Executive Summary / Key Takeaways

• Strategic Transformation Underway: RGP is actively evolving from a traditional staffing model to a diversified professional services firm, offering On-Demand Talent, Consulting (Veracity), and Outsourced Services (Countsy) under a unified brand, aiming for resilience and deeper client engagement.
• Technology and AI as Core Enablers: Significant investments in a new technology platform (Workday (WDAY), Salesforce (CRM)) and AI-powered tools are streamlining operations, enhancing service delivery, and improving talent acquisition, positioning RGP for future efficiency and competitive advantage.
• Shifting Client Demand and Pipeline Quality: Despite current macroeconomic uncertainties causing project delays, RGP is seeing a qualitative improvement in its pipeline, with a growing volume of larger, higher-value consulting engagements, particularly in digital transformation and CFO advisory services.
• Financial Discipline Amidst Headwinds: While recent performance reflects market softness and goodwill impairments, RGP maintains a pristine balance sheet with no outstanding debt, a strong cash position, and a commitment to balanced capital allocation, including a sustainable dividend and opportunistic share buybacks.
• Competitive Differentiation through Agility: RGP's unique model, combining experienced talent with flexible engagement structures, allows it to compete effectively against larger, more traditional firms by offering faster, more tailored, and value-based execution support, particularly appealing to CFOs seeking operational rigor and strategic influence.

The Evolving Landscape of Professional Services

The professional services industry is undergoing a profound transformation, driven by a confluence of factors: a permanent marketplace shift towards flexible workforce solutions, increasing competitive pressures, and the accelerating adoption of digital technologies and artificial intelligence. Organizations are increasingly reducing permanent professional personnel positions, opting instead to engage agile talent for project initiatives and transformation work. This trend is underscored by research indicating that 76% of companies are embracing contingent labor and flexible pay models to remain competitive and access specialized skill sets.

At the heart of this evolution is the changing role of the Chief Financial Officer (CFO). No longer confined to financial stewardship, the CFO's influence has expanded to enterprise leadership, with 70% of surveyed CFOs reporting increased sway over strategic and technology decisions. They are now key collaborators with CIOs and CHROs on people strategy, digital initiatives, and company-wide transformation. This rapidly evolving landscape, characterized by a shift from back-office efficiency to enterprise-level strategic influence, presents a delicate balance between growth initiatives and operational rigor, and a growing role as technology champions. This is precisely the environment in which Resources Connection, Inc. (NASDAQ:RGP) is forging a new path.

RGP's Differentiated Model and Technological Edge

RGP positions itself as a "next-generation human capital partner" and a "challenger brand," designed to break away from the rigid structures of traditional professional services firms. Its unique model combines On-Demand Talent with expert consulting and advisory services to drive transformation from strategy through execution. This approach is built on a "co-delivery ethos," partnering with clients on project execution, a niche RGP created and uniquely provides. The company's value proposition rests on its diversified and relevant solution offerings, highly qualified consultants, a relationship-oriented approach, and a flexible delivery model that includes agile, bench, and offshore capabilities.

A critical differentiator for RGP is its strategic investment in technology and AI. The company recently achieved a major milestone by implementing a new technology platform in North America, now running 75% of its business on Workday Financials, Workday Professional Services Automation Module, and optimized Workday HCM, alongside its Salesforce platform. This modernization is not merely an upgrade; these new tools are designed to drive greater efficiency in processes and accelerate speed to market across the enterprise. Crucially, they enable increased use of artificial intelligence and automation in both service delivery and back-office operations. For instance, new AI-powered talent acquisition and management software is being leveraged to drive faster speed to market and close, allowing RGP to scale more rapidly with access to industry expertise. The Outsourced Services segment, Countsy, is also introducing more AI tools to accelerate client acquisition and service capacity with better cost leverage. This technological foundation is particularly beneficial as RGP increases its use of global teams to deliver services in finance and accounting, risk and compliance, and digital transformation practices. The successful go-live of this platform in December 2024 was a testament to RGP's execution capabilities, with management reporting a very smooth implementation.

Competitive Landscape and Strategic Positioning

RGP operates in an extremely competitive and highly fragmented market, vying for clients and consultants with a diverse set of organizations. Its principal competitors include large global consulting firms like Accenture plc (ACN) and IBM Corporation (IBM), IT services firms such as Cognizant Technology Solutions Corporation (CTSH), and specialized advisory firms like FTI Consulting, Inc. (FCN). These larger competitors often possess significantly greater financial resources, higher revenues, and broader name recognition. For example, Accenture, a global leader, reported revenue of approximately $64.1 billion in 2024, with gross margins around 30-32% and operating margins of 15-17%. IBM's Consulting segment, while part of a larger entity, also boasts higher gross margins (50-55%) due to proprietary technologies like Watson AI, which enable greater efficiency.

RGP's competitive strategy is not to out-scale these giants, but to out-flex and out-specialize them. While RGP's overall market share is in the 1-2% range, its growth trajectory (3-5% YoY in recent periods) is in line with or slightly ahead of some larger peers in niche areas. RGP's gross profit margin of 37.6% (TTM) is competitive with some larger firms like Accenture (33%), but its operating profit margin of -35.7% (TTM) and EBITDA margin of -27.5% (TTM) reflect the impact of recent goodwill impairment charges and ongoing investments in its transformation. In contrast, Accenture's operating margin is around 15% and Cognizant's is 15%. This highlights RGP's current financial underperformance relative to its larger, more established peers, which can expose it to pricing pressures.

However, RGP differentiates itself by focusing on "impact-driven engagements" and "agile teams that can collaborate together with their own people." Its business model of utilizing experienced talent to "flatten the traditional consulting delivery pyramid" is highly sought after. Clients increasingly seek high-quality, flexible, value-based execution support, a niche RGP uniquely provides. The company's strategic alliances, such as with Kotter International for change management, offer qualitatively more tailored transformation services compared to the tech-centric approaches of IBM. RGP's U.S.-based expertise also appeals to clients needing localized compliance, though it trails in market share capture. The ability to deliver local talent while scaling teams with global delivery centers in India and the Philippines remains a powerful differentiator, allowing RGP to offer competitive rates while enhancing gross margins.

Strategic Evolution and Operational Performance

RGP's recent history is defined by a deliberate strategic evolution. Following its incorporation in 1998, the company organically diversified its offerings from core accounting and finance to areas like digital transformation, risk and compliance, and supply chain management. This foundational diversification paved the way for its recent, more aggressive strategic shifts. In the first quarter of fiscal year 2025, RGP underwent a major internal reorganization, establishing distinct operating segments: On-Demand Talent, Consulting (Veracity), and Outsourced Services (Countsy), alongside a combined Europe & Asia Pacific segment. This reorganization was accompanied by a comprehensive brand refresh, clarifying its capabilities and competitive advantages.

The company's strategic initiatives are designed to unlock growth and cross-sell opportunities. The acquisition of CloudGo in November 2023 expanded RGP's ServiceNow capabilities and Asia Pacific footprint, while the July 2024 acquisition of Reference Point LLC bolstered its strategy, risk, regulatory, and technology transformation services for financial institutions. These acquisitions contributed $6.5 million and $16.1 million to fiscal 2025 revenue, respectively, and are integral to deepening RGP's consulting capabilities. Management emphasizes that these moves enable RGP to engage in earlier-stage discussions with clients, particularly around business and digital transformation, leading to larger engagements. For instance, the company has secured multiple new opportunities exceeding $1 million, and its pipeline of $5 million-plus projects has grown significantly, a magnitude of opportunity not seen a year ago.

Financially, fiscal year 2025 presented a mixed picture. Total revenue decreased by 12.9% to $551.3 million, primarily due to reduced client spending amidst macroeconomic uncertainty and softening labor markets. This decline was reflected across segments, with On-Demand Talent revenue down 24.4% to $206.0 million and Consulting revenue down 3.8% to $219.2 million. However, the Outsourced Services segment (Countsy) showed resilience, increasing revenue by 3.9% to $39.6 million, and Europe & Asia Pacific, despite an annual decline of 7.8%, demonstrated sequential recovery in Q4. Gross margin remained strong at 37.6% for the full year, with Q4 achieving 40.2%, driven by a disciplined value-based pricing strategy and an improved enterprise average bill rate, which rose to $125 (constant currency) from $120 a year ago.

Operating expenses, particularly Selling, General and Administrative (SG&A), saw a decrease of $6.8 million year-over-year to $202.0 million, reflecting lower management compensation and cost reduction plans. However, the company recorded significant non-cash goodwill impairment charges totaling $194.4 million in fiscal 2025, primarily impacting the On-Demand Talent, Consulting, and Europe & Asia Pacific segments. This resulted in a net loss of $191.8 million for the year. The impairments reflect a combination of business performance and a decline in market capitalization, underscoring the challenging demand environment.

Liquidity, Capital Allocation, and Outlook

RGP maintains a robust financial position, characterized by a "pristine" balance sheet. As of May 31, 2025, the company held $86.1 million in cash and cash equivalents, with no outstanding debt. Its total available financial liquidity stood at $252 million at the end of Q2 FY25. On July 2, 2025, RGP entered into a new credit facility, providing a secured revolving loan of up to $50 million, replacing its previous $175 million facility. This new facility, maturing in November 2029, offers flexibility for working capital and general corporate purposes.

The company's capital allocation strategy is balanced, focusing on investing in the business to drive growth and returning cash to shareholders. RGP distributed $18.6 million in cash dividends in fiscal 2025 and repurchased approximately $13.0 million of common stock. As of May 31, 2025, $79.2 million remained available under its share repurchase programs. Management has expressed a bullish stance on increasing share buybacks now that its major technology transformation is complete, and anticipates a pickup of $5 million to $7 million in operating cash flow starting in fiscal 2026.

Looking ahead to Q1 fiscal year 2026, RGP anticipates revenue in the range of $115 million to $120 million. This outlook reflects typical summer seasonality, with consultants taking holidays, and additional softness due to delayed project starts, particularly in the U.S. Gross margin is expected to be in the range of 36% to 37%, in line with the prior year's first quarter, reflecting the impact of summer utilization. Run rate SG&A expense is projected between $46 million and $48 million. Management acknowledges that macro conditions remain "choppy," especially in the U.S., with sales cycles remaining "elongated" despite improving quality in the pipeline. However, they remain confident that their strategic focus on pipeline generation, expanding strategic accounts, and optimizing delivery will position them for a return to growth and stronger profitability as economic clarity emerges.

Conclusion

Resources Connection, Inc. is undergoing a significant strategic transformation, repositioning itself as an agile, diversified professional services firm capable of delivering high-value solutions across On-Demand Talent, Consulting, and Outsourced Services. This evolution, underpinned by substantial investments in advanced technology and AI, aims to enhance operational efficiency, deepen client relationships, and capture a larger share of the evolving professional services market. While the recent financial performance has been impacted by macroeconomic headwinds and non-cash goodwill impairments, the company's strong balance sheet, disciplined capital allocation, and focus on higher-value engagements provide a solid foundation.

The core investment thesis for RGP hinges on its ability to execute this strategic pivot successfully, leveraging its unique flexible model and technological differentiators to gain market share from more traditional competitors. Investors should monitor the company's progress in converting its growing pipeline of larger deals, the continued improvement in average bill rates and gross margins, and the realization of efficiencies from its new technology platform. As economic certainty improves and talent mobility increases, RGP's "challenger brand" approach and human-centered delivery model are poised to drive sustained growth and enhanced profitability, making it a compelling consideration for discerning investors seeking exposure to the future of professional services.