10-Q: RGP Reports Q2 Loss Amid Revenue Decline, CEO Transition

Resources Connection, Inc. reported a significant revenue decrease and net loss for its second fiscal quarter, alongside a recent CEO transition and ongoing restructuring efforts.

Summary

• Revenue for the second quarter of fiscal 2026 decreased by 19.2% to $117.7 million, compared to $145.6 million in the prior year's second quarter.
• Net loss for the second quarter was $(12.7) million, an improvement from $(68.7) million in the comparable prior-year quarter, which included a significant goodwill impairment charge.
• Basic net loss per common share was $(0.38) for the second quarter of fiscal 2026, compared to $(2.08) in the second quarter of fiscal 2025.
• Adjusted EBITDA for the second quarter decreased by 58.8% to $4.0 million, down from $9.7 million in the prior-year quarter.
• Roger Carlile was appointed President and Chief Executive Officer, effective November 3, 2025, succeeding Kate W. Duchene.
• The company initiated a '2026 Transformation Initiative' in the first half of fiscal 2026, including workforce reductions in October 2025, incurring $2.9 million in restructuring costs.
• CEO transition costs totaled $9.0 million in the second quarter, comprising $5.9 million in cash severance and $3.1 million in non-cash stock compensation expense.
• Cash and cash equivalents stood at $89.8 million as of November 29, 2025, up from $86.1 million at May 31, 2025.
• Operating activities provided $8.1 million in cash for the six months ended November 29, 2025, compared to $1.5 million in the prior-year period.
• The quarterly dividend was reduced to $0.07 per share, paid on December 12, 2025, down from $0.14 per share in the prior year.

Sentiment

Score: 3

Explanation: The company faces substantial revenue declines and profitability pressures, exacerbated by macroeconomic headwinds and significant one-time costs from a CEO transition and restructuring. While management is taking steps to streamline operations and refocus strategy, the immediate financial performance is weak.

Positives

• Net loss significantly reduced to $(12.7) million in Q2 FY26 from $(68.7) million in Q2 FY25, although the prior year included a large goodwill impairment.
• Operating cash flow for the six months ended November 29, 2025, increased to $8.1 million from $1.5 million in the comparable prior-year period.
• The Europe & Asia Pacific segment's revenue increased by 2.0% (0.6% on a constant currency basis) in Q2 FY26 and 6.1% (3.3% on a constant currency basis) for the six months.
• The Outsourced Services segment's Adjusted EBITDA increased by 11.2% in Q2 FY26 and 37.7% for the six months.
• The All Other segment's Adjusted EBITDA increased significantly by 167.3% in Q2 FY26 and 154.1% for the six months.
• The average bill rate in the U.S. improved by 2.5% in Q2 FY26, reflecting progress in value-based pricing.
• A new 2025 Credit Facility was established, providing a secured revolving loan of up to $50.0 million, maturing on November 30, 2029.
• No debt was outstanding under the 2025 Credit Facility or the Beijing Revolver as of November 29, 2025.
• Management and administrative headcount decreased from 754 to 632, indicating cost-cutting efforts.

Negatives

• Total revenue decreased by 19.2% in Q2 FY26 and 15.8% for the six months ended November 29, 2025.
• On-Demand Talent segment revenue declined by 19.5% in Q2 FY26 and 17.4% for the six months.
• Consulting segment revenue declined by 29.7% in Q2 FY26 and 25.4% for the six months.
• Gross profit decreased by $12.4 million in Q2 FY26 and $14.9 million for the six months.
• Selling, general and administrative expenses increased by $3.1 million in Q2 FY26, primarily due to CEO transition costs and restructuring charges.
• Adjusted EBITDA decreased by 58.8% in Q2 FY26 and 40.7% for the six months.
• CEO transition costs of $9.0 million were incurred in Q2 FY26, including $5.9 million cash severance and $3.1 million non-cash stock compensation.
• Restructuring costs of $2.9 million were incurred in Q2 FY26 as part of the 2026 Transformation Initiative.
• Billable hours declined across the On-Demand Talent and Consulting segments.
• Cost of services as a percentage of revenue increased in Q2 FY26 due to higher healthcare expenses, increased holiday pay, and lower utilization of salaried consultants.
• The quarterly dividend was reduced from $0.14 to $0.07 per share.
• Uncertain macroeconomic conditions, softening labor markets, and currency fluctuations continue to create uncertainty and adversely impact financial results.
• Consulting segment revenue could be uneven in the near term due to elongated sales cycles for higher-value projects.

Risks

• Risks related to an 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.
• The highly competitive nature of the market for professional services.
• Risks related to the loss of a significant number of consultants, or an inability to attract and retain new consultants.
• The possible impact on the business from the loss of the services of one or more key members of senior management or key sales professionals.
• Risks related to potential significant increases in wages or payroll-related costs.
• The ability to secure new projects from clients.
• The ability to achieve or maintain a suitable pay/bill ratio.
• The ability to compete effectively in the competitive bidding process.
• Risks related to unfavorable provisions in contracts which may permit clients to terminate contracts partially or completely at any time prior to completion.
• The ability to realize the level of benefit expected from restructuring initiatives.
• Risks that recent digital expansion and technology transformation efforts may not be successful.
• The ability to use artificial intelligence ("AI") and machine learning in the business.
• The ability to build an efficient support structure as the business continues to grow and transform.
• The ability to grow the business, manage growth, or sustain the current business.
• The ability to serve clients internationally and additional operational challenges from international activities.
• Possible disruption of the business from past and future acquisitions.
• The possibility that recent rebranding efforts may not be successful.
• Potential inability to adequately protect intellectual property rights.
• Risks that computer hardware and software and telecommunications systems are damaged, breached, or interrupted.
• Risks related to the failure to comply with data privacy laws and regulations and the adverse effect it may have on reputation, results of operations, or financial condition.
• The ability to comply with governmental, regulatory, and legal requirements and company policies.
• The possible legal liability for damages resulting from the performance of projects by consultants or for clients' mistreatment of personnel.
• Risks arising from changes in applicable tax laws or adverse results in tax audits or interpretations.
• The possible adverse effect on the business model from the reclassification of independent contractors by foreign tax and regulatory authorities.
• The possible difficulty for a third party to acquire the company and resulting depression of stock price.
• The operating and financial restrictions from the credit facility.
• Risks related to the variable rate of interest in the credit facility.
• The possible impact of activist shareholders.
• The possibility that the company is unable to or elects not to pay its quarterly dividend payment.

Future Outlook

The company expects its transformation efforts, including redesigning and streamlining its operating model, to continue through the remainder of fiscal 2026. The scope, timing, and impact of these actions may evolve. Consulting segment revenue is anticipated to be uneven in the near term due to elongated sales cycles for higher-value work. Management believes current cash, ongoing cash flows from operations, and funding available under the 2025 Credit Facility will be adequate for working capital and capital expenditure needs for at least the next 12 months. Beyond this period, the company may seek to sell additional equity securities, increase the use of its 2025 Credit Facility, expand its size, or raise additional debt to support long-term growth or acquisitions. There is no assurance that the effective tax rate will remain constant due to potential changes in valuation allowance positions or tax laws, with adjustments to valuation allowances reasonably possible within the next 12 months.

Management Comments

• "We are executing upon the following enterprise growth drivers in fiscal 2026: Expand cross-sell opportunities through our diversified services platform; Scale our high-value Consulting solutions and refocus On-Demand Talent offerings to address the evolving needs of our clients; Drive improvement in cost structure; and Further leverage value-based pricing to improve profitability."
• "In the face of persistent macro-economic uncertainty and headwinds on client demand, we have prioritized reducing our cost structure and maintaining ongoing cost discipline to deliver improved profitability."
• "We expect these transformation efforts to continue through the remainder of fiscal 2026, though the scope, timing, and impact of such actions may evolve as the review progresses."
• "As we continue to evolve our consulting business to deliver higher value, larger and more complex work, we believe we will improve our ability to command higher bill rates; however, the sales cycle associated with such deal opportunities tends to be more elongated."
• "We continue to see caution in professional services spending within our client base."

Industry Context

The company operates within a volatile and rapidly shifting global economic environment where businesses are confronting transformation pressures and skilled labor shortages amidst protracted economic uncertainty. Market trends favor flexibility and agility in professional services. The decline in On-Demand Talent billable hours reflects a broader industry shift as clients increasingly adopt artificial intelligence and automation, reducing demand for traditional finance roles. Uncertain macroeconomic conditions, including interest rate ambiguity, softening labor markets, and currency fluctuations, are contributing to caution in professional services spending across the client base.

Comparison to Industry Standards

• The company's focus on 'value-based pricing' and pursuing 'higher-value, larger and more complex work' in its Consulting segment aligns with strategies employed by many professional services firms seeking to improve margins and differentiate in a competitive market.
• The observed decline in demand for traditional finance roles within the On-Demand Talent segment due to client adoption of AI and automation is consistent with broader technological disruption trends impacting the professional services industry.
• The filing does not provide specific comparable companies or projects to benchmark performance against direct industry standards.

Management Changes

Corporate Governance

Legal Proceedings

• The company is involved in certain legal matters in the ordinary course of business.
• Management believes that all such matters, if disposed of unfavorably, would not have a material adverse effect on the company's financial position, cash flows, or results of operations.

Stakeholder Impact

• Shareholders: Negative impact from decreased revenue, net loss, and a reduced quarterly dividend ($0.07 vs. $0.14 prior year). Potential for dilution if additional equity is raised. Stock repurchase programs remain authorized, but no shares were repurchased in the current quarter.
• Employees: Workforce reductions affecting management and administrative roles as part of the 2026 Transformation Initiative. Former CEO received significant severance benefits and accelerated vesting of equity awards.
• Customers: The company aims to deepen partnerships, strengthen client retention, and increase wallet share through diversified service offerings and a focus on higher-value consulting solutions.
• Creditors: The company entered into a new 2025 Credit Facility providing revolving loan capacity, secured by substantially all assets. The company was compliant with all financial covenants as of November 29, 2025.
• Suppliers: Third-party consulting costs were incurred in connection with the 2026 Transformation Initiative.

Next Steps

• Continue transformation efforts to redesign and streamline the operating model through the remainder of fiscal 2026.
• Monitor the scope, timing, and impact of ongoing transformation actions as the review progresses.
• Evolve the consulting business to deliver higher value, larger, and more complex work, despite potential near-term uneven revenue due to elongated sales cycles.
• Continue to leverage newly implemented technology to achieve further operating efficiencies.
• Advance the value-based pricing strategy to improve bill rates and pricing leverage.
• Evolve talent strategy to modernize and refresh skillsets within the consultant base, particularly in technology and AI fluency.
• Expand cross-sell opportunities through the diversified services platform.
• Expand Countsy's total addressable market beyond the start-up ecosystem to serve spin-outs and carve-outs.
• Monitor macroeconomic conditions and their impact on professional services spending.
• Evaluate the impact of ASU 2025-11 on financial statements and disclosures.
• Expects to adopt ASU 2025-05 in the fiscal year beginning May 31, 2026.
• Continue to monitor and assess the impact of the One Big Beautiful Bill Act (OBBBA) on consolidated financial statements.

Key Dates

Recommendation

The company is undergoing a significant transformation, including a CEO change and cost-cutting initiatives, in a challenging macroeconomic environment. While the net loss is lower than the prior year (due to a large goodwill impairment in the prior year), the current quarter shows substantial declines in revenue and Adjusted EBITDA. The company has positive operating cash flow and a new credit facility, providing some liquidity. However, the near-term outlook for revenue, especially in Consulting, is uncertain due to elongated sales cycles. Investors should hold to observe the effectiveness of the new management and restructuring efforts in improving financial performance and navigating market headwinds. The reduced dividend also signals caution.

Keywords

Professional Services, Consulting, On-Demand Talent, Outsourced Services, RGP, Resources Global Professionals, Financial Reporting, SEC Filing, Quarterly Results, Workforce Reduction, CEO Transition, Restructuring, Digital Transformation, AI Adoption, Financial Services Consulting, Corporate Governance