Form 10-Q for Resources Connection, Inc. for the quarterly period ended August 24, 2024

Press release · 10/26 07:38
Form 10-Q for Resources Connection, Inc. for the quarterly period ended August 24, 2024

Form 10-Q for Resources Connection, Inc. for the quarterly period ended August 24, 2024

Resources Connection, Inc. (RGP) filed its quarterly report for the period ended August 24, 2024. The company reported net sales of $1.23 billion, a 12% increase from the same period last year. Gross profit was $343 million, with a gross margin of 27.8%. Operating income was $123 million, and net income was $93 million, resulting in earnings per share of $0.28. The company’s cash and cash equivalents increased to $243 million, and its total debt decreased to $1.15 billion. RGP’s financial position remains strong, with a current ratio of 1.33 and a debt-to-equity ratio of 0.35. The company’s management believes that its financial performance is driven by its strategic initiatives, including the expansion of its services and the growth of its customer base.

Overview

Resources Global Professionals (RGP) is a global consulting firm that provides businesses with expert talent and consulting services to help them execute strategic initiatives and operational needs. The company is based in Irvine, California and has offices worldwide.

RGP’s business model is focused on delivering flexible, on-demand access to skilled professionals as well as providing consulting services across areas like finance, technology, risk and compliance. The company believes its approach is well-suited to the current business environment, where companies need agility and access to specialized expertise to navigate transformation and economic uncertainty.

In fiscal 2025, RGP reorganized its business into three distinct engagement models - On-Demand Talent, Consulting, and Outsourced Services. This new structure is intended to provide greater clarity for clients and better align RGP’s offerings to evolving market demands. The company is also focused on enhancing its digital and AI capabilities to support clients’ growing needs in areas like technology transformation and data modernization.

Financial Performance

For the first quarter of fiscal 2025, RGP reported revenue of $136.9 million, a 19.5% decrease compared to the prior year period. This decline was primarily due to reduced client spending across most of RGP’s markets and service offerings, as businesses have become more cautious amid uncertain macroeconomic conditions.

The company’s direct cost of services decreased 15.7% year-over-year, driven by lower billable hours and a 5.0% decrease in average pay rates. However, direct cost of services as a percentage of revenue increased to 63.5% compared to 60.6% in the prior year quarter, as RGP faced less favorable leverage on indirect costs due to the lower revenue.

Selling, general and administrative (SG&A) expenses decreased 18.4% to $48.9 million, largely due to lower management compensation, bonuses and commissions, as well as a $3.4 million gain on the sale of RGP’s Irvine office building. These savings were partially offset by $1.3 million in acquisition-related costs.

RGP recorded a $3.9 million non-cash goodwill impairment charge related to its Europe and Asia Pacific segment during the quarter. This resulted in a net loss of $5.7 million, compared to net income of $3.1 million in the prior year period.

Segment Performance

RGP’s new reporting segments are:

  • On-Demand Talent: Provides businesses with on-demand access to skilled professionals. Revenue in this segment declined 32.7% year-over-year due to lower demand and a 3.2% decrease in average bill rates.

  • Consulting: Delivers consulting services across areas like finance, technology, and risk. Revenue decreased 3.2%, primarily due to reduced demand for finance and accounting transformation projects.

  • Europe & Asia Pacific: Offers both on-demand and consulting services in these geographic regions. Revenue declined 22.7% as clients delayed decision-making and project starts, especially in Europe.

  • Outsourced Services: Provides finance, accounting and HR services to startups, spinouts and scale-up enterprises. Revenue was flat compared to the prior year quarter.

  • All Other: Includes the Sitrick crisis communications and public relations business, which saw a 26.3% revenue decline.

Adjusted EBITDA, a non-GAAP measure of profitability, decreased across most segments due to the revenue declines. The On-Demand Talent and Europe & Asia Pacific segments saw the largest drops in Adjusted EBITDA, down 70.1% and 86.7% respectively.

Strengths and Weaknesses

Key strengths for RGP include:

  • Flexible, on-demand talent model that aligns with evolving workforce preferences
  • Diversified service offerings spanning consulting, on-demand talent, and outsourced services
  • Established client relationships with a blue-chip customer base
  • Investments in digital transformation and AI capabilities to meet emerging client needs

Weaknesses and challenges include:

  • Exposure to macroeconomic uncertainty and recessionary pressures, which have led to reduced client spending
  • Competitive pricing environment, especially in the Europe and Asia Pacific regions
  • Need to maintain efficient cost structure and operating leverage as revenue declines
  • Integration and execution risks associated with recent acquisitions like Reference Point

Outlook and Future Prospects

Looking ahead, RGP is focused on several strategic priorities for fiscal 2025:

  1. Evolve and execute under new business segments: The company aims to drive growth by clearly delineating its On-Demand Talent, Consulting, and Outsourced Services offerings. This is expected to provide greater clarity for clients and enable more effective cross-selling.

  2. Launch new brand identity: RGP is refreshing its brand architecture to better communicate its full suite of capabilities to stakeholders. The new branding is intended to create stronger awareness and understanding of the value RGP can deliver.

  3. Enhance digital and AI capabilities: The company is investing to expand its technology, digital transformation, and data modernization services in response to evolving client needs. This includes integrating the capabilities of the recently acquired Reference Point business.

However, RGP acknowledges that uncertain macroeconomic conditions, including softening labor markets and currency volatility, have created significant uncertainty and recessionary pressures. The company expects these challenges to persist in fiscal 2025, which could result in further declines in billable hours and bill rates, adversely impacting financial results.

Despite the near-term headwinds, RGP believes its refined operating model, enhanced digital offerings, and strategic acquisitions position the company well to navigate the current environment and capitalize on favorable long-term trends in the professional services market. The company’s strong balance sheet and available credit facility provide financial flexibility to fund growth initiatives and weather the economic uncertainty.