Company Overview - Resources Connection Inc (RGP) provides consulting services to companies that prefer not to hire full-time experts, offering on-demand expertise instead of long-term staffing solutions [2] Industry Focus - The research focuses on small- to mid-cap companies, providing insights into often overlooked investment opportunities [2] - Periodic identification of potential opportunities in large- and mega-cap companies is conducted to offer comprehensive coverage of equity markets [2] Research Methodology - The research approach emphasizes objectivity, unbiased analysis, and data-driven insights, free from emotional influences or company preferences [2]

Financial Data and Key Metrics - The company will be commenting on results for the second quarter ended November 23rd, 2024, and will refer to certain non-GAAP financial measures [2] - An explanation and reconciliation of these non-GAAP measures to the most comparable GAAP financial measures are included in the press release issued today [2] Business Line Data and Key Metrics - No specific data or metrics related to individual business lines were provided in the content Market Data and Key Metrics - No specific data or metrics related to individual markets were provided in the content Company Strategy and Industry Competition - Management may make forward-looking statements regarding plans, initiatives, strategies, and the anticipated financial performance of the company [3] - Such statements are predictions, and actual events or results may differ materially due to risks, uncertainties, and other factors discussed in the company's Form 10-K for the year ended May 25th, 2024 [3] Management Commentary on Operating Environment and Future Outlook - No specific commentary on the operating environment or future outlook was provided in the content Other Important Information - The press release with detailed financial information can be viewed in the Investor Relations section of RGP's website and was filed with the SEC [2] Q&A Session Summary - No Q&A session content was provided in the content

Revenue Performance by Segment - Revenue in the On-Demand Talent segment declined by $17.5 million or 24.7% to $53.5 million in Q2 FY2025 compared to $70.9 million in Q2 FY2024, primarily due to lower demand and a 2.8% decline in average bill rate[288] - Revenue in the Outsourced Services segment increased by $0.4 million or 4.0% to $9.4 million in Q2 FY2025 compared to $9.1 million in Q2 FY2024, driven by a 2.2% increase in average bill rate and a 1.7% increase in billable hours[289] - Revenue in the Europe and Asia Pacific segment declined by $2.1 million or 9.6% to $19.7 million in Q2 FY2025 compared to $21.8 million in Q2 FY2024, with a 3.3% decline in average bill rate and a 5.3% decrease in billable hours[308] - Consulting segment revenue increased by $1.6 million (2.7%) to $60.6 million in Q2 fiscal 2025, driven by a 6.2% increase in average bill rate[339] - The company's Outsourced Services segment revenue increased by $0.4 million or 2.3% to $18.9 million for the six months ended November 23, 2024, driven by a 1.5% increase in billable hours and a 0.7% increase in average bill rate[289] Adjusted EBITDA Performance by Segment - The Consulting segment's Adjusted EBITDA decreased by $1.2 million or 11.0% to $9.7 million in Q2 FY2025, despite a $1.6 million revenue increase, due to higher cost of services and SG&A expenses[311] - The Europe & Asia Pacific segment's Adjusted EBITDA decreased by $0.2 million or 13.0% to $1.5 million in Q2 FY2025, driven by a $2.1 million revenue decline partially offset by lower cost of services and SG&A expenses[312] - The Outsourced Services segment's Adjusted EBITDA declined by $0.2 million or 13.0% to $1.5 million in Q2 FY2025, primarily due to increased cost of services[313] - On-Demand Talent segment's Adjusted EBITDA decreased by $3.1 million (35.3%) to $5.6 million in Q2 fiscal 2025, with revenue declining by $17.5 million[341] - Consulting segment's Adjusted EBITDA decreased by $2.0 million (10.2%) to $17.5 million for the six months ended November 23, 2024[343] - Europe & Asia Pacific segment's Adjusted EBITDA decreased by $1.7 million (49.9%) to $1.7 million for the six months ended November 23, 2024[344] - Outsourced services segment's Adjusted EBITDA declined by $0.4 million (11.6%) to $2.9 million for the six months ended November 23, 2024[345] - All Other segment's Adjusted EBITDA declined by $0.5 million (114.5%) to $(1.0) million for the six months ended November 23, 2024[346] Business Reorganization and Strategic Focus - The company reorganized its business into three core engagement models: On-Demand Talent, Consulting, and Outsourced Services, aiming to reduce market confusion and enhance client engagement[253][254] - The company's fiscal 2025 strategic focus areas include evolving business segments, launching a new brand identity, and enhancing digital and AI capabilities[297][299] - The company's consulting business, Veracity by RGP, is focused on digital transformation, combining digital expertise with legacy Project Consulting Services to offer integrated solutions[280] - The company is enhancing its digital and AI capabilities, focusing on areas such as technology migration, cybersecurity, and data modernization to meet evolving client needs[280] Share Issuance and Compensation Costs - The company issued 229,341 shares of common stock under the ESPP during the six months ended November 23, 2024, compared to 198,150 shares in the same period in 2023[261] - The company has $0.5 million of total unrecognized compensation costs related to unvested liability-classified RSUs, expected to be recognized over a weighted-average period of 1.65 years[263] - The company's PSUs allow for vesting of shares ranging from zero to 150% of the target number based on revenue and Adjusted EBITDA performance over a three-year period[264] Acquisitions and Capital Expenditures - The company acquired Reference Point LLC for $23.0 million (net of $0.2 million cash acquired) on July 1, 2024, adding technology and data modernization offerings for financial services clients[300][321] - The company capitalized $20.1 million related to its technology platform initiative as of November 23, 2024, with non-cancellable purchase obligations totaling $8.0 million for future licensing payments[320] Cash Flow and Financial Position - Operating activities provided $1.5 million in cash for the first six months of FY2025, driven by $80.3 million in non-cash adjustments (primarily goodwill impairment), offset by a $74.4 million net loss and unfavorable changes in operating assets and liabilities[325] - The company has $173.5 million remaining capacity under its Credit Facility as of November 23, 2024, with no debt outstanding[318] - Cash and cash equivalents as of November 23, 2024, were $78.2 million, with $42.1 million held in international operations[328][347] - The company has a $175.0 million senior secured revolving credit facility, with an option to increase by an additional $75.0 million[349] - Net cash used in investing activities for the first six months of fiscal 2025 was $12.7 million, primarily due to $23.0 million spent on the acquisition of Reference Point and $2.0 million for internal-use software and property development, offset by $12.3 million from the sale of the Irvine office building[358] - Net cash used in financing activities totaled $17.4 million in the first six months of fiscal 2025, compared to $11.2 million in the same period of fiscal 2024[359] Dividends and Share Repurchases - A dividend of $0.14 per share was paid on December 16, 2024, to stockholders of record as of November 15, 2024[352] - The company purchased 598,031 shares at an average price of $8.36 per share between September 22, 2024, and October 19, 2024, as part of publicly announced plans[368] Macroeconomic and Market Risks - The company expects macroeconomic uncertainty, including interest rate ambiguity, softening labor markets, and currency fluctuations, to continue through FY2025, potentially impacting billable hours and bill rates[301] - Approximately 18.2% of the company's revenues for the six months ended November 23, 2024, were generated outside the U.S., exposing the company to foreign currency exchange rate risk[361] Debt and Credit Facility - The company had no debt outstanding under the Credit Agreement as of November 23, 2024, following an amendment to exclude goodwill impairments from the consolidated interest coverage ratio[369] - The company may seek additional capital resources beyond the next 12 months through equity sales, increased use of the Credit Facility, or debt financing[355] Net Income and Non-Cash Adjustments - Net income for the first six months of fiscal 2024 was $8.0 million, with non-cash adjustments of $8.6 million and unfavorable changes in operating assets and liabilities totaling $18.4 million[357]

Financial Performance - Revenue for Q2 fiscal 2025 was $145.6 million, a decline of 10.7% from $163.1 million in Q2 fiscal 2024[2] - Net loss was $68.7 million, resulting in a net loss margin of 47.2%, compared to a net income of $4.9 million (3.0% margin) in the prior year quarter[5] - Adjusted EBITDA was $9.7 million, with an Adjusted EBITDA margin of 6.6%, down from $16.1 million (9.8% margin) in the prior year[2] - Gross profit for the six months ended November 23, 2024, was $106,073, down 18.7% from $130,477 for the same period in 2023[25] - The net loss for the three months ended November 25, 2023, was $68,715, compared to a net income of $4,895 for the same period in the previous year[45] - For the six months ended November 25, 2023, the company reported a net loss of $74,422,000, a decrease of 26.3% compared to a net income of $8,012,000 in the same period last year[66] - Adjusted EBITDA for the six months ended November 25, 2023, was $11,976,000, representing 4.2% of revenue, compared to $27,607,000 or 8.3% of revenue in the prior year[66] Segment Performance - Consulting segment revenue increased by $1.6 million (2.7%) to $60.6 million, driven by a 6.2% increase in average bill rate[6] - On-Demand Talent segment revenue declined by $17.5 million (24.7%) to $53.5 million, primarily due to a 21.7% decrease in billable hours[14] - Europe and Asia Pacific segment revenue decreased by $2.1 million (9.6%) to $19.7 million, with billable hours down by 5.3%[15] - On-Demand Talent segment revenue for the three months ended November 23, 2024, was $53,452, a decrease of 24.8% from $70,949 in the same period last year[32] - Consulting segment revenue for the six months ended November 23, 2024, was $115,668, slightly down from $115,903 for the same period in 2023[32] Expenses and Margins - SG&A expenses were $51.3 million, or 35.2% of revenue, improved from $53.0 million (32.5% of revenue) in the prior year[12] - Gross margin was 38.5%, slightly down from 38.9% in the prior year, attributed to higher pay/bill ratios and lower utilization[11] Cash and Assets - Cash and cash equivalents plus borrowings available were $251.7 million, compared to $269.4 million in the prior year, with zero debt[2] - Total assets decreased to $424,873,000 as of November 23, 2024, down from $510,914,000 as of May 25, 2024[80] - The company’s total stockholders' equity decreased to $325,677,000 as of November 23, 2024, compared to $418,763,000 as of May 25, 2024[80] Goodwill and Impairments - Goodwill impairment charge for the three months ended November 23, 2024, was $79,482, with no impairment recorded in the same period of 2023[25] - The Company experienced a goodwill impairment of $79,482 during the reporting period[45] - The company recognized goodwill impairment charges of $79,482,000 during the three months ended November 25, 2023, which accounted for 54.6% of revenue[64] Future Outlook - The company expressed cautious optimism for a stronger demand environment in the upcoming calendar year based on pipeline activities[2] - The Company served 88% of the Fortune 100 as of August 2024, indicating strong market presence[52] Restructuring and Changes - The company initiated a U.S. restructuring plan in October 2023, which was substantially completed during fiscal 2024[41] - The Company acquired Reference Point LLC on July 1, 2024, which is included in the Consulting segment[43] Shareholder Information - Cash dividends declared per common share remained stable at $0.14 for both the three months ended November 23, 2024, and November 25, 2023[25] - The company reported a weighted-average number of diluted shares outstanding of 33,901 for the three months ended November 23, 2024[25] Headcount and Rates - Consultant headcount at the end of the period was 2,639, down from 3,167 in the previous year[74] - The average bill rate for On-Demand Talent was $140 for November 2024, consistent with previous months[47] - The average bill rate increased to $123 for the six months ended November 23, 2024, compared to $122 for the same period last year[74]

Earnings ESP and Zacks Rank Analysis - The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate, with the Most Accurate Estimate being a more recent version of the consensus EPS estimate [1] - A positive Earnings ESP is a strong predictor of an earnings beat, especially when combined with a Zacks Rank of 1 (Strong Buy), 2 (Buy), or 3 (Hold), with stocks in this combination producing a positive surprise nearly 70% of the time [3] - A negative Earnings ESP reading does not necessarily indicate an earnings miss, but it is difficult to predict an earnings beat with confidence for stocks with negative Earnings ESP readings or Zacks Rank of 4 (Sell) or 5 (Strong Sell) [6] Resources Connection Earnings Outlook - Resources Connection is expected to post break-even quarterly earnings per share, representing a year-over-year change of -100% [4] - The Most Accurate Estimate for Resources Connection is higher than the Zacks Consensus Estimate, suggesting analysts have recently become bullish on the company's earnings prospects, resulting in an Earnings ESP of +200% [10][22] - The consensus EPS estimate for the quarter has been revised 42.22% lower over the last 30 days, reflecting how analysts have collectively reassessed their initial estimates [20] Revenue and Historical Performance - Revenues for Resources Connection are expected to be $136.63 million, down 16.2% from the year-ago quarter [14] - Over the last four quarters, the company has beaten consensus EPS estimates three times [28] - For the last reported quarter, Resources Connection was expected to post earnings of $0.04 per share but actually produced break-even earnings, delivering a surprise of -100% [23] Market Expectations and Stock Movement - The market expects Resources Connection to deliver a year-over-year decline in earnings on lower revenues for the quarter ended November 2024 [13] - The stock might move higher if key numbers top expectations in the upcoming earnings report, expected to be released on January 2, but could move lower if they miss [9] - While an earnings beat or miss may not be the sole basis for stock movement, unforeseen catalysts can help stocks gain despite an earnings miss [18]

Company Performance - Resources Connection Inc (NASDAQ: RGP) has experienced declining revenue and a significant drop in stock performance over the past few years [1] - The company faces intense competition from gig platforms such as Upwork and Fiverr, which are impacting its market share [1] - The rise of AI technology is further challenging the company by automating tasks traditionally handled by its services [1] Industry and Market Focus - Grassroots Trading focuses on providing objective, unbiased, and data-driven research, particularly for small- to mid-cap companies [1] - The platform aims to highlight investment opportunities in these often-overlooked segments of the market [1] - Grassroots Trading also periodically identifies potential opportunities in large- and mega-cap companies to offer comprehensive coverage of the equity markets [1]

Business Segment Reorganization and Financial Recast - The company reorganized its business segments in Q1 fiscal 2025, resulting in new reportable segments: On-Demand Talent, Consulting, Outsourced Services, Europe and Asia Pacific, and All Other[4] - Recast segment revenue, adjusted EBITDA, and average bill rate for fiscal 2024 quarters are included in the investor presentation and Exhibit 99.1 to assist in reviewing fiscal 2025 financial results[6] - The recast of financial information does not affect the company's reported net income, earnings per share, total assets, or stockholders' equity for any previously reported periods[6] - The investor relations presentation with recasted financial information was posted on October 3, 2024, on the company's investor relations website[6] - The recast financial information is not considered a restatement of previously issued financial statements[6] Company Information and Stock Details - The company's common stock is registered on the Nasdaq Global Select Market under the symbol RGP[1] - The company's principal executive offices are located at 17101 Armstrong Avenue, Irvine, California, 92614[2] - The company's telephone number is (714) 430-6400[2] Regulatory and Compliance Information - The company is not classified as an emerging growth company[3] - The information in Item 2.02 and Exhibit 99.1 is not deemed "filed" under Section 18 of the Securities Exchange Act of 1934[7]

Business Segments and Strategy - For the three months ended August 24, 2024, the company reported a significant focus on evolving its business segments, specifically On-Demand Talent, Consulting, and Outsourced Services [103]. - The company acquired Reference Point LLC on July 1, 2024, which is now included in the Consulting Services operating segment [104]. - The company aims to enhance its digital and AI capabilities, responding to increased client needs in technology migration, cybersecurity, and data modernization [109]. - The company is implementing a new brand identity to clarify its service offerings and enhance stakeholder understanding of its capabilities [109]. - The company is focused on driving long-term growth by refining its operating model and aligning incentives to business performance [102]. - The company expects to leverage its consulting capabilities to better align with client transformation agendas, enhancing financial flexibility [106]. - The company emphasizes the importance of a flexible workforce to execute transformational projects amid economic uncertainty [101]. - The company has reorganized its business into five reportable segments to better serve clients and reduce market confusion [103]. Financial Performance - Total consolidated revenue decreased by $33.2 million, or 19.5%, to $136.9 million for the three months ended August 24, 2024, compared to $170.2 million for the same period in 2023 [127]. - Direct cost of services decreased by $16.2 million, or 15.7%, to $86.9 million, resulting in a direct cost of services as a percentage of revenue of 63.5% for the first quarter of fiscal 2025 [128][129]. - Gross profit for the first quarter of fiscal 2025 was $49.99 million, representing 36.5% of revenue, down from 39.4% in the prior year [126]. - Selling, general and administrative expenses (SG&A) were $48.9 million, or 35.7% of revenue, compared to $59.9 million, or 35.2% of revenue, in the prior year [132]. - The company recorded a goodwill impairment charge of $3.9 million in the Europe and Asia Pacific segment during the first quarter of fiscal 2025 [133]. - Net loss for the first quarter of fiscal 2025 was $5.7 million, or (4.2%) of revenue, compared to a net income of $3.1 million, or 1.8% of revenue, in the prior year [126]. - Average billable hours decreased by 15.3%, and the average bill rate declined by 5.0% compared to the prior year quarter [127]. - The number of consultants on assignment decreased to 2,570 from 2,885 year-over-year [131]. Tax and Cash Flow - The effective tax rate for the first quarter of fiscal 2025 was (22.7%), reflecting a tax expense of $1.1 million against a pretax loss [134]. - The company recognized a tax benefit of approximately $0.5 million for the three months ended August 24, 2024, compared to $0.2 million for the same period in 2023 [135]. - Cash used in operating activities for Q1 fiscal 2025 was $0.3 million, compared to $2.2 million for Q1 fiscal 2024, driven by a net loss of $5.7 million [165]. - The company generated negative cash flow from operations during the three months ended August 24, 2024, but has historically generated positive cash flows from operations [154]. Revenue by Segment - Revenue in the On-Demand Talent segment declined by $25.5 million or 32.7%, to $52.5 million compared to $78.0 million in the prior year quarter [145]. - Consulting segment revenue decreased by $1.8 million or 3.2%, to $55.0 million compared to $56.8 million in the prior year quarter [146]. - Revenue in the Europe and Asia Pacific segment declined by $5.3 million or 22.7%, to $18.0 million compared to $23.3 million in the prior year quarter [147]. - Adjusted EBITDA for the On-Demand Talent segment decreased by $6.0 million or 70.1%, to $2.6 million for the first quarter of fiscal 2025 [149]. - The Consulting segment's Adjusted EBITDA decreased by $0.8 million or 9.1%, to $7.8 million for the first quarter of fiscal 2025 [150]. - The Europe & Asia Pacific segment's Adjusted EBITDA decreased by $1.5 million or 86.7%, to $0.2 million for the first quarter of fiscal 2025 [151]. Investments and Liquidity - The company had $89.6 million of cash and cash equivalents as of August 24, 2024, including $44.9 million held in international operations [154]. - The company has a $175.0 million senior secured revolving credit facility, with $173.5 million remaining capacity as of August 24, 2024 [156]. - The company expects to meet its long-term liquidity needs through cash flows from operations and financing arrangements [163]. - As of August 24, 2024, the company capitalized $18.1 million related to its technology platform initiative and recorded $1.9 million in expenses for Q1 fiscal 2025 [158]. - The estimated remaining investments for the technology platform initiative range from $11.0 million to $16.0 million, with the majority expected in fiscal 2025 [158]. - The company has non-cancellable purchase obligations totaling $11.1 million, primarily related to licensing arrangements for the technology platform initiative [160]. - An initial cash consideration of $23.0 million was paid for the acquisition of Reference Point LLC, net of $0.2 million cash acquired [161]. - Net cash used in investing activities was $10.9 million for Q1 fiscal 2025, primarily due to the acquisition of Reference Point, partially offset by $12.3 million from the sale of the Irvine office building [168]. - Net cash used in financing activities totaled $7.7 million in Q1 fiscal 2025, including $5.0 million for share repurchases and $4.7 million in cash dividends [169]. Foreign Exposure - Approximately 18.3% of the company's revenues for the three months ended August 24, 2024, were generated outside of the U.S., exposing it to foreign currency exchange rate risks [172]. - As of August 24, 2024, the company had approximately $89.6 million in cash and cash equivalents, with no outstanding debt under its Credit Facility [170][171].

Core Insights - Resources Connection's recent quarterly earnings report revealed a significant decline in both revenue and profitability, leading to a nearly 12% drop in share price, contrasting with the flat performance of the S&P 500 index [1][2] - The company reported first-quarter fiscal 2025 revenue of approximately $137 million, a nearly 20% decrease year-over-year, and a net loss of over $5.7 million compared to a profit of $3.1 million in the same quarter last year [3][4] - The decline in revenue was primarily attributed to a 33% drop in its on-demand talent segment, which experienced a more than 30% decrease in billable hours, causing it to fall behind consulting activities in revenue generation [5] Company Performance - Resources Connection's core fundamentals fell short of analyst expectations, with projected revenue of slightly over $146 million and adjusted net income of $0.02 per share [5] - Management expressed optimism regarding a recently implemented restructuring program aimed at better aligning business segments with internal management and financial reporting, indicating a need to demonstrate effectiveness in driving growth [6]

Group 1 - Resources Connection (RGP) reported break-even quarterly earnings per share, missing the Zacks Consensus Estimate of $0.04, and compared to earnings of $0.20 per share a year ago, representing an earnings surprise of -100% [1] - The company posted revenues of $136.94 million for the quarter ended August 2024, missing the Zacks Consensus Estimate by 0.63%, and down from year-ago revenues of $170.17 million [2] - Resources Connection shares have lost about 31.6% since the beginning of the year, while the S&P 500 has gained 20.8% [3] Group 2 - The current consensus EPS estimate for the coming quarter is $0.10 on $141.76 million in revenues, and $0.80 on $607.26 million in revenues for the current fiscal year [7] - The Zacks Industry Rank indicates that the Staffing Firms industry is currently in the bottom 41% of over 250 Zacks industries, suggesting potential underperformance compared to the top 50% [8]