Resources Connection, Inc. (NASDAQ:RGP), a global professional services firm, has been on a transformative journey in recent years, evolving its operational model and brand architecture to better serve its clients' growing needs. With a focus on delivering agile, expert-driven solutions, RGP is positioning itself as a next-generation human capital partner capable of powering its clients' operational requirements and change initiatives.
Business Overview and History
Resources Connection, Inc. (RGP) was incorporated on November 16, 1998, with the goal of providing high-quality professional services to organizations across various industries. Initially established as a trusted provider of finance and accounting consulting services, RGP leveraged its team of experienced professionals to help clients navigate complex business challenges. The company steadily grew its client base and geographic footprint, expanding into new service areas such as risk advisory, information technology, and human resources.
A significant milestone for RGP came in 2004 when the company completed its initial public offering and began trading on the NASDAQ stock exchange. This provided additional capital to fund the company's growth strategy, which included both organic expansion and strategic acquisitions. Over the next decade, RGP made several acquisitions to bolster its capabilities and reach, including the additions of Sitrick and Company in 2014 and CloudGo in 2019.
Despite its growth, RGP has faced challenges over the years. In 2023, the company initiated a cost reduction plan that included a reduction in force, as it sought to align its cost structure with a more uncertain macroeconomic environment. The company also navigated the impact of the COVID-19 pandemic, which disrupted many of its clients' operations and led to a temporary decline in demand for RGP's services.
Through these ups and downs, RGP has remained committed to its mission of providing high-quality professional services and supporting the success of its clients. The company has built a global footprint with a presence in North America, Europe, and Asia Pacific, and continues to evolve its service offerings to meet the changing needs of the market.
In May 2024, the company underwent a significant reorganization, realigning its business into five distinct reportable segments: On-Demand Talent, Consulting, Europe Asia Pacific, Outsourced Services, and All Other. This strategic move was aimed at providing greater clarity and transparency to its clients, while also unlocking cross-selling opportunities across its expanded portfolio of capabilities.
The On-Demand Talent segment, operating under the "On-Demand by RGP" brand, offers businesses a go-to source for bringing in expert talent when needed, leveraging a pool of highly skilled professionals with diverse industry and functional expertise. The Consulting segment, operating under the "Veracity by RGP" brand, drives transformation across people, processes, and technology, addressing client needs in areas such as finance, technology and digital, risk and compliance, and supply chain. The Europe Asia Pacific segment offers both on-demand and consulting services to clients throughout Europe and Asia Pacific, excluding the digital consulting business. The Outsourced Services segment, known as "Countsy by RGP", provides finance, accounting, and human resources services to startups, spinouts, and scale-up enterprises. The All Other segment includes RGP's Sitrick operating segment, a crisis communications and public relations firm.
Financial Performance and Liquidity
RGP's financial performance has been mixed in recent years, reflecting the challenges faced by the broader professional services industry. In the fiscal year ended May 25, 2024, the company reported revenue of $632.8 million, a decline of 18.4% compared to the prior year. Net income for the same period stood at $21.0 million, with a net profit margin of 3.3%.
For the first quarter of fiscal 2025, RGP reported revenue of $136.94 million, representing a 19.5% year-over-year decline. This decline was primarily due to reduced client spending across markets, segments, and solutions. Billable hours decreased by 15.3%, and the average bill rate declined by 4.7% on a constant currency basis. The company reported a net loss of $5.71 million for the quarter.
Breaking down the Q1 2025 performance by segment:
- On-Demand Talent revenue declined 32.7% year-over-year to $52.5 million. - Consulting revenue decreased 3.2% year-over-year to $55.0 million. - Europe and Asia Pacific revenue declined 22.7% year-over-year to $18.0 million. - Outsourced Services revenue remained flat at $9.5 million. - All Other revenue declined 26.3% year-over-year to $2.0 million.
In terms of profitability, Adjusted EBITDA for Q1 2025 was $2.3 million, representing a 1.7% adjusted EBITDA margin. Segment-wise Adjusted EBITDA performance showed:
- On-Demand Talent Adjusted EBITDA decreased 70.1% to $2.6 million. - Consulting Adjusted EBITDA decreased 9.1% to $7.8 million. - Europe Asia Pacific Adjusted EBITDA decreased 86.7% to $0.2 million. - Outsourced Services Adjusted EBITDA declined slightly to $1.4 million. - All Other Adjusted EBITDA declined 757.7% to $0.5 million.
The company's liquidity position remains strong, with $89.62 million in cash and cash equivalents as of the end of Q1 2025. RGP maintains a $175 million senior secured revolving credit facility, with $173.50 million available, providing ample financial flexibility to fund its operations and strategic initiatives.
RGP's balance sheet shows a debt-to-equity ratio of 0.032, with total debt of $13.32 million against stockholders' equity of $418.76 million. The company's current ratio stands at 3.32, and its quick ratio is 2.74, indicating a strong short-term liquidity position.
For the second quarter of fiscal 2025, RGP projects revenue to be in the range of $135 million to $140 million, with a gross margin between 36% and 37%. The company expects Q2 2025 run rate SG&A expenses to be in the range of $48 million to $50 million, with additional non-run rate and non-cash expenses, primarily consisting of technology transformation costs and stock compensation expense, totaling approximately $4 million.
Operational Highlights and Challenges
During the first quarter of fiscal 2025, RGP faced significant headwinds due to the challenging macroeconomic environment. The company's On-Demand Talent segment was the most impacted, with clients becoming more cautious in their hiring decisions. The Europe and Asia Pacific segment also experienced substantial challenges, with clients delaying decision-making and project starts, especially in Europe.
However, the company's Consulting and Outsourced Services segments demonstrated greater resilience. RGP's management team has been focused on enhancing cross-selling opportunities across its business units, leveraging the company's expanded capabilities to capture a larger share of its clients' transformation and operational needs.
The company's recent acquisition of Reference Point, a strategy and management consulting firm focused on the financial services industry, has further strengthened its Consulting segment, providing access to new client verticals and specialized expertise. The acquisition was completed on July 1, 2024, and Reference Point is now reported within the Consulting Services operating segment.
Risks and Outlook
RGP's business model is susceptible to fluctuations in the broader economic environment, as client spending on professional services tends to be cyclical. The company's exposure to macroeconomic uncertainty, including concerns around interest rates and recessionary pressures, could continue to impact its financial performance in the near term.
Additionally, the highly competitive nature of the professional services industry poses a persistent challenge, as RGP competes with larger consulting firms, boutique providers, and the growing gig economy. The company's ability to attract and retain top talent is crucial to maintaining its competitive edge and delivering high-quality services to its clients.
Despite these headwinds, RGP remains optimistic about its long-term prospects. The company's strategic focus on building a diversified portfolio of services, enhancing its digital and technological capabilities, and strengthening its global delivery platform positions it well to capitalize on the growing demand for flexible, expert-driven solutions in the evolving business landscape.
Conclusion
RGP's transformation efforts, culminating in the reorganization of its business segments and the refreshment of its brand architecture, demonstrate the company's commitment to adapting to the changing needs of its clients. By positioning itself as a next-generation human capital partner, RGP is poised to navigate the challenges of the professional services industry and capture growth opportunities in the years ahead. While the company faces near-term headwinds due to the uncertain economic environment, its strong liquidity position and strategic initiatives provide a foundation for future growth and resilience in the competitive professional services market.