Resources Connection Inc (RGP) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Resources Global Professionals First Quarter 2018 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. Alice Washington, General Counsel. Ma'am, please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for participating today. Joining me on this call are Kate Duchene, our Chief Executive Officer; and Herb Mueller, our Chief Financial Officer.

During this call, we will be commenting on our results for the first quarter of fiscal 2018. 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 assist you.

Before introducing Kate, I would like to remind you that we may make forward-looking statements during this call. Such statements regarding future events or future financial performance of the company are just predictions and actual events or results may differ materially. Please see our Form 10-K report for the year ended May 27, 2017, 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 Kate Duchene.

Thanks, Alice. Good afternoon, and welcome to Resources 2018 First Quarter Conference Call. I will start with a brief review of our first quarter operating results. Next, I will report on progress against our transformation initiatives, sales and talent improvements, solutions development and cost containment. Third, I will update you on our progress to drive economic recovery in our Tri-State, Chicago and Houston markets. Fourth, I will comment on our European business, including our recent acquisition of taskforce - Management on Demand in Germany. And finally, I will share a few remarks about the recent tragic events that have impacted our business and our people in Texas, Florida, Mexico City and Las Vegas.

Starting with operating results. Our total revenue for the first quarter of fiscal 2018 were $141.2 million, which represents a decline of 1.5% compared to the first quarter a year ago. The decline was 1.4% on a constant currency basis year-over-year. On a sequential basis, first quarter revenue decreased by about 5% compared to $148.6 million in the fourth quarter of fiscal 2017. The decrease is normal as we move into the vacation season in the first quarter of each fiscal year and the decrease is also a result of the Memorial Day and Fourth of July holidays in the U.S. We had no paid holidays in the U.S. in Q4. Herb will discuss the revenue uplift we are seeing in Q2, which paints a brighter picture as we begin to see investments we have made in the business start to bear fruit.

Net earnings were $2.1 million or $0.07 per diluted share compared to $5.6 million or $0.15 per diluted share a year ago. As we previewed on our last earnings call, our first quarter results were impacted by $0.03 per diluted share for severance-related costs of $1.4 million. In addition, during the quarter, we also incurred $0.02 per diluted share for acquisition activity costs of $700,000.

SG&A was $47.4 million in the first quarter compared to $43.6 million in the first quarter a year ago. Of the $3.8 million increase in SG&A year-over-year, $2.1 million was the result of expenses related to severance charges and acquisition costs just mentioned. The remaining, approximately $1.7 million, was related primarily to special investments made in the quarter to transform the company's sales capabilities and improve technology. We believe that these investments are necessary for the longer-term health and growth of the business.

We acknowledge that SG&A in this past quarter was too high, and we plan to reduce it through the balance of this fiscal year as we complete our special investments in sales acceleration consulting and Salesforce implementation support. In addition, significant severance expenses should also be largely behind us. Despite making investments to execute longer-term growth strategies, we have not lost sight of the need to drive leverage and cost containment in our ordinary operating model. Herb and I will turn to the topic later in these remarks.

Over the past 6 months, we have been very focused on substantive change in talent, organizational structure and management discipline to drive growth and better investment decisions. Our financial performance at the end of Q1 reflected these changes beginning to take hold, and we are starting to see a positive turn.

Let me share some highlights. In 3 out of the 4 final weeks of the first quarter, our revenue was above prior year. In Q2 and excluding the recent acquisition revenue, we have achieved year-over-year positive revenue results the last 4 weeks of Q2. In Europe, we achieved revenue growth of 7.4% in the first quarter compared to prior year Q1. That positive trend is continuing in Q2. In that market, we have achieved 7 consecutive quarters of year-over-year growth, ranging from 2% to 14%. Our Strategic Client Program, or SCP, revenue is up approximately 2% since the beginning of the fiscal year, but we acknowledge that we are still in the early days of this program. These data points signal that we are moving in the right direction and our investments are beginning to pay off. Herb will discuss our operating performance in further detail later in this call, including a discussion of more specific revenue trends and SG&A expense expectations in the second quarter of fiscal year '18.

I will now provide a quick update on the 3 strategic initiatives we laid out previously. I'll start with sales transformation. In October, we are rolling out the new operating model for sales within RGP for all of North America. This includes the creation and redefinition of certain sales roles and responsibilities as well as improvements to sales culture, management and accountability. We have established the SCP program with dedicated account teams to lift revenue and targeted long-term global clients. We have rolled out a revised compensation plan that ties reward to enterprise growth. We also have implemented our new sales process and technology platform Salesforce throughout all of the global business. Finally, we have the new business development structure and teams in place and operational in North America focused on net new client acquisition in the middle market and large client segments.

While there is still work to do, we are pleased with the progress to date. The revenue pillar in RGP has renewed energy, focus and alignment that we believe will drive improved results in all of our markets. As previously outlined, the sales transformation effort is a multi-step process that will take approximately 12 to 18 months to complete fully. We are 6 months into the work. The activities ahead will focus on improved account development planning and penetration, training on consultative sales, training on deployment of solutions offerings and training on sales management and accountability. We must ensure that the new behaviors and processes stick.

Next, let me comment on our progress standing up in enterprise-wide integrated solutions pillar. I've discussed our work in this area on our past 2 earnings calls, and we are now rolling out the new organizational structure and go-to-market approach for all of our solutions practices during the month of October. This will include the implementation of a dedicated integrated solutions team responsible for delivering centralized content and a standard deployment model for each solutions practice. We will focus first on our 3 core areas: transaction services, technical accounting services, and data and analytics. This group will also serve as our incubator team to translate emerging client needs into future solutions offerings, such as robotics process automation. This approach will enable us to drive repeatable and scalable business opportunities across our revenue platform. It is already contributing positive returns for the company and delivering momentum. We will also drive these solutions to new buyers through our middle market channel, led by the new business development team.

Now let me turn to cost structure. The third initiative we laid out last fiscal year was a plan to reduce SG&A through headcount reduction. We stated that our goal was to reduce SG&A by approximately $7 million on an annualized basis. Aside from the onetime expenses related to severance, acquisitions and sales transformation costs, we have maintained a reduction of our headcount of 57 from Q3 '17 to Q1 '18. We will continue to analyze the leverage model in our operations, and we'll seek additional opportunities to reduce our cost structure as we streamline and centralize certain functions through the balance of the fiscal year. Please keep in mind that cost reduction does not follow a straight line and there will be some variation as we complete the onetime investments and as we move personnel out and bring new talent on board. In other words, these transformation and growth-oriented investments are masking some of the core containment work we started in fiscal '17 and we'll continue to execute in fiscal '18.

Next, I will turn to progress we are seeing in Tri-State, Chicago and Houston to reignite growth. In Tri-State, we have installed a new sales leader who joined RGP in mid-September from an international professional services firm, having led sales and marketing at a national level. She will report into the SCP revenue for our East region. We have also hired a leader for a private equity practice based in our New York City office. He reports into the global client services leader. He started with RGP in late August 2017. Those individuals have significant and relevant experience in delivering strong performance within sales and management and bring with them a disciplined sales approach to their target market. At this time, we believe our negative revenue trend in Tri-State has flattened, and the personnel currently in place will deliver upward momentum of our revenue results during the balance of the fiscal year.

Now I will touch on Chicago and Houston. Chicago revenue was up 5.4% in Q1 year-over-year. The pipeline is significantly stronger as we enter Q2. We are still recruiting for the senior talent leader in Chicago and are rebuilding new performance expectations amongst the team for both sales and talent. We believe this practice will benefit from the new operating model structure that frees up the sales team to spend time with clients and prospects and empowers the talent team to own supply and demand of our talent pool. We have also made great progress in Houston during the first quarter of fiscal year '18. Houston sales have grown 15.8% year-over-year. Last week, the practice had its first $600,000 week since Q3 of fiscal 2015. And while there is still plenty of work to do remaining to sustain this pace, we are pleased with the result so far.

Next, I welcome our most recent acquisition to RGP, taskforce - Management on Demand. taskforce is a Germany-based interim management and project management business serving primarily the C-suite or C minus 1 in the [Mittelstag] or middle-market companies. We believe that this strategic acquisition was a significant step forward for RGP in Europe for 3 primary reasons: First, taskforce allows us to scale up rapidly in what is the world's fourth largest economy. While our existing RGP team has made good progress in the past 12 months by almost doubling revenue year-over-year in Germany, this acquisition provides genuine critical mass to serve our existing global clients with depth and scale. Two, we gain a new client base in the middle market in Germany into which we hope to cross-sell RGP's project execution services. Third, we have added depth of talent in our European management team as taskforce is led by 2 very strong and capable business leaders. Herb will speak to our positive European results shortly, and this acquisition further builds the momentum we have in our European business.

Finally, I would like to take a moment to speak to our company's experience with the recent tragic events in Texas, Florida, Mexico and Las Vegas since the close of Q1. We experienced loss and business disruption to varying degrees in each marketplace. Our concern and focus has been on our people impacted by loss and mobilizing our teams to help our clients with recovery efforts. All of these marketplaces are important to RGP, and we want to do all we can to support our great people and our great clients who have been impacted. In Texas and Florida, we did pay our consultants during the weeks of lost income so they could focus on their own lives and families and, as soon as their personal situations were stabilized, turn to helping our clients. We want to acknowledge the generous support given by our employees who donated vacation time and cash to support property damage and other losses suffered by their colleagues, especially in the Houston area. This spirit of support and caring highlights one of the core values of RGP and differentiates us as a company people want to work for and clients want to work with. As the leader of this company, I was overwhelmed and extremely proud of how the teams stayed focused on the business, our clients and supporting colleagues in need both financially and emotionally. Our goal is to reinforce and further build the performance culture but also one that has heart and empathy. What we saw recently proves that we are on the right track.

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

Thank you, Kate, and good afternoon, everyone. I will start by giving detail on our fiscal first quarter financial results and will then discuss the trends we're seeing in the second quarter. I will also give further detail on the financial impact of the taskforce - Management on Demand acquisition and other strategic growth initiatives that Kate discussed a little earlier.

Starting with an overview of our first quarter results. Total revenue for the first quarter of fiscal 2018 was $141.2 million, a 1.5% decrease from the comparable quarter a year ago. Sequentially, revenue was down 5%. On a constant currency basis, revenue increased 1.4% year-over-year and 5.6% sequentially. Our first quarter gross margin was 38%, the same as the prior year first quarter. SG&A expenses were $47.4 million compared to $43.6 million in the fiscal quarter a year ago. Our net income was $2.1 million or $0.07 per diluted share. In Q1, adjusted EBITDA was $7.9 million or 5.6% of revenue compared to $12.2 million or 8.5% of revenue in the year-ago quarter.

Now let me discuss some of the highlights of our revenues geographically. As Kate mentioned, we have seen improving trends across our international business, with revenues in Europe showing improvement for the seventh straight quarter. Europe is benefiting from our increased focus on large accounts across countries as well as from leveraging our U.S. connections.

Our U.S. performance continues to be below our long-term expectations, with gains in the majority of the U.S. being offset by the year-over-year decline in the Tri-State area, which was down 16% from a year ago. However, as mentioned, Tri-State has leveled off and is showing signs of sequential growth. We believe that the worst is behind us in the Tri-State region. While we are still seeing weakness in the area, we have already seen some improvements over the last quarter following the recent leadership and management changes. Activity levels are up and morale is improving. As Kate and I have emphasized on previous calls, we are not expecting an immediate turnaround in our Tri-State business, but we are confident that new leadership in combination with our dedicated business development structure and recent Salesforce implementation will drive improved performance in the market. In 2 other markets where we face similar business challenges, Chicago and Houston, we are already seeing positive results from new leadership. Houston is definitely trending positively and is reaching weekly revenue not seen in several years. Both markets were up year-over-year in the quarter.

For the first quarter, revenues in the U.S. were $113.1 million, a decrease of 2.2% year-over-year and 5.4%, sequentially, partially reflecting the impact of the summer holiday season and, again, driven by the year-over-year decline in Tri-State. For the first quarter, total revenues internationally were $28.1 million versus $27.7 million in the first quarter a year ago, an increase of 1.1% year-over-year, 1.8% constant currency and a decrease of 3.2% sequentially, 6.4% constant currency.

International revenues accounted for approximately 19.9% of total revenues for the quarter compared to 19.5% in the fourth quarter of fiscal 2017. Europe's first quarter revenue increased 7.4% year-over-year while decreasing 5.5% sequentially. Asia Pacific saw first quarter revenue decrease 10.7% year-over-year and 3.7% sequentially. On a quarter-over-quarter basis, the U.S. dollar was weaker against the euro but stronger against the pound. In Asia Pacific countries where we do business, the dollar was stronger. As a result, on a constant currency basis, Europe's revenue would have increased quarter-over-quarter by 7.1% and the Asia Pacific's revenue would have been down 8.3%.

Turning to early revenue trends for the second quarter of fiscal 2018. Weekly revenues are trending 3% ahead of last year, excluding taskforce acquisition-related revenue. This includes the impact of approximately $350,000 in lost revenue from the hurricanes. We're seeing some encouraging trends in top line revenue for the quarter ahead. Europe is continuing to do well, and Asia Pacific is beginning to rebound after getting off to a slow start in Q1. As mentioned above, revenue is trending in the $151 million to $155 million range in the second quarter compared to $147.6 million a year ago. This range includes taskforce revenue of approximately $3.3 million to $3.7 million in Q2. The high end of the range is dependent on achieving the same uptick in the second half of the quarter as we have historically seen.

Turning to gross margins. Gross margin for the first quarter was 38%, the same as the prior year first quarter but, as expected, a decrease from 39.1% in the fourth quarter of fiscal 2017. The sequential decrease of 110 basis points is primarily due to the impact of paid holidays in the first quarter as there were no paid holidays in the fourth quarter of fiscal 2017 and in the U.S. Excluding reimbursable expenses, our first quarter gross margin was 38.8%, which compares to 38.7% in the first quarter a year ago. For the first quarter, our gross margin in the U.S. was 38.9% and our international gross margin was 34.6%. For the second quarter, we expect our gross margin to be in the 37.7% to 38% range.

The average bill rate for the quarter was approximately $121, which compares to $120 in the fourth quarter and $119 in the year-ago quarter. The average pay rate for the first quarter was approximately $60, the same in the fourth quarter and 1 year ago. As a reminder, these hourly rates are derived based on prevailing exchange rates during each given period.

Now on to headcount and geographic footprint. Quarter-end consultant headcount was 2,495 versus 2,570 a year ago. The total headcount in the company was 3,221 at quarter end. Internal headcount has decreased 7.3% since the end of the third quarter, reflective of the actions taken in the fourth quarter related to the restructuring program, reducing the number of front and back-office personnel. At the end of the first quarter, our office count was 67, 43 domestic and 24 international.

Now looking at other components of our first quarter financial results. SG&A expenses were $47.4 million or 33.6% of revenue. This compares to SG&A of $43.6 million or 30.4% of revenue in the first quarter of fiscal 2017 and $48.4 million or 32.6% of revenue in the fourth quarter of fiscal 2017. The year-over-year increase from last year's first quarter relates to charges of approximately $1.4 million for severance expenses and $700,000 of acquisition-related costs in the first quarter. The combined impact of these charges was $0.05 per diluted share of today's results. The additional cost impacted our tax rate for the quarter to a greater extent because of the relatively lower pretax income in the U.S. to offset such cost. Thus, our tax rate is 58% for the quarter but would have been 49% without the expenses. The additional year-over-year increase of $1.7 million was driven primarily by the transformation expense related to our strategic initiatives as well as several hundred thousand in license fees related to Salesforce. The transformation expense will begin to wind down towards the end of the second quarter.

Now I'm going to discuss the sequential change in SG&A from Q4 to Q1. The $1 million decrease sequentially is a combination of factors. We incurred charges of approximately $2.4 million related to severance expenses and office closures in the fourth quarter of 2017. We eliminated $1.7 million in compensation cost as a result of reduction in force. We incurred $700,000 of acquisition-related expense. We incurred $1.4 million of additional severance expense. Payroll taxes were up $700,000 related to our bonus payout, and health care costs were up $300,000 in the quarter. In quarter 2, we expect SG&A to be in the range of $46.5 million to $47 million, which will include approximately $1.8 million for spending for transformation and additional SG&A for the taskforce acquisition.

Turning to other components of our financial statements. Stock compensation expense was $1.6 million or 1.1% of total revenue. Depreciation was $940,000, about the same as the fourth quarter. Our adjusted EBITDA or cash flow margin, which we define as EBITDA before stock compensation, was 5.6% in the first quarter, down from 8.5% a year ago and 7.4% in the fourth quarter of fiscal 2017. Our pretax income was $5 million in the first quarter. During the quarter, we recorded a provision for income taxes of $2.9 million, representing an effective tax rate of 58%.

Our GAAP tax rate for each of the upcoming quarters is difficult to predict and could be volatile as the rate will be dependent on several factors, including the operating results of our U.S. and foreign locations, each of which are taxed or benefited a different statutory rates 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 the next several quarters. Our effective tax rate is impacted by our current inability to offset income and tax jurisdiction where we are profitable with losses and several tax jurisdictions where we are not. Finally, our GAAP net income was $2.1 million or $0.07 per share during the first quarter.

Now let me turn to the balance sheet. Cash and investments at the end of the first quarter were $49.6 million, a $12.7 million decrease from the year-end balance of fiscal 2017. The decrease stems primarily from the use of cash to pay fiscal 2017 related bonuses during the first quarter. Receivables at quarter end were approximately $99 million compared to $98.2 million at the end of the fourth quarter. Days of revenue outstanding were approximately 61 days, the same as during the fourth quarter of fiscal 2017. Dividends paid for the quarter totaled approximately $3.3 million. Capital expenditures were $400,000 during the quarter, net of landlord reimbursements.

In the first quarter, we did not repurchase our stock. We are continually evaluating uses of cash to reduce debt and/or facilitate our growth both organically and inorganically. Our stock buyback program has approximately $125.1 million remaining. We will continue to return cash to shareholders through our quarterly dividend while balancing debt repayment with capital requirements of growing our business organically and inorganically and fiscal prudence. Our shares outstanding at the end of the first quarter were approximately 29.9 million.

Now turning to the financial impact of the acquisition we made at the beginning of our second quarter. On September 1, we closed the acquisition of taskforce - Management on Demand as part of our effort to expand and grow our European business. taskforce is an industry leader in the German market and will enhance our ability to serve our global clients and offer more integrated solutions. We acquired taskforce for initial consideration of approximately $7.1 million in cash and restricted stock. We issued about 227,000 shares. The taskforce transaction is expected to be substantially accretive to our revenue and EBITDA from day 1. We expect taskforce to contribute $14 million to $16 million annually in revenue and 10% to 12% EBITDA at its current operating pace. The acquisition drove approximately $400,000 in acquisition cost in Q1. As I mentioned, the transaction presents positive financial opportunities, and it's expected to be accretive to both revenue and EBITDA, delivering benefits to our shareholders. We're excited about our acquisition of taskforce, and we'll continue and do work to identify additional growth opportunities, both inorganic and organic.

And finally, I'd like to discuss the financial impacts of the strategic initiatives that Kate covered earlier. As a reminder, we first announced these 3 initiatives in April with specific goals to reduce cost over time, enhance our revenue and improve our operating model. We are pleased with the progress we made in the first quarter against our strategic initiatives, in particular the reduction of force cost savings and the sales transformation initiative. We achieved our original goal, as discussed in our Q3 earnings call in April. We reduced compensation expense by $7 million annualized. We added just under $1 million annually for sales force, and we have increased our business development costs by approximately $2 million, yielding a net annualized savings of $4 million. We've been able to minimize loss of revenue during transformation and, considering the headcount reduction, allowing us to see a net revenue gain earlier than expected.

On revenue enhancement, we continue to believe that the initiatives we have outlined will put us in a stronger financial position going forward. Our business development efforts are gaining great traction and opening new doors. Our improved incentive system for the field is in place and will better reward our top performance. Our new talent pillar started in our East region last week and will drive a more efficient process. Salesforce has now gone live globally.

Finally, the redesign of our operating model is well underway as we continue to prioritize building integrated solution capabilities and delivering multidisciplinary offerings to clients in 3 areas of focus: transaction services, technical accounting services, and data and analytics. These efforts are already delivering revenue growth, and we expect them to be further supported and enhanced by the client offerings of taskforce. We anticipate that this upward performance trend will continue. As Kate outlined earlier, we expected to see revenue upside and cost savings begin to have positive impacts on our numbers later in FY 2018.

Now I'd like to turn the call back to Kate for some closing comments.

Thank you, Herb. We are excited by and focused on our strategic initiatives. We have already made tangible progress since we outlined our plans last year and look forward to continued improvement in our performance.

Before turning to questions, I will review our client continuity statistics for the first quarter of fiscal 2018. Client continuity remains strong. During the first quarter, we served all of our top 50 clients from fiscal 2017 and 2016. In the quarter, we have 264 clients for whom we provide services at a run rate exceeding $500,000 in fees, the same as in fiscal 2017. In addition, our top 50 clients represented 39% of total revenues, while 50% of our revenues came from 88 clients. Our largest client for the quarter was approximately 2.8% of revenues. As of the end of the first quarter, 92% of our top 50 clients have used more than 1 practice area, and 72% of those top 50 clients have used 3 or more. This practice area penetration reflects the diversity of relationships we have within our client organizations and supports the opportunity for growth, especially powered by our new Salesforce tool.

That concludes our prepared remarks, and we are now happy to answer any questions.

(Operator Instructions) Our first question comes the line of Michael Cho with JPMorgan.

I just want to touch on -- hoping you can provide a little bit more color on the uplift you've been seeing in your business in the last few weeks. I mean, is it just the just regions improving? Or is there type of work that's picking up? Or is it just Resources just winning more?

I'd say it's a couple of things, Michael. I think it's really the improved focus and drive we have in the business. I didn't talk a lot about talent and what we're doing around talent transformation, but a big reason for changing our operating model a bit is to free up our sales team to spend time with clients and spend time on client pursuit and really stand-up talent to be a true partner and take the supply and demand responsibilities away. And I think that we're just starting to see that impact. In terms of the kind of work, it is the improvement in the larger markets that we talked about, and we're seeing a lot of opportunity around finance department transformation. Data projects are increasing, and those are across the board in the offices. Herb, would you have...

Yes, I'll add a point that the business development efforts that we've been doing both with our dedicated business development professionals as well as a greater focus with our client service team to really get out and get new logos is definitely driving results. I think there is excitement about the initiatives of the company or really start driving growth, and we focused on that. And I think that's paying off. And it's been a strong initiative that we've had now for the last 6 months and it just takes a little while to do it. And then the other key thing is Salesforce.com, I think, has definitely helped us in just getting us a little bit more organized on our outreach that we've been doing over the last several months and we -- that's paying off as well.

Got it. That's helpful. And just one follow-up, just a clarification. Herb, I think I heard you mention the $350,000 lost revenue from the hurricane. That's just Harvey, right, and that was just Houston?

No, that's primarily Houston, about 85% of that. We had a little bit of an impact in our South Florida and Tampa offices as well as we lost a day to 2 days of work there.

(Operator Instructions) Our next question comes from the line of Mark Marcon of Robert W. Baird.

I was wondering if you could talk just a little bit more about some of the areas of uptick. Are you seeing anything from rev rec?

Not since we are -- still continuing to trend upward. But consistent with the prior quarters, we're seeing -- still, it's interesting, as I've talked about before, people, in some cases, are just now getting it. So we're doing that. We're also getting the lease accounting work but -- though rev rec is probably beating that by about 3 to 1. So there is still upside. It's amazing the number of companies that haven't really gotten on that. So we're still excited about the possibilities, but again, that's not suddenly going to become a $50 million, $60 million business.

It's kind of late for that, right?

Right.

Okay. And then with regard to a number of offices in the U.S. that you're actually seeing an upturn in, is it the vast majority you're actually seeing this year-over-year improvement?

I wouldn't necessarily say the vast minority, but I would say the majority are seeing that. We got a handful that are off year-over-year, but it's been -- we've been pleased, throughout our different geographies, of the improvement.

And keep in mind, we're really focused, too, on our larger markets that can have more of an impact. So that's why in the call, we're calling out specifically the performance of those markets because they are important to our future trends.

Okay, great. And then it looks like pricing has stabilized, gross margins have stabilized. The SG&A, if I heard you correctly, it was -- $46.5 million to $47 million is what the projection is. Is that correct? And of that, is it roughly $1.8 million that's still for the transformation in taskforce? And could you -- taskforce is going to be ongoing. So what would be the split up between the transformation versus taskforce?

Yes. The overall on that, taskforce is going to be roughly in the million -- approaching $800,000 to $1 million. And then the other part of that still with what we're working through on the transactions and...

The transformation.

Transformation, yes, right, transformation. I'm sorry.

And with regards to the transformation, is that -- do you think that will end in the second quarter? Or do you think there is going to be an ongoing spend throughout the year?

Yes, it will start declining by the end of the second quarter and then really wrapping up more in the third quarter, potentially a little bit of carryover in the fourth quarter, but we really hope -- that will depend on where we're at. But right now, the plan is to try to wrap that in our third quarter.

Okay. So would you assume that then basically, we're going to end up having roughly -- if we wrap that up, should we end up -- I mean, what's the aspiration if we can just achieve like, let's say, 4% to 5% revenue growth overall? If we could do that, how -- what sort of incremental margin should we end up seeing?

Yes. I think, if -- and again, it all depends on timing because in this fiscal year, we're still working through a variety of initiatives in there could see some bumps up and down. What I will say is that long term, what our goal is, our board's goal is we would like to get this to be a 38%, 39% gross margin business with a 27%, 28% SG&A with 4% or 5% organic growth on an annualized basis. Again, that's long term. Now we're not going to be there at the end of this fiscal year, but that's what we're going to be striving for over time.

Okay, great. And then from a balance sheet perspective, how much of the cash outflow was due to the bonuses?

We have -- do you have that handy? Let me get back to you on that. I don't have that number right in front of me.

Okay. Or how would you think about cash flow for the coming quarter?

Right now -- for the upcoming quarter -- so roughly, that bonus is in $12 million to $15 million range, in there, I can narrow that down. And then we'll go back, and I'll take a look at that. I don't have that right in front of me, Mark.

I'm not showing any further questions in queue at this time. I'd like to turn the call back to Ms. Duchene for any closing remarks.

Thank you, operator. Again, thank you for attending this call and your interest in RGP. We look forward to talking with you again on our next earnings call following our second fiscal quarter of 2018. Thanks, everybody.

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.