Resources Connection Q1 Earnings Call Highlights

Key Points

• Revenue and profitability weakened: Fiscal Q1 2027 revenue fell 18.5% year over year to $98.1 million, while adjusted EBITDA was a $3.6 million loss and gross margin declined to 37.4%. Consulting and On-Demand Talent were the main sources of weakness, reflecting lower utilization, reduced project volume and delayed client decisions.
• Pipeline improved but conversion remains slow: North American pipeline activity increased sequentially, but closed-won business and project starts remained insufficient to offset completed work and seasonal softness. Management believes activity may be stabilizing and expects potential sequential growth ahead.
• Cost controls and a cautious outlook remain central: Run-rate SG&A declined 9.4% to $40.3 million, while RGP continues to target utilization and operating-efficiency improvements. For Q2, the company forecasts revenue of $95 million–$100 million, gross margin of 36%–37%, and maintains balance-sheet flexibility with $61.2 million in cash and no debt.

Resources Connection NASDAQ: RGP reported first-quarter fiscal 2027 revenue of $98.1 million, with results meeting the company’s prior outlook for revenue and gross margin while selling, general and administrative expenses came in better than expected. Management said client demand remains uneven, with extended approval cycles and delayed project starts continuing to weigh on revenue conversion.

The company reported an adjusted EBITDA loss of $3.6 million for the quarter ended Aug. 29, 2026. Gross margin was 37.4%, down from 39.5% in the prior-year quarter, primarily due to lower consultant utilization and less favorable leverage of indirect service costs.

CEO Roger Carlile said the company’s financial performance remained below its long-term potential, citing lower project volume and utilization in Consulting and lower volume in On-Demand Talent. Outsourced Services revenue was stable.

“We are not satisfied with the current financial performance, and we are addressing these issues with urgency and accountability,” Carlile said.

Revenue Declines Across Core Segments

On a same-day, constant-currency basis, consolidated revenue declined 18.5% from the prior-year quarter. The company said the decline reflected cautious client spending, particularly on larger discretionary projects, as well as longer sales cycles, delayed project starts and more extensive contracting and onboarding requirements.

• On-Demand Talent: Revenue totaled $38.6 million, down 13.2% year over year. Segment adjusted EBITDA was $2.1 million, or a 5.3% margin, compared with $4.4 million, or a 10% margin, a year earlier.
• Consulting: Revenue was $32.4 million, down 25.8% year over year and about 11.6% sequentially. Billable hours fell 27.1% from the prior-year period, partly offset by a 2.2% increase in average bill rate. Adjusted EBITDA was $1.7 million, or a 5.1% margin, compared with $5.1 million, or an 11.6% margin, in the prior year.
• Europe and Asia-Pacific: Revenue was $17.1 million, down 14% year over year and approximately flat sequentially. The segment’s adjusted EBITDA was near breakeven, compared with $0.8 million a year earlier.
• Outsourced Services: Revenue increased 0.2% to $10 million. Adjusted EBITDA declined to $1.5 million, or a 15.3% margin, from $2.3 million, or a 23.3% margin, in the prior-year quarter.

Interim CFO Jessica Block said pricing remained a relative strength in the North American businesses. On-Demand Talent’s average bill rate increased to $145 from $140 a year earlier, while Consulting’s average bill rate rose to $162 from $160. Enterprise-wide average bill rate was $114, down from $121, reflecting the May 2026 divestiture of Sitrick and a greater revenue contribution from lower-bill-rate Asia-Pacific markets.

Pipeline Activity Improves, but Conversion Remains Slow

Carlile said North American pipeline creation increased sequentially during the first quarter, including growth in Consulting pipeline. However, closed-won dollars stagnated and project starts were insufficient to offset completed projects and normal summer seasonality.

Management pointed to better-than-anticipated performance among its largest strategic client accounts, which collectively grew sequentially. Several of those relationships expanded into new buying centers, geographies and service offerings, according to Carlile.

The company said it continues to see client need for specialized expertise and execution support in finance, risk, technology, data, artificial intelligence, business transformation, mergers and acquisitions, and regulatory work. But many customers are dividing larger initiatives into smaller phases or delaying commitments until they have better budget visibility.

“We think that things are stabilizing,” Carlile said during the question-and-answer session. “We’re bottoming out in terms of activity, and we think we will be experiencing some sequential growth as we look forward.”

Utilization and Cost Structure Remain Priorities

Consulting utilization remains one of RGP’s highest near-term priorities. Carlile said the company is concentrating on staffing, resource management and aligning capacity with realistic demand. The company will invest in capabilities where it is seeing traction while taking action where staffing levels are not supported by near-term demand or a credible pipeline.

During the quarter, RGP won engagements involving technology, data, finance transformation, supply chain and transaction-related work. Management said it needs to make that performance more consistent across the Consulting portfolio while improving delivery economics.

Salaried consultant utilization was in the high 50% range during the quarter, Block said in response to an analyst question, slightly below the prior quarter’s level.

Run-rate SG&A expense was $40.3 million, a 9.4% improvement from the prior-year period. The reduction reflected fiscal 2026 cost actions, including lower employee-related costs and reduced spending in corporate areas. Carlile said further work is planned to simplify the operating model, reduce duplicative activity, improve systems and processes, and better align incentives and accountability.

The company also said it is maintaining targeted investments in client-facing growth capabilities, including sales hiring, sales training, business development and demand generation. Carlile said sales professionals hired during the first half of calendar 2026 are progressing broadly in line with expected ramp timelines, with the majority of their contribution expected in the latter half of fiscal 2027.

Leadership Changes and Second-Quarter Outlook

Carlile opened the call by recognizing former CFO Jen Ryu, who left the role after roughly six and a half years. Jessica Block, RGP’s chief AI officer, became interim CFO in early September. The company also promoted Trisha Jenks, previously senior vice president and corporate controller, to chief accounting officer.

RGP ended the first quarter with $61.2 million in cash and cash equivalents and no outstanding debt. It had $24.1 million of available borrowing capacity under its revolving credit facility. Cash declined sequentially because of annual bonus payments, executive transition and restructuring costs, and operating results, Block said. Quarterly dividend payments totaled $2.4 million.

For the second quarter of fiscal 2027, RGP expects:

• Revenue of $95 million to $100 million, broadly consistent with first-quarter levels.
• Gross margin of 36% to 37%, including the effect of the Thanksgiving holiday.
• Run-rate SG&A expense of $40 million to $42 million.
• Non-run-rate and non-cash expenses of $2 million to $3 million, primarily stock-based compensation and amortization of capitalized system transformation costs.

Management said its focus entering the second quarter is on improving utilization, opportunity conversion and operating efficiency while preserving the balance sheet strength to support a recovery in operating performance.

About Resources Connection (NASDAQ:RGP)

Resources Connection, Inc NASDAQ: RGP, operating under the RGP brand, is a global consulting services company that helps organizations manage business-critical initiatives and transformation projects. The company provides experienced consultants and project teams to support clients on a flexible, project-based basis.

RGP's services cover areas including finance and accounting, technology, supply chain and procurement, human resources, legal and compliance, risk management, and business transformation.

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