including risk management, marketing, human resources and legal affairs.

She has also provided leadership and financial management for our legal consulting business. She is extremely well-qualified to step into this role and is excited for the opportunity. The Board has formed a search committee to undertake the process and selection of a permanent CEO. Kate will be a candidate for that position, along with other senior leaders in the organization, who have been identified in our succession plan.

The search process is a top priority for RGP and the search committee is committed to selecting the most qualified candidate as quickly as possible. Realistically, we expect the search process to play out over the next two to four months. In addition to remaining on the Board of Directors, I will continue to serve the Company in a part-time employment role during the transition period.

I want to thank all of our investors and employees for all of your support. While I can't complete my journey with the Company in the CEO capacity, my belief in our business model is as powerful as ever. I have the utmost faith in the team here -- that the team here will work hard to deliver the potential that I see in the business. Following my remarks and Herb's detailed review of the financial results, Kate will make some final comments.

Now, I will provide a brief overview of the first quarter operating results. Total revenue for the first quarter of FY17 was $143.4 million, a 3.3% decrease from the comparable quarter a year ago. Sequentially, revenue was down 6%, resulting from summer vacations taken by our consultants during the mid-July through August time frame and the Memorial Day holiday falling in Q1 this year versus Q4 of FY15.

Our first quarter gross margin was 38%, representing a 70 basis point decrease from the prior year. SG&A expenses of $43.6 million were slightly higher when compared to the pro forma SG&A of $43.1 million a year ago after deducting a one-time non-cash stock compensation charge related to the accelerated investing in Q1 of FY16 of the Chairman's options.

For the quarter, our pre-tax income was $10.2 million and based on an effective tax rate of 44.7%, our GAAP net income was $5.6 million, or $0.15 a share. In Q1, adjusted EBITDA was $12.2 million, or 8.5% of revenue, compared to $15.7 million, or 10.6% of revenue in the year-ago quarter.

During the first quarter, we were very pleased to announce a 10% increase in our quarterly dividend to $0.11 per share. This marked the sixth consecutive year that we have increased the dividend. In addition, we repurchased approximately 375,000 shares of our common stock in Q1, leaving us with $132.9 million remaining on our $150 million buyback authorization.

As we reported in July, weekly revenues during the first six weeks of the first quarter totaled $65.5 million. During this six-week period, weekly revenues averaged $10.9 million. During the final seven weeks of the quarter, average weekly revenues were $11.1 million per week.

During the quarter, revenue in US declined 4.4% quarter over quarter while Asia-Pac's revenue growth was 2.5% in dollars, or down 1.1% in constant currency. Additionally, we were pleased to see Europe's revenue continue to improve, growing 6.2% quarter over quarter. On a constant currency basis, Europe grew their revenues 9.8%.

While we still have much more to accomplish in Europe, our Q1 revenue results reflect some of the progress that we are making. During the first five weeks of our second quarter of FY17, our weekly revenues totaled $55.8 million, which is approximately 2.6% lower than the comparable weeks a year ago.

With that, I will now turn the call over to Herb for a detailed review of our financial results.

Thank you, Tony. As mentioned, revenues for the quarter were $143.4 million versus $148.3 million in the first quarter of FY16, a quarter-over-quarter decrease of 3.3% and a sequential decrease of 6%. Our first quarter revenues were moderately impacted by summer vacations, both in the US and Europe. On a constant currency basis, revenue decreased 3.1% quarter over quarter and 5.9% sequentially.

For the first quarter, revenues in the US were $115.6 million, a decrease of 4.5% quarter over quarter and 7% sequentially. For the first quarter, total revenues internationally were $27.7 million versus $27.2 million in the first quarter a year ago, an increase of 1.9% quarter over quarter, 3.1% constant currency, and a decrease of 1.4% sequentially, 0.9% constant currency.

International revenue accounted for approximately 19% of total revenues for the quarter compared to 18% last quarter. Europe's first quarter revenues increased 6.2% quarter over quarter and decreased 8.1% sequentially while the Asia Pacific region saw first quarter revenues increase 2.5% quarter over quarter and 11.7% sequentially.

On a constant currency basis, total international revenue increased 3.1% quarter over quarter and declined less than 1% sequentially. On a quarter-over-quarter basis, US dollar was stronger against most currencies in Europe but weaker against Asia Pacific currency in countries where we do business. As a result, on a constant currency basis, Europe's revenue would have increased quarter over quarter by 9.8% and Asia Pacific's revenue would have been down 1.1%.

Let me now discuss early revenue trends for the second quarter of FY17. Weekly revenues for the first five weeks of the second quarter have averaged $11.2 million and totaled $55.8 million. They were $11.2 million; $9.9 million which was Labor Day week; $11.4 million; $11.5 million; and $11.8 million.

Using the average of the last three weeks' revenue over the remaining weeks of the second quarter and adjusting for Thanksgiving and international holidays, we would achieve second quarter revenues of approximately $143.5 million. This computation is purely mathematical and does not consider potential increases or decreases in weekly run rates over the balance of the quarter.

We continue to face a challenging business environment particularly in the financial services area. Low interest rates and restrictions on proprietary trading among other things continue to pressure that industry.

Now, let me discuss gross margins. Gross margin for the first quarter was 38% versus 38.7% in the year-ago quarter and 39.9% in the fourth quarter of FY16. The quarter-over-quarter decrease of 70 basis points results from the impact of the Memorial Day holiday and slightly reduced bill pay spreads. The sequential decrease of 190 basis points results from holiday pay, Memorial Day, and July 14 -- July 4, excuse me, and reduced bill pay spreads.

We also saw a gross margin dip in Europe as we were more aggressive to achieve growth. Excluding reimbursable expenses, our first quarter gross margin was 38.7%, which compares to 39.5% in the first quarter a year ago.

The average bill rate for the quarter was approximately $119 compared to $122 in the fourth quarter and $119 in the year-ago quarter. The average pay rate for the first quarter was approximately $60 compared to $61 in the fourth quarter and $59 one year ago.

Please remember these hourly rates are derived based upon prevailing exchange rates during each given period. We expect gross margin in the second quarter of FY17 to improve approximately 20 basis points from the first quarter's gross margin, primarily due to decrease in employer payroll taxes. For the first quarter, gross margin in the US was 39% and our international gross margin was 34%.

Now to headcount. For the first quarter, the average consultant FTE count was 2,459. This compares to 2,478 in the previous quarter and 2,504 in the year ago quarter. Quarter end consultant headcount was 2,570 versus 2,501 in -- a year ago. The total headcount with the Company was 3,340 at quarter end.

Selling, general and administrative expenses were $43.6 million, or 30.4% of revenue. This compares to SG&A of $44 million, or 29.6% of revenue in the first quarter of FY16, which included an $890,000 stock comp charge for accelerated vesting of the Chairman's options.

We anticipate SG&A expenses in the second quarter of FY17 to approximate $44.4 million. We have made investments in dedicated business development professionals as well as subject matter experts as we focus on building our technical accounting and data solution teams.

Stock compensation expense was $1.3 million, or 0.9% of total revenue. We would anticipate quarterly stock compensation expense in the upcoming quarters to approximate $1.4 million. At the end of the first quarter, our office count was 68; 45 domestic and 23 international.

Related to other components of our financial statements, depreciation was $800,000 for the quarter, similar to last quarter. We would expect depreciation expense to approximate this amount in the next couple of quarters. Our adjusted EBITDA, or cash flow margin, which we define as EBITDA before stock compensation was 8.5% in the first quarter, down from 10.6% a year ago and from 11.7% in the fourth quarter of FY16.

Our pre-tax income was $10.2 million for the quarter. During the first quarter, we recorded a provision for income taxes of $4.6 million, representing an effective tax rate of 44.7%. Our effective tax rate is impacted by our current inability to offset income and tax jurisdictions in which we are profitable, with losses in several tax jurisdictions, in which we are not profitable.

Our GAAP tax rate for each of the upcoming quarters is difficult to predict and it could be volatile as the rate will be dependent on several factors, including the operating results of our US and foreign locations, each of which are taxed or benefited at different statutory rate and the offset of the tax benefit of foreign losses in certain locations by valuation allowances.

On a cash basis, our tax rate was about 42% and we expect that rate to continue over to the next couple of quarters. For the second quarter of FY17, we anticipate a tax rate approximating 43.5%. Finally, our GAAP net income was $5.6 million, or $0.15 per share during the first quarter.

Now let me turn to our balance sheet. Cash and investments at the end of the first quarter were $102.9 million, a $13.1 million decrease from the end of FY16. The decrease stems primarily from cash use in operations of $7.1 million; share repurchases and dividends totaling approximately $9.3 million, offset, in part, by stock purchases by employees of $3.7 million.

Cash flow used in operations during the first quarter was impacted by the payment of annual incentive-based compensation. Capital expenditures were $1.1 million during the quarter, net of landlord reimbursements. During the first quarter, we repurchased approximately 375,000 shares of our common stock at an aggregate cost of $5.7 million or $15.09 per share.

Stock buyback program has approximately $132.9 million remaining. We will continue to return cash to shareholders through our dividend and share repurchases while maintaining a balance between the capital requirements of growing our business and fiscal prudence. Our shares outstanding at the end of the first quarter were approximately 36.2 million.

Receivables at quarter end were approximately $96.2 million, compared to $97.8 million at the end of the fourth quarter. Days of revenue outstanding were approximately 59 days, the same as in the fourth quarter of FY16. Now, I'd like to turn the call over to Kate for some closing thoughts.

Thank you, Herb. We are pleased to have Herb join our Board as our new CFO as of August 29. In conjunction with Herb stepping into the CFO role, we have asked John Bower, our SVP of Finance, to take greater responsibility of the Company's accounting. And we were pleased to move him into a newly created Chief Accounting Officer position.

Herb has been a CFO for both the public and the private company for over 10 years before joining RGP's Atlanta practice in 2011. He initially led the accounting and finance practice in Atlanta before becoming its Managing Director in 2012. Herb was a key part of the team that more than tripled the revenue, making Atlanta one of RGPs largest offices. We have asked him to bring that focus on driving growth to the broader Company.

We are pleased to report that our offices are finally experiencing and enjoying an increase in activity around the implementation of the rev rec and lease accounting standards. We recently won an engagement with the PE firm to implement the standard for many of their portfolio companies. We also won a significant project for a major public utility regarding revenue recognition and have a fairly large volume of proposals outstanding.

Chatter from the field indicates our clients are developing a greater sense of urgency around the implementation of these standards. We are also receiving referrals from the Big Four to assist with rev rec efforts of their clients.

Last week, the SEC's Interim Chief Accountant gave a speech, specifically addressing the role auditors can and cannot have in implementing Accounting Standards without running into independence issues. This further highlights the risk to companies of engaging their auditors to do any meaningful work on implementation of these standards. We believe that will be an opportunity for us.

We are also excited by opportunities around data privacy and protection initiatives. Given the general data protection regulation that will become effective in 2018 in European Union, we are having discussions with a number of clients around work in this area. The new framework requires heightened consent, data mapping, cross-border transfer, accountability, information security, and privacy impact assessment work.

There is significant work to be done in this area and most companies are not staffed to accomplish it. They will need help. That work is well-suited for our Company because these projects demand the talents of a cross-functional team: data experts, compliance experts, legal and regulatory consultants and change management talent.

To provide some context, a survey of 400 CIOs at large companies across vertical markets in the US and Europe, sponsored by mainframe software vendor, Compuware, showed more than half, 52%, of US companies have personally identifiable information, PII, on EU customers but only 33% have plans in place to comply with the GDPR.

Now let me share some additional statistics which we believe reflect the continuing health and strength of our core business. Client continuity remains outstanding. During our first quarter, we served all of our top 50 clients from FY16, and 48 of the 50 from 2015. In FY17, we have 264 clients for whom we provide services, exceeding $500,000 in fees on a run rate basis, up from 230 in 2016.

In addition, our top 50 clients represented 38.5% of total revenues while 50% of our revenues came from 90 clients. Our loyal client following is reflective of our client service approach and the quality of the work performed by our consultants. Our largest client for the quarter was approximately 2.6% of revenues.

Through the first quarter, 90% of our top 50 clients have used more than one practice area and 72% of those top 50 clients have used three or more practice areas. This practice area penetration reflects the diversity of relationships we have within our clients' organization.

In closing, I want to share my perspective on Tony's news and Nate's recent departure. I have worked for many years with both of them and greatly respect and admire them. I speak for the Company when I say we will all miss them dearly. One of the great strengths of our Company, however, is our strong, long-tenured senior leadership team.

This team, whose 10 most senior operating executives have an average of 15 years of service with the Company, provides significant experience and expertise to our clients and our staff. It is this quality of management which runs throughout our organization, much of it equally along tenured, that will ensure our Company remains and grows and will provide stability and focused during this period of change.

I am very proud to have been part of this group for the past 16 years and feel privileged to be able to lead them as interim CEO. Our management, all of our people are very accomplished and committed to continuing to move the Company forward now and into the future.

That concludes our prepared remarks and we would be happy to answer your questions at this time.

(Operator Instructions)

Our first question comes from the line of Andrew Steinerman with JPMorgan.

Hi Tony, I want to wish you all the best. My first question is just when you look at those three weeks, weeks three, four, and five, does that feel like a normal seasonal pick-up from an August time frame? Is it the challenging environment keeping from a normal seasonal pick-up when, again, you were looking at weeks three, four and five?

Andrew, this is Herb. One of the things we experienced a similar increase this time a year ago during that time frame, so it's combination of those factors. But if you look at year-over-year for those first five weeks, we're off just 1% or 2% and then last year, you saw some really nice acceleration during that time. We're starting to see that trend right now as well, so you could argue, if you look at the trend that, that could bump our Q2 up in the 1.46% range but just a bit on the math that you use.

Right, I understand, Herb. You're saying we're using straight math but it is possible for us to see further seasonal pick-up which would be beyond that?

Correct.

Okay. Thank you very much.

Our next question comes from the line of Kevin McVeigh with Deutsche Bank.

We're not hearing anything from him. Operator?

Our next question comes from the line of Mark Marcon with Robert W. Baird.

First of all just want to say Tony, wish you all the best. Hope that you can have a speedy recovery and that things go well.

Thanks, Mark.

Really enjoyed working with you over the years so this is really tough news to hear just on a personal level because we hope that everything goes well.

With regards to the business, can you talk a little bit more about what you're seeing on the rev rec convergence? Last time, we talked we thought maybe we would see a little bit more by this point. Can you just discuss that a little bit just in terms of -- are clients still dragging their feet? You did give some comments about some engagements but not sure if it's at the same level that we've -- we're hoping for?

I think the thing we're most excited about is that we're seeing much more sense of urgency on our client side. There's just a lot of chatter coming out of the field that clients are trying to get after this and they have engaged us on a fair amount of projects during the quarter.

But more importantly, we have just a whole slew of proposals coming in and we're seeing excitement about not only rev rec but also the leasing standard, which some of our people can -- will be as potentially as big as the rev rec.

Mark, I'll add to that. In the field a year ago clients were telling me that, they expect it's going to be pushed out another year. They're not really worried about it and then six months ago, they were working on closing their books and their year-end, they said we'll look at it after that and then they started looking at it a little closer in April/May.

And then the uh-oh moment came to them that this is a going to be lot more involved. So we've seen a significant amount of increased urgency and still trying to get their hands around it. Some are still thinking, well, we can maybe do this internally and then those that start off trying that are now coming up for air, saying they're going to need additional resources.

In addition, as we've alluded to, we've even started partnering with some of the Big Four on engagements as they expect to need additional resources as well to be able to complete the activity. So I think I know we've been saying that for awhile that this is coming but I'll tell you personally from the field, the sense of urgency is much greater now.

Can you Herb or Tony or Kate, could you dimensionalize some of the engagements that you just recently signed? So for example, that -- the PE firm. I'm just trying to get and I think what most investors are trying to get a sense for is just what is the size of the opportunity relative to -- you had mentioned earlier that the first five weeks are still down on a year-over-year basis. So trying to figure out how big is what's coming on relative to the pressure that you're seeing in financial services?

That's a great question, Mark, and one that we're still trying to get our hands on -- around. Often these start off as an initial assessment that could be a fair -- relatively small engagement of anywhere from $50,000 to $100,000 to complete and then from there, it depends on the size of the Company. So it's really hard to quantify exactly what that means and how big it can potentially be but it's certainly significant.

Yes, there -- the engagements that we have are all over the map and it can be from like a low of $50,000 for like a rev rec engagement to roughly $500,000, which was the engagement that we just got from the utility and with possibilities of it going up over that. But because we're on kind of a time and materials basis with most of our clients, it's very difficult to predict where all these things end up. But that's kind of a range.

Right.

We're also along those same lines, seeing a pick up on the lease accounting. We've started closing engagements on that as well.

And you think the lease accounting can be as big as rev rec?

I don't think that it will be as big as rev rec, but it's certainly a significant piece potentially.

Okay, and just going back to the rev rec, given that the timing doesn't seem like it's going to change in terms of when everything needs to be implemented, how would you envision your business scaling as that occurs? In other words, you're just doing the initial assessments for a lot of clients right now. Does that go for one or two quarters, and then we'll have to move to implementation and that will end up being something that you would envision being materially more or how are you thinking about that?

I think over the next couple of quarters, we're going to see an increasing level of activity. Then when we get into FY18, when there's going to be a true requirement for companies to comply, I think that there will be sheer panic and we'll have just a ton of work coming in from our clients. I think at that point in time, it's going to be not what is the cost. It's just, can you help us? So I think that's coming --

Do you think that will be like fiscal first quarter of 2018 or is it still kind of back end?

It's tricky to call. I'm hesitant to try to narrow it down that closely. Overall, it's probably at about a 36-month life cycle, as this has going to roll through. You're going to have your larger companies you're getting on board now; a lot of times they have internal teams that they are addressing it with.

And then as you get down into the smaller mid-market companies, they are going to be coming in a little bit later but have more pressing need and a little -- potentially greater need for outside resources. So it's going to vary -- some of it will be a lot of assessment work, where after you go through that, they may or may not have significant follow on work depending on the nature of their contracts and what they have to work through. So it's really hard to quantify exactly what it's going to be.

I think too Mark, one of the things that, Herb -- or, no, I think one of the things that Kate mentioned in her remarks was the SEC speech that the Chief Accountant gave, really was kind of a warning to a lot of companies about doing too much for their audit clients in terms of helping them implement rev rec. So hopefully, that will also cause us to get a lot more referrals from the Big Four because they can't audit what they create.

That's great. And then with regards to what you're seeing in Europe, it's nice to see that pick up in terms of the revenue growth. Can you talk a little bit about the comment that you made with regards to being a little bit more aggressive on the bill rate side in order to get that work. So what are we thinking about in terms of gross profit growth?

I think here in the short-term, you might have a little bit of margin compression out of Europe. We're making an active goal of winning the work. We're also, at the same time, you're seeing that -- you're not necessarily seeing bill rate drop because we're also going after higher level work at the same time, which sometimes requires higher level consultants that cost a little bit more.

But I think really going after and trying to establish ourselves and start getting the growth, we made some significant changes and the management there over the last few years, significant increase in the outreach to different companies and the business development side. And we're starting to see the results of that. I would anticipate that for the next several quarters, the gross margin there might stay as it is but be offset by the increased revenue.

And then with regards to Herb, you're new. Kate, we've spoken on and off for many years --

Right.

But several investors are going to be new to both of you and they're going to -- just wondering when you typically end up seeing a CFO and CEO change at the same time and I'm just -- I'm being transparent just because I'm getting lots of questions. Would the Board consider multiple scenarios over the ensuing five or six months?

Or is it pretty much, we've got a game plan. We're going to move straight ahead and if something changes with regards to the stock, maybe we even buyback more because this is a great opportunity given that we're seeing the business really picking up.

Right, so I'm not exactly sure, Mark, that I know what you mean by multiple scenarios but I think we are moving ahead. We've put some initiatives in place that both address some of the operations in our business but also getting more focused on some of our initiatives selling work, which requires bringing in some higher level talent to deliver on that. In terms of capital structure because I think that's where your question is headed a bit, I'm going to turn that piece to Herb to answer.

Sure. Sure, so on a couple things and I'll back up. The initiatives that is I went through the process to come on board. I got very comfortable that there was strong alignment with the executive team and the Board on working on accelerating growth, which was part of the reason I think I ended up getting the job because that's my focus.

And along those lines, as I come in I'm examining all facets of the business, including capital structure and trying to work through over the coming months, what makes sense. Obviously, we've got a very conservative balance sheet and it may make sense to perhaps be more aggressive there; it may not. But it's something certainly that, that's on the radar to take a look at, at the same time, trying to accelerate some of our growth initiatives.

We've been working on the business development and then a higher level advisory work with the SMEs. We've got a lot of opportunity, we think, on the data privacy side. So a combination of things that were going, just trying to do them a little bit faster. However, I'll point out that as we go through the turnaround and some of the underperforming offices, that takes time.

And one of the other key things we did -- kicked off this last year was our Talent Acquisition Group, where we had a more concentrated effort to accelerate the pace of which we can hire internal management talent, as we believe that's really been the key in the offices that have seen turnaround success, the improvements that we've made in Europe.

So Tanja Cebula, our Chief Innovation Officer has been leading that and we put together some key people and we're real excited about the level of talent that we're now bringing in. However, that takes time to work through that.

Great and then one last one for me and then I'll follow-up off-line but just as it relates to just the financial services contraction that you're seeing, can you give -- can you quantify that or think about or give us some sense in terms of when you think we anniversary it? Is it steadying? How should we think about that?

I think one way is if the Fed increases interest rates, you will see a great opportunity for us but as low as they are now, that's really constraining the spend that the financial services industry has an opportunity for, so really, that's going to be, I think, the key there.

But it -- is it -- when you look at your weekly and quarterly run rates, out of that vertical, is it -- does it look like it's stabilizing yet or is it still -- we're still trying to -- we're still waiting for the bottom?

Yes, I would say that the drop off has slowed. There's -- we still experience that still drove part of our drop in revenue this past quarter but not at the rate that we saw before. There's also just a general economic client -- climate that is still soft. We see other parts of the area that aren't necessarily industry-specific but they're slowing. There's the amount of the start-ups, for example, in Silicon Valley has slowed down.

So there's still -- we're very cautious about the overall economic client, even outside of financial services. But I do think the deterioration has slowed and there's still opportunity. The interesting thing in that area is there's still some major initiatives related to Dodd-Frank Act that the banks desperately need help to stay in compliance. It's just a matter of balancing that with their spend.

Okay and so like in the US, exclusive of the impact of holidays, during the first five weeks, did you -- you mentioned during the last quarter, we're basically down 4.4% domestically. Is it looking better on a year-over-year basis; in other words, a smaller decline than that?

We're starting to see some signs of rebound there but there's still -- impacted us in the early part of the quarter.

Those first five weeks, Mark, are down about 2.6%, so it is lesser of a decline.

That's globally, right?

Yes.

And I was specific with regards to the US --

Okay. I'd have to take a look at that and get back to you on that.

Okay, great. Thank you, again, Tony. Best wishes.

Thanks, Mark.

(Operator Instructions)

We have a question from the line of Kevin McVeigh with Deutsche Bank.

We have a follow-up question from the line of Mark Marcon from Robert W. Baird.

Thought I'd come back while the conference call is still going on. SG&A,how should we think about that because you did mention you've got a few initiatives that are out there in order to accelerate the growth. How should we think about the trend of the SG&A spend beyond this quarter?

Right, and as we said, I think we're up in the neighborhood about $800,000 going into quarter two. I think you'll see that as probably reasonable number, maybe just slightly higher on that. We'll have some things offsetting it as we come in and we've added the business development people and then subject matter expert managing consultants.

And what will happen initially when we bring on management consultant, we have some additional SG&A cost as they're -- until they get deployed and then we anticipate roughly a 70% utilization and their cost shifts to cost of goods sold. So it will lessen the impact.

Then on the business development people that we're bringing in is on a more of a pure commission basis but initially with the draw, so you'll see some short-term impact of that which we're -- we'll be seeing in quarter two and then hopefully, over time, that will be offset by the revenue that they bring in.

A lot of these, Mark, have been in the areas where we are making investments in our key initiatives like the technical accounting for rev rec and leases, data solutions and M&A, where we are seeing a lot of opportunities. So the mode is to get those teams up to speed in the hopes that we can really take advantage of the revenue opportunities of those three initiatives.

And so just to be clear, so it sounds like it would go up again in fiscal Q3 and then maybe level out or maybe continue to go up?

Right now, it might be slightly up in Q3 but I think not significantly.

Okay, great. Thank you very much.

I'm showing no further questions in queue at this time. I'd like to turn the call back to Ms. Duchene for closing remarks.

Thank you, operator. Well, thank you everyone for your continued support and interest in Resources. We look forward to our next update for the second quarter of 2017. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone, have a great day.