Industry Overview - The Staffing Firms industry is expected to gradually recover to pre-pandemic levels, enabling companies to pay regular dividends [1] - The industry encompasses a wide range of human resources and workforce solutions, including recruitment, payroll administration, and organizational planning [2] Market Trends - There is stable demand in the mature business services industry, with revenues and cash flows anticipated to recover to pre-pandemic levels [3] - The adoption of remote work and hybrid models has significantly increased, prompting staffing agencies to focus on flexible staffing solutions [4] - Technological advancements are being implemented to enhance operational efficiency, with AI-driven tools and platforms becoming more prevalent [5] Industry Performance - The Zacks Staffing Firms industry currently holds a Zacks Industry Rank of 227, placing it in the bottom 7% of 244 Zacks industries, indicating sluggish near-term prospects [6] - Over the past year, the industry has underperformed the S&P 500, declining 39.2% compared to the S&P 500's growth of 18.9% [8] Valuation Metrics - The industry is currently trading at an EV-to-EBITDA ratio of 5.76X, significantly lower than the S&P 500's 18.98X and the sector's 10.7X [9] Company Highlights Resources Connection (RGP) - RGP has seen favorable international growth, particularly in Europe, India, Japan, and the Philippines, with steady revenues and improved gross margins [14] - The company holds $90 million in cash with zero current debt, indicating a strong balance sheet [16] - RGP's current ratio is 2.64, suggesting strong short-term debt coverage capability [16] - The Zacks Consensus Estimate for RGP's 2025 earnings per share has been revised up by 14.3% [17] Kforce (KFRC) - Kforce reported a top line of $332.6 million and 63 cents in EPS, exceeding expectations [18] - The company maintains a strong balance sheet with zero current debt and a current ratio of 1.88 [20] - KFRC's shares have gained 21.1% over the past three months [21] HireQuest (HQI) - HQI's system-wide sales grew 6.1% year-over-year, with a net income of $2.3 million in the third quarter of 2025 [21][22] - The company's current ratio is 2.4, indicating a strong liquidity position [23] - HQI's shares have gained 29.6% over the past three months [23]

Group 1 - The last commentary on Resources Connection, Inc. (RGP) was in October of the previous year, maintaining a Hold rating since May of the same year [1] - Revenue growth for RGP has been under pressure, indicating potential challenges in financial performance [1] Group 2 - The commentary emphasizes a strategy focused on buying undervalued profitable stocks with strong balance sheets and minimal debt [1] - The approach includes writing calls against positions to generate additional income, highlighting a proactive investment strategy [1] - Risk management is emphasized through position sizing and the use of trailing stop losses over time [1]

Core Insights - The last commentary on Resources Connection, Inc. (RGP) was in October of the previous year, maintaining a Hold rating since May of the same year [1] Group 1 - Revenue growth for RGP has been under pressure, indicating potential challenges in financial performance [1] - The company focuses on undervalued profitable stocks with strong balance sheets and minimal debt, suggesting a conservative investment strategy [1] - The investment approach includes writing calls against positions to generate additional income, highlighting a strategy for income generation [1]

Financial Performance - Revenue for the three months ended November 29, 2025, decreased by $27.9 million, or 19.2%, to $117.7 million compared to $145.6 million for the same period in 2024[159]. - On a same-day constant currency basis, revenue decreased by $26.8 million, or 18.4%[159]. - Total consolidated revenue for the six months ended November 29, 2025, was $237.961 million, down from $282.553 million in the same period of 2024[158]. - Revenue decreased by $44.6 million, or 15.8%, to $238.0 million for the six months ended November 29, 2025, compared to $282.6 million for the same period in 2024[161]. - Consulting segment revenue declined by $18.0 million or 29.7% to $42.6 million in Q2 FY2026 compared to $60.6 million in Q2 FY2025, driven by a 33.8% decrease in billable hours[185]. - For the six months ended November 29, 2025, Consulting segment revenue decreased by $29.4 million or 25.4% to $86.3 million compared to $115.7 million for the same period in the prior year[186]. Cost and Expenses - The company expects an annual reduction in SG&A expenses ranging from $6.0 million to $8.0 million due to workforce reductions[140]. - SG&A expenses increased by $2.1 million to $102.3 million, or 43.0% of revenue, for the six months ended November 29, 2025, compared to 35.5% of revenue for the same period in 2024[168]. - Cost of services for the three months ended November 29, 2025, was $74.026 million, accounting for 62.9% of revenue[158]. - Cost of services decreased by $29.7 million, or 16.8%, to $146.8 million for the six months ended November 29, 2025, compared to $176.5 million for the same period in 2024[165]. Profitability and Loss - The net loss for the three months ended November 29, 2025, was $12.661 million, representing a net loss margin of 10.8%[155]. - The company incurred a net loss of $15.1 million during the six months ended November 29, 2025[217]. - Adjusted EBITDA for the three months ended November 29, 2025, was $4.045 million, with an adjusted EBITDA margin of 3.4%[155]. - Adjusted EBITDA for the On-Demand Talent segment was $4.066 million for the three months ended November 29, 2025, down from $5.605 million for the same period in 2024[181]. - Adjusted EBITDA for the Consulting segment decreased by $5.2 million or 54.2% to $4.5 million in Q2 FY2026 compared to $9.7 million in Q2 FY2025[197]. Operational Metrics - Billable hours decreased by 18.4% year-over-year, indicating a need for improved go-to-market execution[159]. - The number of agile consultants on assignment decreased to 2,288 in the second quarter of fiscal 2026 from 2,758 in the second quarter of fiscal 2025[164]. - The average number of salaried consultants decreased to 400 in the second quarter of fiscal 2026 from 527 in the second quarter of fiscal 2025[164]. - Billable hours decreased by 16.4%, while the average bill rate increased by 0.4% for the six months ended November 29, 2025[161]. Strategic Initiatives - The fiscal 2026 strategic focus includes expanding cross-sell opportunities through diversified services, scaling high-value consulting solutions, and improving cost structure[136]. - The company aims to leverage value-based pricing to enhance profitability, particularly in the consulting business[141]. - Management anticipates that the transformation efforts will continue throughout fiscal 2026, with evolving scope and impact[143]. - The company is focused on integrating Reference Point's consulting capabilities to form a more cohesive consulting segment[143]. - The appointment of Roger Carlile as CEO is part of a leadership transition aimed at ensuring continuity and strategic direction[142]. Cash and Liquidity - The Company had $89.8 million in cash and cash equivalents as of November 29, 2025, including $40.6 million held in international operations[205]. - As of November 29, 2025, the company had approximately $89.8 million of cash and cash equivalents and no borrowings under its 2025 Credit Facility[222]. - Operating activities for the first six months of fiscal 2026 provided cash of $8.1 million, a significant increase from $1.5 million in the same period of fiscal 2025[216]. - The net cash used in investing activities was $0.4 million for the first six months of fiscal 2026, compared to $12.7 million in the same period of fiscal 2025[219]. - Net cash used in financing activities was $3.9 million for the first six months of fiscal 2026, down from $17.4 million in the first six months of fiscal 2025[220]. Market Conditions - Uncertain macroeconomic conditions have created significant volatility, adversely impacting financial results and client spending in professional services[145]. - Approximately 20.5% of the company's revenues for the six months ended November 29, 2025, were generated outside of the U.S., up from 18.2% in the same period of the previous year[224]. - A 10% decline in interest rates would reduce the company's interest income but would not materially impact its consolidated financial position[222]. - Approximately 54.8% of the company's cash and cash equivalents as of November 29, 2025, were denominated in U.S. dollars, down from 59.2% as of May 31, 2025[225].

Core Insights - The company is adapting its strategy to address changing client needs driven by artificial intelligence (AI) and automation, focusing on cost alignment, refining on-demand talent offerings, and scaling consulting capabilities [1][5][20] Financial Performance - For the second quarter ended November 29, 2025, the company reported revenue of $117.7 million, with a gross margin of 37.1%, and an adjusted EBITDA of $4.0 million, reflecting a margin of 3.4% [2][6][7] - The company incurred a GAAP net loss of $12.7 million, primarily due to $11.9 million in one-time charges related to CEO transition and workforce reduction [6][7] - Revenue declined 18.4% year-over-year on a constant-currency basis, with on-demand and consulting revenues remaining soft, while Europe and Asia Pacific showed growth [8][18] Cost Management and Outlook - The company ended the quarter with $89.8 million in cash and zero debt, and it expects third-quarter revenue between $105 million and $110 million, with a gross margin of 35% to 36% [4][15] - Cost actions include a reduction in force targeting $6 million to $8 million in annual savings, with a focus on streamlining structure and adopting automation and AI [13][14] Segment Performance - On-demand revenue was $43.0 million, down 18.4% year-over-year, while consulting revenue was $42.6 million, down 28.8% [18] - Europe and Asia Pacific revenue was $20.1 million, up 0.6%, and outsourced services revenue was $9.4 million, up 0.8% [18] Client Demand and AI Impact - The company is observing early impacts of AI on client staffing needs, particularly in operational accounting roles, with a shift towards higher-skilled professionals who understand AI's implications [16][19] - Clients are navigating choices between embedded AI features in enterprise systems and standalone technologies, prompting the company to adjust its skill base accordingly [19]

Financial Data and Key Metrics Changes - Consolidated revenue for the second quarter was approximately $117.7 million, reflecting an 18.4% decline year-over-year on a constant currency basis [19][20] - Adjusted EBITDA was $4 million, resulting in a 3.4% adjusted EBITDA margin, despite revenue coming in below consensus [11][19] - Gross margin was 37.1%, down from 38.5% in the prior year quarter, impacted by higher healthcare costs and holiday pay [20][26] Business Line Data and Key Metrics Changes - On-demand segment revenue was $43 million, a decline of 18.4% year-over-year, with segment-adjusted EBITDA at $4.1 million, or a 9.5% margin [25] - Consulting segment revenue decreased by 28.8% year-over-year to $42.6 million, with segment-adjusted EBITDA at $4.5 million, or a 10.4% margin [25] - Europe and Asia Pac segment revenue grew by 0.6% year-over-year to $20.1 million, maintaining stable gross margins [25][17] - Outsourced services segment revenue was $9.4 million, up 0.8% compared to the prior year quarter, with segment-adjusted EBITDA at $1.7 million, or an 18.4% margin [25] Market Data and Key Metrics Changes - North America saw improved pipeline activity due to expanded go-to-market initiatives, while Europe and Asia Pac segments delivered both year-over-year and sequential growth [12][17] - Several North American markets showed sequential revenue growth, while lagging markets are undergoing leadership changes [16] Company Strategy and Development Direction - The company aims to align its cost structure with current revenue levels, refocus on-demand offerings, and scale its consulting business to deliver high-value solutions [7][11] - The strategy includes integrating Reference Point's capabilities to enhance collaboration and strengthen focus on CFO Advisory and Digital Transformation [14] - The company is committed to understanding how AI and automation impact client needs and is implementing these technologies to improve service delivery [10][9] Management's Comments on Operating Environment and Future Outlook - Management acknowledges a challenging market for services but believes there is a sufficiently large market for client needs that can drive growth [6] - The company expects revenue for the third quarter to be in the range of $105 million to $110 million, with gross margins anticipated to be between 35% and 36% [27][28] - Management emphasizes the importance of improving sales execution and optimizing talent to meet client needs [29] Other Important Information - The company incurred $11.9 million in one-time expenses related to the CEO transition and a reduction in force, contributing to a GAAP net loss of $12.7 million [19] - The reduction in force impacted 5% of management and administrative headcount, expected to yield annual savings of $6 million to $8 million [22] Q&A Session Summary Question: Can you elaborate on AI's impact on finance and accounting roles? - Management noted that operational accounting roles are most impacted by AI and automation, with clients experimenting with AI to enhance efficiency [31][33] Question: Is AI causing clients to delay decisions? - Management indicated that while there is uncertainty in the market, AI is not significantly causing decision delays; rather, clients are exploring how to leverage AI effectively [57][59] Question: What is the expected impact of healthcare costs on gross margins? - Management stated that healthcare costs had a significant impact, approximately $1 million+, and normalized gross margins could have reached around 38% without these costs [62] Question: What is the vision for the next 12 to 24 months? - The focus will remain on aligning cost structures with revenue, enhancing on-demand services, and growing the consulting segment to drive value for clients [51][53]

Financial Data and Key Metrics Changes - Consolidated revenue for Q2 was approximately $117.7 million, reflecting an 18.4% decline year-over-year on a constant currency basis [19][20] - Adjusted EBITDA was $4 million, resulting in a 3.4% adjusted EBITDA margin, despite a GAAP net loss of $12.7 million due to one-time expenses [19][20] - Gross margin decreased to 37.1% from 38.5% in the prior year, impacted by healthcare costs and holiday pay [20][21] Business Line Data and Key Metrics Changes - On-demand segment revenue was $43 million, down 18.4% year-over-year, with segment-adjusted EBITDA at $4.1 million, a margin of 9.5% [25] - Consulting segment revenue declined 28.8% to $42.6 million, with segment-adjusted EBITDA at $4.5 million, a margin of 10.4% [25] - Europe and Asia Pac segment revenue grew 0.6% to $20.1 million, maintaining stable gross margins [25][26] Market Data and Key Metrics Changes - North America saw improved pipeline activity due to expanded go-to-market initiatives, while Europe and Asia Pac segments delivered growth [12][17] - Outsourced services revenue remained steady year-over-year at $9.4 million, with improved gross margins [26] Company Strategy and Development Direction - The company aims to align its cost structure with current revenue levels, refocus on-demand offerings, and scale its consulting business [6][7] - Emphasis on providing relevant skills and solutions to clients at competitive prices to enhance value [6][9] - The integration of Reference Point is expected to enhance collaboration and strengthen focus on CFO Advisory and Digital Transformation [13][14] Management's Comments on Operating Environment and Future Outlook - The management acknowledges a challenging market but believes in the potential for growth due to a large market of client needs [6][11] - Future strategies will focus on improving sales execution and optimizing talent to meet client demands [51][52] - The company expects Q3 revenue to be between $105-$110 million, with gross margins projected at 35%-36% [27][28] Other Important Information - The company has a strong balance sheet with $89.8 million in cash and no outstanding debt, allowing for balanced capital allocation [26] - A reduction in force was executed, impacting 5% of management and administrative headcount, expected to yield annual savings of $6-$8 million [22][23] Q&A Session Summary Question: Areas where AI is impacting finance and accounting roles - Management noted that operational accounting roles are most affected by AI and automation, with ongoing experimentation by clients [31][33] Question: Impact of AI on decision-making - Management clarified that while AI is causing clients to reassess roles, it is not significantly delaying decisions [57][59] Question: Clarification on SG&A expenses - SG&A expenses for Q3 are expected to be $40-$42 million, excluding $6-$7 million in non-cash and restructuring costs [47][49] Question: Impact of healthcare costs on margins - Healthcare costs had a significant impact, estimated at over $1 million, affecting both SG&A and gross margins [48][62] Question: Broader strategic focus for the next 12-24 months - The company will focus on aligning cost structures, enhancing on-demand services, and growing the consulting segment [51][52]

Financial Data and Key Metrics Changes - Consolidated revenue for Q2 was approximately $117.7 million, reflecting an 18.4% decline year-over-year on a constant currency basis [16][17] - Gross margin was 37.1%, down from 38.5% in the prior year quarter, with a significant impact from healthcare costs and holiday pay [17][22] - Adjusted EBITDA was $4 million, representing a 3.4% margin, despite revenue falling below consensus [10][16] Business Line Data and Key Metrics Changes - On-demand segment revenue was $43 million, a decline of 18.4% year-over-year, with segment-adjusted EBITDA at $4.1 million, or a 9.5% margin [20] - Consulting segment revenue decreased by 28.8% to $42.6 million, with segment-adjusted EBITDA at $4.5 million, or a 10.4% margin [20] - Europe and Asia Pac segment revenue grew by 0.6% to $20.1 million, maintaining stable gross margins [21] Market Data and Key Metrics Changes - North America saw improved pipeline activity due to expanded go-to-market initiatives, while Europe and Asia Pac segments delivered year-over-year and sequential growth [10][11] - Outsourced services revenue remained steady at $9.4 million, with improved gross margins compared to the prior year [21] Company Strategy and Development Direction - The company aims to align its cost structure with current revenue levels, refocus on-demand offerings, and scale its consulting business to deliver high-value solutions [6][10] - Emphasis on providing relevant skills and solutions to clients at competitive prices to enhance market positioning [5][8] - The integration of Reference Point is expected to enhance collaboration and strengthen focus on CFO Advisory and Digital Transformation [12] Management's Comments on Operating Environment and Future Outlook - The management acknowledges a challenging market environment but believes in the potential for growth due to a large market of client needs [5][6] - Future strategies will focus on improving sales execution, optimizing talent, and enhancing consulting solutions to meet client demands [45][46] - The company expects to see incremental improvements over the next quarters, although significant results may take time [48] Other Important Information - The company has a strong balance sheet with $89.8 million in cash and no outstanding debt, allowing for balanced capital allocation between growth investments and shareholder returns [22] - A reduction in force was executed, impacting 5% of management and administrative headcount, expected to yield annual savings of $6-$8 million [19] Q&A Session Summary Question: Areas of AI impact on finance and accounting roles - Management noted that operational accounting roles are most impacted by AI and automation, with ongoing experimentation in client organizations [26][27] Question: Client decision delays due to AI implementation - Management indicated that while there is uncertainty in the market, it is not significantly causing decision delays; clients are exploring how to leverage AI effectively [52][54] Question: Impact of healthcare costs on gross margins - Healthcare costs had a significant impact, estimated at over $1 million, affecting both gross margin and SG&A [43][57] Question: Future focus areas in consulting - The company will focus on high-demand areas such as financial transformation, technology, and data analytics to enhance consulting capabilities [41][46]

Financial Performance - Revenue for Q2 fiscal 2026 was $117.7 million, a decrease of 18.4% from $145.6 million in Q2 fiscal 2025[4] - Gross margin decreased to 37.1% in Q2 fiscal 2026 from 38.5% in Q2 fiscal 2025[5] - Net loss for Q2 fiscal 2026 was $12.7 million, with a net loss margin of 10.8%, compared to a net loss of $68.7 million and a margin of 47.2% in the prior year[9] - Adjusted EBITDA for Q2 fiscal 2026 was $4.0 million, with an Adjusted EBITDA margin of 3.4%, down from $9.7 million and a margin of 6.6% in the prior year[7] - Total consolidated revenue for the three months ended November 29, 2025, was $117,732,000, down from $145,618,000 in the same period last year, representing a year-over-year decline of approximately 19%[28] - Total consolidated revenue for the six months ended November 29, 2025, was $237,961,000, compared to $282,553,000 in the same period last year, a decline of about 16%[28] - Adjusted EBITDA for the three months ended November 29, 2025, was $4,045, representing 3.4% of revenue, compared to $9,656 or 6.6% for the same period in 2024[32] - The net loss for the six months ended November 29, 2025, was $15,066, which is 6.3% of revenue, compared to a net loss of $74,422 or 26.3% for the same period in 2024[33] - The net loss for the three months ended November 29, 2025, was $12,661, representing 10.8% of revenue, compared to a net loss of $68,715 or 47.2% for the same period in 2024[32] Segment Performance - Revenue in the On-Demand Talent segment was $43.0 million, a decline of 18.4% year-over-year[10] - Consulting segment revenue decreased to $42.6 million, down 28.8% year-over-year due to a 33.8% decrease in billable hours[11] - Revenue in the Europe & Asia Pacific segment grew to $20.1 million, an increase of 0.6% year-over-year, driven by higher average bill rates[12] - Consulting segment revenue for the three months ended November 29, 2025, was $42,613,000, down from $60,643,000 in the prior year, indicating a decrease of approximately 30%[28] Expenses and Costs - SG&A expenses increased to $54.4 million, or 46.2% of revenue, compared to $51.3 million, or 35.2% of revenue in the prior year[6] - Stock-based compensation expense for the three months ended November 29, 2025, was $1,625, accounting for 1.4% of revenue, compared to $1,948 or 1.3% for the same period in 2024[32] - CEO transition costs for the three months ended November 29, 2025, amounted to $9,029, which is 7.7% of revenue[32] - Restructuring costs for the three months ended November 29, 2025, were $2,894, accounting for 2.5% of revenue[32] - SG&A expenses for the three months ended November 29, 2025, were $54,394,000, an increase from $51,305,000 for the same period in 2024, representing a growth of 4.1%[34] - Adjusted SG&A expenses decreased to $39,670,000 for the three months ended November 29, 2025, compared to $46,500,000 for the same period in 2024, a reduction of 14.0%[34] Cash Flow and Assets - Cash flow from operating activities increased significantly to $8,059,000 for the three months ended November 29, 2025, compared to $1,490,000 for the same period in 2024, marking a growth of 440.5%[39] - Cash flow from investing activities was $(442,000) for the three months ended November 29, 2025, a significant improvement compared to $(12,662,000) for the same period in 2024[39] - The total assets decreased to $289,273,000 as of November 29, 2025, from $304,688,000 as of May 31, 2025, a decline of 5.1%[39] - The total stockholders' equity decreased to $194,587,000 as of November 29, 2025, down from $207,081,000 as of May 31, 2025, a decrease of 6.0%[39] Strategic Focus and Risks - The company plans to refocus its On-Demand offerings and scale its Consulting business to align with evolving client needs[3] - The company is focusing on digital expansion and technology transformation efforts, which are critical for future growth[23] - Risks include potential adverse effects from economic downturns and the competitive nature of the professional services market, which could impact financial performance[23] - The company emphasizes the importance of non-GAAP financial measures to provide clarity on core performance, which may differ from GAAP measures[25] Other Financial Metrics - The average bill rate for the consolidated segment was $122 for the three months ended November 29, 2025, slightly down from $123 for the same period in 2024[38] - The average pay rate for consultants was $58 for the three months ended November 29, 2025, down from $59 for the same period in 2024[39] - The agile consultant headcount on assignment decreased to 2,288 as of November 29, 2025, compared to 2,758 for the same period in 2024, a reduction of 17.0%[39] - Goodwill impairment for the three months ended November 23, 2024, was $79,482, representing 54.6% of revenue[32] - Amortization expense for the six months ended November 29, 2025, was $2,336, accounting for 1.0% of revenue, compared to $3,054 or 1.1% for the same period in 2024[33] - Interest income, net for the six months ended November 29, 2025, was $(170), which is (0.1%) of revenue, compared to $(363) or (0.1%) for the same period in 2024[33]

Company Overview - Resources Connection, Inc. (NASDAQ: RGP) is a professional services firm that provides on-demand consultants and project teams for companies seeking specialized expertise without the need for full-time staff [1] Investment Focus - The analysis primarily targets small- to mid-cap companies, which are often overlooked by many investors, while also occasionally reviewing large-cap companies to provide a broader perspective on equity markets [1]