8-K: RGP Beats Q1 Outlook, Improves Profitability Amid Revenue Dip

Resources Connection, Inc. reported first-quarter fiscal 2026 financial results, exceeding outlook ranges for revenue, gross margin, and SG&A expenses, while improving profitability year-over-year despite a decline in overall revenue.

Summary

• Revenue for the first quarter of fiscal 2026 was $120.2 million, a decrease from $136.9 million in the prior year quarter.
• Same-day constant currency revenue declined by 13.9% year-over-year.
• Gross margin significantly improved to 39.5% from 36.5% in the prior year quarter.
• Selling, general and administrative (SG&A) expenses improved to $47.9 million from $48.9 million, despite the prior year including a $3.4 million gain from an office building sale.
• Net loss improved to $2.4 million (2.0% net loss margin) from $5.7 million (4.2% net loss margin) in the prior year.
• GAAP diluted loss per common share improved to $0.07 from $0.17.
• Adjusted diluted earnings per common share (non-GAAP) improved to $0.03 from break-even.
• Adjusted EBITDA (non-GAAP) increased to $3.1 million (2.5% margin) from $2.3 million (1.7% margin).
• Cash dividends declared were $0.07 per share, a decrease from $0.14 per share in the prior year.
• Billable hours decreased 14.3% year-over-year, primarily due to choppy demand and client project delays.
• Average bill rates increased 2.2% year-over-year, reflecting pricing discipline and pursuit of higher-value engagements.
• Operating cash flow was negative $7.832 million, a significant decline from negative $0.309 million in the prior year.
• Agile consultant headcount decreased to 2,231 from 2,730 in the prior year.
• Salaried consultant headcount decreased to 418 from 482 in the prior year.

Sentiment

Score: 6

Explanation: While the company exceeded its internal outlook and showed improved profitability metrics (gross margin, net loss, adjusted EBITDA, adjusted EPS), the significant decline in overall revenue and billable hours, coupled with negative operating cash flow and reduced dividends, indicates ongoing market challenges. The strategic shift to higher-value consulting is positive, but its impact on top-line growth is not yet fully realized, and the macro environment remains unpredictable. The sentiment is cautiously optimistic due to internal execution but tempered by external pressures.

Positives

• First quarter results exceeded outlook ranges on all fronts, including revenue, gross margin, and SG&A expenses.
• Significant improvement in gross margin to 39.5% from 36.5% year-over-year.
• Selling, general and administrative expenses improved to $47.9 million from $48.9 million, despite the absence of a $3.4 million gain on asset sale recorded in the prior year.
• Net loss improved to $2.4 million from $5.7 million in the prior year quarter.
• GAAP diluted loss per common share improved to $0.07 from $0.17.
• Adjusted diluted earnings per common share improved to $0.03 from break-even.
• Adjusted EBITDA increased to $3.1 million (2.5% margin) from $2.3 million (1.7% margin).
• Average bill rates increased 2.2% year-over-year, reflecting pricing discipline and focus on higher-value engagements.
• Europe & Asia Pacific segment revenue increased by 10.6% to $19.9 million, with billable hours in Europe up 21.0%.
• Outsourced Services segment revenue increased by 5.3% to $10.0 million.
• All Other segment revenue increased by 15.3% to $2.3 million.
• The company is engaging with clients on more consulting opportunities which have higher bill rates and larger deal sizes.
• The company is increasingly becoming a trusted partner for larger transformations, whether cost reduction, system migration or data modernization and automation-focused programs.

Negatives

• Total revenue declined to $120.2 million from $136.9 million in the prior year quarter.
• Same-day constant currency revenue declined by 13.9%.
• Billable hours decreased 14.3% year-over-year.
• Cash dividends declared per common share decreased to $0.07 from $0.14 in the prior year.
• Operating activities cash flow was negative $7.832 million, a significant deterioration from negative $0.309 million in the prior year.
• On-Demand Talent segment revenue decreased by 16.4% on a same-day currency basis.
• Consulting segment revenue decreased by 21.7% on a same-day currency basis, with a 28.4% decrease in billable hours.
• Asia Pacific region billable hours declined 2.6% due to reduced client spend and competitive landscape.
• Overall consultant headcount (agile and salaried) decreased year-over-year.
• Cash and cash equivalents decreased to $77.518 million from $86.147 million sequentially.
• Total assets, liabilities, and stockholders' equity all decreased sequentially.

Risks

• Economic downturn or deterioration of general macroeconomic conditions.
• Potential adverse effects to liquidity and financial performance from bank failures or other events affecting financial institutions.
• Highly competitive nature of the market for professional services.
• Loss of a significant number of consultants or inability to attract and retain new consultants.
• Possible impact from the loss of services of one or more key members of senior management or key sales professionals.
• Potential significant increases in wages or payroll-related costs.
• Ability to secure new projects from clients.
• Ability to achieve or maintain a suitable pay/bill ratio.
• Ability to compete effectively in the competitive bidding process.
• Unfavorable provisions in contracts that may permit clients to terminate partially or completely at any time.
• Ability to realize the expected level of benefit from restructuring initiatives.
• Risks that recent digital expansion and technology transformation efforts may not be successful.
• Ability to build an efficient support structure as the business grows and transforms.
• Ability to grow, manage growth, or sustain the current business.
• Operational challenges from international activities.
• Possible disruption of business from past and future acquisitions.
• Possibility that recent rebranding efforts may not be successful.
• Potential inability to adequately protect intellectual property rights.
• Risks that computer hardware, software, and telecommunications systems are damaged, breached, or interrupted.
• Risks related to the failure to comply with data privacy laws and regulations.
• Ability to comply with governmental, regulatory, and legal requirements and company policies.
• Possible legal liability for damages resulting from consultant performance or client mistreatment of personnel.
• Risks arising from changes in applicable tax laws or adverse results in tax audits or interpretations.
• Possible adverse effect on the business model from the reclassification of independent contractors by foreign tax and regulatory authorities.
• Possible difficulty for a third party to acquire the company and resulting depression of stock price.
• Operating and financial restrictions from the credit facility.
• Risks related to the variable rate of interest in the credit facility.
• Possible impact of activist shareholders.
• Possibility that the company is unable to or elects not to pay its quarterly dividend payment.

Future Outlook

The company plans to continue transforming its business to be more integrated, diversified, and resilient, focusing on deepening and expanding consulting capabilities in CFO Advisory & Digital Transformation, while evolving its on-demand business. Management is also focused on redesigning the cost structure to deliver improved shareholder returns, despite an unpredictable macro environment. Revenues in the Consulting segment may be uneven in the near term due to elongated sales cycles for higher-value deals.

Management Comments

• First quarter results exceeded our outlook ranges on all fronts and we continue to make progress to transform our business to be more integrated, diversified and resilient.
• We are engaging with clients on more consulting opportunities which have higher bill rates, larger deal size and often create more extension and cross selling.
• We are increasingly becoming a trusted partner for larger transformations, whether cost reduction, system migration or data modernization and automation-focused programs.
• We have a plan which we are executing with clarity and conviction in this new fiscal year; we will continue to deepen and expand our consulting capabilities in the focus areas of CFO Advisory & Digital Transformation, while strengthening and evolving our on-demand business to be even more relevant in todays marketplace.
• While the macro environment remains unpredictable, we are laser focused on redesigning our cost structure to deliver improved return to shareholders both in the short and long term.
• We remain confident in our strategy and optimistic about the future of this company.

Industry Context

The professional services industry is currently experiencing 'choppy demand' and 'soft labor markets,' leading clients to delay transformation projects amid global economic uncertainty. Despite these headwinds, RGP is strategically shifting towards higher-value consulting engagements and larger transformation projects, which aligns with a trend of companies seeking specialized expertise for complex challenges like digital transformation and cost reduction. The company's ability to increase average bill rates while overall billable hours decline suggests a focus on premium services, potentially outperforming segments of the market focused on commoditized talent. The decline in overall headcount and operating cash flow, however, indicates that the broader market challenges are still impacting the company's scale and immediate liquidity.

Comparison to Industry Standards

• RGP's strategic shift towards higher-value consulting engagements with increased average bill rates (Consulting segment average bill rate up 11.1% to $160) is comparable to strategies employed by top-tier management consulting firms like McKinsey, Bain, or Boston Consulting Group, which command premium pricing for complex transformation projects.
• The company's focus on CFO Advisory & Digital Transformation aligns with broader industry trends seen in firms like Accenture or Deloitte, which are heavily investing in these high-growth areas to meet evolving client needs for financial modernization and technological integration.
• The decline in billable hours (down 14.3% year-over-year) and overall revenue, alongside a decrease in consultant headcount, reflects a challenging macro environment consistent with reports from other professional services firms experiencing project delays and cautious client spending, such as some segments of Robert Half or Korn Ferry, which also provide talent and consulting services.
• The improvement in gross margin to 39.5% from 36.5% suggests effective cost management and pricing discipline, potentially positioning RGP favorably against competitors struggling with margin compression in a competitive market.
• RGP's recognition by U.S. News & World Report (2024-2025 Best Companies to Work For) and Forbes (Americas Best Management Consulting Firms 2025, Americas Best Midsize Employers 2025, Worlds Best Management Consulting Firms 2024) indicates strong internal culture and market reputation, which are critical for attracting and retaining talent in a competitive professional services landscape, similar to highly-rated employers in the sector.

Stakeholder Impact

• Shareholders: Improved profitability metrics (net loss, adjusted EPS, adjusted EBITDA) and exceeding outlook are positive, but reduced dividends and negative operating cash flow could be concerns. The focus on long-term shareholder returns through cost structure redesign is noted.
• Employees (Consultants): A significant decrease in agile and salaried consultant headcount suggests workforce adjustments, potentially impacting employee morale or job security for some. The focus on higher-value engagements might benefit specialized consultants.
• Customers (Clients): Clients are delaying transformation projects due to economic uncertainty, indicating cautious spending. RGP aims to become a trusted partner for larger transformations, suggesting a focus on deeper client relationships.
• Creditors: Decreased cash and cash equivalents, along with negative operating cash flow, could be a point of attention, though total liabilities also decreased. The credit facility restrictions are a noted risk.

Next Steps

• Continue to deepen and expand consulting capabilities in CFO Advisory & Digital Transformation.
• Strengthen and evolve the on-demand business to be more relevant.
• Redesign the cost structure to deliver improved return to shareholders.
• Hold a conference call for analysts and investors on October 8, 2025, at 5:00 p.m. ET.

Key Dates

Recommendation

The company demonstrated strong execution by exceeding its internal outlook and improving key profitability metrics like gross margin, net loss, and adjusted EBITDA, which are positive signals for operational efficiency. However, the significant year-over-year decline in total revenue and billable hours, coupled with a substantial negative operating cash flow and a reduction in dividends, indicates persistent top-line challenges and liquidity concerns. While the strategic shift towards higher-value consulting is promising for long-term margin expansion, the near-term macro environment remains unpredictable, and the impact of this strategy on overall revenue growth is not yet clear. Given the mixed signals of improved efficiency against declining revenue and cash flow, a 'hold' recommendation is appropriate, suggesting investors monitor the company's ability to translate its strategic initiatives into sustainable revenue growth and positive cash generation in future quarters.

Keywords

Professional Services, Consulting, On-Demand Talent, CFO Advisory, Digital Transformation, Financial Results, Earnings Report, SEC Filing, RGP, Resources Connection, Corporate Governance, Risk Management, Financial Reporting, Business Transformation, Global Services, Talent Solutions, Outsourced Services, Q1 Fiscal 2026