Resources Connection, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Strategic Moves: Evolved operating model to align strategy with accountable business segments and rebuilt brand architecture. Launched new brand positioning and will post new investor presentation.
• Segment Details:
  • On-Demand by RGP: High-value talent solutions with seasoned/senior talent, AI-powered software, strong margins and client retention.
  • Consulting: Next-generation consulting, higher up the value chain, strengthened by Reference Point acquisition for financial services clients.
  • Outsourced Services: Expanding client base, including AI startups, and exploring cross-selling in existing clients.
  • Global Delivery: Built global centers in Philippines and India for talent scalability.
• Execution Focus: Leadership integration, cross-selling efforts, gross pipeline growth, and unification of offshore delivery centers in India and Philippines.

Segment Performance

• On-Demand Talent: Revenue was $52.5 million, a 33% decline year-over-year. Segment adjusted EBITDA was $2.6 million (4.9% margin). Contributed ~38.3% to total revenue ($52.5M / $136.9M).
• Consulting: Revenue was $55 million, a 3% decline year-over-year. Includes $4.5M from recent acquisitions. Segment adjusted EBITDA was $7.8 million (14.1% margin). Contributed ~40.2% to total revenue ($55M / $136.9M).
• Outsourced Services: Revenue was $9.5 million, a 1% increase year-over-year. Segment adjusted EBITDA was $1.4 million (14.7% margin). Contributed ~6.9% to total revenue ($9.5M / $136.9M).
• Europe and APAC: Revenue was $18 million, a 21% decline year-over-year due to seasonality and client cycles. Segment adjusted EBITDA was $0.2 million (1.3% margin). Contributed ~13.1% to total revenue ($18M / $136.9M).

Guidance

• Q2 Outlook: Projected full quarter revenue in range of $135 million to $140 million. Gross margin expected to be 36% to 37%. Run rate SG&A expense expected in range of $48 million to $50 million. Non-run rate and non-cash expenses for Q2 ~$4 million. No notable uplift in Q2 revenue run rate from Q1 expected.

Risks

• Macroeconomic uncertainty in the professional services industry.
• Intense competition and rate pressures in the On-Demand Talent segment.
• Seasonality and elongated client decision-making cycles impacting Europe and APAC segment performance.

Question and Answer

Q: Could you give more color on the 33% year-over-year revenue decline in the On-Demand segment?

A: Challenge in operational accounting group due to talent not moving, but expect recovery as economic environment improves, especially in consulting work like ERP implementation.

Q: Talk about client types most responsive to segmentation updates and changes?

A: Not specific to one industry; expansion beyond finance and accounting conversations driving cross-sell across sectors. Sales force positioned as concierge-type partner to clients to bring forth enterprise capabilities