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RESOURCES CONNECTION, INC. (RGP)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY2025 delivered sequential improvement with revenue up 6.3% q/q to $145.6M, gross margin up 200 bps to 38.5%, and Adjusted EBITDA up to $9.7M, exceeding company outlook ranges; GAAP EPS was a loss of $(2.08) due to a $79.5M non-cash goodwill impairment in On-Demand Talent and Europe/APAC .
  • Consulting grew y/y and 10% sequentially (including Reference Point), supported by value-based pricing and higher utilization; On-Demand stabilized q/q; Europe/APAC improved 10% sequentially on better Europe and APAC trends .
  • Q3 FY2025 guidance: revenue $127–$132M, gross margin 34–35%, run-rate SG&A $46–$48M; holiday timing (Thanksgiving included in Q3) and mid-week Christmas/New Year expected to pressure billable hours; amortization of capitalized tech costs starts mid-Q3 (~$3M annual) .
  • Board increased buyback authorization; $82M remained at quarter-end after an additional $50M authorization; RGP repurchased $5M in Q2 and paid a $0.14 dividend; a fresh $0.14 dividend was declared on Jan 16, 2025 .

What Went Well and What Went Wrong

What Went Well

  • Sequential growth and margin improvement: “we delivered sequential revenue growth… improved our gross margin and Adjusted EBITDA significantly over the first quarter” (GM 38.5%; Adjusted EBITDA $9.7M, margin 6.6%) .
  • Consulting momentum and cross-sell: Consulting revenue up y/y to $60.6M (+10% q/q including Reference Point), with higher bill rates (+6.2%) and improving utilization; multiple $1M+ wins and pursuing $10M+ opportunities .
  • Technology platform go-live: Workday Financials/PSA live in North America, enabling increased AI and automation; 75% of business now on modern platform, expected to drive efficiency and speed-to-market .

What Went Wrong

  • GAAP loss from impairment: Net loss $(68.7)M, driven by a $79.5M non-cash goodwill impairment (On-Demand $57.8M; Europe/APAC $21.7M), reflecting reduced market cap and delayed recovery in those segments .
  • Demand still choppy and elongated sales cycles: Clients remain measured on transformation/interim needs; pipeline timelines are extended vs prior years; On-Demand revenue down 24.7% y/y to $53.5M on fewer billable hours and lower average bill rate .
  • Gross margin pressure y/y: GM fell 40 bps y/y to 38.5% on higher pay/bill and lower salaried consultant utilization, partially offset by Thanksgiving timing benefit not in Q2 FY2025 .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$148.2 $136.9 $145.6
Gross Margin %40.2% 36.5% 38.5%
Adjusted EBITDA ($USD Millions)$13.1 $2.3 $9.7
Adjusted EBITDA Margin %8.8% 1.7% 6.6%
Diluted EPS ($USD)$0.31 $(0.17) $(2.08)

Segment revenue breakdown

Segment ($USD Millions)Q2 2024Q1 2025Q2 2025
On-Demand Talent$70.9 $52.5 $53.5
Consulting$59.1 $55.0 $60.6
Europe & Asia Pacific$21.8 $18.0 $19.7
Outsourced Services$9.1 $9.5 $9.4
All Other$2.3 $2.0 $2.4
Total$163.1 $136.9 $145.6

KPIs and balance-sheet snapshots

KPIQ4 2024Q1 2025Q2 2025
Consolidated Average Bill Rate ($/hr)$120 $118 $123
Average Pay Rate ($/hr)$57 $57 $59
Consultant Headcount (end of period)2,585 2,570 2,639
Cash & Cash Equivalents ($USD Millions)$108.9 $89.6 $78.2
Dividend per Share ($)$0.14 $0.14 $0.14

Notes:

  • Q2 included a non-cash goodwill impairment of $79.5M leading to GAAP loss; Adjusted diluted EPS was $0.18 vs $0.28 y/y .
  • Referenced constant currency same-day revenue declined 13.2% y/y; sequential same-day constant currency improved to $143.8M vs $136.9M in Q1 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)Q2 2025$135–$140 (guided on Q1 call) Actual: $145.6 Beat vs guidance
Gross Margin %Q2 202536%–37% Actual: 38.5% Beat vs guidance
Run-rate SG&A ($USD Millions)Q2 2025$48–$50 Actual run-rate: $46.5 (reported on call); GAAP SG&A $51.3 Beat run-rate guide
Revenue ($USD Millions)Q3 2025—$127–$132 Initial guide (holiday impact)
Gross Margin %Q3 2025—34%–35% Initial guide (holiday impact)
Run-rate SG&A ($USD Millions)Q3 2025—$46–$48 Initial guide
Non-run-rate & non-cash expenses ($USD Millions)Q3 2025—~$6 (restructuring, stock comp, remaining tech) Initial guide
Amortization of capitalized tech costs ($USD Millions)Q3 2025 onward—~$3 annual; begins mid-Q3 New item
Dividend per share ($)Next payment—$0.14 declared; payable Mar 14, 2025; record Feb 14, 2025 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 and Q1 2025)Current Period (Q2 2025)Trend
AI/technology initiativesBuilding digital/data/AI capabilities; Reference Point acquisition; tech transformation progressing; Workday rollout planned Workday Financials/PSA live in NA; 75% of business on modern platform enabling AI/automation; efficiency and speed-to-market gains Strengthening execution; operational leverage increasing
Macro demand/choppinessSeasonality and elongated decision cycles; cautious optimism; pipeline softening then rebounding Demand choppy; post-election confidence helping; elongated timelines persist; same-day CC revenue -13.2% y/y but +5% q/q Stabilizing; sequential improvement but not linear
Consulting performanceVeracity best top-line in Q4; segment depth and bench leveraging On-Demand Consulting +2.7% y/y; +10.2% q/q including Reference Point; higher bill rates, utilization; several $1M+ wins; $10M+ pursuits Positive momentum and pricing power
On-Demand TalentCompetitive pressure, rate pressure; -33% y/y in Q1 Stabilized q/q (+1.9%); y/y down 24.7%; demand impacted by lower talent movement Stabilizing; still challenged y/y
Europe & Asia PacificAPAC resilient; Europe delays; Q4 APAC +9% y/y Sequential segment revenue +10%; Europe +18% sequential; APAC +4% Sequential improvement; mix toward APAC lowers bill rate
Capital allocationQ4: buybacks opportunistic; $42M authorization remaining Q2: $82M authorization remaining; new $50M authorization; $5M repurchased at $8.36 avg; dividend maintained Increased buyback capacity; continued dividends
ERP/Supply chain projectsERP cloud migration, supply chain modernization targeted Continued wins in ERP consolidation/migration; supply chain modernization; HR/employee experience; cross-sell driving Pipeline broadening across buying centers

Management Commentary

  • CEO tone: “We exceeded expectations this quarter… delivered sequential revenue growth… improved our gross margin and Adjusted EBITDA results significantly over the first quarter” and are “cautiously optimistic the new calendar year will bring a stronger demand environment” .
  • Strategy emphasis: Diversified offerings across On-Demand, Consulting, Outsourced Services to meet clients “where they are” and provide end-to-end solutions; cross-sell momentum building .
  • Technology milestone: “We successfully went live on Workday Financials and Workday PSA… 75% of our business is now run on a modern… platform enabling increased use of artificial intelligence and automation” .

Q&A Highlights

  • Gross margin drivers: Sequential improvement from pay/bill ratio, better salaried utilization, and holiday timing; y/y degradation from pay pressure internationally and lower utilization, partially offset by Thanksgiving timing .
  • Reference Point performance: “performing to our expectations” with integration expanding beyond financial services .
  • Buybacks cadence: $5M repurchased; more aggressive buybacks expected post tech transformation completion .
  • Demand color by region: Finance transformation, ERP migration, supply chain modernization; pipeline filling early-stage discussions across clients; Europe/Asia showing improvement .
  • Tech amortization: Annual amortization ~$3M; starts mid-Q3, with full impact in Q4 .
  • Q3 revenue guide context: Midpoint implies ~15% y/y decline on same-day constant currency; holiday calendar reduces U.S. business days (59 vs 64 in Q2) and mid-week holidays add ~2-day impact .

Estimates Context

  • Wall Street consensus (S&P Global) could not be retrieved at time of analysis due to SPGI API rate limits; therefore, comparisons vs consensus EPS/revenue are unavailable. We anchored performance vs company outlook and prior periods [GetEstimates errors; unavailable].
  • Given sequential outperformance vs internal guidance (revenue, gross margin, and run-rate SG&A), near-term estimate revisions may focus on improved Consulting trajectory and operating efficiency, while Q3 seasonal/holiday impacts temper top-line expectations .

Key Takeaways for Investors

  • Sequential improvement across revenue, margin, and Adjusted EBITDA with Consulting strength and On-Demand stabilization suggests an inflecting baseline despite macro choppiness; the GAAP loss is driven by non-cash goodwill impairment rather than operating deterioration .
  • The Workday platform go-live (75% of business on modern stack) positions RGP to leverage AI/automation to enhance delivery efficiency and margin over time; expect operational benefits to build through 2H FY2025 .
  • Cross-sell is translating to larger deal sizes and diversified buying centers (ERP, HR/employee experience, supply chain), supporting improved pricing (enterprise average bill rate up to $123; U.S. bill rate higher) and better utilization .
  • Q3 guide embeds significant holiday headwinds; monitor weekly run-rate and GM trajectory as normalization follows; SG&A run-rate discipline remains a key lever .
  • Capital allocation remains supportive: $0.14 dividend maintained and buyback capacity increased ($82M remaining post new $50M authorization); cash remains strong with no debt .
  • Segment watch: Europe/APAC sequential improvement is positive, but mix shift to APAC lowers consolidated bill rates; Consulting remains the growth engine; On-Demand recovery tied to talent mobility and macro confidence .
  • Near-term trading: The impairment is non-cash; focus on sequential fundamentals and Q3 seasonality. Medium-term, technology-enabled efficiency and cross-sell-driven Consulting growth underpin margin recovery as macro clarity improves .