Resources Connection Earnings Call Highlights Tough Transition

Resources Connection Inc. ((RGP)) has held its Q2 earnings call. Read on for the main highlights of the call.

Resources Connection Signals Tough Transition Despite Cost Wins in Latest Earnings Call

Resources Connection Inc.’s latest earnings call painted a mixed picture: management highlighted disciplined cost control, positive adjusted EBITDA, and encouraging momentum in Europe, Asia Pacific and outsourced services, but these bright spots were overshadowed by steep revenue declines, particularly in consulting and on‑demand businesses, as well as margin pressure and a GAAP net loss. The tone was candid and clearly transitional; leadership repeatedly leaned on a detailed turnaround plan while warning investors to expect further near‑term softness as restructuring and strategic repositioning play through the numbers.

Adjusted EBITDA Beats Amid Aggressive Cost Discipline

Resources Connection delivered adjusted EBITDA of $4.0 million in the quarter, representing a 3.4% margin and coming in ahead of internal expectations even as revenue fell short of consensus. The upside was driven by tighter expense control, with run‑rate SG&A cut to $39.7 million, a 15% reduction from $46.5 million a year earlier. The improvement largely reflected a reduction in force and lower variable spending, signaling that management is willing to aggressively align the cost base with a smaller revenue footprint to preserve profitability.

Strong Cash Position Supports Flexible Capital Allocation

The company underscored its financial resilience, exiting the quarter with $89.8 million in cash and cash equivalents and no debt. This balance sheet strength gives Resources Connection room to navigate the downturn while maintaining shareholder returns. The company paid $2.3 million in quarterly dividends and still has $79 million remaining under its share repurchase authorization, highlighting substantial capital flexibility even as it undertakes restructuring.

Europe, Asia Pacific and Outsourced Services Provide Stability

While the core U.S. business remained under pressure, Europe & Asia Pacific and outsourced services offered rare pockets of growth and margin stability. Revenue in Europe & Asia Pacific inched up 0.6% year over year to $20.1 million, with segment adjusted EBITDA flat at $1.5 million. Outsourced services revenue grew 0.8% to $9.4 million, and profitability improved meaningfully: segment adjusted EBITDA rose to $1.7 million, lifting the margin to 18.4% from 16.4%. These smaller segments are not yet large enough to offset declines elsewhere but demonstrate that parts of the portfolio are holding up and even expanding.

Bill Rates and Pay-Bill Ratio Trend in the Right Direction

Despite the revenue slump, Resources Connection managed to improve pricing and efficiency metrics. Enterprise average bill rate came in at $121 on a constant‑currency basis, and management pointed to solid segment-level gains: consulting bill rates rose 6.4%, while on‑demand offerings posted a 2.4% increase. The company also improved its pay‑bill ratio by 97 basis points, indicating better spread between what clients are charged and what professionals are paid. These trends suggest that while volumes are under pressure, the company retains some pricing power and is managing labor costs more effectively.

Reshaping the Cost Structure for a Smaller Market

To better align expenses with softer demand, Resources Connection executed a targeted reduction in force impacting roughly 5% of management and administrative roles. The move is expected to generate $6–$8 million in annualized savings. Beyond this initial step, management outlined a broader 12‑month review of the entire cost structure, with further actions on the horizon, including greater use of automation and AI to streamline operations. The strategy aims to build a leaner, more scalable model that can restore margins when demand stabilizes or recovers.

New Leadership Sharpens Strategic Focus

New CEO Roger Carlisle used the call to articulate a three‑pronged strategy centered on aligning the cost structure, refocusing on on‑demand offerings, and scaling the consulting franchise. A key initiative is the integration of ReferencePoint by year‑end, which is intended to deepen the firm’s consulting capabilities, particularly in high‑value advisory work. To drive that agenda, Resources Connection appointed Scott Rotman as president of consulting services, with a mandate to expand CFO advisory and digital transformation offerings. These moves signal an effort to reposition the portfolio toward higher-margin, more differentiated services.

Steep Consolidated Revenue Decline Highlights Demand Weakness

The headline challenge was the sharp drop in top line: consolidated revenue fell 18.4% year over year on a same‑day constant‑currency basis to $117.7 million. Management cited broad‑based softness across its core businesses, reflecting a tougher macro backdrop and cautious client spending on discretionary projects. The magnitude of the decline underscores the pressure on Resources Connection’s legacy model and the urgency behind its restructuring and strategic pivot.

Consulting Takes the Hardest Hit

Consulting, a key pillar of the company’s future strategy, suffered the most pronounced contraction this quarter. Segment revenue dropped 28.8% from a year ago to $42.6 million, and adjusted EBITDA slid to $4.5 million from $9.7 million, shrinking the margin from 16% to 10.4%. That 53.6% plunge in segment EBITDA indicates that fixed costs and utilization challenges are weighing heavily on profitability. While bill rates are improving, volumes and mix are working against the segment, highlighting the execution risk in the plan to scale consulting in a weaker demand environment.

On-Demand Revenue Slump Pressures Profitability

The on‑demand business also faced notable headwinds, with revenue declining 18.4% year over year to $43.0 million. Segment adjusted EBITDA fell to $4.1 million from $5.6 million, pushing the margin down to 9.5% from 10.5% and marking roughly a 26.8% drop in segment profitability. This performance indicates that the flexible staffing side of the business is not immune to clients’ hesitation to launch new projects or expand existing engagements, even as the company seeks to elevate bill rates.

Gross Margin Squeezed by Healthcare Costs and Seasonality

Gross margin compressed to 37.1%, down from 38.5% a year ago, a 140‑basis‑point decline that management tied to a few concentrated headwinds. Elevated healthcare claims in October alone accounted for about 100 basis points of the pressure, while holiday seasonality and related pay dynamics reduced utilization and further weighed on margins. These factors added to the impact of lower volumes, making it more difficult for the company to fully leverage its workforce and maintain historical profitability levels.

GAAP Net Loss Driven by One-Time Charges

Resources Connection reported a GAAP net loss of $12.7 million for the quarter, reflecting not only weaker operating performance but also significant one‑time items. The company booked $11.9 million of non‑recurring costs tied to the CEO transition and the reduction in force. While these charges deepened the reported loss, management framed them as necessary steps in resetting leadership and cost structure, with expected future savings partially offsetting the near‑term hit.

Guidance Signals Further Near-Term Pressure

Looking ahead to the third quarter, management guided revenue to a lower range of $105–$110 million, down sequentially from $117.7 million in Q2, signaling that demand softness is expected to persist. Gross margin is projected to slip further to 35–36%, compared with 37.1% in Q2, reflecting continued pressure from mix and utilization. Run‑rate SG&A is expected to be slightly higher at $40–$42 million, and the company anticipates an additional $6–$7 million in non‑run‑rate, largely non‑cash charges. While early‑quarter weekly revenue run‑rates are broadly consistent with Q2 levels, the guidance confirms that the financial impact of the restructuring and the muted environment will likely keep margins constrained in the near term even as cost actions ramp.

In summary, Resources Connection’s earnings call outlined a company in the midst of a difficult but deliberate transition: it is successfully tightening costs, preserving cash, and improving pricing metrics, yet facing pronounced revenue declines and margin pressure, especially in consulting and on‑demand. Management’s strategic roadmap and strong balance sheet offer a foundation for a potential recovery, but investors should expect a period of choppy results as restructuring, integration efforts, and a cautious client environment continue to weigh on performance.