10-K: Resources Connection Reports Steep Annual Loss Amid Goodwill Impairment and Revenue Decline

Sentiment:

Annual Report 28 July 2025 4:41 PM

📋All filings for Resources Connection, INC

Resources Connection, Inc. (RGP) reported a net loss of $191.8 million for fiscal year 2025, primarily driven by a $194.4 million goodwill impairment charge and a significant decrease in revenue.

Capital raiseThe company may seek to sell additional equity securities if additional capital resources are required for operations or business investment.May increase the use of its New Credit Facility or expand its size.May raise additional debt to fund ongoing operations and growth strategy.

Worse than expectedReported a net loss of $191.8 million for fiscal 2025, a substantial deterioration from net income in previous years.Incurred a significant goodwill impairment charge of $194.4 million, indicating a material reduction in the value of acquired assets or business units.Revenue decreased by 12.9% year-over-year, reflecting a decline in client spending and billable hours.Gross margin percentage declined from 38.9% to 37.6%, and Adjusted EBITDA margin decreased from 8.1% to 4.3%, indicating reduced profitability.The quarterly dividend was reduced by 50%, signaling financial strain and a less favorable outlook for shareholder returns.

Summary

Reported a net loss of $191.8 million for the fiscal year ended May 31, 2025, a substantial decline from net income of $21.0 million in fiscal 2024.
Revenue decreased by 12.9% to $551.3 million in fiscal 2025 from $632.8 million in fiscal 2024, with billable hours decreasing by 13.5%.
Incurred an aggregate goodwill impairment charge of $194.4 million in fiscal 2025 across the On-Demand Talent, Consulting, and Europe & Asia Pacific segments.
Direct cost of services as a percentage of revenue increased to 62.4% in fiscal 2025 from 61.1% in fiscal 2024, partially due to lower utilization of salaried consultants.
Selling, General and Administrative (SG&A) expenses decreased by $6.8 million year-over-year but increased as a percentage of revenue to 36.6% from 33.0%.
The company reorganized its business into new operating segments: On-Demand Talent, Consulting, Europe & Asia Pacific, Outsourced Services, and All Other (Sitrick).
Acquired Reference Point LLC in July 2024, which contributed $16.1 million in revenue to the Consulting segment in fiscal 2025.
Acquired CloudGo in November 2023, contributing $6.5 million to Asia Pacific revenue in fiscal 2025.
Sold its Irvine office building in August 2024 for $13.0 million, resulting in a $3.4 million gain.
Reduced the regular quarterly dividend by 50% from $0.14 to $0.07 per share, approved on April 29, 2025, and paid on July 21, 2025.
Entered into a new $50.0 million secured revolving credit facility on July 2, 2025, maturing on November 30, 2029, replacing the previous $175.0 million facility.
Initiated a global cost reduction plan (2025 Restructuring Plan) in December 2024 and May 2025, including workforce reductions, incurring $5.1 million in restructuring costs.

Sentiment

Score: 2

Explanation: The company's financial performance for fiscal 2025 was severely negative, marked by a substantial net loss and a large goodwill impairment. Revenue declined significantly, and profitability metrics worsened, leading to a 50% dividend cut. While strategic reorganizations and acquisitions are noted, the overall financial health and market performance are concerning, indicating a very challenging period.

Positives

Successfully acquired Reference Point LLC, expanding capabilities in financial services, technology, and data modernization.
Completed the acquisition of CloudGo, enhancing ServiceNow capabilities and expanding footprint in the Asia Pacific region.
Realized a $3.4 million gain from the sale of the Irvine office building.
Maintained positive cash flow from operating activities, generating $18.9 million in fiscal 2025.
Achieved a 78% retention rate for its top 100 clients over the last five fiscal years, demonstrating strong client relationships.
Secured a new credit facility with an extended maturity date to November 30, 2029, providing continued liquidity access.

Negatives

Reported a significant net loss of $191.8 million for fiscal 2025, a sharp reversal from prior year profits.
Incurred a substantial goodwill impairment charge of $194.4 million, indicating a significant write-down of asset values.
Overall revenue decreased by 12.9% year-over-year, reflecting reduced client spending and macroeconomic uncertainty.
Billable hours declined by 13.5% in fiscal 2025, impacting revenue generation.
Gross margin percentage decreased to 37.6% from 38.9% in the prior year.
Adjusted EBITDA decreased significantly to $23.5 million in fiscal 2025 from $51.5 million in fiscal 2024.
The quarterly dividend was reduced by 50% from $0.14 to $0.07 per share.
On-Demand Talent segment revenue declined by 24.4%, and Consulting segment revenue declined by 3.8%.
Increased the valuation allowance on deferred tax assets to $29.4 million from $8.6 million, indicating uncertainty about future tax benefit realization.
Experienced voluntary and involuntary attrition, including within the sales team, which negatively affected near-term revenue performance.

Risks

An economic downturn or deterioration of general macroeconomic conditions, including slower growth, recession, inflation, or decreased consumer spending, could adversely affect global operations and financial condition.
Geopolitical conflicts and increasing diplomatic/trade friction could create global economic and market uncertainty, impacting business.
The highly competitive and fragmented market for professional services, with few barriers to entry, may hinder effective competition.
Bank failures or other events affecting financial institutions could adversely affect liquidity, financial performance, and collectability of accounts receivable.
Inability to attract and retain highly qualified and experienced consultants could adversely affect business and operating results.
Loss of key members of senior management or key sales professionals could significantly disrupt operations.
Significant increases in wages or payroll-related costs, if not offset by fee increases, could materially affect financial results.
Failure to secure new projects from clients or renew expired contracts could adversely affect revenue and operating results.
Increasing use of technology such as automation, robotics, machine learning, and AI could reduce demand for services or enable competitors.
Inability to achieve or maintain a suitable pay/bill ratio could compress gross margin and adversely impact profitability.
Contracts may contain unfavorable provisions, including client termination for convenience on short notice.
Inability to realize anticipated benefits from restructuring initiatives, such as the 2025 Restructuring Plan and 2025 Reorganization, may adversely impact business.
Digital expansion and technology transformation efforts (e.g., Project Phoenix) may not be successful or yield anticipated returns.
Inability to build an efficient support structure as the business continues to grow and transform, including the Borderless Talent initiative.
International activities expose the company to additional operational challenges, including foreign currency fluctuations, diverse labor laws, and political instability.
Acquisitions could disrupt business operations, lead to integration failures, loss of key employees, or incur unanticipated liabilities and significant non-recurring charges.
Inability to adequately protect intellectual property rights, including brand names, could diminish brand value and adversely affect results.
Computer hardware, software, and telecommunications systems are susceptible to damage, breach, or interruption from cybersecurity threats, leading to potential data loss, reputational harm, and legal liabilities.
Challenges with properly managing the development and use of AI and machine learning could result in harm to reputation, business, clients, or legal liability.
Failure to comply with evolving data privacy laws and regulations (e.g., GDPR, CCPA, PIPL) could result in significant penalties and reputational damage.
Failure to comply with governmental, regulatory, and legal requirements or internal policies could lead to legal proceedings and damage reputation.
Potential legal liability for damages resulting from actions of employees, project performance, or client mistreatment of personnel.
Changes in applicable tax laws or adverse results in tax audits or interpretations could have a material adverse effect on business and operating results.
Reclassification of independent contractors by foreign tax or regulatory authorities could adversely affect the business model and require significant retroactive payments.
Exclusive forum provisions in bylaws could limit stockholders' ability to bring claims in a judicial forum of their choosing.
Delaware corporate law and company's corporate documents contain anti-takeover provisions that could make it difficult for a third party to acquire the company, potentially depressing stock price.
Terms of the Credit Facility impose operating and financial restrictions that may limit the ability to respond to changing business and economic conditions.
Variable interest rates (SOFR) on the New Credit Facility may result in higher borrowing costs.
Activist shareholders could lead to costly and time-consuming legal and business challenges, diverting management attention.
Inability or election not to pay the quarterly dividend payment could adversely affect the trading price of common stock.

Future Outlook

The company anticipates continued caution in professional services spending due to ongoing macroeconomic uncertainty, including interest rate ambiguity and softening labor markets. It is focused on driving long-term growth by capitalizing on favorable macro shifts in workforce strategies, building an efficient and scalable operating model, and maintaining a distinctive culture. Future growth is expected to depend on an improving global economy, expanding the client base, optimizing service offerings (especially digital capabilities), and strategic acquisitions.

Management Comments

"Our client engagement and talent delivery model offer speed and agility, strongly positioning us to help clients transform their businesses and workforce approach."
"We are laser-focused on driving long-term growth in our business by seizing favorable macro shifts in workforce strategies and preferences, building an efficient and scalable operating model, and maintaining a distinctive culture and approach to professional services."
"We believe our focus and execution on these initiatives will serve as the foundation for growth ahead."
"This shift has enabled us to better serve our clients along their transformation journey by providing targeted skill sets, high value consulting services, and outsourced delivery under a single umbrella."
"We believe the added brand clarity will strengthen our market position and is a critical part of our long-term value creation."
"We believe the added capabilities from Reference Point has accelerated growth in the existing consulting business and contributed favorably to the execution of our cross selling strategy."
"We believe our current cash, ongoing cash flows from our operations and funding available under our Credit Facility will provide sufficient funds for these initiatives."
"We expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements."

Industry Context

The professional services industry is undergoing a significant shift towards flexible workforce solutions, with increasing demand for agile talent for project initiatives and transformation work. This trend is driven by business transformation pressures and skilled labor shortages, even amidst economic uncertainty. The company positions itself to leverage this shift by offering cost-efficient, agile solutions as an alternative to traditional consulting and staffing firms. The rapid advancement of AI and generative AI is intensifying the competitive landscape within the industry.

Comparison to Industry Standards

The company's common stock (RGP) delivered a cumulative total return of $57.82 for the five years ended May 31, 2025, significantly underperforming the Russell 3000 Index ($204.11), the SIC Code 8742 Management Consulting group ($191.50), and its customized peer group ($204.25), all based on an initial $100 investment on May 29, 2020.
The customized peer group includes Barrett Business Services, Inc., CBIZ, Inc., CRA International, Inc., FTI Consulting, Inc., Heidrick & Struggles International, Inc., Huron Consulting Group Inc., ICF International, Inc., Kforce, Inc., Korn Ferry, and MISTRAS Group, Inc.

Management Changes

Role	Previous Person	New Person	Effective Date	Reason
Chief Operating Decision Maker (CODM)	NA	Chief Executive Officer and Chief Operating Officer (collectively)	First quarter of fiscal 2025	Reorganization of the company's business into multiple discrete operational business units.
Executive Vice President and Chief Financial Officer	NA	Jennifer Y. Ryu	October 21, 2022	Employment Agreement entered.
President and Chief Executive Officer	NA	Kate W. Duchene	February 3, 2020 (amended January 20, 2021)	Employment Agreement entered and subsequently amended.
NA	NA	Bhadreskumar Patel	April 3, 2024	Employment Agreement entered.
Director	NA	Jeffrey H. Fox	June 26, 2025	Cooperation Agreement entered into.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Bylaw Amendment	Fourth Amended and Restated Bylaws filed on June 11, 2025, containing anti-takeover provisions such as authorized undesignated preferred stock, a classified board, prohibition of cumulative voting, restrictions on special meetings, and advance notice requirements for nominations.	June 11, 2025	These provisions are expected to discourage coercive takeover practices and encourage negotiation with the board, potentially limiting the price future investors are willing to pay for shares and making it more difficult for stockholders to elect directors or approve certain corporate actions.
Director Election Standard	Bylaws require majority voting for directors in uncontested elections; an incumbent director failing to receive a majority must tender their resignation for consideration by the corporate governance and nominating committee and the board.	NA	Enhances accountability of directors to shareholders in uncontested elections, potentially leading to more responsive governance.
Exclusive Forum Provisions	Bylaws designate the Delaware Court of Chancery as the sole and exclusive forum for certain state law claims and federal district courts for Securities Act claims.	NA	May limit stockholders' ability to bring claims in a judicial forum of their choosing, potentially discouraging certain lawsuits and centralizing litigation in specific jurisdictions.
Indemnification Policy	Bylaws provide for indemnification of directors and officers to the fullest extent authorized by the DGCL, and the company has entered into separate indemnification agreements with directors and certain executive officers.	NA	Provides broad protection to directors and officers against expenses and liabilities incurred in their service, potentially encouraging qualified individuals to serve but also limiting recourse for certain actions.
Board Oversight of Cybersecurity	The Board of Directors, through the Audit Committee, oversees the management of technology-related risks, including information security, data protection, and cybersecurity, receiving quarterly updates from the CIO.	NA	Strengthens oversight of critical cybersecurity risks, aiming to enhance the company's resilience against cyber threats and protect sensitive data.
Incentive Plan Amendment	Stockholders approved an amendment and restatement of the 2020 Performance Incentive Plan on October 17, 2024, increasing the maximum number of shares authorized for issuance by 815,000 shares.	October 17, 2024	Increases the pool of shares available for equity awards, allowing the company to continue attracting and retaining key talent through stock-based compensation, but also introduces potential for future shareholder dilution.
Employee Stock Purchase Plan Amendment	Stockholders approved an amendment and restatement of the ESPP on October 20, 2022, increasing the number of shares authorized for issuance by 1,500,000 shares.	October 20, 2022	Expands opportunities for employees to purchase company stock at a discount, enhancing employee ownership and alignment with company performance, but also contributes to potential share dilution.

Legal Proceedings

Not currently subject to any material legal proceedings.
Party to various legal proceedings arising in the ordinary course of business, which management believes would not have a material adverse effect if disposed of unfavorably.

Related Party Transactions

None explicitly detailed in the provided filing beyond standard compensation and governance structures for directors and executive officers, which are incorporated by reference from the proxy statement.

Stakeholder Impact

Shareholders: Negatively impacted by the significant net loss, substantial goodwill impairment, and a 50% reduction in the quarterly dividend. The stock has significantly underperformed market and peer indices. Potential for future dilution from capital raises.
Employees/Consultants: Affected by global cost reduction plans and workforce reductions. The company aims to attract and retain talent through competitive compensation, benefits, and flexible work arrangements, but attrition has occurred.
Clients: May benefit from the company's strategic reorganization into specialized segments and enhanced digital/AI capabilities. However, reduced client spending due to macroeconomic uncertainty has impacted demand for services.
Creditors: The company's liquidity position is supported by positive operating cash flows and a new, albeit smaller, credit facility. Compliance with financial covenants is crucial for maintaining credit access.
Management: Significant time and resources are being dedicated to strategic initiatives, restructuring, and navigating challenging macroeconomic conditions.

Next Steps

Continue to evolve and execute under the new business segments (On-Demand Talent, Consulting, Outsourced Services, Europe & Asia Pacific).
Continue to engage in global, regional, and local marketing and brand building efforts to reinforce the RGP brand.
Expand the Strategic Client Account program with a client-centric and borderless approach to deepen client relationships.
Focus on attracting new clients, particularly in large and middle-market segments and specific focus industries like healthcare, technology, and financial services.
Continuously evolve and optimize the portfolio of professional service offerings, considering entry into new areas.
Expand technology and digital consulting capabilities and their geographic reach to capture market demand.
Seek strategic acquisition opportunities to augment and expand digital and other core capabilities.
Monitor and evaluate the global implementation of Pillar Two legislations (global minimum tax) for potential impact.
Monitor new guidance regarding the new corporate alternative minimum tax (CAMT) and its applicability.
Continue to monitor the need to record additional or release existing valuation allowances on deferred tax assets.
Evaluate the potential impact of the One Big Beautiful Bill Act (OBBBA) on consolidated financial statements going forward.

Key Dates

Date	Description
November 30, 2004	Quarter ended for which the company's certificate of incorporation was filed as Exhibit 10.21 to its Form 10-Q.
January 6, 2005	Date the company's Quarterly Report on Form 10-Q for the quarter ended November 30, 2004, was filed with the SEC.
May 31, 2008	Year ended for which the form of indemnification agreement was incorporated by reference to the Annual Report on Form 10-K.
October 28, 2014	Date the company's Current Report on Form 8-K was filed, incorporating by reference the 2014 Performance Incentive Plan.
July 2015	Authorization of the first stock repurchase program with an aggregate dollar limit of $150 million.
May 26, 2018	Year ended for which various 2014 Performance Incentive Plan terms and conditions were incorporated by reference to the Annual Report on Form 10-K.
February 3, 2020	Date of Employment Agreement between Kate W. Duchene and Resources Connection, Inc.
February 4, 2020	Date the company's Current Report on Form 8-K was filed, incorporating by reference Kate W. Duchene's Employment Agreement.
May 29, 2020	Start date for the 5-year cumulative total return comparison in the performance graph.
October 22, 2020	Stockholders approved the 2020 Performance Incentive Plan, which replaced the 2014 Plan.
January 20, 2021	Date of letter agreement to amend Kate W. Duchene's Employment Agreement.
February 27, 2021	Quarter ended for which the letter agreement to amend Kate W. Duchene's Employment Agreement was incorporated by reference to the Quarterly Report on Form 10-Q.
May 29, 2021	Year ended for which the Directors Deferred Compensation Plan and 2020 Form of Restricted Stock Award Terms and Conditions were incorporated by reference to the Annual Report on Form 10-K.
November 12, 2021	Date of the 2021 Credit Facility agreement.
November 27, 2021	Quarter ended for which the 2021 Form of Notice of Grant and Terms and Conditions of Restricted Stock Unit Award and Restricted Stock Award were incorporated by reference to the Quarterly Report on Form 10-Q.
August 18, 2022	Date the 2019 Employee Stock Purchase Plan was amended and restated.
October 20, 2022	Stockholders approved an amendment and restatement of the ESPP, increasing authorized shares.
October 21, 2022	Date of Employment Agreement between Jennifer Y. Ryu and Resources Connection, Inc. and Resources Connection LLC.
November 2, 2022	Date Resources Global Enterprise Consulting (Beijing) Co., Ltd. entered into a RMB 13.4 million revolving credit facility (Beijing Revolver).
January 19, 2023	Date of the Revised Directors Compensation Policy.
February 25, 2023	Quarter ended for which the Directors Compensation Policy was incorporated by reference to the Quarterly Report on Form 10-Q.
May 27, 2023	End of fiscal year 2023 (52 weeks).
October 2023	Authorization of the U.S. Restructuring Plan, including a reduction in force.
November 15, 2023	Completion of the acquisition of CloudGo Pte Ltd. and its subsidiaries.
November 25, 2023	Quarter ended for which the Form of Notice of Grant and Terms and Conditions of Performance Stock Unit Award was incorporated by reference to the Quarterly Report on Form 10-Q.
December 20, 2023	Company entered into a lease agreement for an office space in New York.
February 24, 2024	Company determined asset groups associated with its former corporate office in Irvine, California, met held-for-sale criteria.
April 3, 2024	Date of Employment Agreement between Bhadreskumar Patel, Resources Connection, Inc. and Resources Connection LLC.
May 15, 2024	Date of Purchase and Sale Agreement for the Irvine office building.
May 20, 2024	Date of amended and restated Purchase and Sale Agreement for the Irvine office building.
May 25, 2024	End of fiscal year 2024 (52 weeks).
July 1, 2024	Completion of the acquisition of Reference Point LLC.
July 1, 2024	New York office lease commenced.
July 22, 2024	Date the Annual Report on Form 10-K for fiscal year ended May 25, 2024, was filed with the SEC.
August 2024	Sale of the Irvine office building completed.
August 15, 2024	Date the sale of the Irvine office building was completed.
August 22, 2024	Date the 2020 Performance Incentive Plan was amended and restated.
October 2024	Authorization of the second stock repurchase program with an additional dollar limit of $50 million.
October 17, 2024	Stockholders approved an amendment and restatement of the 2020 Performance Incentive Plan.
October 21, 2024	Date the company's Current Report on Form 8-K was filed, incorporating by reference the 2020 Performance Incentive Plan amendment.
November 1, 2024	Lease for new Irvine office space commenced.
November 22, 2024	Last business day of the company's most recently completed second fiscal quarter, used for market value calculation.
December 2024	Authorization of a global cost reduction plan (2025 Restructuring Plan).
December 31, 2024	Date of amendment to the 2021 Credit Agreement to waive non-compliance with a financial covenant.
March 28, 2025	Date of amendment to the 2021 Credit Agreement to waive non-compliance with a financial covenant.
April 29, 2025	Board of Directors approved a regular quarterly dividend of $0.07 per share.
May 2025	Authorization of additional global cost reductions under the 2025 Restructuring Plan.
May 30, 2025	Last trading day of fiscal 2025, used for aggregate intrinsic value calculation of stock options.
May 31, 2025	End of fiscal year 2025 (53 weeks).
June 1, 2025	Start of fiscal year 2026, when the company adopted ASU 2023-09.
June 11, 2025	Date the company's Current Report on Form 8-K was filed, incorporating by reference the Fourth Amended and Restated Bylaws.
June 23, 2025	Record date for the $0.07 quarterly dividend.
June 26, 2025	Date of Cooperation Agreement by and among Resources Connection, Inc., Circumference Group Holdings LLC, and others.
June 30, 2025	Date the company's Current Report on Form 8-K was filed, incorporating by reference the Cooperation Agreement.
July 2, 2025	Company entered into a new credit agreement (New Credit Facility) and concurrently terminated the 2021 Credit Facility.
July 4, 2025	One Big Beautiful Bill Act (OBBBA) was signed into law.
July 7, 2025	Date the company's Current Report on Form 8-K was filed, incorporating by reference the New Credit Facility agreement.
July 18, 2025	Date for the count of issued and outstanding common stock shares.
July 21, 2025	Payment date for the $0.07 quarterly dividend.
July 28, 2025	Filing date of the Annual Report on Form 10-K.
July 31, 2032	Expiration date of the new Irvine office lease.
July 31, 2034	Expiration date of the New York office lease.
November 30, 2029	Maturity date of the New Credit Facility.
Fiscal 2030	State net operating loss carryforwards begin to expire.
December 15, 2026	Effective date for ASU 2024-03 (annual periods).
December 15, 2027	Effective date for ASU 2024-03 (interim periods).

Recommendation

strong sell

The company's fiscal 2025 results are exceptionally poor, marked by a massive net loss driven by a $194.4 million goodwill impairment, a significant revenue decline, and a 50% reduction in its quarterly dividend. These factors indicate severe operational and market challenges, and a substantial erosion of shareholder value. The stock's underperformance relative to its peers and the broader market further reinforces a negative outlook. While strategic shifts are underway, the immediate financial deterioration and ongoing macroeconomic headwinds suggest a high risk profile and a strong likelihood of continued downward pressure on the share price.

Keywords

Professional Services, Consulting, On-Demand Talent, Human Capital, Financial Reporting, SEC Filings, Corporate Governance, Risk Management, Strategic Analysis, Business Transformation, Digital Transformation, AI, Machine Learning, Cybersecurity, Staffing, Outsourced Services, RGP, Resources Connection, 10-K

Disclaimer:The information provided here is for general informational purposes only and does not constitute financial advice, recommendation, or endorsement of any kind. It may contain errors or omissions. You should not rely on this information to make financial decisions. Always seek the advice of a qualified financial professional before making any investment or financial decisions. Use of this information is at your own risk.