Executive Summary / Key Takeaways

• Resources Connection, Inc. (RGP) is undergoing a significant strategic transformation, shifting from a traditional professional staffing model to a diversified platform offering on-demand talent, consulting, and outsourced services, primarily focused on CFO advisory and digital transformation.
• The company's Q1 Fiscal Year 2026 results exceeded expectations, demonstrating improved gross margins (39.5% from 36.5% year-over-year) and reduced Selling, General, and Administrative (SGA) expenses, contributing to enhanced profitability despite a revenue decline.
• RGP leverages a modern technology platform, including Workday Financials and Salesforce , to drive operational efficiency, accelerate market speed, and enhance its AI and automation capabilities across service delivery and back-office functions.
• The company maintains a robust balance sheet with $77.5 million in cash and no outstanding debt, supported by a new $50 million revolving credit facility, enabling a balanced capital allocation strategy that includes dividends and opportunistic share repurchases.
• While macroeconomic uncertainties persist, RGP's strategic focus on higher-value engagements, value-based pricing, and disciplined cost management, coupled with growth in its Europe Asia Pacific and Outsourced Services segments, positions it for a return to consolidated growth and stronger profitability as market conditions improve.

RGP's Strategic Pivot in a Dynamic Professional Services Landscape

Resources Connection, Inc. (RGP), operating as Resources Global Professionals, has evolved from its 1998 founding as a global professional services firm into a diversified platform designed to meet the complex needs of CFOs and other C-suite leaders. The company's core business now spans On-Demand Talent, Consulting, and Outsourced Services, strategically positioned across North America, Europe, and Asia Pacific. This evolution is a direct response to a marketplace increasingly favoring flexibility and agility amidst transformation pressures and skilled labor shortages.

RGP's strategic journey has been marked by significant initiatives aimed at enhancing its service offerings and operational efficiency. A pivotal moment occurred on July 1, 2024, with the acquisition of Reference Point LLC, a specialized strategy, management, and technology consulting firm for the financial services sector. This acquisition, which added $6.9 million in goodwill primarily from expected synergies and an assembled workforce, bolstered RGP's capabilities in areas like risk and regulatory compliance, digital technology, and data analytics. Concurrent with this, RGP reorganized its business into distinct segments—On-Demand Talent, Consulting, Europe Asia Pacific, Outsourced Services, and All Other (Sitrick)—to establish more targeted strategies and enhance execution focus. The company also proactively addressed its cost structure, initiating a global reduction in its management and administrative workforce on September 30, 2025, anticipating approximately $2.1 million in charges in Q2 Fiscal Year 2026 for one-time employee termination benefits aimed at enhancing efficiencies.

Technological Edge and Innovation

A cornerstone of RGP's transformation is its investment in a modern technology platform. The company achieved a major milestone by implementing Workday (WDAY) Financials and Workday Professional Services Automation Module in North America, while optimizing Workday HCM and its Salesforce (CRM) platform. This advanced technology now underpins 75% of RGP's business operations, enabling increased use of artificial intelligence (AI) and automation in both service delivery and back-office functions. The tangible benefits of this technological differentiation are clear: these new tools are expected to drive greater efficiency in processes and accelerate speed to market across the enterprise. Furthermore, this modernization is highly beneficial for increasing the use of global teams to deliver services, particularly in finance and accounting, risk and compliance, and digital transformation practices.

RGP is actively advancing its AI strategy to support its expanding client base with scalable technology-enabled solutions. This includes enhancing internal tools, evolving its go-to-market approach, and exploring new delivery models such as AI-enabled accounting agents and innovative pricing structures. For investors, this technological roadmap signifies RGP's commitment to building a competitive moat through operational excellence, improved cost leverage, and the ability to offer cutting-edge solutions that enhance client value and drive long-term growth.

Competitive Positioning

RGP operates in a highly competitive professional services market, facing off against larger, more established players like Accenture plc , Cognizant Technology Solutions Corporation (CTSH), and IBM Corporation , as well as indirect competitors such as in-house corporate teams and freelance platforms. RGP differentiates itself through an agile, client-centric model that deploys highly experienced, mid-to-senior level practitioners with 10 to 20-plus years of industry experience. Unlike the "Big 4" and large consultancies that often deploy large, layered teams with heavy overhead and rigid methodologies, RGP provides skilled analytical consultants who can integrate quickly into client teams for rapid execution and results. This approach is more cost-effective than traditional large consultancies, offering clients greater control over costs and outcomes.

While larger competitors like Accenture (ACN) and IBM (IBM) possess greater scale, broader global reach, and often faster innovation cycles due to extensive R&D, RGP's specialized focus on CFO advisory and digital transformation, coupled with its diversified services model, allows it to excel in targeted segments. For instance, RGP's global delivery centers in India and Asia Pacific enable it to access outstanding global talent efficiently, a strategic advantage given shifts in U.S. H-1B availability and cost models. RGP's focus on value-based pricing, particularly in its Consulting segment, aims to command higher bill rates for larger-scale, higher-value engagements, directly challenging the traditional consulting model. The company's ability to cross-sell its integrated offerings across on-demand, consulting, and outsourced services further strengthens client relationships and wallet share, positioning it as a long-term, trusted partner.

Financial Performance and Operational Details

RGP's first quarter of fiscal 2026 (ended August 30, 2025) showcased resilience despite a challenging macroeconomic backdrop. Revenue decreased by 12.2% year-over-year to $120.2 million, or 13.9% on a same-day constant currency basis. This decline was primarily due to a 14.3% decrease in billable hours, reflecting client delays in transformation projects amid global economic uncertainty. However, average bill rates increased by 2.2% year-over-year, indicating progress in RGP's value-based pricing strategy and a shift towards higher-value projects.

Profitability metrics demonstrated significant improvement. Gross profit margin rose to 39.5% in Q1 FY26 from 36.5% in Q1 FY25. This expansion was driven by an improved pay-bill ratio and lower consultant costs, including reductions in medical insurance, employer payroll taxes, and paid time off. Cost of services as a percentage of revenue decreased to 60.5% from 63.5% in the prior year. Selling, General, and Administrative (SGA) expenses decreased by $1 million year-over-year to $47.9 million, primarily due to a $2.4 million reduction in employee compensation and benefits, a $1.9 million decrease in technology transformation costs, and other operational efficiencies. These reductions were partially offset by the absence of a $3.4 million gain from an asset sale in the prior year. The company reported a net loss of $2.4 million for the quarter, compared to a net loss of $5.7 million in the prior year. No goodwill impairment was recorded in Q1 FY26, a positive shift from the $3.9 million charge in Q1 FY25.

Segment-wise, Europe Asia Pacific revenue grew 10.6% year-over-year to $19.9 million, with Adjusted EBITDA surging 268.7% to $0.8 million, driven by increased billable hours and higher average bill rates. Outsourced Services revenue increased 5.3% to $10 million, with Adjusted EBITDA up 67.1% to $2.3 million, reflecting strong gross margin expansion. The On-Demand Talent segment saw Adjusted EBITDA increase 72.8% to $4.4 million despite a 15.3% revenue decline, due to significant cost reduction efforts. The Consulting segment's revenue declined 20.7% to $43.6 million, and Adjusted EBITDA decreased 34.9% to $5 million, primarily due to lower billable hours, though average bill rates improved by 11.1%.

Liquidity and Capital Resources

RGP maintains a strong financial position, with $77.5 million in cash and cash equivalents as of August 30, 2025, of which $41.3 million is held internationally. The company has no outstanding debt under its new 2025 Credit Facility, which provides a secured revolving loan up to $50 million and an option for an additional $15 million, maturing on November 30, 2029. As of the latest reporting, RGP had $49.3 million of remaining capacity under this facility.

Operating activities used $7.8 million in cash during Q1 FY26, primarily due to a $15.8 million decrease in accrued bonuses, salaries, and related obligations. The company continues its practice of returning capital to shareholders, having approved a regular quarterly dividend of $0.07 per share, paid on September 26, 2025. Approximately $79.2 million remains available under its stock repurchase programs. Management believes its current cash, ongoing cash flows, and available credit facility will be sufficient to meet liquidity needs for at least the next 12 months.

Outlook and Risks

For the second quarter of fiscal 2026, RGP projects revenue between $115 million and $120 million. Gross margin is expected to be in the range of 38% to 39%, with run rate SGA expenses anticipated between $43 million and $45 million, reflecting ongoing cost reduction benefits. Non-run rate and non-cash expenses are estimated at approximately $5 million, including about $2 million in restructuring costs. Management expects to realize $6 million to $8 million in annual cost savings from its recent reduction in force.

The outlook is underpinned by an expectation of continued revenue stability and momentum in the sales pipeline, particularly in CFO advisory and digital transformation. However, RGP acknowledges persistent macroeconomic uncertainties, including ambiguity around interest rates, softening labor markets, and potential impacts from government policy changes and trade wars. These factors contribute to a "choppy demand environment" and elongated sales cycles for larger projects, posing a risk to near-term revenue conversion. The company's effective tax rate may also fluctuate due to changes in valuation allowances or tax laws.

Conclusion

RGP is executing a deliberate and comprehensive strategic transformation, repositioning itself as a diversified professional services firm focused on high-value CFO advisory and digital transformation. The company's Q1 Fiscal Year 2026 results underscore the early successes of this pivot, with notable improvements in gross margins and cost structure, even as revenue reflects a challenging demand environment. RGP's investment in a modern technology platform and its commitment to AI and automation are foundational to its long-term competitive advantage, enabling greater efficiency and differentiated service delivery.

While macroeconomic headwinds and elongated sales cycles present near-term challenges, RGP's strong balance sheet, disciplined capital allocation, and growing momentum in key segments like Europe Asia Pacific and Outsourced Services provide a resilient foundation. The company's unique model, emphasizing experienced talent and flexible engagement, offers a compelling alternative to traditional consultancies. As RGP continues to refine its strategy and operational execution, its ability to convert a growing pipeline of larger, higher-margin opportunities, coupled with ongoing cost discipline, positions it for a return to consolidated growth and enhanced profitability, making it a compelling consideration for discerning investors seeking exposure to the evolving professional services landscape.